Q3 2021 Century Casinos Inc Earnings Call
Welcome to century casinos Q3, 2021 earnings conference call.
Call will be recorded at this time, all participants are in a listen only mode.
We will conduct a question answer session.
I would like to introduce your host for today.
Peter head singer please begin sir.
Good morning, everyone and thank you for joining our earnings call.
With me on the call him my co CEO and the chairman of century casinos scrubbing heitzman.
And as our Chief Financial Officer, Margaret State Picky.
As always before we begin we would like to remind you that we will be discussing forward looking information, which involves a number of risks and uncertainties that may cause actual results to differ materially from our forward looking statements.
We undertake no obligation to update or revise the forward looking statements, whether as a result of new information future events or otherwise.
We provide a detailed discussion of the various risk factors in our history.
<unk> filings and encourage you to review these filings.
In addition throughout our call we will show to several non-GAAP financial measures, including but not limited to adjusted EBITDA.
You continuations of Nokia performance indicated the measures to the appropriate GAAP measures can be found in our news release and issue some fighting the Bay Liberty at the Investor section of all they upset at CMT Vitals com.
I mean, not provide an overview of the third quarter results. After that there will be a question and answer session.
Our results for the third quarter has been truly outstanding.
Revenues exceeded the third quarter of last year, but 22% and they doubled compared to 2019.
817 million.
The new all time revenue records for the second consecutive quarter.
Very strong flow through and a consolidated margin of 28%.
Besides being adjusted EBITDA of $33 1 million for the quarter.
Also a new all time record for our company.
That is 49% higher than the EBITA for Q3 of last year.
Sequentially It is 31% higher than the EBITDA of the second quarter of this year.
Considering yesterday's reaction to stock market, let me point out that our sequential revenue and EBITDA growth of 27% and 31% respectively.
Are some of the largest if not the largest improvements of Q3 Opex Q2 numbers of any of these the gaming company.
And on top of state.
We also generated sequential margin improvement.
EBITDA margin in Q3 was 95% points higher than our March it was in Q2.
And one more thing.
Sports betting and I gaming is profitable for us and enhancing profit there before us since day one.
Alright, now lets move on our Great Q3 performance is the result of a discipline.
Cost focused operating philosophy, and effective targeted marketing to our high value customers.
The quarter showed continued strength and momentum across all our local and regional properties and businesses.
We saw impressive growth with increased visitation and more time on device and highest spend per visit across our database and across our markets.
We continue to benefit from strong regional demand and the preference for close to home entertainment.
All of that has improved visitation explained as spending levels in our casinos.
And together with our disciplined and efficient efficient operating strategy.
Stability to these great results across our portfolio.
Our cost structure is more streamlined and our marketing and promotional investments are more talkative.
Which translates into increased spend per visit especially for most of the NDA for players.
We achieved the record operating results and margins. Despite some pressure from a challenging labor market and other cost inflation, resulting from supply chain disruptions.
Our local management teams are doing a great job dealing with inflationary pressures.
But it would be on cost of goods of wage inflation.
Seeing it having a meaningful impact on margins.
On a busy weekend.
Have you been able to manage the labor shortages and operate the hotels and F&B outlets at full capacity.
During the week however.
Due to labor shortages.
We had to operate some of our hotels below the available room capacity.
And as a result, it's not always been able to accommodate all rated customers.
But if the labor market normalizes, we will be able to bring more hotel rooms online grabbing even more gaming revenue growth from these customer segments.
Our business is largely a gaming centric.
Only a minority of our revenue is coming from non gaming amenities.
Resulting in an overall lower cost structure.
We only opened more non gaming amenities like Spain to opening hours as demand picks up further.
So that should grow in a profitable way.
With regard to the sustainability of our high operating margins at this point, we haven't seen any significant impact of Microsoft marketing from our competitors.
Even if other and containment options, let's sneak it slipped Tampa has started to come back quite strongly.
That environment hasn't really changed over the last two Ottawa to most of our competitors are being disciplined and maintained our attention to cost control.
Yeah.
We will continue focusing on their REIT customer.
Enhancing customer convenience.
Building loyalty stream.
Streamlining processes and reinforcing our operating efficiency through.
Through new initiatives and technology.
A great example of that is a mobile application.
The film App.
With that as you can send exclusive offers that are targeted by tier location data of the last visit etc, etc to our customers.
Displays direct messages up to date promotional information current Tia Lebron and benefits current point balance as well as the value of those points.
He said the property the number of inquiries for drawings and current office.
Yeah, it's already life and Mitsui invested ciena with great success, and he'd be eroded wrote out in Colorado shortly.
He provides great convenience for our customers.
And for US it brings lots of opportunities to further increase customer loyalty.
And it also save significantly on direct mail and related expenses.
Revenue from ice gaming and sports betting and parimutuel betting continues at a strong pace.
As you know we've partnered with experienced companies to run these operations without any significant investment from our side whatsoever.
That may limit the upside potential in a very optimistic scenario.
We believe this approach is the prudent one for us at least currently proofing and efficient use of our capital.
Beyond these digital initiatives. We're also excited about additional growth opportunities available throughout our operations, most notably in Missouri.
More about that in the Missouri segment shortly.
I'll cover our balance sheet and liquidity.
Today, we are financially a much stronger company than at any point in our history.
Net leverage at the end of the quarter was 1.4 times.
And it's expected to further decline by year end.
The strength of our operating performance increased our current cash position to over 100 million.
With outstanding debt of just 182 million.
Our net debt sits at 81 million as of September 30.
We have well maintained asset base that requires minimal levels of maintenance capex to sustain the current levels of profitability.
And with no substantial debt maturities before 2026.
Next a brief summary of the performance of each operating segment, starting with Colorado.
It was an excellent quarter for our properties in Cripple Creek and Central City.
We supposed casinos cleanest, surpassing 2019 and 2020 leverage.
Net operating revenue was up 36% over 19.
And it was up 20% over last year.
Adjusted EBITDA more than doubled compared to 19.
It was up it was up 4% over last year the.
The EBITDA margin remained very strong at 40%.
The combined market share of our central seat in Cripple Creek properties decreased.
Decreased by 350 points.
To further solidify and strengthen our competitive position in Cripple Creek, you have decided to provide high quality employee housing.
We will build housing for up to 30 of our current and future employees and expect to have the apartments ready by September of next year.
Moving on to Missouri.
Most important market in terms of EBITDA and cash flow generation.
Again, great results for the quarter.
Fly had one of the highest monthly Teva drops in property history led by strong many baccarat volumes.
And July and September set monthly coin in records for those months.
Net operating revenue was up 24% over Q3 of last year.
And adjusted EBITDA increased by 38%.
The EBITDA margin was 45%.
Even so we increased wages on top of the hourly minimum.
In order to stay competitive in the southeast, Missouri area and help attract and retain high quality team members.
Marketing spend continues to remain significantly below pre COVID-19 levels and.
And is expected to comment to continue at its current run rate.
With occupancy and advertising direct mail and promotion expenses appear to be sustainable and have not had any negative impact on paving volumes.
You've announced two important developments at our Missouri properties.
We plan to bring the Crossville casino, which is the last remaining riverboat casino in open road and Mitsui.
On land to a non floating facility.
And we plan to build a hotel at our property in Kips Gerardo.
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New facility will include a newly designed casino with approximately 20% more gaming positions and.
And 75 hotel rooms in total.
The new development will provide significant operational efficiencies as well as significantly more convenience for our customers.
It will increase the catchment area and also gives us a chance to win back customers, who didn't like the old riverboat style when they paid us the first visit.
He keeps jurado building.
We will develop and nine storey 75 room hotel building there'll be single noted so that all hotel rooms will have scenic views of beautiful keeps jurado into Mississippi River.
Excluding the iconic Bill Emerson Memorial Bridge.
We said to 10 development century casino kept gerardo we've transformed to a full resort destination, providing ARPA reasons for individual and group Martha day visits for gaming dining conference. This concert events at more.
Total Capex will run at about six to 8 million for both projects.
In terms of timing, we don't have clear visibility yet, but we aimed for openings in late 'twenty 'twenty three or early 2024.
Next is west, Virginia, where we operate the mountaineer casino racetrack and resort.
Net operating revenue was up 12% and adjusted EBIT was up 23% over the third quarter of last year.
These are really great results, especially because of the nearest resort destination character.
It usually draws quite a lot of its business from a 10 states, which was somehow limited somewhat limited due to staffing challenges and other restrictions.
Same with F&B outlets, they are open but with limited hours of operation.
The convention space remains closed.
And on top of all that we increased wages in July.
So considering all these factors 20.
23% uptick in EBITDA is really exciting and we have high hopes for a strong finish to the year.
Okay.
Internationally, our operations in Poland generated solid numbers.
Adjusted EBITDA was just under 3 million for the quarter.
Fueled by a strong performance of the casinos outside the capital city of Warsaw.
We do however, expect the wassa casinos to come back quite strongly in Q4 with international tourists business and convention business just starting.
And he Canada, we operate with restrictions.
Our guests need to provide proof of vaccination or a negative COVID-19 test taken a maximum of 72 hours before entry.
Also everybody is required to wear a face mask.
Despite those challenges net operating revenue almost reached 2019 levels.
And adjusted EBITDA surpassed 2019 results by 56%.
All properties constituted to that EBITDA growth.
And I'm happy to report that the increase was highest at century mile Racetrack and casino.
Yes.
That finishes the roundup of operations.
We're very optimistic going forward as the recent trends have continued relative consistently into the fourth quarter.
And we expect a significant portion of the cost savings to proof permanent.
With multiple avenues for continued growth as well as confidence that this level of performance is sustainable.
And third we will maintain much of the margin improvements we have achieved over the last 12 to 18 months.
As the potential pandemic continues to fade.
Additionally, this will return to our properties and that's the labor market normalizes, we will be able to bring motel rooms, and other amenities online.
Increasing our capacity to host profitable customers.
Increasing our revenue opportunities.
In conclusion, the third quarter was another remarkable performance of our company and our entire team.
Our entire portfolio continues to generate robust EBITDA growth.
Our operating stat sheet and tight focus on the right customer producing the highest margins in our history.
On the M&A front there.
We're looking at a handful of possible acquisition opportunities all in the U S.
To further broaden our footprint and leverage our successful operating model.
If all of this being strategic and value oriented when pursuing acquisitions and that will not change.
With that discipline into our strong balance sheet, we're confident to find opportunities to deploy capital in a manner that consistently build shareholder value.
On behalf of the company's management and board I'd like to thank our team members, our guests and our stockholders for their continued loyalty and P. P. S.
As we manage our businesses during these challenging times.
Thank you for attention and we can now start the Q&A session.
Our protocol ahead please.
If you have a question star one on a couch and keep them.
I can dial one four class.
My first question is from Jeff.
Hey, good morning, everyone and thanks for taking our questions and congrats on a nice set of results here for my first question. You know we talk a lot. This earnings cycle about trends here in the U S. So I wanted to focus on the international ops for a second can you talk a bit about the month by month cadence of performance for Canada, Poland has it been fairly stable.
Since their respective reopening the witness any acceleration or deceleration just curious to hear your thoughts there.
Swedish labor right.
Yes.
Stable and very much in line with the various measures so when we see them.
Mentioned before in Canada, we sleep thing has happened.
Restrictions.
Moscow producer.
Nation that of course.
Yeah.
And limits the speed of.
Growth ended the acceleration a little bit. However, we have also seen that.
Across our proposal glenshane connected both in Poland and in Canada people are getting used to wearing a that's what being vaccinated to wearing a mask or perhaps because of the taste and more and more people have been vaccinated in the various jurisdictions, which also means that our customers that may have been hesitant to visit us now P. C.
And that piece of it as more frequently.
So all in all we can say that we see growth everywhere with the only exception that are the one or the other COVID-19 restriction limits that caused that to speed up the growth a little bit.
Okay, Perfect and then for my follow up Peter any update you can provide on the Poland sale and then on the M&A M&A environment, you've talked about in the U S. You know how does the seller expectations relative to kind of win loss okay.
Earnings.
Okay.
And in Poland that sales process continues.
Once but it runs quite slowly.
Several parties are showing interest on and on and off basis.
But he knows we're fine either way these operations are pretty bad labor.
Produced nice results.
And overall they are getting.
Like smaller and smaller are relatively because theyre now about nine or less than 9% of our consolidation Egypt peso.
And that's the situation there.
And on the M&A front in the U S.
I think it's slowly starting I mean, you you heard Tom.
Tom Reeg, saying that.
Interested to says.
It's starting all of us in Vegas.
Jim is selling the Mirage so.
It's starting.
And.
Yeah in terms of valuation.
You can talk about market basalt, a long you know it always depends on.
Do you apply to the which EBITDA do you do it like.
So it's a combination of finding a REIT market.
And.
And agreeing on.
One inhibitor to apply to.
Let me see.
Slowly, but surely might more properties becoming available.
Okay.
Well. Thank you both I'll pass it on.
Our next question is from Goldman pain.
Great. Thank you very.
Very nice quarter, a lot of that.
Big questions were addressed but maybe we can drill down a little bit on the M&A environment that Peter you were just speaking to.
Understanding valuation tightened a little bit and you've always been sensitive on that front. It seems like you know through earning season. The larger companies. You mentioned one of them have been increasingly focused on sort of the virtual gaming world spending larger amounts there I mean could that open up that.
Baskets of sellers more are you hearing up new product potential it sounds like you went to that end.
Can we keep property baskets I know you were looking at I believe 15 up to maybe 68 million of EBITDAR, but.
Given your cash accumulation and some of the larger ones potentially looking to loosen their portfolios a little quickly punched through that at the right price or are you not seeing that type of product at this point.
Yeah, I mean, you're starting to see that.
Totally.
And.
Yeah, the online business that's payroll because.
Truly a.
Most of the larger companies with.
With a large footprint throughout the U S. They they they want to have at least one property in a state to secure an online.
License in that state.
But sugar has more than one in the state then yeah, what more likely some of those will become available.
And so this is what the what we're seeing.
From pretty much all of the larger companies.
Okay, Great and then I know this was somewhat addressed as well, but maybe just kind of reiterating our drilling down on Canada because that was a.
Outperformance versus what we were anticipating.
Maybe you know looking at the U S reopening as it sort of that reincarnated.
Are you seeing anything that would give you the sense that we wouldn't expect the same sort of tailwind to be sustained like to have here.
And maybe just a tad on energy prices for the portfolio in general both domestic and Canada all of that.
It's something that's on the.
On the radars that typically not something that historically has caused too much volatility.
Kevin.
Yes.
I think I can say I tried to say earlier further growth would be will be fueled by our bi easily the COVID-19 restrictions, which have obviously isn't that long Hampton Inn, a function of the development of the numbers there.
But that means upside potentially because we would really think that this is.
It should be the playbook.
And so so we feel very good about Canada, and the intent and the growth there.
Pennsylvania tests and that we will be able to realize as soon as.
This takes into account.
Okay.
And anything on energy prices there are in the U S.
It doesn't matter.
In Canada, it doesn't affect us significantly.
Okay.
All right well, great great great quarter again, thank you very much.
Thank you.
Your next question is from Kenneth.
Right.
Great quarter.
I would like to just.
I think most of the question was answered, but I was wondering if you could put a percentage.
Basis, or the amount that social distancing still a kind of restrict your ability to earn full full amounts of money on all your casinos do you have a possible percentage yet.
Uh huh.
The business would increase this was all gone.
You could do on their own.
Okay.
I'm the same mindset I think its appropriate metric to speculate on that it's really hard to say.
Yeah, I mean, one way to look at it is looking at our pre COVID-19 levels and and that's it we will.
Look at the first call as to what kind of revenue likes to come back to the pre COVID-19 levels, and then creating to surpass them and at the same time with the cost control that is already in it.
In in place keeping.
EBITDA and EBITDA margins.
And also at some of our casinos, we do not have or taper gate positions open, which which are on their own it puts a weekend.
It has to make of this.
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But we do not pay for us.
Got it.
Detailed ends in terms of percentages here.
Okay. Thank you very much sir.
I can see you have a question star one omnichannel. Thank you Pat.
Your next question is from Colin Macdonald.
Hi, guys. Thank you for taking my questions.
A few weeks ago, one of your competitors Boyd provider to an interesting statistic and I don't know if you guys could.
Could do the same thing, but they they said their labor force had been about 24000.
Before Covid and it was now about 14000.
And they expected that only one or 2000 people would have to come back to run the casinos.
At a full pace do you guys have any could you provide any similar type of information just so we can think about the fixed cost structure of the casinos.
Into next year.
Oh man.
No. We don't have it off hand, we could try to get it to your data.
Yeah Okay.
Would be very helpful and.
And just you know the other thing just looking at I know you guys don't have very many sell side analysts but.
The Street estimate on Factset for this year is 66 million and for next year, It's 88 million.
I'm looking at your numbers. So you guys have done $91 million of EBITDA in the last 12 months.
So what is is there something missing on the street or the communication or.
It seems like you guys are are going to blow the numbers out of the water and I'm just trying to figure out if I'm missing something.
Okay.
Yeah, No I think they wanted to be conservative I'm sure they will update.
Update their numbers after.
After this quarter.
But other than that our culinary we don't give guidance. So it's.
Yeah honestly, we understood the system work.
But is there any significant reason that Colorado, or Missouri, or West, Virginia would have a worse year next year than this year.
No we don't see any significant reason.
Okay.
Helpful.
We think tests did upset [laughter].
Yeah, Yeah, great. Okay, well. Thank you for taking my question.
Thank you Colin.
And our next question is from Chad Beynon.
Good morning, This is Jordan Bender on for Chad today.
You look at M&A.
You look to use or continue to use a REIT to possibly go bigger.
And I guess what would your automobile.
<unk> propco structure look like and where would you want to bring leverage.
Yeah.
Our goal is to.
Two to grow not only in.
Revenue and EBIT numbers, but also in property size, yes.
And.
Scrap the propco opco.
Currently we have.
Three in the.
The U S that you acquired from Eldorado Caesars on an optical two in Colorado is popcorn, mostly in Canada is also owned by us.
So.
That's just that's a good mix and we.
We can.
We don't have a clear cold it we don't go below a certain percentage.
So I think we could easily add another opco or holdco.
Either way, we do not need to own the asset.
But feel comfortable.
I'll make some.
It's really more on an opportunistic basis for us it's more important.
How are we like the asset we like the market the competitive environment the regulatory environment.
The specific.
Occasionally I said those are the things that are far more important to us than whether if he can buy the holdco opco.
Okay perfect.
And then obviously polling outperformed.
I guess at least our expectations in the quarter revenues were actually over 2019 levels you talked about that.
Your casinos outside of Warsaw, we're the ones that kind of outperformed in the quarter can you kind of talked about.
Where the casinos within more sauce.
Just kind of thinking about how to model. This segment looking into 'twenty two.
That'd be a winner.
Yes.
Sure.
Please.
And then okay.
Yeah.
With twin Warsaw at the merits of Nortel and MTR, the south side of the country and the.
Historically.
Our salt market is in absolute numbers much stronger than the six are outside of what was a combined so any any.
Uptick.
After Whatsapp properties has a meaningful impact on the overall.
Poland numbers.
Okay.
Alright, anytime I think any time after that.
We are looking at what is happening in the fourth quarter. We are very optimistic in that direction, we see that the business customers coming back are they the Meredith and.
Both getting much higher.
Occupancy and.
I did want to come to our casinos. So we're confident that in the next wave so to speak the Wassa casinos will follow.
The same trend as the casinos on the countryside.
Okay.
Net quarter. Thank you.
If you have a question press star one on the telephone keypad.
And next question is from Daniel Lang.
Hi, guys nice quarter I was just wondering if theres any update on the.
Poland Strategic review processes is the company sort of committing to the region at this point or any discussions there.
As we have said that Poland has become a noncore operation for us it is.
As I've mentioned about 9% to less than 9% of our consolidated EBITDA.
And.
Consists of eight small operations.
So whilst it is generating very solid EBITDA and cash flow for us and very high returns on our investment.
We strategically do not.
Uh huh.
Poland.
Our long term.
Plants, if we get a good to get a good offer so.
It has great value for us.
If we get that value then yes.
We decided to dispose of it if not that we are happy keeping.
Okay.
At this time there are no further questions.
Thank you everyone for joining our call today.
For a recording of the colored pieces at the financial results section of our website at C. N T Y knot com.
Stay well and goodbye.
That concludes today's conference you may now disconnect.
Hmm.
[music].