Q4 2021 Century Casinos Inc Earnings Call
Yeah.
Welcome to century casinos Q4, 2021 earnings conference call. This call is being recorded.
At this time, all participants are in listen only mode.
Later, we will conduct a question and answer session I would now like to introduce our host for today's call Peter Holtzinger. Mr. Holtzinger you may begin.
Good morning, everyone and thank you for joining our earnings call.
With me on the call on my co CEO and the chairman of century casinos Erwin Heitzman they.
It's been as our Chief Financial Officer Margaret Stapleton.
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 materially from our forward looking statements.
The company undertakes no obligation to update or revise the forward looking statements.
As a result of new information future events or otherwise.
We provide a detailed discussion of various risk factors in our SEC filings and we encourage you to review decided.
In addition throughout our call refer to several non-GAAP financial measures, including but not limited to adjusted EBITDA reconciliation of our non-GAAP performance and liquidity measures to the appropriate GAAP measures can be found in our news release and SEC filings available in the Investor section of our website at C. N T Y dot com.
Yeah.
I will now provide an overview of the results of the fourth quarter and after that there'll be a question and answer session.
Our fourth quarter results continued the streak of record breaking performances that we have shown throughout the year.
Revenues exceeded the same period of last year by 27%.
Adjusted EBITDA was 36% higher.
Most of the EBITDA growth came from our casinos in the U S. But also from Poland.
Despite our record performance.
Would have been even better.
I know they had a difficult quarter because proof of vaccination, what's required to enter the casinos.
Andrew we're not allowed to surf League after 11 P M.
Which slowed traffic down significantly.
Yeah.
Actually these restrictions have now been lifted.
And we are already seeing a nice rebound.
Okay.
Our operations were also impacted by the Omicron variant.
Covid related restrictions as well as some supply and labor shortages.
But our team successfully navigated through all of that delivered great results.
Our strong performance is the result of a disciplined operating philosophy.
The effective targeted marketing for our high value customers.
Our cost structure is more streamlined and our marketing and promotional investments are more targeted.
Which translates into increased spend per visit.
Basically from a most valuable players.
The promotional environment in all our market remains disciplined and rational.
And while labor is tight in some markets.
Able to maintain our high standards of guest experience.
Obviously this is largely a gaming centric only a minority of our revenue is coming from non gaming amenities.
And we will only open more non gaming amenities will expand their opening hours.
As demand picks up further so that it grows in a profit every way.
The geographic diversity of our portfolio with locations in hyper locally drive to markets with a loyal customer base.
Has proven extremely resilient in light of the pandemic.
We will continue focusing on the right customer enhancing customer convenience eating loyalty stream.
Streamlining processes and reinforcing our operating efficiency.
Our new initiatives and technology.
Sports betting and gaming.
It's a profit center for us and healthy profit Debra for us since day one.
Early on we decided not to participate in the costly read rates for customers at market share.
We took a zero investment and see where risk approach, meaning we simply provide a license to specialized sports betting companies.
They pay us a revenue share with a minimum annual guarantee and what we get from Banco straight to our bottom line, we have no cost against it.
Yeah.
Our two properties in Colorado, and Cooper to get people Creek and Central City.
Increased EBITDA by 14%.
The EBITDA margin of about 35%.
Two out of the three sports betting licenses to be had in Colorado are in operation already.
The third one with 365 as a partner.
As anticipated to go live next quarter.
In Missouri.
Which is our most important market in terms of EBITDA and cash flow generation.
EBITA by 23%.
The EBIT margin increased from 42% to 45%.
Even if there'll be increased some wages.
On top of the hourly minimum wage to stay competitive in the southeast Missouri area.
And hence attract and retain high quality team members.
Marketing spend continues to remain significantly below pre COVID-19 levels.
And as expected continue to continue at its current run rate moving forward.
With occupancy and advertising Barrick made in promotional expense.
Appeared to be sustained at Brent and have not had any negative impact on gaming volumes.
We have announced two important developments at our Missouri properties.
We plan to bring that Carrabba's, one casino, which is the last remaining with boat casino on open road in Missouri on land to a non floating facility.
And you tend to build a hotel at our property in kits jurado.
Obviously, the new facility will include a newly designed casino with approximately 20% more gaming positions and 75 hotel rooms in total.
The new development will provide significant operational efficiencies.
The savings on the insurance alone will be around half a million dollars per year.
It would also be significantly more convenient for our customers.
It will increase our catchment area.
And also give us the chance to win back customers, who didn't like the old group of bold style window paid us a first visit.
Then to open that new facility in early 2024.
You keep Gerardo is developing a 75 room hotel.
We'll try and sum the property to a full resort destination with gaming numerous bars and dining venues with Ventas conference concert the debates spaces.
That will tell you this latest for opening at the end of next year.
And now the opportunity for growth in Missouri is sports betting it has not been legalized yet.
But they actually could change it when this year, which obviously will be very beneficial for us.
In West Virginia.
Our mountaineer casino racetrack and resort had a great quarter EBITDA was up 34% over Q4 of last year.
We continue to make incremental investments into property.
Such as refurbishing some of the F&B outlets and upgrading the grant entrance experience.
Also reconfigured similar what areas of the slot floor and introduce new and additional slot product as well as a new VIP gaming area.
Hotel enhancements include new Windows, New bathrooms, new and bigger Tvs for the whole 10 suites to attract tier with players and also the total rebuild of the outside pool.
Yeah.
Yes.
Internationally.
Our operations in Poland generated excellent results.
Revenue was up six 7% and EBITDA turned to a positive $3 $2 million for the quarter.
All of our casinos are what they are doing well, even without any meaningful business tourism.
In fact revenue over the last couple of weeks was at an all time high.
In Canada, you are printed with severe restrictions during the quarter as already mentioned August needed to provide proof of vaccination.
But he was required to wear face mask and casinos were not allowed to surf League Liga after 11 P. M S.
As a result, adjusted EBITDA was down 15%.
But as mentioned these restrictions have been lifted last week actually.
And as a direct consequence results are on the up again actually they are up more than 20% in just the first the first a couple of states.
Okay.
Let's now cover our balance sheet and liquidity.
At the end of December 2021, we had 108 million in cash and cash equivalents.
And 189 million an outstanding debt balance sheet.
Resulting in net debt of 81 million.
The year on year, our net debt was $130 million.
Meaning we generated 49 million in free cash the last 12 months.
Our strong free cash flow generation is driven by efficient and prudent capex spending programs at our properties.
My favorite regulatory regimes in West, Virginia, and a good to Canada, but at this stage door respect if you did probably a pace for half wall, even all of their slot machine at that space.
Overall behavior, well maintained asset base that requires minimum levels of maintenance capex to sustain the current levels of profitability.
And we've always had a conservative leverage profile and we anticipate remaining conservative in the future.
Yes.
And now to the most recent news the most exciting news.
Our announcement to acquire the Nugget casino resort in Reno Sparks, Nevada.
Two weeks ago, we entered into a definitive agreement to acquire 50% of the Nugget property company and 100% of the Nuggets operating company.
For a combined total purchase price of 195 million.
In addition, we have a five year option to purchase the remaining 50% of protocol 305 million plus 2% per year.
Yeah.
In connection with that transaction, we have received a firm commitment that different Goldman Sachs for a 350 million senior secured term loan and a 30 million senior secured revolving credit facility.
We expect to close the purchase of 50% of the property company next month in April .
And from that time on.
We will receive seven of the half million and ranked.
Which is our half of the annual rent payments that flows from the operating company to the property company.
Maybe close to operating company purchase as soon as we get the Nevada gaming license.
Which is expected to take nine to 12 months.
And from then on we will get all of the EBITDAR and.
And we will pay as the operating company ranked to the property company.
Half of which you appears you pay to ourselves.
In 2021 can argue it's 33 million in EBITDAR on revenues with revenues of $100 million.
We see upside to these numbers.
Mainly for three reasons.
First during the first half of the year 2021, there are no conventions or construct.
Which normally a very profitable part of Nuggets business.
Secondly, we anticipate to create synergy effects when we integrate the market into our portfolio of North American operations.
And thirdly, we already have identified various opportunities to improve the operations.
Mainly on the slot floor.
The most profitable area of owners.
Yeah.
Yes, I'm Keith data off the Nugget resort.
50200 square feet of casino floor.
859 slots in 2009 papers.
30, <unk> hundred 82 rooms, and suites and two hotel palace.
A variety of casual and fine dining restaurants.
<unk> hundred 10000 square feet convention space, and a very popular amphitheater with 8500 seats to five seats.
With the Nuggets being directly adjacent to I 80, and with direct with direct highway on and off ramps.
Ample parking both surface and in parking garage.
Is perfectly located for customers coming by car.
The traffic count at the nearby intersection is an amazing 260000 cars per day.
Here are the top 10 reasons why we lost the Nuggets.
First of all the purchased an existing operation with a long operating history.
That means we have no development risk no risk of construction delays and no risk of cost overruns.
Secondly, the market is in a great location.
Located directly on I 80, the property gets an exposure that is unparalleled in the Reno Sparks market.
And the combination of hotel rooms, and convention space with.
<unk> hundred 10000 square feet. The market has the largest convention facilities of any whole plain casino resort in the market.
And it has sufficient room to support large conventions.
Yeah.
Fourth the previous owner of the Mondale companies have invested more than $90 million since 2016.
Upgrading all hotel rooms, most public areas aided the top notch steakhouse upgraded or replaced take a project meet the treatment.
Chevy and to rightsize the operation.
Therefore, we do not expect any extraordinary ordinary a meaningful a replacement capex into next years.
And there is a brand new 8565, plus seat amphitheater it provides us with excellent marketing opportunities.
The Nuggets gaming floor provides opportunities for improvement and growth controlling proof the slot mix further improved the traffic flow and increase the square footage.
And then I could as a database of 80000 active players.
We will be able to market in a highly efficient manner.
The acquisition offers great potential for synergy effects as we integrate the standalone properties to our portfolio 17 casinos.
The transition support of the seller Anthony Minghella third and his team is perfect. We are grateful for that partnership.
And last but not least a 10th reason why we left and agonies management.
Management of the in aggregate excellent.
Wanted to stay and continue the growth ahead with us.
We have communicated this to management and price on the day, we signed the deal.
Okay.
In terms of the broader market dynamics, there substantially economic growth the Reno Sparks regions com.
Companies like Tesla, Goulding switch data, Amazon or apple or coming to the area.
With the capacity to hire tens of thousands of employees.
Consequently, the population growth is outpacing the national average.
And the personal income per capita already at over $72000 in 'twenty 'twenty. One is expected to grow further with a CAGR of 4%.
And not surprisingly the unemployment rate is only two 9%.
What we also love about the Naga transaction is that it significantly increases our scale are.
Our revenue is expected to grow by over 25%.
But not only that don't show increases our geographic diversity.
Which substantially reduces our reliance on any one market or property.
Pro forma for the <unk> transaction, we generate our cash flows from 18 properties in separate seven different markets across regions across North American group, Europe and no single property.
Contributes more than 25% of our total EBITDA.
That is something we're always aim for that as part of our overall strategy no reliance on any one market a property.
Our team has an excellent track record of improving the performance of properties, we have acquired.
In fact, we've improved the results of each and every property was purchased within the first six to 12 months of acquisition.
When we acquired the three casinos from El Dorado ceases.
A company with a reputation of being very disciplined and efficient operators.
The increased revenue and EBITA almost immediately.
That was before COVID-19 that had nothing to do with stimulus payments or any other COVID-19 related effects.
We think that by listening to local management.
And focusing the operations on the more profitable revenue centers and drive additional value.
And after that very successful acquisition and integration of these three acquired properties over the last couple of years.
All of US are very excited about doing the same all over again, if not better with the nugget transaction.
In conclusion, the fourth quarter was another great performance of our company and the entire team.
Our diversified portfolio continues to generate robust EBIT growth.
Our operating strategy and tight focus on the right customer producing strong and sustainable margins.
We will continue to execute on our business plan by growing organically.
And by identifying and acquiring under managed assets and stable drive to markets in the U S.
In our M&A strategy, we will remain prudent with pricing and valuation we will continue to dedicate resources to capture synergies.
I'll provide time to digest the acquisition and recognized 90.
With that discipline and a strong balance sheet, we are confident to find further 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 enthusiasm.
As we manage our business during these challenging times.
I. Thank you for your attention and we can now start the Q&A session.
Operator go ahead please.
Ladies and gentlemen at this time, who will conduct the question and answer session.
I'd like to ask a question. Please press star one on your phone now.
And you will be placed in the queue in the order received.
If you find your question has been answered you may remove yourself from the queue by pressing the pound key we're now ready to begin the Q&A session.
Your first question comes from the line of David <unk> with B Riley. Please state your question.
Thank you and congratulations on the latest acquisition I think it's a great market very exciting milestone for century.
Peter you did a good job of sort of outlining the structure, but if we can just take a second to review. So you take over 50% a propco next month and you'll begin to receive about a million nine per quarter and rent like directly to EBITDA really flowing all the way through and then upon Nevada approval.
Beginning of next year, let's call it.
You get the whole the whole EBITDA trailing 12, 33 million last seven and a half million in rent, but that doesn't include certain shows events that you outlined that weren't in there probably some benefits from structural upgrades in certain cost synergies and other performance enhancers that you've executed on them on previous.
<unk> does that kind of summarize things just so I can get it right.
Yes, absolutely Dave that's the right picture.
Okay, perfect and then.
It looks like Theres, a lot of growth and synergies that that you know.
Our identified.
Revenue and cost wise, and I know, you're not quantifying it today per se, but are you seeing you know material potential increases versus that 33 million you.
At this point or is there anything more that you can give us there.
I mean can you come in on that.
Yes.
There isn't a shot.
Yeah, the short answer would be yes, we see material possibility for upside.
Just two examples as Peter mentioned already the slot floor, we think provides a significant upside potential.
The average age of machine seats.
It's rather old let's say.
And we know that bringing a new product we test.
Hence the revenues immensely.
The second thing that we want to do is.
Good evening.
The five large properties to five philosophy of sorts in.
We know there is only one which is not linked to any well at night and that's the market and we think that with the number of costs that Peter mentioned booklet laminates.
Each of it makes a lot of sense and baked into into a blended mix of thought.
With good signings from Coors light.
We accomplished and of course, we could go on but just to keep it as it does feel.
And then my second follow up if I could you.
And I know you've addressed this ever won in the past and Peter.
But just given the macro and geopolitical environment are you still not seeing any pockets, where rising oil cost could have a material impact really either direction throughout the portfolio.
If I may take that.
No.
Oil prices have been going up and down all over the over the year end call we have.
When they start when do I tie it says lined up we haven't really seen a negative impact on the business and Conversely, when they went down they can't eat wasn't the other way around either.
The one thing that could be say this with regard to all our facilities in Canada in that area higher oil prices are obviously, a boost for the economy, what's even be cool.
Okay very good thanks, guys I appreciate it.
Thanks, Dave.
Your next question comes from the line of Chad Beynon with Macquarie. Please state your question.
Hi, good morning, Thanks for taking my question.
Peter wanted to start with Poland, you said that the fourth quarter, obviously was very strong and you even said the past couple of weeks revenues have continued without any international inbound just wondering how we should think about this given the current situation in Ukraine, and Russia, obviously that could.
Affect the international inbound but.
Just wanted to get a better sense of what your what youre kind of seeing on the ground and what your consumers are thinking from a day to day standpoint. Thanks.
We.
Yeah.
Either way a fortunate, but we see on the positive impact so far.
There's more people in Poland than before and the noise that has something to do with it.
The biggest positive or when do we know exactly what's behind the uptick in revenues.
I think it's mainly just the pent up demand.
We had so many restrictions for such a long time and keep that test.
And going down the street.
And again and that's why they put it in and then maybe I would like to mention that all of our casinos have voiced signed placed foresaw. So we are quite far away from the border to the Ukraine.
Okay. Thanks.
Also on Poland is there any additional thought in terms of how we're thinking about the war sard license, which I believe is up for <unk>.
Renegotiation of Rebidding in 2022 is that.
Something given the.
The nugget acquisition and some of the other cash.
Cash needs in the United States. How are you thinking about you know rebuilding in that market.
Yeah.
Chad when we.
We apply for new licenses in Poland, There's absolutely no.
This meant necessarily its all done on qualitative criteria people cheaply continue.
Paying rent at the properties at the hotel, which will behave all casinos.
When do you want to add something.
And no no absolutely.
Was about to say the same.
Yeah. So there's there's no investment associated with getting a new license.
Great.
And then lastly, just a follow up to David's question on the the Propco Opco.
Nugget calculus.
Can you just explain why the 50% made sense.
And you know how we should think about kind of the likelihood of you taking everything in house or if the opportunity would be more for.
I guess, taking that rent off of your balance sheet and that's all for me. Thank you very much.
Thanks Chip.
And ultimately the most they all come up for negotiation.
And we very much like that that structure, because it keeps us a lot of flexibility we control the entire resort.
We can close on that option to require the remaining 50% at any time at.
The fixed price.
We don't have to so what that means for us is like in terms of capex.
We continue to look for interesting M&A opportunities and if you find one we can evaluate our our cash position the France, where it's available at the time and we then decide whether we want to use the France.
For the new acquisition or all four for acquiring the other 50%.
Or theoretically we could also sell a 50% in the docket and just keep the opco, but as of today we.
We like that market a very much an as of today. Our intention is to also we also acquired the remaining 50%.
Okay, great Thanks, and congrats on the acquisition.
Thank you.
Your next question comes from the line of Jeff Stanfill with Stifel. Please state your question.
Hey, good morning, Peter Erwin It was great to hear from you guys. Thanks for taking our questions.
You know I just wanted to start with the two projects in Missouri. It did look like the total project cost ticked up a bit since the last time. We spoke can you just talk to your degree of comfort that this should be where things shake out ultimately your or should we kind of expect that target to potentially continue to drift up a bit from here on out.
And then do you have something on that.
What's the question of whether we think it's going to be more expensive.
Yeah, we have.
The last time, we gave the numbers they were about 5% lower.
We added some facilities, we changed it a little bit to the design of the Missouri Hotel.
Sure. So those numbers that we provided now are the most recent ones and we have high confidence in those numbers right.
Yeah right.
Okay. So just to be clear this is more just.
A function of design plan, that's opposed to kind of inflationary pressures.
This will be changed.
Nice quarter here.
Yeah.
Okay perfect. That's really helpful. And then switching gears you know on the on the margins front looked encouragingly stable here in the U S quarter on quarter aside from just from some seasonality in Colorado can you just frame the puts and takes here into 2022 it sounds like you highlighted some potential for lower margin but E.
Accretive non gaming revenues to tick back up and it does sound like the labor market remains tight in some of these markets I think you called out, Missouri, but just curious to get your thoughts there on how we should think about.
The margin profile of entering this year.
All in all we think we can keep it.
Is that like it was in 2021.
And we can also say that our lives right. It's not been easy with a neighbor markets that we think are the best that's overly we're finally in most departments.
Maybe in food and beverage and housekeeping.
But in essence that is not such and such.
Anymore.
Okay.
Okay, great perfect very helpful and encouraging.
Yeah.
Thank you Justin.
Your next question comes from the line of Edward Engel with Roth Capital. Please state your question.
Hi, Thank you for taking my question gets back to Poland. Do you think the geopolitical kind of issues in that part of world could impact year tightening or the ability to maybe divest some of those assets.
We don't we don't know yet we have two companies that are that are looking at debt DSC that that the results are very strong and actually getting stronger day by day. So as of now we don't see that.
Changing.
Great and then that then onto St. Louis are there any benchmarks are hearing that we should kind of think about her.
Radar, maybe track the progress of that lawsuit.
Hum.
I do not know exactly I can come back to you on that.
I do know is that we.
That there is.
The two avenues that.
That our people are going one is that we are opposing.
The city of St. Louis.
It's to do.
And separately from that we are.
We are also.
Introduced with.
With the help of.
That brought our support of political parties, a separate piece that would only deal with with our project like bringing bringing the revote on NAND, because it's much safer flavor body.
And debt.
The Bill has a lot of support from all political sides and it's moving now through the committees. So we will see by the end of the session in May.
What kind of progress we are making.
Great in a tank cleanout again, congrats on now in the Reno transaction.
Yeah.
Thank you Ed.
At this time there are no further questions I would now like to turn the floor back to Mr. Hull finger for any additional or closing remarks.
Thank you and thank you everyone for joining our call today.
For a recording of the caller please.
Please visit the financial results section of our website at C N T Y dot com.
They weren't everyone and goodbye.
This concludes today's conference call. Thank you for attending.
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