Q1 2022 Century Casinos Inc Earnings Call
Welcome to essentially casinos Q1, 2022 earnings conference call. This call will be recorded at this time all participants are in a listen only mode. Later, we will conduct a question and answer session.
I would like to introduce our host for today's call Mr. Peter Hutton, Mr. Hotz singer you may begin.
Yeah.
Good morning, everyone and thank you for joining our earnings call are reached.
With me on the call on my co CEO and the chairman of century casinos Erwin Heitzman spend.
Our Chief Financial Officer, Margaret Stapleton.
As always before we begin we would like to remind you that you will be discussing forward looking information, which endorsed a number of risks and uncertainties that may cause actual results to differ 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 the various risk factors in our SEC filings.
We encourage you to review these filings.
In addition throughout our call we refer to several non-GAAP financial measures.
Judy, but not limited to adjusted EBITDA.
Reconciliations of our non-GAAP performance and liquidity measures to get appropriate GAAP measures can be found in our news release and the SEC filing.
Available in the Investor section of probably upside at C. N T Y it ought to come.
I would now provide an overview of the results of the first quarter.
After that there will be a Q&A session.
Our first quarter results continued the streak of record breaking performances that we have shown throughout last year.
It was a great start to 2022.
First quarter revenue and record first quarter adjusted EBITDA.
Revenues dropped by more than 42% year over year, and EBITDA grew an impressive 62% compared to the first quarter of last year.
Earnings per share for the quarter, but he picked at a loss on the sale of land and building in Calgary Edmonton.
It's finished by costs related to the acquisition of the market in Nevada.
The combined impact of approximately $3 3 million or 11 cents per share.
In addition, our effective income tax rate increased from 22, 6% last year.
34, 6% this year juiced. It total earnings we project for this year.
Our revenue growth was broad based with each of our three operating segments posted new first quarter revenue Records.
The continued focus on our core customer and a streamlined cost structure contributed to this great results and margins and allowed us to continue our strong operating momentum from last year.
Sequentially, we managed to keep the high margins at the same in the first quarter you maintained the 23% EBITDA margin that we achieved in the fourth quarter of last year.
Compared to pre Covid times.
Meaning the first quarter of 2019, we are well ahead, we actually increased the margin by 800 basis points.
Marketing spend continues to remain significantly below pre COVID-19 levels and.
And this is expected to continue at its current run rate moving forward.
Reductions in advertising direct mail and promotional expense appear to be sustained at birth.
We have not had any negative impact on gaming volumes.
The promotional environment across all our markets remains relatively stable I would call it disciplined and rational for the most part.
Not much has changed for the last several quarters.
Other factors impacting margins include labor food cost and utilities, and where labor is tight in some markets.
It's been able to maintain our high standards of guest experience.
Staff count is down by between 15% to 20% compared to pre COVID-19 levels.
There appear sustainably.
Higher food costs can to a large extent the offset by increased menu prices.
Racing utility costs are rising utility costs are harder to offset obviously, so there are some incremental expenses, but it has no material impact to a pea and then.
So we are facing these cost increases were able to maintain margins due to our disciplined operating philosophy, and an efficient targeted marketing to our high value customers.
Okay.
In spite of some macroeconomic change challenges.
Noticed any meaningful shift in consumer behavior as you look at April and even into May.
The customer trends, we experienced at the end of 2021 are continuing.
Looking ahead.
The impact from stimulus payments in April may of last year, making second quarter year over year comparisons challenging for the U S operations.
But more than offsetting that is the strong comeback of our Canadian operations.
That results in preliminary numbers for April significantly, beating April of last year.
Yeah.
Our business is largely a gaming centric only a minority of our revenue is coming from non gaming amenities.
We will only open more non gaming amenities expand their opening hours as demand picks up further so.
And then it grows in a profitable way.
The geographic diversity of our portfolio with locations in hyperlocal drive to markets with a loyal customer base has proven extremely resilient.
Michigan not only in light of the pandemic, but also in light of changes to oil price or CPI.
We have high confidence in the underlying trends of our consumers' behavior, which has not changed since we opened two years ago.
Our U S operations in Colorado, Missouri, and West Virginia.
Revenues by 1% on a combined basis.
Market by market, we saw revenue and EBIT growth in Colorado, as well as invest Virginia.
While Missouri was a bit softer than the year over year comparison due to the impact of the government stimulus payments of last year.
In more detail we saw that the month of January was impacted by omicron. So it was softer than the year before.
In February business got much stronger that's the case counts went down and masked mandates came off.
March was a mixed bag in the year over year comparison.
Colorado Investiture never Ohio, while.
I'll Miss sorry, I couldn't quite achieved last year's results again individual driven by the stimulus payments.
We can pick has demand has remained relatively flat to prior year, which has been a positive side the.
The main difference is that we saw a significant increase in upgraded play during the prior year as patrons who are not our typical customers came to the properties of spinnaker stimulus checks.
Yeah.
In Canada.
We operated with Celgene restrictions for half of the first quarter.
All guests needed to provide proof of vaccination everybody was required to wear a mask and casinos were not allowed to serve liquor 11 P. M.
These restrictions were lifted at the end of February .
Resulting in an overall reasonably strong water for Canada.
Going forward. However, we can't expect more from Canada, we look forward to the next quarter so without restrictions.
Okay.
Poland surprisingly had its highest revenue month ever in March.
It continued its run rate of close to $1 billion in EBITDA per month.
Microsoft is important our consistently strong and that is continuing into April and early may.
You can imagine that it's difficult to find a buyer offering an attractive price right now.
Timing is not really an issue for us its casinos, Poland pretty much runs on its own it has its own corporate and operation staff in Poland.
And also that does not need any capex from us.
Opposite catch throwing from Poland to us.
Let's now look at our balance sheet and liquidity.
On April 1st.
We entered into a credit agreement with Goldman Sachs quite $350 million term loan and a $30 million revolving credit facility.
We grew we through the $350 million under the term loan.
To fund the 95 million Knackered Propco acquisition too.
To repay approximately 106 to 7 million outstanding under the old credit agreement with Macquarie.
And to find the $100 million escrow fund that will be used to purchase did not get opco.
So as of April 1st 2022, after giving effect to the Goldman credit agreement.
We had 372 million in the outstanding debt and approximately 88 million in cash and cash equivalents.
Resulting in net debt of 284 million.
Please note that cash and cash equivalent amount does not include the 100 million, whereas in escrow to fund the Nugget Opco acquisition.
Our strong cash flow generation is driven by our strong operational performance by our efficient capex spending programs at our properties.
And my favorite book regulatory regimes in West, Virginia, and the birth of Canada.
It is based on program space for Us.
Or no vector of the slot machine investments.
Okay.
Our investments in long term growth opportunities.
I hate it by exciting projects in Missouri in Nevada.
In Missouri, we develop a 75 room hotel at our great Cape Girardeau property that will transform that facility to a full resort destination with gaming spas.
Spas dining venues as well as conference concert and event spaces.
It'll cost 26 million and is slated for opening at the end of next year.
And with your bedroom develop a land based casino and hotel facility at Colorado City.
It will replace our existing old River boat there.
The new facility will cost 47 billion and will include a newly designed casino with approximately 20% more gaming positions and also 75 hotel rooms.
The new development can provide significant operational efficiencies.
The savings on insurance and no one will be around half a million dollars per year.
So you'd also be significantly more convenient for our customers.
It will increase our catchment area and.
It also gave us the chance to win back customers, who didn't like the old riverboat style when they paid us the first visit.
We plan to open that new facility in early 2024.
In Nevada, we are.
Already invested 95 million and now own half of the market casinos real estate.
When we closed on the purchase of 100% of the operating company as soon as licensing it's complete technical.
They can close to 900 million, which.
Which is putting extra already has mentioned.
We're very excited about the market transaction and we see considerable upside once you operate it.
We cannot yet they purchased an existing operation with a long operating history that.
Means no development risk no construction today is a risk of cost overruns.
The Doctor is in a great location directly on I 80 property gets an exposure that is unparalleled in the Reno Sparks market. The NIPA intersection counts 206000 cost per day.
With 110000 square feet.
<unk> has one of the largest convention facilities in the market.
And with 30, <unk> hundred 82 rooms, it can support large conventions.
The previous owner managed companies have invested more than $90 million since 2016, upgrading all hotel rooms, most public areas added a topnotch steakhouse.
Graded or replace back of house like meat.
We've been through unnecessary and rightsize your krish.
Therefore, we do not expect any extraordinary replacement capex in the next years.
The market gaming floor provides most promising opportunity for improvement in growth you can renew any proof the slope mix.
Further improved traffic flow and increase the square footage the gaming floor.
Also the acquisition offers great potential for synergy effects.
We integrate that standalone property into our portfolio of 17 casinos.
In terms of the broader market dynamics, there is substantial economic growth into Reno Sparks region.
Population growth is outpacing the national average and the personal income per capita is expected to grow further with a CAGR of about 4%.
The unemployment rate is only two 9%.
The market transaction will significantly increase our scale.
Our revenue is expected to grow by over 25%.
With these opportunities for growth throughout next year and beyond.
We are confident our company is very well positioned for continued long term success.
In conclusion.
The first quarter was another great performance of our company and the entire team.
Our diversified portfolio continues to generate robust EBITDA growth and our operating strategy and tight focus under REIT customer are producing strong and sustainable margins.
The higher end of the database the truly gaming centric customers continued to perform extremely well.
Also our older customers started to visit again it bigger numbers once the army Crump and Covid counts started to drop mid quarter. These trends seem to be really consistent.
And continue to execute on our business plan by growing organically and by identifying and acquiring under managed assets and staple drive to markets in the U S.
You know our M&A strategy.
Will remain prudent with pricing and valuation will.
We will continue to dedicate resources to capture synergies and provide time to digest the acquisition and recognize value.
With that discipline and a strong balance sheet.
We are confident defined set of opportunities to deploy capital in a manner that consistently and shareholder vote.
On behalf of the Companys management at board, but I'd like to thank our team members, our guests and our stockholders for their continued loyalty and enthusiasm.
Manage our businesses during these challenging times.
I. Thank you for your attention.
And we can now start the Q&A session. Kelly go ahead. Please.
Thank you, Sir ladies and gentlemen at this time, we will conduct a question and answer session. If you would like to ask a question. Please press. The one four on your phone now and you will be placed in the queue. In the order you received if you find that your question has been answered you may remove yourself from the queue by pressing one.
Three on your phone we are now ready to begin.
Yeah.
And our first question comes from David Bain with B Riley you May proceed with your question.
Great. Thank you and congratulations on the execution of a border I guess my first one would be if you're able to provide any sort of detail or even broad based thoughts on one key performance at the nugget.
Okay.
I don't think that we can.
Can you discuss that at this point in time right.
We don't have the detail like probably a lot of yours.
Okay.
Okay Fair enough all right. So I guess by next would be you know obviously, the the macro you know how the.
The environment has not been a the theming environment has that been impacting real time result of your properties I'm wondering because it's impacted valuations.
If you're beginning to see that or hear potentially about that in the M&A M&A environment at that can move more in your favor in the relative near term.
Yesterday, but are you.
We are seeing some of that first of all of the M&A environment.
It was more active than it was last year.
There are.
Just a handful of properties on the market if we're looking at two of those.
And.
Yeah, I mean, it's all very.
Depending on the market and the circumstance, but I don't want to say prices.
Are coming down.
It all but the opportunities are really exciting and.
After opening instead of being market it will fit very well into our portfolio. So you will see us be.
We are very active.
And the next couple of quarters.
Oh, okay.
Great. Thanks, so much guys.
Thank you.
Cool.
Our next question comes from Edward Engel with Roth Capital You May proceed with your question.
Hi, Thank you for taking my question and thanks for the the April commentary our call a couple of years ago now with oil prices were falling it had a pretty negative impact on some of your Canadian properties.
But where some of those economies were tied to oil and gas.
With energy prices kind of higher again, and I was just wondering if you see any kind of signs of life in some of those markets maybe reinvigorate demand.
Yeah right right.
We see that are first of all we see it as well.
Before that our candidates.
Really on a very healthy recovery track and one of them.
More or less back at a at pre COVID-19 levels.
But.
We think that really the next in the coming quarters, which we show the full he picks up the recovery.
As some of their said most of those pictures underneath it halfway through the quarter now.
In general terms it can only be positive if the oil prices go up as high as Edmonton.
And I.
I can't go to a place in Satcom said that it would be too early to say at least that.
That increase that we see is due to the.
Oil price raise I think in the second quarter, we would be able to do.
More specific on that.
Chip I'll state.
Great. Thank you and I guess, but for Covid and then I guess, one more kind of housekeeping. After the refinancing I was just wondering could you kind of give some commentary on how we should expect cash interest okay.
Interest expense over the next couple of quarters.
Take it please.
Okay.
So are you looking for what what the interest expense will be it's probably around 7%.
7%, Okay and then okay.
That's perfect.
Okay.
Yeah.
Yeah.
As a reminder, if you would like to register a question. It's the one followed by the four our next question comes from Jeff <unk> with Stifel. You May proceed with your question.
Hey, good morning, Peter when it's great to hear from you both.
So my first question I'd like to hang on.
This macro theme that that's been common throughout this earnings season, it sounds like on the whole the consumer still feels.
Pretty healthy into April and thus far into May, but you know can we unpack that a little bit you talked about sequential improvement in the older demographic. You you talked about continued healthy growth at the high end just so you know the movement of a.
Third category, how is how things are trending kind of in that lower end of the of the database you know anything to call out there or do you try and scale stable there as well.
I think the newspapers have been right.
It's exactly it's tapering.
So.
Watched it very closely as well.
For the Opex interest that we don't really see anything that would be.
Demand from.
The second part.
Okay. Okay very good. Thank you for that and then you know just so it's a question of upside still left in the older demographic. How about you know over in West, Virginia with mountaineer, how or how are things working through post overcrowded with respect.
Some of the non gaming amenities that have been call. It relatively more more impacted through Covid do you still see significant sequential upside there as we kind of roll through towards like this.
Yeah.
We are in the non gaming sector.
Obviously really secondary and.
In that list of Ciena is set.
Post Covid, we opened with a significantly less.
Capacity and it hasn't hurt us at all on the on the customer side that certainly has helped US a lot on the cost side and what do we have now he's he's just right sized and Oh, So as Peter mentioned before before we.
Spanta opening times for example end of Oh, we look very closely but we think it's justified.
Concerning the player base.
I think you could say that in general terms, we see that the upper end of our players tend to stay a little longer to come more often tend to spend more money and maybe we have a few less customers on the lower end.
Something that a window that I'm happy about because it clearly helps us on the staffing side and on the on the cost side for all of them simple attempts for less customers, we need less employees and it suddenly headquarters.
Okay, Great. That's that's really helpful. Thank you then if I could just squeeze in one more.
I saw your commentary in the deck around upgrades to your marketing App. Just curious are you evaluating anything else on the technology front, whether it's it's some sort of cashless gaming wallet or anything else.
That that you think it's interesting out there as you evaluate potential technology upgrades or are your properties.
Hum.
Nothing that would be nothing other than routine upgrades of the existing systems.
Hmm.
Why not do it in a in English, which enables that you can now open you're a hotel room with the mobile phone and you can also check in multi and they don't have to stand in line anymore, which is really had to pull back on a Friday afternoon. When all the people that are kind of excited we can do in the past it's a lineup.
Okay, Great. That's super helpful guys. Thanks for all the color.
Our next question comes from Chad Beynon with Macquarie. You May proceed with your question.
Hi, This is Aaron on for Chad. Thanks for taking my question and congrats on closing the first part of the Nugget acquisition.
You noted the large convention facility at that property do you have a sense for what the new convention and event calendar it looks like in 'twenty, two and 'twenty three.
Pegged it to be at pre pandemic levels.
That's that syndication, we have yes, it to come back strong and the bookings on a call center.
We see and we're told that it's in the area of Cleveland that Mccann.
Okay great.
We do not want to touch on Poland for a second it looks like demand remained strong.
The margins were ticked down a little bit sequentially was that just seasonality or is there anything you would call out and how should we think about that going forward. Thanks.
Yeah.
Importantly, it has the best the best quarter ever.
And.
So did you say that you saw that did not emphasize going down.
<unk> margins you said.
The match into okay. Okay.
Yeah.
That is one simple reason, namely the salaries.
We had to we had to increase salaries, because we hadn't done that so they need a long time, and it's really difficult to get start to begin with and to get good stuff is even harder but.
But it's all became more than an absolute numbers, it's more than compensated by the.
By the higher revenues.
Got it okay understandable thanks for the color.
Actually I think Sean.
We have no further phone questions at this time, Sir I will turn the call over to yourself for any closing remarks.
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 <unk> Dot com.
Stay well and good bye.
Yeah.
This concludes today's conference call. Thank you for attending.
Okay.
Uh huh.
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Uh huh.