Q2 2022 Century Casinos Inc Earnings Call
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Greetings and welcome to century casinos Q2, 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'd now like to introduce our host for today's call Mr. Peter Hudson Garden, Mr. Hyde singer 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.
It's been it's our chief financial Officer.
As always before we begin we would like to remind you that we will be discussing forward looking information.
Second of all 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 and encourage you to review these filings.
In addition throughout our call we refer to several non-GAAP financial measures.
Loading, but not limited to adjusted EBITDA.
Reconciliations of our market performance and execute it in measures to the appropriate GAAP measures can be found in our news release and our SEC filings.
We're literally in the Investor section of our website at CMT wireless com.
I'll now provide an overview of the results of the second quarter after that there'll be a Q&A session.
Our second quarter results continued the streak of record breaking performances that we have shown throughout last year.
We generated record second quarter revenue and record second quarter adjusted EBITA.
Revenue was up 21% and adjusted EBITDA grew 80% compared with the second quarter of last year.
Basic earnings per share for the quarter about 30 cents.
We recognized two items that impacted our net earnings.
Your debit to shareholders this quarter.
First due to the prepayment of the Macquarie credit agreement.
Out of $7 3 million and deferred financing costs to interest expense and.
And secondly.
We released a $10 2 million U S valuation allowance, resulting in an income tax benefit.
Even though last year's second quarter performance was heavily fueled by government stimulus payments.
So we are now facing higher costs compared to last year.
We still manage to maintain the same 27% EBITA margin.
On a sequential basis compared to Q1 of this year.
New was up 8% and adjusted EBITDA was up 25%.
The continued focus on our core customer.
And a streamlined cost structure contributed to these strong results and margins and allowed us to continue our operating.
Trading momentum from previous quarters.
The promotional environment across all our markets remains relatively stable, let's call it disciplined and rational for the most part of much has changed in the last several quarters.
Marketing spend continues to remain below pre COVID-19 levels and is expected to continue at its current run rate moving forward.
Reductions in advertising direct mail and promotional expenses appear to be sustainable and have not had any negative impact on gaming volumes.
In spite of some macroeconomic challenges if not noticed any meaningful shift in customer behavior.
We look at July and into August .
The customer trends.
You mentioned, the first half of the year seem to be continuing.
The geographic diversity of our portfolio with locations in hyperlocal drive to markets with a loyal customer base has proven extremely resilient.
Julien not only considering the pandemic, but also considering changes in oil price and the CPI.
We have high confidence in the underlying trends of our customers' behavior, which has not changed since reopened two years ago.
Yeah.
Our U S operations in Colorado, West, Virginia, and Missouri, So an 8% revenue decline over Q2 of last year.
The main reason for this is the stimulus payments our customers received last year.
Christy supported last years results, particularly in this story.
Yeah.
While auto, Missouri casinos fare better when comparing with last year.
The closer look at the Missouri results release that all properties have done better than most if we compare our current results to pre Covid times.
All Missouri locations were less impacted by Covid restrictions in 2021.
Costa rich restrictions aimed at all we're limited in late 'twenty 'twenty or early 'twenty one.
And with the government stimulus money released also at that time.
Our casino so extra ordinary growth last year.
Therefore, and as stimulus money was exhausted our casinos did not carry that record breaking volumes of last year into this year.
Okay.
Most of the other casinos in Missouri and Illinois.
Continued significant COVID-19 restrictions throughout the entire 2021.
Those casinos were unable to generate the maximum benefit from the stimulus payments and continued with little revenue growth last year.
But these properties operations normalized each year, and therefore revenues numbers increased over 2021.
So all in all regional casinos performed differently last year.
While we experienced a decline this year from last year.
And some others experienced an increase we see that the overall growth from the 2019 still the option with our casinos compared to most others in Missouri.
What's also very interesting is that win per visit from our Regulus has actually increased by 1% compared to last year.
But we were not able to keep all the new patrons.
Who came to the properties last year to spent the stimulus checks.
Is it retained about 20% of the head count and about half of the revenue they generated last year.
So.
It seems that there is some upside in these numbers.
Other than gaming revenue.
Everything else was up including revenue from sports betting parimutuel and I gaming as well as hotel in F&B revenue.
The outlook for the second half of the year is quite positive quite Inc. Continues to normalize to prior year as the stimulus impact tapers off during Q3 of last year.
And revenue per patron continues to remain strong so far in July at the beginning of August .
So we to projected higher for the third quarter compared to last year.
In Canada offshore operations had a good quarter and came back strongly after the heavy COVID-19 restrictions have been lifted.
Adjusted EBITDA almost reached 2019 levels.
We still have not seen the full potential yet because after a couple of years are staying home and you people are key to travel out of Alberta quite 10th Altra festivals and events.
Shut down the last couple of years.
Yes.
Our casinos in Poland continued its great performance with revenue up 24% and EBITDA of 57% over 2019.
While the results in Poland, our consistently strong.
You got to find a buyer right now offering an attractive price causes of the war and the Ukraine.
Anyway timing of assay is not really the most important issue for us.
We have an excellent management team in place at casinos Poland.
And further there is no need for any capex or investment from us quite the opposite the cash is flowing from Poland to us.
Okay.
Let's now look at our balance sheet and liquidity.
With 96 million in cash and cash equivalents, plus 100 million, which we're keeping escrow for the closing of the nugget Opco transaction once Nevada licensing is complete.
Outstanding debt totaled $370 million, which includes 349 billion under the Goldman Sachs credit agreement.
800 million is in escrow for the nugget.
And $15 million related to a long term land lease for century Downs racetrack and casino in Canada.
Yes.
And now some commentary on our growth projects, we are working on expanding both our Missouri operations isn't ready reported.
During the quarter on June eight maturity Governor passed and signed Senate Bill 90, 872 law.
This is allowing us to bring the Colorado River, both casino on land utilizing a non floating structure.
Kratos is the last remaining riverboat casino on open water in Missouri.
It will provide significant operational efficiencies it'll be much more convenient for our customers and it will increase our catchment area.
While preparations for the project are substantially complete with a budget of 47 million.
We are considering optimizing the construction timeline in order to minimize supply chain challenges.
Our intent is to deliver this project based on our highest return on investment.
It's the same with they'll tell project at our casino in Cape Girardeau.
Planning design and preparations are substantially finished.
Apache's discipline and a high return on investment.
The guiding principles of the final decision went to actually commence construction.
In Nevada, we already invested 95 million and now own half of the Nugget Casino real estate.
We will close on the purchase of 100% of the operating company as soon as licensing licensing is complete that'll be another 100 million, which we have in escrow already.
They're very excited about the nugget transaction.
We see considerable upside once we can operate it.
With the Nugget, we purchased an existing operation with a long operating history.
It means there's no development risk low risk of construction delays or anything like that and no cost no risk of cost overruns.
We do not expect any extraordinary replacement capex in the next years.
Rather than upgrading parts of the slot floor and some improvements to the facade.
The acquisition also offers good potential to generate synergy effects as we integrate that standard on property into our portfolio of 17 casinos.
With these opportunities for growth throughout next year and beyond.
Our company is very well positioned for continued long term success.
The second quarter was another great performance of our company Indeed tire team.
Diversified portfolio continues to generate robust EBIT growth in our operating strategy and tight focus on the right customer are producing strong and sustainable margins.
We recognized we had a period of economic uncertainty with some headwinds facing our business.
But there are positive signals as well.
Unemployment is near record lows across the country and our customers continue to benefit from strong wage growth.
Consumers are showing a continued willingness to spend on entertainment our customer trends in the second quarter and so far in July and into August remained consistent with what we have seen over the last three quarters.
Especially the high end of the database the truly gaming centric customer continues to perform very well.
However by the science I encouraging that's the flip side to it.
<unk> truck market and Gwen wages are good for our customers, but they also mean increased labor expenses.
Apply chain issues higher gas prices and utility costs and increases in the cost of goods and services are all impacting both us and our customers.
Having said that our local management teams have done an excellent job managing through these challenges.
They continue to deliver strong results.
Our company wide margins during the second quarter stayed the same as last year.
Increased from Q1 of this year, despite the higher costs, we're experiencing across the business.
Yeah.
We will continue to execute on our business plan back willing organically and by identifying and acquiring promising assets in stable drive to markets in the U S.
In our M&A strategy.
We will remain prudent with pricing and valuation will continue to dedicate resources to capture synergies and provides time to digest the acquisitions and recognize value.
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.
Thank you for your attention and we can now start the Q&A session.
Operator go ahead please.
Thank you.
Ladies and gentlemen at this time, we will conduct a question and answer session.
If he would like to ask a question. Please press the one followed by the four on your telephone now and you will be placed in the queue in the order received.
If you find that your question has been answered you may remove yourself from the queue by pressing the one three on your phone we are now ready to begin.
Once again that is one four on your telephone.
For our first question is from Jeff Central with Stifel. Please go ahead. Your line is now open.
Hey, good morning, everyone. Good to hear from you all and congrats nice set of results here.
Starting off I was just hoping to drill in a bit more into the month by month cadence of the quarter.
Any notable sequential changes in either directions. As you progressed through April through June either on the top line or or with respect to margins and then any color on into July would be helpful as well.
It out U S versus Canada versus Poland.
I mean do you have any data on that how the quarter progressed.
Okay.
High level qualitative answer.
You don't have the numbers on it.
I I have all the numbers.
How much should I feel like those are all of them.
Why don't they don't that group then by state.
To begin with empty people would like to know more than be killing today property by property at that time for you.
So by region is fine and then just yeah just quality that's more wondering qualitatively you know that the consumer feels like it picked up the drop off that cost pressures get better get worse, just more kind of qualitatively how things progressed through the quarter if that makes sense.
Yeah sure sure.
In Colorado in April we've made 4.1 billion in net operating revenue May 3.8 shown sleep on seven and in July are north of 4 million.
In Missouri, we went from 10.4 and that's all the second quarter.
It's 92 from pinpoint for in April nine six in May and $9 million in June .
And in again in July are north of 99 9 million.
In West Virginia, Nine 910.59, 0.3, and then July around $11 million.
And then moving on to Canada in Canada.
We made $6 663, and six point tool with Tonight being around six four.
And in Poland. We went up from 7.1 in April to eight and then in May $6 60, and tune into more than seven in July .
It is a net operating revenue is that good enough for yourself.
Yeah, Yeah, we can we can leave it there.
Kind of on the top line really encouraging trends into into July specifically.
Moving.
My follow up.
Moving on to my follow up here, you know I wanted to drill into your comment that the end potentially staying nimble on your two projects the boat to land at Carrabba's film a hotel at Cape Girardeau.
Could you just talk about kind of what where the pressure points right now from a supply chain perspective is it is it labor or is it is it certain certain raw materials CAD, what's Oh, you know what.
Why are they different pressure points at the moment and kind of what you do get started what are some of the things you are exploring.
Ill call it hedge further inflationary pressures the extent things change just over the course of the projects.
Right.
Upon clearly is the material at both.
Visibility enterprise AR.
Of them made that may be why not necessarily something it's not available it's not available.
You can play a high price.
And but we think that are that we may have seen the peak of supply.
Supply chain challenges with regards to price already and then we see the prices come down already so when you really go in so to speak from week to week and making them.
The assessment.
And in the indenture.
Look at the time when it's the right kinds of Scott lately is not the problem all suppliers without being ready to go.
That's what I thought the high cost play shelf, the Oh, the materially, but we think that that purchase waiting a little bit on filling on the week to week assessment.
They tend to approach here.
Perfect. That's very helpful. Thank you and then if I could just squeeze in one more on the M&A environment at present does it feel like there's there's appetite from sellers in the U S and you know if you.
You go back to early Covid clearly there was a number of assets that.
That came on sales the direct consequence of some.
Some of the pressures going on in the market would you say that you know the class that we've seen in the public markets year to date, it's flowed through at all of the M&A markets. While they are in terms of expectations are for the number of sellers at the table or do things feel fairly stable. Thanks.
Okay.
I'm not sure if it's fairly stable.
All of the regional operators to see the same thing, namely that the customer trends are still holding holding up very very nicely. So there are no no fire sales out there.
<unk> Oh, sorry, a multiple it's also has not come down significantly because the underlying trends are very solid.
So it's a pretty stable environment, there's not too much out there big class are compared to a 323 years ago, but we do see.
Two or three very interesting properties out there for us.
Perfect outboard encourage J. Thank you Paul.
Thanks, Jeff.
Yeah.
Thank you next question is from the line of Edward Engel with Roth Capital. Please go ahead. Your line is open.
Hi, Thank you for taking my question, you mentioned that Canada hasn't completely normalized.
Quickly at some of your other markets did and I guess, what kind of timeline are you expecting for that to get to full strength could happen as early as the fall and maybe people get back from vacation or would you kind of expect a slow progression.
Oh sure.
But when.
Oh go ahead.
No they're not there.
Okay.
Yes, it's difficult to predict.
Okay great.
Our assessment of the situation is that we.
We think they have a high chance that these markets come back in Q3, and then that the latest Q4.
Yes, I wanted to add that typically in the summer months.
People in on first the ETA tends to go on vacation, but stay outdoors as long as they can because it's nice and then getting into from September on this October on Lasorda and.
It is so to say high seasons for indoor entertainment activities.
And if I may am today, okay.
Made way possible.
The development of the oil price. He says you know what.
So while the country that's it.
May our may change doesn't have the positive effect on the economy.
Yeah.
Helpful. Thank you and then on Europe 14, I noticed the corporate expense was down a good chunk during the quarter just to confirm are you netting your share of rental.
Equity income in that line item.
Yeah Peggy right.
Yes, we are.
And that's just your share of the income it wouldn't be the cash.
The cash prototypes.
I'm getting a class.
Okay.
Okay.
Perfect. Okay. Thank you.
Okay.
Thank you.
Next question is from the line of Jordan Bender with GMP Securities. Please go ahead. Your line is open.
Good morning, Thanks for taking my question I was wondering if you're seeing any impact at year, I guess, either Missouri properties from the new expansion down in Arkansas.
Okay.
Okay.
We think that we see a little bit of an impact at the cost of upstate.
In the overlapping catchment area for both casinos.
Okay, and then it looks like your your license or the Hilton in Warsaw culled out next month is there any update on the re licensing bid for for that casino.
Yeah.
Not yet, but we expect we expect to hear pretty soon.
Okay and then.
One more in here FX in the quarter seems to have maybe impacted financial is there anything to call out in either Canada or Poland, just based off the FX move.
If you can comment on that.
Oh no no I don't think there's anything to call out that growth.
<unk>.
Okay. Thank you.
Yeah.
Thanks, John .
Next question is from the line of.
CAD Bannon Witten.
Not quite Macquarie. Please go ahead your line is open.
Hi, This is Aaron on for Chad. Thanks for taking my question.
Wanted to touch on the return of the older demographic last quarter, you talked about how they were coming back did that trend continue and how close is that demographic to getting back to pre pandemic levels. Thanks.
The answer is it all across the board.
Uh huh.
We're pretty good at it.
Okay, Eddie thank convenience and they'd be pretty pretty much back to normal in some areas, even like one 2% at Bath for these wells.
Yeah.
Okay got it.
In your prepared remarks, you also noted that you were able to maintain margins despite facing higher costs and a little it looks like volumes.
It remains strong heading into <unk>. So is it fair to think that margins can be maintained at this.
27% range.
What's the assessment.
Okay. Thanks.
Thanks.
Thank you. Our next question is from the line of.
Canada.
Well when all that's all.
It is a private investor. Please go ahead.
Hi, good morning, guys.
I've been watching.
Your company for <unk>.
Seven or eight years.
I see it's growing steadily and I see your book.
Book value is going back up.
And the price of the stock is really does.
It does not reflect the.
As much as I can.
It would be worth.
However, I do have one one observation I'd like to ask you what you're doing about it.
I didn't notice that.
Corporate and other.
<unk> consistently show a some sort of loss.
Can you define what corporate and other is where those losses come from because they wouldn't really.
If they weren't there they would really.
Bump up your earnings quite a bit is there something you can do about that.
Can you explain what that is.
They could please.
Hi, Kenneth so corporate another doesn't really have revenue streams flowing into it for the most part.
It's it's a corporate overhead expense you don't know you have to have accounting you have a hot human resources compliance executive management, and and we do run an extremely lean organization.
So there's not a whole lot that flows through there you do see interest expense coming out of there as well.
For or large Macquarie loan.
I see and Peggy does it also include all the cost for the like the stock exchange reporting and and Oh It doesn't everything.
Auditors stock exchange all of those expenses.
Oh I see.
Uh huh.
Does the running of the ship casinos come from that zone two.
It is but that's a very immaterial number.
So just one casino on the ship.
Okay. So I would expect that that one that one of them.
No.
Heading would would be.
Kind of the.
Oh, what's the what's a good word for it.
The dustbin.
Well.
The necessary expenses that go in there.
Just one of those things that you are counting I suppose right.
Mhm that's correct.
Okay.
I was happy to see your company is doing better and.
I also still be holding your stock. So thank you very much.
Thank you. Thank you. Thank you.
Thank you.
And there are no further question at this moment I will turn it back to Mr. Hudson for any closing remarks.
Thank you everyone for joining our call today.
A recording of the call.
The financial results section of our website at C N T Y dot com.
And if you have any follow up questions.
Feel free to reach out to us.
And goodbye.
Thank you, ladies and gentlemen that does conclude today's call. We thank you for your participation and ask that you. Please disconnect your lines have a good day.
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