Q3 2022 Century Casinos Inc Earnings Call

Good day, everyone and welcome to today's century casinos third quarter 2022 earnings call at.

At this time all participants are in a listen only mode.

Later, you will have the opportunity to ask questions. During the question and answer session.

You start to ask questions at any time, the pricing to start and one on your Touchtone phone you.

You may withdraw yourself from the queue by pressing star two.

If you require technical assistance during todays event, you can reference to help link at the top of your screen.

Please note today's call will be recorded and is now my pleasure to turn the call over to Peter Holt singer. Please go ahead.

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 Hi, Jim.

As our Chief financial Officer sub markets.

As always before we begin I would like to remind you <unk>.

Be discussing forward looking information.

You can see where the risks and uncertainties.

That may cause actual results to differ materially from our forward looking statements.

Company undertakes no obligation to update or revise the forward looking statements, whether as a result of new information future events or otherwise.

We provide it.

Caution due to various risk factors.

<unk> encourage you to review these items.

In addition throughout our call we refer to several non-GAAP financial measures, including but not limited to adjusted EBITDA.

Reconciliations of non-GAAP performance and liquidity initiatives to the appropriate GAAP measures can be found in our news release and the SEC filing.

In the Investor section of our website.

<unk> com.

I will now provide an overview of the results of the third quarter after that will be a Q&A session.

Okay.

Our first quarter results, we were up against the record performance of last year.

Which we'll see but I listed Colby restricted lots of pent up demand.

Thus, while on a sequential basis revenues were up.

Compared to last year revenue and adjusted EBITDA was down 4% and 15% respectively.

A large part of the decline is due to the extremely dry weather conditions affecting the water level of the Mississippi River.

Hello, Walter Labor issues, $1, Corrado, Sweden, Mitsui operation started in August .

Triggered additional expenses for Gretchen.

Cause serious issues for exits.

Steepness of the excess breaches and the transition from the barge to get <unk>.

In addition, the dry weather type farmers, which are large part of our customer base.

On the phones and tablets for much longer than usual.

As a result, the Colorado School Casino saw revenues declined 14% compared to Q3 of last year.

And that is all of us responsible for around half of the companywide revenue decline during the quarter.

In addition, we incurred considerable costs in connection with preparing to integrate the soon to be our Nevada operations.

With the headwinds in the economy.

You also saw some evidence of slight changes in our customers' behavior.

The lower <unk> segment is capped out on the number of clips across all of our North American properties.

But importantly <unk>.

Thanks, Patrick and higher ADT segments held steady.

Let's play it from our core customers is the foundation of our success in this segment in particular continues to grow.

It also helps to offset year over year declines in Spain from retail customers.

Which was elevated levels last year due to the stimulus payments.

On the expense side of the business. Our teams are effectively managing the overall cost structure, while dealing with the inflationary pressures that exist today.

The promotional environment across all our markets remains relatively stable.

This is a pretty rational for the most part.

Not much has changed in the last several quarters.

Total marketing spend continues to remain below pre COVID-19 levels.

Of our U S operations.

Colorado was leading the way with revenue growth of 8% and EBITDA growth of 6% compared to last year.

We've not seen any effect on revenues due to inflation, however affected on the expense side with higher costs for your PDP.

<unk> maintenance as well as operating supplies.

Cripple Creek increased all Cabot claim analytics with the exception of average number of trips decreasing slightly.

This may be due to gas prices.

Spend per trip has increased.

Okay.

The Cripple Creek market continues to remain flat year over year.

Due to our consistently marketing and continued emphasis on customer service, we continue to gain market share.

Central City.

Average spend per trip remained flat and we are not seeing any inflationary effects on patron spending.

In West Virginia.

Now can you casino <unk> resort.

Slight revenue decline compared to Q3 of last year.

The number of trips to the casino style.

From the younger customers in the lower ADT segment.

The conventionally however, looking at the last three quarters. The trend is up we grew from Q2 over Q1, and again Q3 over Q2 <unk>.

Revenue and EBITDA.

This experience some staffing challenges at mountaineer, resulting in some limitations to hours of operation and the ability to get to your prepared remarks.

Yeah.

Moving to Missouri.

We're cleaning volumes remained strong during July and early August .

It began dropping off during the second half of the quarter.

There is lots of especially the older demographics, 70, plus and the lower <unk> segment.

Download trips.

Columbic inflationary effects us may play a role here.

The interest of all the labor issues at the Carrabba's will bolt and to drive that around the farm right. If you didn't tell me that so we saw revenue decline compared to the record quarter, we had last year.

Just last month in early October .

They had to close the top of the consumer make it fits on the river boat.

We operate with a limited number of slots and papers on the barge only.

The good news for Carrabba's.

We did receive approval from the Missouri Gaming Commission a couple of weeks ago.

To relocate the casino operation from the barge to an existing land based pavilion, which is not affected by all the levers news protective South Florida.

We are allowed to operate the casino that pavilion.

The new land based hotel and Casino development is complete would you.

Baked into the second half of 2024.

The <unk> provides much easier access to the casino for customers and we anticipate it will also bring operating efficiencies and cost savings.

We expect to move the operations from the past to begin next month.

Last week, we also opened a smaller 36 room hotel, we call it the farmstead hotel.

Which we bought last year and completely refurbished it is conveniently located close to the pavilion into parking.

Our quarterly presentation of the results you can find.

A description as well as the site plan and pictures for pay down understanding.

But the new land based attending casino development in Colorado.

Construction began pdx ago on the new 27000 square feet Casino and 30 room hotel.

The total budget increase by 10% from $47 million to $52 million.

Once the new Casino hotel will be completed.

Temporary casino in the pavilion will move to the new casino.

And the new century casino corrosive.

Total hotel count of 74 rooms, two hotels, one directly connected to the casino and the other one is a standalone opposite the provision.

New casino, we'd have 20% more gaming positions and provide significant operational efficiencies.

To be much more convenient for our customers it.

It also increased our catchment area.

At century Casino Skip Toronto.

Larger of our two Missouri casinos, we have started construction of a six to nine room <unk> Hotel building.

Project is expected to cost $31 million.

Completed in the first half of 2024.

This development will transform the property to a full resort destination provide.

Providing other reasons for individual and group byproduct visits for many different.

Purposes, such as gaming tiny contractors concepts at more.

Moving north to Canada.

Casino Entertainment Edmonton had revenues declined by 7%.

Due to construction works on the main road, something that casino and due to lower slot hold.

Both of our racetrack casino Cymbalta century mile in century Downs.

Solid revenue growth of 9% and 4% respectively.

It typically costs up 17% the cost of goods increases could only partially mitigated by price increases.

Q4 has started really strong for central minus century downs with both properties posting all time record results for the month of October .

Our casinos in Poland continued great performance with revenue up 25% and EBIT up 34%.

Results in Poland by consistently strong.

Which also helps the same process and has led to renewed interest from smaller European casino groups private equity investors.

Anyway, there is no time pressure on our side.

We have an excellent management team in place at casinos Poland.

I guess no need for any capex or investment from us quite the opposite cash flowing from Poland to us.

Quick look at our balance sheet and liquidity shows that we have $100 million in cash cash equivalents, plus the 100 million, which we keep in escrow for the closing of the market Opco transaction.

The license we can compete.

Outstanding debt totaled 300.

$6 million to $7 million.

Which includes $348 million under the Goldman Sachs credit agreement.

100 million is in escrow for the nugget.

And $14 million related to long term land lease for century Downs in Canada.

Okay.

During the quarter. We are also very busy on the M&A front.

In August we announced the acquisition of the operations of Rocky Gap Casino resort in Maryland for $56 million.

Simultaneously with the closing of that transaction lychee properties acquired real estate assets annually.

Maybe we will amend our master lease with Nietzsche to add the Rocky gap property.

The initial annual rent for the Rocky gap casino will be $15 5 billion.

The purchase price for the casino operation represents an implied 2021 beat the market of four nine times.

This excludes any potential cost synergies and operational improvements.

Antitax annual ranked for the heater leaves from EBITDA.

This acquisition is expected to be immediately accretive to our earnings.

Rocky gap is a full service resort a two hour drive from the Baltimore, and Washington D C Metro areas.

And includes an 18 hole golf course, besides that Jack Nicklaus.

<unk> thousand square foot event center.

Meeting spaces, and spa and several outdoor activities.

The property consists of about 25000 square feet of gaming floor.

630 slot machines 16 table games.

Goodbye to aid in hotel rooms, and five food and beverage venues.

The transaction is expected to close mid 2023.

Object to regulatory and governmental approvals and customary closing conditions.

Okay.

In Nevada.

You already invested $95 million and now own harvest the market casinos real estate.

We closed on the purchase of a 100% of the operating company.

As soon as licensing is complete that will cost about $100 million.

We continue to be very excited about the <unk> transaction and we see considerable upside once we operated.

Recent market repurchase an existing operation with a long operating history.

We do not expect any extraordinary replacement capex for the first year.

Some upgrading.

Upgrading process the slot floor and improvements to the facade.

The acquisition also office could potentially to generate synergy effects.

We integrate standalone property to our portfolio.

<unk>.

With the pending rocky gap in market acquisitions.

Oversee a portfolio that reaches from east to West and North America and on a pro forma basis, after giving effect to get to make decisions.

We expect to generate approximately 95% of our EBITDA from our North American casinos.

If these opportunities for growth throughout next year and beyond.

Confident our company is very well positioned for continued long term success.

We will continue to execute on our business plan.

Organically.

Identifying and declaring promising assets in favor drive to markets in the U S.

Our M&A strategy, we will remain prudent with pricing and valuation.

We'll continue to dedicate resources to capture synergies.

Provide time to digest the acquisitions into recognized revenue.

On behalf of the company's management and board I'd like to thank our team members, our guests and our stockholders for continued loyalty and their enthusiasm.

Thank you for your attention.

We can now start the Q&A session.

<unk> go ahead please.

Thank you at this time, if I would like to ask a question. Please press star and one on your touch downtown you May withdraw your question at any time by pressing Star Q.

Once again to ask a question please press star and one that still selling.

And we will take our first question from Jeff Stein.

Please go ahead your line is open.

Thanks, Good morning.

For taking our questions.

Wanted to start with some of the commentary in the prepared remarks on the lower worth demographic.

It sounds like it's softened a bit more recently in the quarter.

You talked about the impact across the broader North American portfolio is there are differences in terms of how much you are noticing that asset by asset and then can you just talk about the timing there when did you start to notice some softening there and has anything changed.

With the October trends.

Can you give some color.

Yes.

We do see some difference is not exactly the same everywhere.

We.

<unk> started in the third quarter.

And in the meantime for the fourth quarter.

Well.

Doing things to try to mitigate.

To give you an example in.

In for example in.

Mountaineer.

We increased the number of hotel room typically so for the weekend.

We comped more.

We have customers.

Clearly see that there have been comps also in that.

In the upper range of that lower bracket.

Bracket.

And also we are doing with <unk>, something that's making Pam.

Before and indications how that disease later.

We see.

From what we see from the.

October numbers.

Okay. Great. That's helpful. Thank you then moving to Missouri for the product the budget for both projects came up.

And <expletive> can you just frame, where youre seeing the most cost pressures.

And if you think the revised budget should prove ultimately to be the right number and then just how are you thinking about the return profile now with the total budgets picking up there.

They went up about 10% and 11%.

And.

It came from.

Too much or sites.

We are extremely confident in others and we have also.

Do you have agreements.

With.

Check doesn't develop for us.

I'll get in.

In terms of.

Half return.

Picture, although hotel.

Between.

The low teens.

<unk> around 60.

That's where we are.

Let me see coming.

Okay, great that's.

That's helpful. Thank you Peter and then if I could just squeeze in one more on the disruption.

With the low water levels.

And Caruthers Bill you Peter you gave some context for how to think about the impact to revenues at the property.

Can you provide similar similar way to think about the cost impacts.

You talked about some some higher operating X, but just any way for us to quantify it and think about tactical that was during the quarter and maybe any thoughts on how impactful should improve in Q4 restaurants.

Is there a rebound here for Nick.

Manuel.

The EBIT side.

It's like more than half of what we believe right.

Yes.

Uhm.

Great understood very helpful. Thank you I'll pass it on.

Sure.

We will move next with Chad Beynon. Please go ahead your line is open.

Hi, good morning, Thanks for taking my question.

Wanted to ask I guess kind of a medium or long term question.

You guys have been successful and you're currently in.

Building the portfolio, where do you think.

Where do you think the portfolio portfolio can get to in the next couple of years or I guess asked another way are there still opportunities out there and given your arrangements with.

Your REIT partners.

Should we continue to expect.

Maybe one acquisition per year to kind of build.

The free cash flow levels, where you start to deliver even greater scale. Thanks.

Hi, Chad.

We do see.

Number of.

Interesting properties, Allstate, which fits very well into our portfolio of assets.

In that range of.

So the $15 million to $50 million in EBITDA.

Many.

Not many too many buyers out there because it's way too small for the larger groups.

And.

We believe we had a very good niche, yes, we do have a very.

Good properties.

But let me also say that other property or real estate investments our ocean Bachman of.

I'll throw us.

So there is.

We believe for the next.

Three four years.

Okay great.

M&A activity ahead of us.

What is the once a year or.

Or two every other year.

Thats.

Good day.

On an opportunistic basis.

But there's plenty of opportunity out there.

Great. Thanks, Peter and related to that how are you thinking about the optimal.

Debt leverage or lease adjusted leverage, particularly during times like this when when interest rates.

Have risen.

Yes.

Yes.

At the moment.

I think we are at.

And the leverage level that you saw.

Hey.

But as we said.

In the process of.

Selling Poland.

Let's we can so we can use that.

Just pay down debt.

Thank you Denise.

No.

We also.

Two one.

Colorado et cetera on the Canadian assets.

Yes.

Not to say that.

Yes.

And a need to do anything with dose, but the truth is we wanted to.

Currently our.

Net debt to adjusted EBITDA.

<unk> ratio is $3 four and lease adjusted.

Net leverage.

Using eight months' supply it's five 5%.

And.

With the.

Projects that we have.

On the hand in Missouri and also market.

Rocky gap.

To bring that debt ratio down.

I guess, you're quite comfortable with it.

Sounds great. Thank you very much Peter best of luck.

Thank you Tim Thank you.

We will move next please Jordan Bender. Please go ahead.

Great. Thanks, Thanks for taking my question so in Poland in local currency it actually it looks like your margin was one of the best and maybe the last six or so years I was just kind of wondering whats kind of driving that strength and looking forward should we expect.

I get the low double digit margin within that segment.

I think.

We can.

We see no signs that these numbers would not be sustainable we think they are sustainable and everything points to us being able to keep those numbers.

We also see potential to increase them further.

It's hard to pinpoint that.

The recent down to blend it and I think through the fleet and I think overall, what can be said is.

Finally the.

The very strong multiyear managed mandate to have their own efforts came to fruition.

And then just show better than.

Just a year, where we could.

Compete even that.

Then before the dollars.

This local competitors.

Really really happy with the team in.

So we sent them.

I think this can continue and go further up.

Great and then turning to Canada kind of a similar question.

Coming out of Covid, I guess margins are choppy, just kind of given COVID-19 reopening and they can pre closing and reopening again.

As we think about I guess the business in 2003.

I guess, where should we think about margin levels, maybe being sustainable or where should they be trending as we think out into next year.

Just some color around that.

I would say in general terms, we should be able to sustain the kind of matches and in various properties for good reasons.

<unk> increased in the quite something new slurry.

As we talked about the changes there and the improvements to the properties that should improve.

Improve and increase our margins.

Relative to 'twenty two.

Thanks to all.

Our flavors and Colorado, probably.

It will be so to speak much about we were doing theyre integrated already there and but I think again.

We consider this to be the sustainable again excellent management there.

And then mountain near the working hard on.

Yes.

Rolling up step by step it's harder in my opinion because of the gaming tax is very high. So these cannot be compared to a low tax environment, but again, we feel solid very solid base and we should be able to to increase there is weighted.

Okay, and just to follow up on that just to confirm.

Historically done below 30% EBITDA margin, you think getting back to that level is achievable over the next couple of years in Canada.

Yes, I think it's not unrealistic to assume.

Okay, great. Thank Canada, one thing for us is that the.

And as you look at oil prices are high and with a certain time delay that or.

It's been reflected in kind of this economy.

Okay. Thank you.

Thank you Sir.

Star and one on your Touchtone phone, if you would like to join the queue.

We'll move next with Edward Engel. Please go ahead your line is open.

Okay.

Hi, Thanks for taking my question just wanted to follow up on that last one just regarding margins and I guess some cost inflation.

On the overall cost inflation side, whether its utilities or labor I guess.

What have you kind of seen over the past couple of months it looks like generally.

X across their properties is flattish Q on Q minus maybe you can just kind of wanted to wonder what youre seeing in terms of.

Increases in Opex.

Okay.

Yes.

Opex it doesn't impede increase definitely.

So.

Also across the board I think.

Management has been various keep rolling.

In funding raised through this by bank obtained to even further ways to take on other areas.

We think alpha stopping.

<unk> mentioned it can be challenging Martini equate topics.

But again I mean, this won't go on forever and.

We've been able to operate even on a higher high assay noise, but slightly noah's talking to Airbus.

Great. Thank you.

Thank you we will move next with Daniel Huang. Please go ahead.

Hi, Thanks for taking the question just a quick one on the <unk> and kit cargo projects is that intended to be funded entirely out of cash on hand or do you have.

Financing lined up for those products.

The Hudson project in <unk>.

Finance.

With cash at hand.

And for the Rod in Colorado Springs.

We have not made the final.

Decision, but it will be several.

Cash on hand.

Financing sources.

Thanks.

Thank you we'll move next please Chris Doll. Please go ahead your line is open.

Yes, Hi could you please.

Focus and simplify.

And I'd like you to identify the one two or three critical variables that we should.

Monitor for corporate earnings modeling.

The fourth quarter.

And then going into next year. Thank you for answering my question.

Yeah.

I would say this.

Alright.

Progress in <unk>.

Is an important one.

We want to watch.

Yes.

<unk> seen in Q3 or kind of an impact that has.

Then.

<unk>.

Success in Colorado is very important.

And.

We're switching gear.

Sequentially and on a great path.

And we would like to see that continue so we've obviously those two markets.

With high interest at Tulsa.

Critical to.

Our sources.

Thanks, Chris are you providing any guidance.

With regard to.

Sales or.

Any of the key.

The parameters of the corporate results.

Oh no.

Can you the company is not providing guidance we have.

The Haynesville of excellent research reports that are out there on <unk> and I would encourage you to get a hold of one or more.

And going through.

Okay.

Thank you.

It appears that we have no further questions at this time I would like to turn the call back over to Peter Ho Tanger for any closing remarks.

Thank you everyone for joining our call today.

For a recording of the call.

Please visit the financial results section of our website at <unk> Dot com.

You should have any follow up questions. Please feel free to reach out to us.

They will and goodbye.

This does conclude today's program. Thank you for your participation you may disconnect at any time.

Yes.

[music].

Yes.

No.

[music].