Century Casinos Inc. Q1 2023 Earnings Call

Good day, everyone and welcome to the century casinos Q1 2023 earnings call webcast. Later, you will have the opportunity to ask questions. During the question and answer session. You May Register to ask a question at any time by Christmas.

Star one on your Touchtone phone 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 will be standing by should you need any assistance. It is now my pleasure to turn the call over to Peter Ho singer. Please go ahead Sir.

Good morning, everyone and thank you for joining our earnings call.

With me on the call are my co CEO and the chairman of century casinos probing heitzman.

They spend as our chief financial Officer backward stay picky.

It's all the way she would like to remind you that you will be discussing forward looking information, which involves certain risks and uncertainties. The actual may cause actual results to differ materially from awful up 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.

Filings every coach you to review deciding.

In addition, chopped I'll call them yourself to several non-GAAP financial measures, including but not limited to adjusted EBITDA.

Reconciliations of market performance and security measures to the appropriate GAAP measures can be found in our news releases and SEC filings.

A daily pill in the Investor section of all they decided she M T Y that's come.

Now I'll provide an overview of the results of the first quarter 2023 after that there will be a Q&A session.

We delivered record first quarter net revenue and record first quarter adjusted EBITA.

Net revenue was $108 5 million an increase of 5%.

Adjusted EBITDA was $26 1 billion, a 9% increase.

Yeah, particularly piece that each one.

All reportable segments showed revenue growth compared to Q1 of last year.

So it wasn't excellent start to the year for our company.

Once again, demonstrating the strength of our business model.

Resilience taught that justified portfolio.

I'm a strategy of focusing on increasing play from our core customers and messaging Apis are efficiently excuse me with record results.

We generated solid business from our core customers, especially in January and February .

As you get lower in the database.

You can put some quietest lately you.

He started in March and also going into April .

And so I'll focus on increasing play from the apathetic Menthol database, which is our core customer.

On the expense side of the business.

We continue to see inflationary impacts youre dealing with cost pressures.

The wage precious insurance cost increases or utility cost increases across the board.

Our teams are effectively managing through them.

Wage inflation is lapsing galvanized like your ticket Tc inflation stays elevated.

Yeah.

The promotional environment across all of our markets remains relatively stable. It is critical screens and do you continue to innovation and every rational marketing approach, Florida, scoring callbacks.

Youre not seeing competitors do anything unusual either.

Looking at looking at segment results.

Our Colorado business had a solid quarter with revenue up 3%.

While the Central City was down digital Cripple Creek was up on revenue as well as EBITDA.

The overall EBITDA margin of Colorado came down to 30% from 32% in Q1 of last year.

Due to higher utility and labor costs.

You saw a slight decrease in guest count and in trips, but with a slightly lower spend per trip.

From an age standpoint, and I'm, both streets increased significantly from the younger demographic younger 40 age group.

Okay.

Cripple Creek maybe.

Maybe just complete our employee housing project this summer providing accommodation for Stuart and cookies.

It is a tight labor market, especially in Cripple Creek.

Small historical mining town with a population of less than 2000 and at an elevation of 9000 funded feet yes.

And that gives us a good competitive advantage.

Moving onto West Virginia.

Revenue at our Mountaineer Casino Racetrack and do a show up grew slightly I wanted to hop to Sac.

Slots play was strong it was up 7%.

I think the waterside declining tape a drop of 12%.

Trust me I'm related crop.

Our analysis indicates that most of this was due to a law suit crossover play from sports betting since Ohio went life I'm Jerry first of this year.

He became was under pressure by higher expenses related to Horseracing and insurance.

They all tend to be departments are still experiencing staffing challenges.

And limitations two hours of operation and availability of hotel rooms.

The casino, we saw high single digit increases in guest counts and non bulk strips, particularly from some of your customers into higher ADT ranging what he said about the Dallas strive for mountaineer.

[laughter].

Yeah.

In Missouri revenues are up a bit despite a difficult comp.

Q1 of last year at the highest cable dropping picture Idose history.

At the very end of the quarter.

The severe weather.

Ada was approaching impacted several base, including a significant decline of visitation on their final domestic water Friday March that excess.

So all in all it was a good quarter for me sorry, EBITDA margin sits at 44% down just one from last year's 45.

You saw flat non both groups with a slack in the west spend per trip.

Well its properties had some negative impact not only related to this you better late in the quarter, but also from hostess named pitches.

Normalizing to hold percentage to prior year.

Picked up enough additional EBITDA dropping that matching up to where it was last year.

The strongest age group it keeps your either wants to under 40 demographic.

We saw a significant increase in the number of trips.

You must defended corrado.

Well it is 70 plus age group showed strong growth.

Most likely because of the casino moving Sunday River boat to the temporary land base building.

And for much easier guest access.

Construction of the new permanent land stay still taken casino development in Colorado City is progressing according to budget and schedule.

And then to open in Q4 of next year.

You're probably going to have a total of 70 410 rooms.

Gaming tables and over 600 slot machines machines, which is in a 20% increase in gaming positions compared to the only bigger thoughts.

But most importantly.

It will provide significant operational efficiencies it could be much more convenient for our customers.

And it would decrease our catchment area.

Okay.

And new development in Southern Illinois.

Over an hour away from Cape Girardeau, you should expect it to open with a temporary casino this summer.

Please bear in mind, we have taken steps to create more excitement around that all kicks shrapnel casino and have started construction of a six to nine room six story hotel.

If you subtract the opening early next year he transformed the property to a full resort destination offering gaming binding contractors concepts events and more.

Moving north to Canada.

All four properties showed solid gains in the quarter, increasing revenue by 3% and EBITDA by 14%.

We achieved these strong results, even though excess to our property in Edmonton was impacted by road construction.

The century mile race, Keno posted the largest gains in tablet EBITDA compared to last year.

Thanks for 'twenty during last earnings call or in.

Effective April one of this year, the Alberta Gaming Commission has increased the operators pushing from slip slipped revenues by 2% for the next separates and yes people.

That's a nice boost for the rest of the rest of this year and next.

Yes.

Finally, some color on our European casinos in Poland.

They had another great performance revenue was up 17% EBITDA was up 24%.

So that's Poland has been able to more than compensate for inflation related extensive creatives, so strong revenue growth.

Slumped cleaning it was higher.

Table drop was higher and so almost F&B revenue older all the very good quarter in Poland.

As mentioned previously.

More in the Ukraine is not even taking our results negatively and we have no significant non both employees our suppliers from the UK.

Alright with that let's take a quick look at our balance sheet as of March 31st we had 103 million in cash and cash equivalents.

365 million in outstanding debt.

The net debt to EBITDA ratio of three five.

The visa trusted net leverage four eight times.

These ratios will improve if you look at it on a pro forma basis, including the market entered rocky gap transactions.

Net leverage goes down to 3.1 and the lease adjusted debt leverage goes down to four seven.

Okay.

As reported we closed the Nuggets transaction on April the threats.

We own half the market real estate and 100% of the operating company.

You also have an option to buy the other half of the real estate.

Yeah.

With the closing of that transaction.

We anticipate an immediate impact to net income and she had been paying interest on the 100 million borrowed to finance the acquisition without any income from the market to support it.

And that is a full service resort destination with almost 1500 hotel rooms, and suites, a casino with any kind of defeats the slots in 29 patients six restaurants separately indoor and outdoor entertainment venues.

And this is one of the largest convention areas in the market.

Its location I E. D provides unmatched exposure in the Reno Sparks area and you plan on taking full advantage of that with a new attractive facade and signage.

We're more than excited than ever.

The potential for improvements.

The immediate focus will be on the gaming floor.

I'm ready to get potentially a person that you think across all operational departments.

We implemented small operational changes already now seen cookery shots is significant year over year revenue growth, especially in the markets group and convention business.

For this year and going into next did not give us expecting record business from group and convention space.

Several new high spending group's second allowed us to increase our casino contract yeah.

Leading to better overall profitability.

Group room nights, a D R and banquet revenue pacing ahead for the rest of the year. If you expect to generate record overall group and convention results in 'twenty to 'twenty three.

Maryland, we expect to close the Rocky gap acquisition in July .

At 66 million with cash on hand.

After rent expenses, we expect rocky gap to generate more than 10 billion in deep snow steeper, Egypt alcohol comfort.

Rocky gap is the food service were somewhat less than two hours from the Baltimore and Washington D C Metro areas.

It includes an 18 hole check Nicklaus Golf course, 5000 square foot Center.

The meeting spaces, a spa and several of outdoor activities.

The bulk of the countries of over 25000 square feet of gaming floor.

That said, it's not machine 16th tapers under the 98 hotel rooms, and five food and beverage venues.

At least they go off to get the market acquisitions.

The U S casino portfolio that reaches from east to West.

On a pro forma basis, after giving effect to the two acquisitions, which added over 80% that are easy to integrate.

Yeah.

As we move further into 2023.

Economic uncertainty that persists today, it makes it difficult to predict where consumer trends are headed.

But for the most part our core customer continues to be resilient, which.

Which is probably the most important take away from here is that since the first quarter.

Looking ahead, we have positioned our company for strong growth for years to come.

With the Nokia and Rocky gap acquisitions, and our two new series development projects, all of which we expect to drive a material increase in EBITDA and free cash flow when they come in yes.

In conclusion.

It's also not as strong a waterfall of company.

Demonstrating the resilience of our business and the strength of an efficient operating model.

Grabbing play from our core customers.

On behalf of the company's management and board.

To thank our team members, our guests and our stockholders for their continued loyalty and enthusiasm.

Thank you for your attention and operator, we can now start the Q&A session.

Okay.

Thank you at this time, if you would like to ask a question. Please press the star and one on your Touchtone phone you may remove yourself from the queue at any time by personally start to once again that is star one to ask a question.

We will pause for a moment to allow questions to queue.

Yeah.

Our first question comes from Jeff <unk>.

Great. Thanks, Good morning, everyone and thanks for taking our questions helpful commentary earlier in the call regarding margin April trends Peter early whoever wants to take this can you just frame now a bit more at the pullback that you called out and some of the lower income demographics and the database I guess what percentage of the database that this cohort.

Constitute.

Even better what percentage of revenues and then just so you know what sort of income band of this group volunteered or to the extent you have looked at things this way.

Well since we just had them on the lower end and.

It was I don't I think it's not a trend because we saw it in the last few days in March and then.

Going into the second week of April .

But from like from from the third week of April on it.

It came back so it was about a three week period of softness.

I'll, probably have not seen that continuing maybe it has to do with the tax refund season.

You're hearing that.

The the refunds are about 10% lower this year, so that maybe that has to do something with it.

I mean do you have additional color on that.

And we don't know no we don't because we don't have the details that Oh, that's an expert at it and we would have to look.

And then send later.

That's helpful. I appreciate that commentary.

Before I tend to agree with your point that Peter.

The timing of tax refunds, playing a role here.

Perfect and then moving to my follow up question. It looks like margins were up for your Canadian assets really quite nicely quarter on quarter can you just expand a bit more on kind of what's driving that.

Okay.

I think.

Sure.

Tuesday.

Good management right.

Hum.

And we see that keeps putting into place and.

Nothing in particular.

Okay.

Last night, you mentioned is that a new younger year Colby tests being lifted the only I think it was the end of February last year.

So Phil.

Thank you Wade.

Okay perfect very helpful. Thank you both I'll pass it on.

That's on a nice quarter.

Oh.

Our next question comes from Chad Beynon.

Hi, good morning, Thanks for taking my question.

Wanted to ask about just kind of the balance sheet and capital allocation.

Recent calls you've mentioned that Theres really no need to monetize anything whether its selling operations or <unk>.

Some land value, which you know you might not be getting credit for but now that that the nugget has closed how are you thinking about you know I guess, just really revisiting that question with some real estate.

Either to build or sell on that and then on the international operations with Poland. If that still makes sense to operate into the future. It seems like theres a disconnect with where.

Where the stock is trading versus.

What the business and the the asset values. Thank you.

Thanks, Jeff Yeah, Yeah, yeah.

Yeah Yeah.

Evaluating that constantly also in light of Stat I'll stay high interest you are paying and all that.

Yeah, you're right assisting them on a real estate in Colorado in Canada.

And also young and not get so that there's some.

So I'm very interesting discussions going on and.

It's something that is pretty high on our list too.

So to make some some some very hum.

Conditions vary.

Near future.

But the value that the land values there.

If we still have it's.

Thank you.

You have to assume that it's just.

You can tell it's only with the small casinos in Canada.

Colorado, it's substantial.

Substantially the highest in all of our current market cap.

A few weeks.

Intriguing.

That's great. Thanks.

Thanks, Peter and then.

With the the the rare weather that we saw in the first quarter and even the fourth quarter in Reno.

You hadn't assumed operations at that point, but wondering if those lost trips from from over the mountain led to you know pent up trips.

Or were those just simply lost during the period and maybe went elsewhere trying to figure out if Q2 and maybe into the summer period could benefit from Howe.

How bad the weather was prior to that thank you.

Yeah. This is Joe.

It's been targets can you address that.

Yes, absolutely I mean, nobody knows for sure, but oh, okay. It would be maybe half a day trips that Austin. The other has to have both like pent up demand and then to that than most people coming and that night will continue.

With regard to the numbers I think it's important to say to the point to what Peter said.

Anyway during his presentation.

With regard to group business. The constant convinces we expect 'twenty 'twenty four to be a very strong year for their nugget.

Good point. Thank you both very much. Thank you. Thank you, yes, sorry.

Okay got you. Thank you both very much I appreciate it.

Thanks Shannon.

Yeah.

Our next question comes from Edward Engel.

Hi, Thanks for taking my question the Crothers they'll property had a nice bounce back in the first quarter.

Just wondering was that a steady trend throughout the quarter and I guess.

Does that kind of put this property on track to maybe start growing revenue versus the older facility and then is the cost base.

It should it be a generally a higher margin property table since has been relocated to land.

Okay.

And you can have this done.

I'm not sure I understood the question.

Ladies.

Could Robert Lee I mean.

Yeah, I guess since the <unk> deal has been moved into that the temporary pavilion a facility right is it possible just to your revenue and margins higher than it was when it was on that.

On the river.

Yes, it could be.

One of the things he's great conflict, it's now ECA exists abilities, ETF and and I mean, they have to hold it.

No comparison, I mean, I've seen that they believe that there wasn't any customer that it meets the ship.

It's just so much better even if it's only temporary.

Okay helpful. And then is it fair to assume that for the month of April since he took over at the nugget and it's been a relatively clean month in terms of not many big snowstorm is there anything I guess, if so is it possible to give us maybe some sort of EBITDA margin.

CNET property run rate at right now.

I think it's too early.

Got worth a shot thanks.

Yeah.

Yeah.

Our next question comes from Jordan Bender.

Great. Thanks for taking my question, you mentioned kind of the uptick in your properties in Colorado.

One of your competitors in Cripple Creek is undergoing a renovation how much it is.

May be just business, you're taking from that property versus.

Maybe structurally taking some of these people and building loyalty from those customers. Thank you.

Well. This is I mean again, we have the only tomcat loyal customer base in Colorado.

And in Cripple Creek in particular with regard to the ER to.

So the construction going on from the.

Oh compared to this belief.

We think we get a little bit Oh, well said.

Is there any type of they are likely to start operations, but it's not substantial.

We were standing on our own even though even after they are opened literary confidence it will be continue to be doing dilated.

Okay, great. Thanks, and then on my follow up Peter you kind of walk through some of the puts and takes in the margin.

Within the quarter within the U S business you know it is kind of the right way to think about that margin progressing through the rest of the year just given some of the renovation and then some strength and some other properties as well.

Yeah, I mean, we're getting to some stronger quarters now some muscle.

We would hope that.

The margins the margins maybe you can go out pick up a bit from here.

For the rest of the school year.

Okay, great. Thanks, guys.

Okay.

Just a reminder to ask a question. Please press star one.

Our next question comes from David Bain.

Awesome. Thank you just to follow up on that that previous question.

So if we were to look at year over year and 23. It looks like margins were off like 170 basis points or something just on a consolidated basis is that kind of year over year is that something to sort of look for that sort of trend or should we start from a new baseline of where we are and see you know me.

Margins sort of going down from from <unk>.

Yeah.

It should not go down some from <unk>.

They should go up a little bit from from from from this quarter.

As we're heading into the summer season.

Perfect.

Yeah, that's a that's the revenue growth.

We had some some some some hold.

Some hold impact on southern tapered hold in Karachi electric shrugged, though.

Without that you would have seen at the same margin as last year.

And going forward.

Hi, I'm from from <unk>.

Okay, perfect and then.

We're trying to refine our nugget model based on last year's 27 million I'm trying to understand you know if there is a percentage weighting. That's typical on a quarterly basis and then you know I understand that the strength with the convention I Didnt hear much on the unless I missed it on the entertainment calendar and in kind of that.

The capex investments like the slot floor when that could take hold and just your overall sort of cadence or ramp as we look at the next several quarters Stephen year that'd be really helpful.

And that's what I can take that Heath and reading it right now.

Okay.

We have a strong entertainment calendar for the remainder of 'twenty three.

And Osage strong group business calendar.

We believe.

We ordered 100 slot machines.

And we expect a most of them to come in starting mid may so that should get a positive impact on the second quarter.

And then in addition to that we're looking at it.

So what they call a quick cleanup on the floor to make things nice to to improve on the on the layout of the slot machines, how they're laid out to the do a lot of luck on the on this law school.

And we think quite some upside.

Another perhaps it potentially in Sac and Oh, so crum from afar for many English it looks very good.

Okay, great and that that those investments that you make are those I mean, giving you. The the patronage does it take a while for them to sort of understand that theirs.

Those improvements that have been made or will there be market, having just kind of trying to figure out again sort of on a year over year basis, Yeah. How are you.

Yeah, you can't festival.

Everybody in the Florida knows already that there is the new ownership.

And we get nothing but that's about it.

Proposed to different nice comment Ah well and the other thing that we're doing it today about two two.

Or the that the pill the outside of the building to be repainted so pretty soon they will not painting and then everybody will again see there's some things happening. We are we put on the new signage on the on the two towers. So we look for new science large ones that are we brightened the rates did not get slightly we made there.

More niche at Bruce a.

All of which will be coming in the next month and.

We absolutely think that it just really signaled in your spirit, our Danville still completely revamped marketing approach and we're in the middle So lucky non debt.

I believe we will continue.

Continue.

But what is there now, but we will in addition to focus more on the loci might locus market, we think.

That's certainly upside it's Wade.

Right Alright, Thank you alright, thank you Peter.

Okay. Thank you.

Okay.

We have no further questions in the queue at this time I would now like to turn the call back over to today's speakers.

We appreciate everybody joining our call today for a recording of the color.

Please visit the financial results section of our website at <unk> Com and if you have any follow up questions needs to see to reach out to us. Thank you.

Okay.

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

Okay.

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