Q2 2023 Century Casinos Inc Earnings Call
Good day, everyone and welcome to today's century casinos Q2, 2023 earnings call.
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It is now my pleasure to turn today's program over to Peter.
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 Heitzman spend as our Chief Financial Officer Margaret Stapleton.
We would like to remind you that you will be discussing forward looking information.
Save a lot of 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.
Out of new information future events or otherwise.
It provides a detailed discussion of the various risk factors.
These filings can be.
We encourage you to review these filings.
In addition, swapped all color, where you start to several non-GAAP financial measures, including but not limited to adjusted EBITDA.
Reconciliations of our non-GAAP performance and liquidity measures the appropriate GAAP measures can be found it hard news releases SEC filings available in the Investor section of our website at <unk> Dot com.
And I'll provide an overview of their besides just the second quarter 'twenty to 'twenty, three and after that there'll be a Q&A session.
We delivered record second quarter net revenue of $136 8 million.
Increase of 23% over Q2 of last year.
The increase came from the addition of did not get casino resort in Nevada.
Which we took over on a pizza.
The revenue increase from the nugget.
Offset to some extent by construction disruption at both Mitsui properties.
Excluding the Nuggets.
You do a like for like comparison.
Revenue was down 1%.
She is not bad at all considering the new store construction.
Adjusted EBITDA for the second quarter was $29 3 million down 2%.
And most of all our operating segments, we faced a difficult comparison to last year.
This was most pronounced in April and May which accounted for all of the quarterly year over year decline.
As you May recall early last spring you.
We saw a temporary surge in business after mask mandates and other coffee restrictions are lifted.
Change year over year variance improved sequentially, but something better than last year.
During the quarter core customer trends remained solid.
Actually get lower in the database, we didn't perform quite as sweaters.
Also unrated play continues to drag.
The decrease in EBITA is not surprising.
I know, particularly transitional stage, there's lots going on at the same time, triggering extraordinarily legal compliance and consulting costs and expenses.
Our local management team set to carry extra burdens with the two construction projects in Missouri.
The integration of stick Nuggets and preparations for it take a while it's rocky gap in Maryland.
As you know, both Nevada, and Maryland, a new gaming jurisdictions for us.
Starting in additional one time setup, it's hudson costs of compliance structures.
Or that will soon be behind us and we look forward to being able to fully focus on mentioning the new properties in the most efficient and profitable manner.
With these two acquisitions.
Adding approximately $180 million in revenue and approximately 50 million in adjusted EBITDA as a company.
Significant to increasing our scale and customer base.
On top of the operational distractions, we had to deal with it.
We continue to see inflationary impacts on the cost side of the business.
I mean cost pressures, whether they'd be wage payroll benefits.
<unk> cost decreases our utility cost increases across the board.
Increased expenses in Poland also had a notable impact on company wide expenses inflation in Poland was close to 20% at certain times during the quarter on that makes it was 16%.
These increases had an even notching impact in U S dollars due to a four 2% exchange rate decreased during the quarter.
The promotional environment across our market is heating up a bit as well.
Slowly, but surely we see some of our competitors becoming more aggressive.
Unusual, but it is noticeable.
As you said coming out of Covid, we weren't going to be able to maintain those high margin levers.
Going to stay in that neighborhood.
And we think we can live up to that once you get the aforementioned distractions out of the way.
Looking at segment results.
Let's first discuss the Midwest segment, with our Colorado, Missouri operations.
Revenue was down 3%.
And as a consequence EBITDA was down 11%.
Oh, the Pedro shocked at all considering heavy construction going on at both Missouri properties and the Silicon segment was up against the very strong second quarter of last year.
Table and slot towards but also lower this quarter.
So I don't know what number of trips mainly from lower and at the age 50 plus players.
The spend per trip was essentially flat.
The overall EBITDA margin of the segment sits at 39%.
Down from a high of 43% in Q2 of last year.
In Cripple Creek, Colorado.
We will complete our employee housing project this summer.
Riding accommodation for 30 employees in this tight labor market, especially in Cripple Creek, a small strike gold mining town with a population of less than 2000 and at an elevation of 9494 feet.
That gives us a competitive advantage.
In Colorado City, Missouri.
Just a new permanent land based hotel and casino development is progressing according to budget and schedule.
We plan to open in Q4 of next year.
The new property will have a total of 74 hotel rooms, 12 gaming Taber said over 600 slot machines.
Which is an increase of 20% and gaming positions compared to the older adults.
Most importantly.
Provide significant operational efficiencies it'll be much more convenient for our customers and it will increase our catchment area.
That project is fully funded by Vinci at an 8% cap rate.
Got it all away from Cape Girardeau and <unk>.
New development inside an email if you expect it to open with a temporary casino later this summer.
With that in mind.
<unk> taken steps to create more excitement around the arcade Shadow casino and developing 69 room six story hotel building.
It's on track for opening in the first half of next year.
We've transformed the company into a full resort destination offering gaming dining conference as concepts and more.
Total project cost is approximately 31 billion.
We found that with cash on hand.
As of June 30, 'twenty, three we have spent approximately $12 million.
<unk> will be spent between now and the second quarter of next year.
While construction destruction will continue into the third quarter.
We are confident these investments we'd had drive long term growth pharmacy operations.
The East segment currently includes the Mountaineer casino resort in West Virginia.
Going forward. It would also include the Rocky gap Casino resort in Maryland.
Revenue was down 5% you Peter down 20%.
Revenue in April and May was down 9% due to a decrease in the number of trips and spend across the lower end of the database.
During the week.
Some of it was due to a lasting crossover play from sports betting since Ohio went live from China. So that's just this year.
But we're also hearing that some of it was due to the end of federal Covid subsidies.
Some customers told us they they they had some fears.
So if the government defaulting on the debt ceiling, which only ended in early June .
<unk> revenue was growing again up 4% compared to June of last year.
EBITA was under pressure by higher expenses related to horse racing in insurance.
The hotel and F&B departments are still experiencing staffing challenges.
Starting in limitations two hours of operation and the availability of Hydro hotel rooms.
Continuing to the West segment, which includes the newly acquired Nugget Casino resort in Reno, Nevada.
As reported we close that market transaction on a preset.
Now on top of the market real estate and 100% of the operating company.
We also have an option to buy the other half of their real estate.
And let me tell you we are more excited than ever with that acquisition.
The first three months under our ownership, we increased revenue by 16% over Q2 of last year.
And I'm happy to report the 10th grade revenue trend has continued into July as well.
The steep increase in revenue was driven by a strong convention hotel business and improvements in slot revenue with.
<unk> hundred 20, new slot machines on the gaming floor, which created during the quarter.
Yeah.
The number of trips to the casino was up and so whats the spend per trip.
The majority of the increase came from the high end segment.
For the second half of this year, the Nokia is expecting record business from group and convention space.
Several new.
Hi, spending groups have allowed us to increase our casino comp criteria.
Leading to better overall profitability.
Group room nights E D R and banquet revenue are pacing ahead for the rest of the year.
And we expect to generate record, although the group and convention results from 'twenty to 'twenty three.
EBIT for the quarter was down 2%, mostly due to transition and integration costs and expenses in April may.
<unk> EBITDA was already better than last year.
They take over from a private one that proves to be more cumbersome and trigger more expenses than anticipated.
But that will be behind us shortly.
Improvements to the facade and signage underway as we speak.
More improvement has come on the slot floor as well.
With that he briefly move to our international operations in Canada and Poland.
In the Canadian segment.
Our properties in Edmonton Calgary saw revenue essentially flat in the quarter EBITA was down 8%.
The comparison to last year was tough.
Q2 of last gave us the first full quarter without COVID-19 restrictions.
Also excess to our property in Edmonton continuous to be impacted by road construction, which will continue throughout the coming with the season.
Let me also asking some impacts on our revenues by the Alberta wildfires and the province declared state of emergency in early May.
Sure.
In Poland.
Revenue was up 8%.
So far so good but inflation in the first half of the yet well, 16% triggering significant cost decreases in payroll or rent utilities and insurance.
Inflation has come down things a little bit it's not 11%.
As mentioned previously the war in the Ukraine is not impacting our results negatively it's no significant number of employees our suppliers from the you're correct.
Yes.
Yes.
Alright, let's have a quick look at our balance sheet.
As of June 30, we had 109 billion cash and cash equivalents and 364 million in outstanding debt.
During the quarter, we entered into agreements for each heat to acquire the real estate assets of our Canadian real estate portfolio by approximately 167 million USD cash.
Simultaneously with the closing of that transaction.
Our Canadian casinos will be added to our existing master lease.
And annual rent will increase by approximately 13 million USD.
The transaction subject to customary regulatory approvals and closing conditions.
And would you expect it to close in the third quarter.
After the payment to the minority owners of century downs in Calgary and after fees taxes and expenses will be.
Net approximately 115 million USD.
We plan to use the size of a part of that fish to pay down our revolver and term loan.
On a consolidated.
Elevated basis.
Our net debt to EBITDA ratio.
Three five as of June 30.
The lease adjusted net leverage was $4 nine.
Subsequent to the end of the second quarter, we funded the Rocky gap acquisition with 30 million borrowed from our revolver and $30 million from cash on hand.
So if we look at it on a pro forma basis, including the Iraqi type acquisition and to Canada real estate transactions.
Our net debt to EBITDA ratio.
Will it go down to 2.6.
And to leave the chassis had met the average will be at 5.0.
Sure.
We close the Rocky gap acquisition two weeks ago on July 25th.
Rocky gap is a full service resort less than two hours from the Baltimore, and Washington D C Metro areas and.
And includes an 18 hole golf course defined Patrick Nicholas.
The 5000 square feet event center, several meeting spaces assigned several outdoor activities.
Our company has over 20 505000 square feet gaming floor 630 slot machines 16 tables 198 hotel rooms.
Food and beverage venues.
We expect an easier transition compared to the Nuggets.
However, increasing costs for wages and payroll benefits as well as for insurance the coast quite a challenge to keep EBITDA to where it currently is.
With the Rocky gap in market acquisitions.
The U S casino portfolio that reaches from east to west on a pro forma basis.
We generate over 80% of our EBITDA in the U S.
But the next 12 months, we will keep our full attention to integrate and operate did not get the rocky gap casino resorts asbestos probably.
Profitable post super to increase our cash flow generation and to further strengthen our balance sheet.
It does not plan any major M&A activity until the second half of next year.
At that time.
Half market in Rocky get fully integrated.
And both with our military construction projects will be done then we would be ready for more acquisitions ideally on a larger scale.
Yeah.
Yes.
As we move further into 2023 economic uncertainty that persists today makes it difficult to predict direct consumer trends are headed but.
But for the most part our core customer continues to be resilient.
Looking ahead, we have positioned our company for strong growth for years to come with the market and brokered epic concessions and our two Missouri development projects.
All of which we expect to drive a material increase in revenue EBITDA and cash flow in the coming years.
Many of you have followed us over quite a long time and you know we are not.
Taking a quarter by quarter look.
Our company and the way we are thinking.
Aim to deliver a lot of growth over the next two years because of the pipeline we have.
That's a very strong pipeline of great new operations and project the.
But just joined our portfolio or will come online next year.
They all make sense in any economic environment.
So nothing about the current economy makes us want to change our plans for executing our growth strategy.
On behalf of the company's management that thought I'd like to thank our team members, our guests and our stockholders for their continued loyalty and enthusiasm.
Thank you all for your attention and we can now start the twin day session.
Operator go ahead please.
Absolutely.
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Anytime by pressing star.
Once again Thats star one to ask a question.
We will first go to Jeff scandal.
Your line is open.
Great. Thanks, Good morning, Peter Erwin Thanks for taking the questions.
Maybe starting off here on on some of the cost pressures that you called out in the release and in your prepared remarks. So.
Pocketing it all out there's the construction disruption in Missouri, there's higher costs alongside your recent acquisitions and then there's a continuation of some of the inflationary pressures that you've been seeing is there any way that you could sort of frame out for us how much each of these impacted adjusted EBITDAR margins during the quarter I guess on a year on year base.
As you know really what we're just trying to better understand how much of this is call. It more onetime in nature versus how much of this should we be flowing through to our model into the back half of the year and then it's only 24. Thanks.
Yeah.
It is.
Paul you said about half half of it about half. This is it's a one time big hospital called uncle and they'd be gone.
Impression.
That's exactly what I would tell you it's about 60 to 60.
Okay, and then sorry, just to be clear when you when you say half.
You said half of the year on year adjusted EBITDAR decline.
Yes.
Doesn't mean oven.
Yeah, that's what I would say.
And sorry, just to stay on this subject for one more second I think you called out same store revenue growth.
In in your prepared remarks, what was the what was the same store EBITDAR decline.
We did not disclose that.
Okay. That's helpful. I think I can calculate that from premier disclosures anyway, moving on to Europe for my follow up.
Your comments on the promotional and the marketing environment, specifically competitors, starting to tick back up a little bit and how much. There you know how much that marketing was was interesting. Yeah can you just unpack that a little bit further is there any specific markets that you would really call out here.
With some of this sequential change of behavior is that something you saw post COVID-19 already from some of your competitors and then it settled back down and I'm just what I'm getting at is this is this sort of a flare up or or is there something more structural in response to the macro economic environment that we're in.
I think so.
The miscellaneous properties suffered a bit from the south Illinois.
Competitors.
And mountaineer from Ohio.
Yeah.
But I mean can you add to that.
Yeah, and Bronco and Pollock.
Found it necessary to umbrella marketing efforts.
In response to what our competitors have been doing.
Okay understood. That's that's really helpful. Thank you both I'll pass it on.
Yeah.
We will go next to Jordan Bender Your line is open.
Great. Thanks for taking my question good morning.
He called out the lower end of the database the unrated play.
Maybe causing headwinds in the quarter can you just kind of remind us how much of that play makes up your revenue in the quarter.
Roughly and then kind of looking at that same segment has been lower and in the unrated play maybe how does that kind of look into the first week of August here as well. Thank you.
And I would say that the Android coupons on nickel soon about the alcohol.
The percentage of the unrated play will be between us and 40%.
Oh, Conversely, 60% to 70% are rated play.
And we are seeing our we're seeing admittance data improvement in the unrated segment than OSA and in the NOLA in the segments with little casino activity. They also see some rebound.
Okay, great that's good to hear.
And then just kind of touching back on the margin question, a little bit you talked about.
The timeframe.
To get back here post Covid margin.
This quarter seemed a little bit bumpy.
Is the back half of the year kind of the right way to think about this or not are we not going to see your post SKU Colby margin until all the renovation. They kill all the acquisition integration is done maybe towards the middle half of next year. Thank you.
I think it's hard to take a dollar estimate would be that within the next.
Sorry.
Go ahead.
No.
[laughter].
All right.
Within the next six to 12 months, we should be able to placebo.
To see the effects.
Can achieve one goal.
And certainly these platforms things.
Most of the time, they accommodate already AMCOL debate with them, but we think the next two months or so.
Okay. Thank you very much.
Yeah.
We will go next.
Chad Beynon your line is open.
Good morning, Thanks for taking my question.
Peter I know you don't give give guidance, but you have some nice nice growth here and when when the projects open up leverage should come down. So you said currently 2.6 net debt five times lease adjusted debt, where do you want this to get to before you start considering other inorganic opportunities.
Yes.
Alright.
Net debt to.
EBITDA to Quincy below three signed lease adjusted.
We will not be going up is somewhere around four.
That's I think where we are.
Whats even most comfortable.
Okay.
And then another one just on the margin so.
You mentioned wage pressure and a few other items there generally speaking, how many months or quarters or we enter these increases meaning.
Are we starting to lap some of those bigger.
<unk> expense item creeps or do we have another quarter or two until we anniversary some of that some of those bigger items that that put pressure on margins.
Yeah. It has another cool down.
Cool.
Okay and it it's mainly the labor piece that that you saw increases I guess, starting closer to the beginning of the year.
And insurance.
Yeah and utilities.
Okay, great. Thank you very much I appreciate it.
Yeah.
And once again.
If you would like to ask a question. Please press star and one on your Touchtone.
Key pad.
We will go next to Edward Engel.
Your line is open.
Hi, Thanks for taking my question once the sale leaseback from Canada does close in the third quarter.
Any kind of commentary you can give on what you would do with that cash would that go mostly to delevering or our debt pay down or cause I'm not going to have some sort of capital returns.
Yeah.
Okay.
Yes, we will net about 115 USD out of that transaction, which we expect to close in September .
And.
SaaS part, we have not decided exactly.
Get but the size of a part of that will go.
Towards debt Paydown.
We are paying currently I think it's around 11 point classes of centers are all in on our on our term loan.
So we will use.
Quite a lot of that cash.
Cash.
To pay down debt.
Yeah.
Helpful. Thanks, and then.
The one time costs, you've kind of talked about related to the acquisitions in the second quarter was all of that in Nevada or did some of that trickle into the the east segment as well.
Yeah.
Well both.
Most of it in Nevada.
I think that.
It also but also in Tel.
I don't think so.
I'll kick it.
Thank you Danielle Matsumoto conference any chance.
Take care.
Yeah on the corporate side, we had some additional expenses related to Rocky gap Etsy.
Worked on that pre transition in licensing and things like that.
Okay helpful. And then I guess it would it be similar to assume of these kind of one time costs you saw in Q2, Youll see about similar and <unk>, maybe touch lastly about similar.
Yeah, No that's to Nathan just to put it to you.
Okay.
Helpful I think.
Yes.
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We will pause a moment to allow questions to queue.
And it appears we have no further questions at that time.
We appreciate everyone joining our call today and look forward to talking to you again in early November or at <unk> in October Thank you and goodbye.
This does conclude today's program. Thank you for your participation you may disconnect at Kearl.
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Uh-huh.
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Yes.
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