Q3 2023 Century Casinos Inc Earnings Call

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Good day, everyone and welcome to the century casinos Q3, 2023 earnings call and webcast tensor full screen mode hover over this finding and click the full screen icon in the center of the viewer.

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Please note today's call will be recorded and I'll be standing by should you need any assistance.

It's now my pleasure to turn the conference over to Peter had singer. Please go ahead.

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

He would like to remind you that you will be discussing forward looking information, which involves risks and uncertainties that may cause actual results to differ 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.

You provided a discussion of stay risk factors in our SEC filings and encourage you to do it legally societies.

So all of our callers.

He felt to several non-GAAP financial measures, including but not limited to adjusted EBITDA.

The conciliation of all non-GAAP measures to the appropriate GAAP measures can be found in our news release and SEC filings.

Literally in the Investor section of our website at <unk> com.

I mean now provide an overview of the results of the third quarter 2023.

After that close to your Manhattan Smith, CFO Margaret Stapleton with join me for Q&A session.

Okay.

We delivered a record third quarter net revenue of 161 million and.

An increase of 43% tickled about Q3 of last year.

The increase came Sunday edition is often not get in Nevada, and Rocky gap in Maryland.

Offset to some extent by weaker retail customer and if he does.

Construction disruption adults, Missouri properties.

We also delivered a record third quarter adjusted EBITDA of 33 million up 19% over last year.

Okay.

These results reflect the value of our strategic focus on our core customers.

Benefits of our recent M&A activities.

In addition, our Martha.

Martha channels business model.

With revenue streams shrunk casinos hotels groups and conventions racetracks.

On an offline sports betting as well as I gaming right.

That's great diversity and stability.

Mr Iraqi market acquisitions.

U S casino portfolio it reaches from east to West 82% of our EBITDA. This quarter was generated in the U S.

13% in Canada.

Less than 5% in Europe.

Overall customer trends remained stable during the quarter.

No dramatic moves whatsoever, we continued to see growth in core customer volumes.

Offset by weaker retail play.

As for medical costs and from the low end of our database.

It remained at lower but consistent levels since the beginning of the year.

You also saw the continued return of 60 plus demographic.

And moderate growth in spend per visit trends, which have helped to offset soft doesn't get lower ADT segments.

Similar to what you have heard from other operators cost precious impact at the margin performance in all regions during the quarter.

Mixed at best this will continue into next year at similar levels.

Consistent with what we experienced last quarter.

Major expense categories increased year over year, but wages utilities and insurance.

Okay.

On top of that we are in that.

Particularly transitional stage with lots going on at the same time, triggering extraordinary legal compliance and consulting costs and expenses.

Our local management teams carry burdens the two construction projects in Missouri.

The integration of knockout then dropped again.

So overall, while we see no signs of softening in underlying consumer demand.

It's a mixed picture in terms of property margins.

Relative to the second quarter.

<unk> decelerated in Missouri, Nevada at E proof in Colorado in West Virginia.

Yeah.

Looking at segment results.

The first is cost to meet what used to take months without Colorado, Missouri operations.

Revenue was flat year over year EBITDA was down 4%.

Oh, the beta stocked at all considering construction going on at both of these three properties.

Construction on both roads, that's U S six and <unk> 70 from Denver to Central City, Colorado.

The EBIT the marching up the segment was 38%.

Comparing to 39% in Q3 of last year.

Number of trips and spend as the spend per trip of a top tier segment increased meaningfully during the quarter.

Offset by weakness in the lowest segments.

Hey, Corrado Sweet misery construction of a new permanent plant based hotel and casino development.

Progressing according to budget and schedule.

We plan to open in Q4 of next year. The topping out ceremony was held two weeks ago on October 20 <unk>.

The final theme of steep portion of the project was put in place.

Okay.

The new property.

Loss 74 hotel rooms, 12 gaming tapers and over 600 slot machines.

And she said, 20% increase in gaming positions compared to the older the boat.

Most importantly.

We'll provide significant operational efficiencies.

It's been much more convenient for our customers.

And if we increase our catchment area.

We are more excited than ever about this permanent moves to land taste.

What we see now as you all creating a smart temporary land based familiar.

He is very encouraging.

Table drop in Q3 was up 26%.

Cleaning up 6% S&P revenue up 71%.

Can't wait until we opened a new facility in less than 12 months from now.

Project is fully funded by Beachy at an 8% cap rate.

Yeah.

Staying in Missouri about moving onto century casino Cape Girardeau.

About an hour and 15 minutes away a new casino opening in southern Illinois in August.

We saw a small decline in revenue the first two weeks.

Williams has bounced back and played out throughout the end of the quarter.

I'll I'll tell I'll turn project he Kip trials always on budget and on track for opening in April.

And it will transform the property in the foot resort destination offering gaming dining conference's concepts events and more.

Okay.

Total project cost of $31 million, which will fund with cash on hand.

As of September 30, we spent.

Approximately $17 million.

The balance will be spent between now and the second quarter of next year.

Yeah.

Our East segment includes the mountaineer casino resort in West Virginia.

And the newly acquired Rocky Gap Casino resort in Maryland.

Because of that new acquisition revenue of the segment was up 45%.

EBITDA was up 60%.

The EBIT margin increased by two percentage points.

Mountain, Yes, Stephen's pedaling with staffing challenges leading to limitations in our self contained in S. E T operations during the week.

Paper games continues to be impacted by Ohio sports betting.

The majority of that decline was experienced from guests in the lowest HD segment.

We've started to work with our sports betting partners I'm trying promotions to increase retail sports book traffic with the goal of attracting back some of the loss table crossover play.

On the positive side slot volumes are up year over year.

Driven by more visits from highest stent publish it from the top tiers.

Rocky gap, which we started operating at the end of July.

What's affected in the lower tiers of the database as well.

But the substantial non gaming revenue generators showed resilience and maintain similar volumes to prior year.

Just yesterday, we successfully completed the conversion of the gaming system at players club to Irish you've got systems.

That puts us in a better position and provides much more granularity to offer flexible and high yielding promotions throughout the database.

With a strong focus on player development and focused efforts in major markets like Baltimore, Pittsburgh in Washington D C.

To be able to migrate players to higher tiers and grow the overall database in 2024.

We're also planning several gross Capex initiative central could get from upgrades to restaurants, Darius interior renovations to more slot machine purchases.

Our opinion to the West segment, which includes the Nugget casino resort in Nevada.

Our focus has been and still is on driving revenue, increasing the database and gaining market share.

Since we took over on April 30 of this year revenue has grown by 9% compared to the same period of last year.

That growth is broad based gaming S&P and ticket revenue all increased substantially.

The number of rated players increased trips.

Tricks are up and spend per trip increase this way.

From ADT standpoint, all segments really the flat year over year also increases.

Looking at the age demographic and a third group showed the largest increase in the number of players in trips.

Makes sense of the facade and sign it.

And it really looks great.

More improvements are coming.

Putting further gaming for upgrades.

The addition of a spa and an upscale restaurant and upgrades to existing restaurants.

Yes.

In the Canada segment of our properties in Edmonton, and Calgary saw revenue grow by 4% in the quarter EBITA.

EBITDA was down 8%.

Access to our property in Edmonton continues to be impacted by a road construction.

It will continue throughout the winter season.

We just opened the sports about their ability to integrate especially during hockey season.

Essentially mile Este Airport also continues to grow business volumes with slot revenue up by 7%.

Same as in the U S. The customer continues to be strong and stable.

But inflation your precious higher operating costs and expenses led to an EBIT decline.

As reported during the quarter, we closed under our real estate transaction with BG.

Our Canadian casinos have now been added to our existing master lease with annual rent of approximately $13 million.

With that let's have a quick look at our balance sheet.

As of September 30, we had $189 million cash cash equivalents and 348 million in outstanding debt.

Net debt is down 259 million.

With funds received from Beachy for the Canadian sale leaseback transaction.

<unk> made me enough debt, which we had borrowed under our revolver to close the Rocky gap acquisition.

As a result traditional net leverage is two two times.

Lease adjusted net leverage is now down to four two times.

Our lease obligations to the Chi.

Total approximately $14 million per quarter.

<unk> already includes Rocky gap in Canada.

Once you open the new land based facility in Colorado slightly towards the end of next year.

You could go up by approximately 1 million per quarter.

So as a rough run rate for 2025.

Total lease payments to <unk> will be around 15 million per quarter.

As you know.

We reported legal obligations to meet you as a finance lease and it's included in the same line item is the interest payments on our debt and the line item called interest expense.

Interest payments on our term loan b currently at around $11 million per quarter.

Also please note that we have no near term debt maturities until 2029.

And we have additional borrowing capacity of $30 million under our revolver.

In the next 18 to 24 months, we're planning to invest a total of approximately $35 million into our properties.

And that's all in the past the normal maintenance and replacement Capex of around 25 billion yeah.

These are attractive value creation Capex project.

As projected EBIT returns of 20%, Ohio.

Okay.

On the other hand, we do not plan any M&A activity for the remainder of this year and for next year.

We remain fully focused on our existing operations on the integration of market and Rocky gap and to delivery of the two Missouri construction projects.

All of those will significantly improve customer experience and cash flow generation to further strengthen our balance sheet.

Going into the fourth quarter, we expect the trend among both core customers and retail players.

Main consistent with the last several quarters.

We also expect that overall expenses should be sequentially consistent with the levels. We saw in the second quarter.

None of us while some inflationary pressure appears to be moderating, we don't expect our overall expense structure to be increasing disproportionately going forward.

Overall, we are pleased with the strength and resilience of our properties.

The stability of our operations and the performance this quarter highlights the benefits of a geographically diverse portfolio.

Looking ahead with our company for strong growth for years to come with the new acquisitions, and our two Missouri development projects.

All of which we expect to drive material increases in revenue EBITDA and cash flow.

That is a very strong pipeline of great new operations and projects that just joined our portfolio always come online next year.

And we can't wait for 2025, which would be the first full year showing the full earnings potential of everything we're working on today.

So on behalf of the company's management and board.

Team members, our guests and our stockholders for their continued loyalty and enthusiasm.

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

At this time, if you'd like to ask a question. Please press the star and one on your telephone keypad.

You may remove yourself from the queue at any time by pressing star tail. Once again that is star and wanted to ask a question.

Well now take our first question from Chad Beynon.

Your line is now open.

Good morning, Nice results Peter Thanks for all the the prepared remarks.

Wanted to start with nugget it appears that.

The business is going really well now that you've kind of had your.

Your hands on that property for a couple of quarters could you just talk about anything else in terms of market trends. You know maybe bookings are at a conference Center I believe you said that the high end continues to do well.

Everywhere, but a nugget I think you said you know all segments were up or flat. So are you taking market share are you growing the property I'm just trying to get a sense of how this continue to grow thanks.

Okay.

Okay.

Thanks for your questions.

Concerning the market trends.

It has to be said that arena is very competitive and continues to be and that we can hook out of the ground from everything we can see and we start to see is how do you see potential to increase our market share.

Bookings for 'twenty for a solid and statements and so I think for the hotel said is in dollars. So it is for the contract 10 days later.

With regards to shows and.

Daniel totally not thousand.

Visitors are where we have booked about half of the shows that we plan to do with the other half.

Probably coming onto in the next months. These bookings are not dependent on us alone. They very much depend on the tenure is a fever pitch 10 day stay.

How how well they can fit.

Into the titling scheduling.

That's great I appreciate it thanks, everyone.

And then just going back to your comments on the retail or the low end customer I think you said it hasnt changed it has been a little bit of a drag across the portfolio.

But wanted to ask what percentage of your business is made up of.

Of this group of customers.

And you know do you expect for it for it to kind of flatten out is there anything changes and changing in terms of promotions towards.

That lower end and and do you believe at some point. This can start to you know be be flat from a year over year perspective based on what youre seeing in the trends. Thank you.

I think in the simplest factor that we're taking a two pronged approach.

First one is that we focus on the higher end of the market and that's really where the mature focus lie.

I think for good reason.

And the second part would be to to keep them in.

Incentivising, the lower end of the market and testing, which things we can do there.

But that's what makes sense and what doesn't make sense. So.

It's obviously a much more sensitive on the lower end because the the head count is much higher than if you spent too much too quickly you could could keep them yesterday. So Atlantic in the focus number one focus is on the higher end and to try to maintain as much as possible on the lower end.

Probably with a lower haynesville only a change when the economy turns like inflation go the other way.

Okay, and what's what's rated as a percentage of the database roughly.

It depends very much on where you draw the line in other subjective but.

You may now.

Also of customers and revenue.

Either or I guess in customer base.

Hum.

Let's say, it's probably.

Anywhere between 30 and 50%.

In late so Im sorry, I think the question was how much of a place is rated.

Yes, Oh, that's a different question.

Alright, and then Nuggets Ah Ah Ah Ah Kansas.

We have 69% weighted and that compares to pre COVID-19.

67%.

Alright, Okay. So rated play has actually gone up during COVID-19 being named to Newsweek's 2020, we play at the naphtha goes on the 6% to 9%.

I appreciate it thank you guys.

We'll take our next question from Jordan Bender of Chardan. Your line is now open.

Great. Thanks for taking my question.

Looking at the balance sheet you guys you know as we see.

Sit here today, you have plenty of cash sitting here.

Kind of gone through what might be the best uses of cash for the business, but with your debt now over about 11% and it seems like you have the cash on hand to get through most of these projects that you've talked about in the call I was wondering.

Is it makes sense to start paying down debt more rapidly here.

To kind of generate that free cash flow.

Yeah.

Certainly.

As we said in the call we have about $25 million maintenance capex on an annual basis and on top of that we intend to spend about 35 million.

For.

For projects.

So all of our properties clothing market.

Thanks <unk>.

So.

That's already 60 there.

And then.

We can see you can see how it goes in the next couple of quarters.

Yeah.

Like until the first quarter I don't expect any major debt repayment.

It's been reinvesting our properties trust.

Understood.

And then switching to pull on it looks like you have.

Maybe two licenses that have expired just thinking back a couple of years when that happens.

Sheen's get turned off but you continue to pay your employees. So was there any impact at least during the third quarter from kind of that.

And maybe just any update around the process of kind of getting those licenses back online and any timeline there. Thank you.

No.

You can take from.

Hmm.

Right.

That was enough to say that there was no impact of out of that in Q3 because of the closeness only came in Q4.

And with regard to the process you know the answer.

As we can so we really don't know.

All of those license just sort of thinking about it already there hasnt been yet it could happen any day any week now but are we really we really don't know.

Got it.

Did they have to hit the elections in Poland and.

There's no no new government informed.

That's holding the process up.

It's unfortunate, but it has to do with it.

Those selections into politics.

And just to confirm well those assets or a close you still continue to have to pay those employees correct.

Yeah.

Okay, the labor laws in Poland to differ significantly from the labor laws in the United States or in North America for that matter and it's basically the only option to just keep paying them.

Yeah.

Okay. Thank you very much.

Well take our next question from Jeff Angela.

Jeff Your line is now open.

Uh huh.

Yeah.

Yeah.

Go ahead, Jeff.

Okay.

Okay.

Teams as Jeff has disconnected, we will take our next question from CK Doll CK. Your line is now open.

Yes, Hi, I have a strategic question I missed the first part of your.

Presentation.

Right.

The strategic question in my mind is have you taken on a lot of this new capacity and acquisition.

During a period when interest rates were very low and now you are faced with a seemingly.

For a long period of operating losses based on the very high level of debt that you've taken on that.

Could you, possibly address that so that I could understand it better.

Okay.

We have.

We have a class three properties at the end of 2019, and we have taken on debt.

At that time.

And then we made another major acquisition.

Which we signed in.

In February of 'twenty two.

And at that time, we wanted to be entered into that transaction.

Close to the year later, but when we entered into the transaction February 22.

We.

Entered into a new.

Loan facility with Goldman Sachs.

And.

And that's is that is what we are what we're faced with now you know on the one hand speaker.

We've got you know Amy we're fortunate to get it done at the end of February 'twenty, two because a.

A few weeks later you recall in March end of March the debt markets pretty much closed for some time because of their ashington Veda in the Ukraine.

Okay.

And so we could.

Close that transaction.

After licensing deal data, but now we are faced with those terms.

We are free to repay the term loan anytime.

As soon as we find something better out there.

But for now we are faced with.

That's great.

So surplus fix.

And it is one of them.

Okay.

Yeah.

We will now take our next question from Jeff Stansell, Jeff. Your line is now open.

Great. Thanks can you can you guys hear me this time.

Yes.

Okay, perfect and apologies for the technical difficulties there anyway, starting off here I just wanted to drill into margins a bit more specifically focusing on the U S segment, Peter or when could you just disclose for US what same store margins were year on year for the U S region in aggregate and then kind of unpacking that decline I was hoping you could just frame out.

In your mind, whether qualitatively or putting some numbers behind it how much is some of the structural inflationary pressures you called out labor and utilities.

How much is more kind of one time headwinds with the new assets and the construction.

Mhm.

So.

Uh huh.

The microscope from Q3 of <unk>, we had in March and you can match that.

And in Q3 of 'twenty three with an auction it was 26, 1%.

And the margins differ from Com Casino casino.

Hum.

With regard to.

On the cost side.

We clearly had our integration costs for the two new properties.

And Oh Rocky gap.

We still have some kind of construction disruption, which also leads to some.

No revenues and costs.

And as you know Kate.

Vacate charter hotel will be opening in Q2 of next year and to come out of this really in Q4 next year, then that would be.

And what exactly would be digested and then hopefully the synergies start to kick in step by step.

With regard to labor cost utilities insurance.

Gotcha.

As Peter said earlier, we don't.

That doesn't mean that.

That wouldn't be any further increase in those.

Okay. Great. That's helpful. Thank you and then as a corollary to that Peter I wanted to kind of follow up on one of your comments towards the end of the prepared remarks. I think you noted you think opex or margins will be roughly stable from Q3 moving forward inflation.

Inflationary pressures are moderating those still impactful so I guess it is.

It is the net net of that that you know inflationary pressures continue to pressure margins, but Conversely, some of the one time headwinds are going to roll off and those dynamics roughly offset each other or am I am I thinking about things the right way or can you just expand on that a bit further.

Go ahead please.

I think it's.

I would say I think youre on the right track net debt we take assembly.

Okay perfect. That's helpful. Thank you all right and then if I could just squeeze in one more I wanted to follow up on I don't want to Chad's questions earlier, we didn't hear one of your peers that operates in Reno talk to U S. A L.

Eat at promotional activity from a couple of competitors in that market. Some higher free play you know more aggressive room comp things of that nature are you seeing similar did that factor in your results during the quarter or just any thoughts on that dynamic.

Yeah, we see some of that.

That's one line of tools.

So quite small outbreak they don't take the hotel attached to some of the ankle quite a.

Proactive she's not to say anything to the market.

And we just have to just observing when we're not calling that equates to.

Okay understood. That's helpful. Thank you very much I'll pass it on.

Okay.

Okay.

I have no further questions I will now turn the call back over to your presenters for any additional or closing remarks.

Alright, Thanks, everybody. We appreciate you joining our call today.

You've been talk again after the first quarter, but I'm sure we'll see each other at some conferences between now and then thank you goodbye.

Ladies and gentlemen. This concludes today's conference call you may now disconnect.

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