Century Casinos Q3 2024 Earnings Call Transcript

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Provided by Quartr
November 4, 2024

There are 6 speakers on the call.

Operator

Good day, everyone, and welcome to today's Century Casinos Q3 2024 Earnings Call. 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. Please note this call is being recorded and I will be standing by if you should need assistance. It is now my pleasure to turn the conference over to Peter Holzinger.

Operator

Please go ahead, sir.

Speaker 1

Good morning, everyone, and thank you for joining our earnings call. We would like to remind you that we 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, whether as a result of new information, future events or otherwise. We provide a discussion of the risk factors in our SEC filings and encourage you to review these filings. Throughout the call, we refer to several non GAAP financial measures, including, but not limited to, adjusted EBITDAR.

Speaker 1

Reconciliations of our non GAAP measures to the appropriate GAAP measures can be found in our news releases and the SEC filings available in the Investor section of our website at cnty.com. After our prepared remarks, we will open the call for your questions. My Co CEO, Erwin Heitzmann and our CFO, Margaret Stapleton will join me for that. Our Q1 results were released this morning. We delivered net revenue of $156,000,000 a small decrease of 3% compared to Q3 of last year.

Speaker 1

Adjusted EBITDAR was $32,900,000 down just 1%. Consolidated EBITDA margin increased from 20.6 percent to 21.1 percent. The main reason for the small revenue decline was the temporary closure of 1 of our casinos in Poland. I'm happy to report that in the meantime, 10 days ago, that casino has successfully reopened and Poland is back to normal run rate of around €10,000,000 to €12,000,000 in annual EBITDA. And we had another important opening recently.

Speaker 1

Last Friday, on November 1, we've opened the brand new land based casino and hotel in Carradosville, Missouri. It was a fantastic opening weekend there, more about it a little later. Throughout our portfolio, the underlying customer trends remained stable in the Q3. I'm sure you have heard the same from our gaming peers and from other consumer discretionary businesses. The retail customer as well as the low end customers are still relatively weak, but stable

Speaker 2

at least.

Speaker 1

We see that more or less in all our markets. While rated play was flat, non rated play was down throughout our portfolio. We believe this is mostly due to macroeconomics and wallet softness in our markets. To take a little deeper into the quarter, let's look at segment results. Starting with the East, which includes the Mountaineer Casino Resort in West Virginia and the Rocky Gap Casino Resort in Maryland.

Speaker 1

Revenue of that segment was up 7%, EBITDAR up 5%. At both properties, the low end consumer produced less trips with the spend per trip pretty flat. The mid and upper levels of the database also came less often, but the spend per trip increased versus last year. The performances of the hotels at Mountaineer and Rocky Gap have been improving. Cash rooms increased, while comp rooms went down.

Speaker 1

We did put a bit more marketing dollars to work to drive revenue and get more brand exposure for Mountaineer in the Ohio and Pennsylvania feeder markets and for Rocky Gap in the DC and Baltimore metro areas. Continuing to the Midwest with Missouri and Colorado. Revenue of the segment was essentially flat, EBITDA was down 5%. That is a respectable result considering the disruption we experienced at Carradosville from the development of the new land based facility. As mentioned, the new property opened last Friday with a total of 74 hotel rooms and over 6 60 gaming positions, which is a 20% increase in gaming positions compared to the Old Riverboat and a 50% increase compared to the temporary location.

Speaker 1

And I can tell you I was there, it was a fantastic opening weekend. Right from the get go on the very first day, the new facility set an all time record for coin in and daily revenue, even so we did not have all slots in operation yet. The entire team in Missouri and all of us are really excited about the bright prospect the new property offers. It provides significant operational efficiencies. It's much more convenient for our customers and increases our catchment area.

Speaker 1

The new property transitions the Carradosville operation from an old drillboat and small temporary location to a modern style land based facility, adding significantly enhanced non gaming amenities, expanded gaming options and convenient parking for our guests. We expect a strong uplift of results and should see that on the revenue side fairly soon. The impact on EBITDA will probably take a quarter or 2 until we have worked out the initial growing pains and figured out the most efficient staffing levels. Our other property in Missouri in Cape Girardeau saw a positive revenue trend in the quarter, up 7%, driven by the new hotel as well as food and beverage sales. The hotel we opened earlier this year is ramping up nicely.

Speaker 1

We see a steady incline in occupancy and revenue and that continues into Q4 with a strong start in October. Additionally, we have been seeing a lot of multi night stays recently, which is a nice surprise. The hotel is also driving meaningful growth in F and B sales, offset by higher COGS and staff costs. The team continues to fine tune operational expenses to further increase profitability. Those efforts showed during the quarter, we saw gradual improvements with higher revenue and lower expenses month after month, and we expect that to continue into Q4.

Speaker 1

In Colorado, our property in Cripple Creek continues to benefit from the new 300 room hotel that opened directly across the street from us earlier this year. Wine Inn was up, Table Drop was up and F and D revenue was up as well, all because there's a higher volume of visitors in town. All of that was partly offset by a lower slot hold this quarter and the loss of some of our sports betting revenue. As you know, we had 3 sports betting providers using our licenses in Colorado, but 2 ceased operations recently, in Resurgca and Tippeco. The one remaining is SPED 365.

Speaker 1

Overall, the Missouri and Colorado segment did a great job in maintaining operating efficiencies with some property level margins at 39% during the quarter. Next is the West segment with the Nugget Casino Resort in Reno, Nevada. After a quite disappointing first half of the year, the Nugget showed good sequential growth. Sequentially revenue was up 40% and EBITDAR doubled compared to Q2, but still a bit behind last year's Q3. Gaming revenue was flat compared to last year, but hotel and F and B declined significantly due to fewer group room nights.

Speaker 1

We've mentioned that in recent investor meetings already, the group and convention volumes are down this year. The reason for it lies 2 years back before we took over the operations. Anyway, happy to say that it's looking much better going forward. New top management successfully focused on cost control. Total expenses went down by 9%.

Speaker 1

We remain focused on operational efficiencies to help offset rising labor costs. Locals play was strong in the quarter, up 20% compared to last year. And we also saw a significant uptick in the number of visits from the younger age groups. The nugget has completed its CapEx program in the casino for this year, but we need to spend between €3,000,000 €4,000,000 on elevators next year, which will be increasing our estimate for total company wide CapEx from €12,000,000 to €16,000,000 in 2025. A few words about our small operations in Canada and Europe.

Speaker 1

Canada, we grew EBITDA by 6%, mainly through better cost control. Consumer trends appear pretty stable at all four locations we have in Alberta. In Poland, 2 casinos were still closed during the quarter, one of which is a very important one in the city of Wroclaw, which resulted in a significant drop in revenues. In an apples to apples comparison of the undisturbed properties, both revenue and EBITDA grew compared to last year. Anyway, we have reopened that casino in Wroclaw 10 days ago.

Speaker 1

The business volumes are great. With that reopening, we expect Poland to get back to normal levels quite quickly, which is between €10,000,000 €12,000,000 in annual EBITDA. The sales process is also progressing well. We hope we're hopeful to get it done within the next couple of months. Now let's discuss our balance sheet and liquidity position.

Speaker 1

We ended the quarter with €119,000,000 in cash and cash equivalents and $340,000,000 in outstanding debt, resulting in net debt of $221,000,000 Traditional net leverage is 4.7 times and lease adjusted net leverage is 6.6 times. Of course, the leverage is elevated because of our recent acquisitions and investments. Now that we have the casinos in Poland and the new land based facility in Kuratas will open, it should ramp down quite quickly as we look to delever to 3 times traditional and around 5 times lease adjusted for next year. We have no debt maturities until 2029 and we can reprice or refinance our entire term loan at any time without penalty. So as soon as the window opens, we want to act on it and improve our terms.

Speaker 1

Turning to CapEx. During the quarter, we remained committed to investing and offering new amenities to our guests in order to drive future incremental visitation as well as spend. As of today, we are pretty much done with it, just $2,000,000 to go in Canada and Colorado. Total CapEx for this year will amount to around $38,000,000 For next year, we expect it to come down sharply to about €16,000,000 setting the stage for a substantial increase in free cash flow. But that significant cash flow growth is not only driven by the reduction in CapEx, the most recent casino openings in Poland and Caruthersville and the new spirit of optimism at the nugget in Reno will contribute significantly to much better results in 2025 than in 2024.

Speaker 1

A presentation posted on our website shows you the bridge from negative cash flow this year to the positive cash generation in 2025. As we look ahead, we are confident in our business prospects moving forward. On the expense and labor side, we will continue to focus on operational discipline and look for ways to become even more efficient. As we've said in our last earnings call, this year is a transitory period for us, but we see a clear path forward to generating cash and to delever significantly. In addition, on an opportunistic basis, we also plan to buy back stock.

Speaker 1

All right, that concludes our prepared remarks. We'll now open the call for Q and A. Paul, go ahead please.

Operator

At this time, we will open the question and answer session. And our first question comes from Jordan Bender of Citizens JMP.

Speaker 3

Good morning, everyone. Thanks for taking my question. I want to start in Poland. Peter, can you just kind of help us understand what those two licenses, are they outstanding? Were they denied?

Speaker 3

Or should we expect them to come back? I guess I want to start there.

Speaker 1

Peter, you want to answer? Yes. Paul? Yes. We had a few licenses that expired and the officials in charge did not start the relicensing process in time.

Speaker 1

And that's why we had to close some of the casinos earlier this year or and actually late last year. The important license is really important. I mean, the ones that generate significant revenue and EBITDA for us have been granted again to us. And the last one of those was the one in Rotlach and we opened it 10 days ago. We did not get relicensed for 2 smaller ones and that does not have any meaningful impact on the revenue and EBITDA of, as I said, dollars 10,000,000 to $12,000,000 run rate.

Speaker 1

So for all intents and purposes, Poland is back to normal with that opening that we had 10 days ago.

Speaker 3

Okay, perfect. And then if I can follow-up on that. Does the closing or the lack of relicensing at those two properties change the mindset at all of your willingness to sell those properties? Or can you just kind of update us on where you stand with that process?

Speaker 1

No, not at all. Over the years, the casinos Poland has always had between 6 8 licenses. Sometimes you don't get a small one and sometimes you get it back from a competitor. So there's always a little bit of a fluctuation. But the core operations are fully intact.

Speaker 1

And there's no change in our plans to sell and there's also no change from the investors that are interested in buying because of 1 or 2 small licenses more or less, no change.

Speaker 3

Great. And congrats on opening the property last week. Thank you very much.

Speaker 2

Thank you.

Operator

Our next question comes from Jeff Stancho of Stifel.

Speaker 4

Hey, good morning, Peter, Erwin. Thanks for taking our questions. Maybe starting off here on the Nugget Casino, encouraging performance there during the quarter. Peter or Irwin, could you just add some color on the month by month performance at the property through Q3 and I guess into October? And as you look further out into 2025 and beyond, what are some of the operational levers still left here that you can pull to help drive further sequential improvement and try to close that gap to, we'll call it, 2019 type profitability levels?

Speaker 2

Yes. Thanks. Good question. I'll take that. I think what is and it's a good question to ask because what in the Q3 what we saw is that the negative impact was basically coming almost 100% from the 1st month, maybe from July.

Speaker 2

August September were really getting stronger and stronger. And in the year over year were super encouraging. And we see the same trend continuing into October. So we think that we are really on a very good track there. And as Peter said, everybody is very, very optimistic.

Speaker 2

Concerning the next year or years, we think there is still some operational efficiencies to be found. And there is still opportunity with regard to growing revenue as well. In particular, we are fine tuning the selection of concerts that we're doing. And again, we've made some good progress there already. And we also put a lot of focus on getting more group business.

Speaker 2

Also as Peter said earlier, the only difficulty with the group business is that most of that is planned 2, 3 years ahead. So we only have a certain portion of the market that is planning with the horizon of say less than 6 months, but we're strongly after them.

Speaker 4

Great. That's helpful. Thank you for all that color Erwin. And then for my follow-up, turning to your Canadian assets, it looks like revenues were down year on year after a handful of quarters of some really strong growth. Peter or Erwin, can you just expand a bit on what's driving that?

Speaker 4

And more broadly, if you think about sort of post COVID performance in that market relative to your U. S. Assets, do you anticipate some mean reversion in consumer spend similar to what we've seen the last mean reversion in consumer spend similar to what we've seen the last year or 2 in U. S. Regional markets?

Speaker 4

Just any thoughts there would be great. And that's all from us. Thanks. Sure. The decrease in net operating revenue

Speaker 2

is basically due to 1 casino in the mid century Downs, where the decrease is rounded numbers now about €1,000,000 less in net operating revenue. That is two reasons. The first one is that around €300,000 of net are are to be attributed to the fact that in 2024, we did not have a large event, which was called Chuckwagon Racing. Last time we had that was in 2023. We had it for 3 years in a row, but it turned out not to be profitable anymore.

Speaker 2

So we decided not to do it in 2024. So whilst we lost some revenue, it certainly had a very good impact on EBITDA. And the remaining 700,000 were due to the fact that our competitor, the Ace Airport Casino, which is the closest casino that opened earlier in 2023, while it had a smaller impact to us in Q3 2023, had a stronger negative impact on us in Q3, 20 24. Having said that, we feel that now the market has stabilized and the market shares have stabilized and we don't expect any further deterioration rather on the opposite. I think it's very possible that we can come back there a little bit more.

Speaker 2

With regard to the revenues of the other casinos, I think that's very interested. We NOR in the Fort Road Casino and Essendon by €500,000 and we had small decreases of €140,000,000 and €100,000 in Century Casinos, St. Albert and in Century Miles. On the EBITDA side, however, whilst revenues overall were decreasing by $650,000 EBITDA increased by $180,000 So the operational efficiencies kicked in and we're not unhappy at all with the numbers. With regard to the trends, we think it's from here on out, again, it will only be going on, shall I say, mildly positive upwards.

Speaker 4

Great. That's very helpful. Thank you, everyone. I'll pass it

Speaker 2

on. All right.

Operator

Our next question comes from Chad Beynon of Macquarie Group.

Speaker 5

Hi, good morning, Erwin and Peter, and congrats on the Caruthersville opening. Wanted to start with the illustrative guidance for 2025 in your investor deck. So as we think about the EBITDA bridge from 24 to 25, Obviously, most of this will come from the Caruthersville opening and Cape Girardeau ramp and then I guess, Reno improvement. But has anything changed in terms of how you're thinking about this $150,000,000 of EBITDAR? You mentioned some comments in terms of a ramp of the margin in Caruthersville.

Speaker 5

So should we think about more of this growth to come in the back half of twenty twenty five? Or should it be linear? Thank you.

Speaker 2

Peter, why don't you take that please?

Speaker 1

Yes, Chet. Thanks for the question. As with most property openings and it was for all intents and purposes, this was a is a new opening at Carradosville. Yes, it will take a little bit of time to for us to see the full potential also on the EBITDA line. In terms of TEKG and the nugget, it's a bit more immediate.

Speaker 1

But generally speaking, it's probably more the second half or from the second quarter on of 2025 that we'll see that run rate.

Speaker 5

Okay, perfect. Thank you. And then you mentioned share repurchases could be something that continue to come in just as you're past the CapEx cycle, you have more capacity to execute on this and the stock remains at low levels. What's the I guess, what's the total availability in terms of repurchases? And how should we think about when you could start to execute a little bit more on that strategy?

Speaker 5

Thank you.

Speaker 2

Peter?

Speaker 1

Yes. We will we are not disclosing any absolute dollar amounts. But from that page in the presentation, you see that we expect to generate free cash of between €25,000,000 €30,000,000 next year. On top of that, we have over €100,000,000 on our balance sheet. We do, however, need about roughly EUR 40,000,000 between EUR 40,000,000 EUR 45,000,000 of the cash in the casinos.

Speaker 1

So the real available cash is, if we include next year, probably somewhere between somewhere around €80,000,000 or so. We will not use all of it, but a good portion of it and we'll split that for debt pay down and stock buyback. In terms of timing, it's opportunistic as we have said, and it probably starts either late this year or early next.

Speaker 5

Okay. Thanks, Peter. Do you have a what's the existing basket out there right now for repurchases for availability?

Speaker 1

There's an existing portfolio that has also a $15,000,000 but that can of course be changed.

Speaker 5

Awesome. Thank you both. Appreciate it.

Speaker 2

There don't seem to be any further questions.

Operator

And it appears that we have no further questions at this time. I will now turn the program back to our presenters for closing remarks.

Speaker 1

Thanks, everybody. We appreciate you joining our call today. We'll talk again early next year. Until then, thank you and goodbye.

Operator

Thank you. This does conclude today's Century Casinos Q3 2024 Earnings Call. Thank you for your participation. You may disconnect at any time.

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