Century Casinos Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
March 14, 2024

There are 6 speakers on the call.

Operator

Good day, everyone, and welcome to today's Century Casinos Q4 2023 Earnings Call. It is now my pleasure to turn the conference over to Peter Hoetzinger. Please go ahead.

Speaker 1

Good day, 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 our call, we refer to several non GAAP financial measures, including, but not limited to, adjusted EBITDA.

Speaker 1

Reconciliations of our non GAAP measures to the appropriate GAAP measures can be found in our news releases and SEC filings available in the Investors section of our website at cnty.com. I will now provide an overview of the Q4 2023 results as well as our view of how this and next year could evolve. After that, my Co CEO, Erwin Heitzmann and our CFO, Margrethe Stapleton, will join me for a Q and A session. For the quarter, we delivered net revenue of $144,000,000 an increase of 39% over Q4 of last year. The increase came from the additions of the nugget in Nevada and Rocky Gap in Maryland as well as good performances of our Canadian operations, offset by a weaker retail customer, construction disruption at a few properties and the temporary closures of 3 casinos in Poland.

Speaker 1

Adjusted EBITDA was €25,000,000 up 17% over last year. Canada grew EBITDA by 50%, while Poland obviously saw a substantial decline. We did, like everyone else in regional casinos, experienced market softness during the back half of twenty twenty three, especially at the lower end of our customer database and in the retail segment. Coupled with higher costs and expenses across the board, margins suffered quite a bit. We are in a transitional period and also in a traditional process at our company with lots going on at the same time.

Speaker 1

Our local management teams carry extra burdens with 2 major construction projects in Missouri as well as the integration of Nougat and Rocky Gas. Remember, we acquired Nougat and Rocky Gas less than a year ago, meaning we are still early in the process of managing everything as one cohesive portfolio. Considering all that, it was a solid operating performance in the Q4 and full year of 2023 with strong growth prospects going forward. Looking at segment results for the quarter. Let's start with the Midwest, which includes our Colorado and Missouri operations.

Speaker 1

Revenue was up 8% year over year. EBITDA was up 5%. In Colorado, the results of our Cripple Creek property were flat year over year. The one in Central City was down a bit across the major roadworks on both highways that lead to Central City from the main feeder markets. In Cripple Creek, a competing property opened across the street from our casino right after Christmas.

Speaker 1

By now, they have their 300 rooms open as well as some of the SB outlets. January saw a 17% increase in gaming revenue for the entire quadruple print market. We grew by 14%, an early indication that we benefit from their hotel rooms and our proximity to their property. In Missouri, both properties posted revenue and EBITDA growth as well as better operating margins than in Q4 a year ago, a strong and encouraging result considering construction going on at both locations. The number of clips of our top tier segment increased meaningfully during the quarter, while the overall spend per trip was flat.

Speaker 1

In Carradosville, construction of the new land based hotel and casino is progressing according to budget and schedule. We plan to open in Q4 of this year. The new property will have a total of 74 hotel rooms, 12 gaming tables and over 600 slot machines, which is a 20% increase in gaming positions compared to the Old River Board and a 50% increase in gaming positions compared to our current interim casino. Most importantly, the new property will provide significant operational efficiencies, It will be much more convenient for our customers, and it will increase our catchment area. We are more excited than ever about this permanent move to land based.

Speaker 1

What we see now as we operate in a small temporary pavilion is very encouraging. The number of trips increased and so did the spend per trip. So we really can't wait until the new facility will be open in just about 8 months from now. That project is fully funded by VICI at an 8% cap rate. Hence, it does not impact our liquidity position.

Speaker 1

The hotel construction in Quechirado is also on budget and on time. We are very excited about the grand opening in 3 weeks from today on April 4. It will be great to see how adding the hotel will transform that property into a full resort destination offering gaming, dining, conferences, concerts and more. Total project cost is €31,000,000 and we fund that with cash on hand. As of December 31, we had spent approximately €23,000,000 already.

Speaker 1

The balance of €8,000,000 will be spent in the first half of this year. Our East segment includes the Mountaineer Casino Resort and races in West Virginia and the newly acquired Rocky Gap Resort and Golf in Maryland. Because of that new acquisition, revenue of the segment was up 44%, EBITDA more than doubled. At Mountaineer, hours of operation for the casino, available hotel rooms and food outlets are still limited as a result of continued staffing challenges. However, our participation in the J-one visa program has greatly assisted us in improving our offerings.

Speaker 1

Slotcoinin was flat in Q4. Paper games continued to be impacted versus prior year, which we believe is still due to sports betting in Ohio. We should get a better picture of that going into the 1st and second quarters of this year as we have just had the anniversary of Ohio Sports Betting. We plan to further enhance our entertainment offerings throughout the year to further diversify our portfolio, giving our guests more reasons to choose us for their entertainment. As an example, we recently had a very successful MMA boxing event in our ballroom there.

Speaker 1

Rocky Gap experienced small growth coming from the upper end of the database, offset by declines in the lower tiers. From an age standpoint, the oldest and youngest demographics increased, while the larger portion of the database, ages 40 to 70, decreased a bit. We plan to put strong focus on player development in the major feeder markets like Baltimore, Pittsburgh and Washington, D. C, with the goal to migrate players to higher tiers and grow the overall database. As most of you know, Rocky Gap sits at a beautiful lake in Rocky Gate State Park, but up to now the property did not have beach access for its customers.

Speaker 1

But recently we got approval to develop a nice beach area and we'll make sure we have it ready for our customers before this summer. It will be another great amenity that will help drive additional FIT and resort travel to the property and will also allow us to increase resort fees. Continuing to the West segment, which includes Nugget Casino in Nevada. The Nugget saw mixed results during the quarter compared to prior year. Overall, the number of trips to the casino decreased, so did the spend per trip with all declines coming from the lower level customers.

Speaker 1

The top of the database was very healthy as theoretical win increased by 20%. From an age standpoint, the under-fifty segment grew with COVID increasing by 10%, while the 50 plus demographic decreased by 3%. We are optimistic that the second half of this year will be strong when most of the transition extraordinary expenses as well as most project CapEx will be behind us. We have replaced a few key executive team members as some positions left the nugget right after the sale closed last year, which led to a somewhat challenging initial period. The team now is in great shape and is working on remodeling 3 restaurants and bars and is also getting ready to upgrade the sports book.

Speaker 1

In addition, a new high limit slots area will be going in. All of these high ROIC growth projects will be completed this summer. On the marketing side, we expect to go live with new marketing kiosks along with the new marketing component of our loyalty player tracking system also before this summer. The Reno Sparks market is known as a player friendly value market, so we want that improved flexibility with direct mail campaigns and improved marketing programs. Renovations of the facade and signage are done already, and it really looks great.

Speaker 1

Also, our entertainment and special events calendar is coming together nicely and points to a very busy summer season. In the Canadian segment, our 4 properties in Edmonton and Calgary saw revenue growth by 17%, and EBITAAR was up by a very strong 50% in the quarter. All 4 were up in slot revenue, in table revenue as well as in EBITAAR. Access to our Centric Casino and Hotel in Edmonton continues to be impacted by road construction, which will continue through April. The new sports brand launch of that property is driving traffic in the F and B sales and also awareness in the community, especially now that the Edmonton Oilers are performing better.

Speaker 1

So overall, a very promising performance in Canada. To round out our segments, a quick look at Europe at our operations in Poland. The recent national elections triggered unanticipated licensing delays for 3 of our casinos, which caused quarterly results to decrease materially compared to the year before. However, earlier this year, we were awarded all three licenses again and we reopened 1 casino in February already. We anticipate reopening the second one next week and the final one, which is the biggest of the 3 in a new location in the Q3 of this year.

Speaker 1

So from about August on, we'll have all 8 casinos in full operation again. And that should also give M and A discussions a boost. Still, our goal is to sell our Polish operations. With that, let's discuss our balance sheet and liquidity position. Our book value per share is $4 As of December 31, we had €171,000,000 in cash and cash equivalents and €347,000,000 in outstanding debt.

Speaker 1

Net debt is down to $176,000,000 As a result, traditional net leverage is 2.7 times and these adjusted net leverage is now 4.9 times. We are okay with our leverage as we don't judge our leverage just based on a one time snapshot, but rather look at its development over a period of time. The leverage is elevated because of our recent significant acquisitions and investments. It will stay above the long term range until we have fully integrated the acquisitions and until we have completed our CapEx projects later this summer around Q3. From then on, it should lower down to closer to 2 times traditional and 4 times lease adjusted next year.

Speaker 1

Our lease obligations to VICI currently total approximately €15,000,000 per quarter. Once we open the new land based facility in Kuratoslav towards the end of this year, it will go up by approximately €1,000,000 per quarter. So as a rough run rate for next year, for 2025, total lease payments to VICI will be around $16,000,000 per quarter. Interest payments on our Term Loan B currently amount to around €10,000,000 per quarter. Please note that we have no near term debt maturities.

Speaker 1

It matures in 2029. And we have additional borrowing capacity of €30,000,000 under our revolver. We can reprice or refinance the entire term loan at any time without penalty. So as soon as a window opens, we want to act on it and improve our terms. As for our CapEx plans for this year, we are planning to invest a total of between €35,000,000 €40,000,000 into our properties, and that includes normal maintenance and replacement CapEx as well as the improvements at the Nagate and in Canada and finishing the hotel in Quechurado.

Speaker 1

All of these growth projects will help position our casinos for high value customers and will deliver attractive returns on capital to drive growth in their segments. This elevated CapEx cycle will be completed between now and late summer. What's left then is the big move to land based in Caruthersville, but that is fully funded by VICI. So by late summer, we will see significant reduction in CapEx as we move forward. Free cash flow should be improving substantially, both from revenue growth due to the improved facilities and the better customer experience and from a reduction in CapEx and perhaps we'll see a first reduction in interest rates by then.

Speaker 1

Again, we are in transitory period right now, but we have a clear plan to fully focus on generating cash to deleverage and opportunistically also buy back stock later this year next. We are fully focused on the projects that we have underway and are really looking forward to the end of this current intense CapEx cycle. In our view, the Q3 of this year will present kind of an inflection point for free cash flow generation given the rolling off of the CapEx projects. Thinking about our performance in operations this year, as we look forward now, mid January early February were terrible from a weather standpoint. I think that's well understood across the market.

Speaker 1

In the span of 3 to 4 weeks, most of the regional operators were significantly impacted by weather. So we, as everybody else, start in a January hole, as Tom Rick recently put it. In mid February, weather was more back to normal, and we feel that customer trends over the past few weeks have rebounded to 4th quarter levels. We continue to keep a close eye on consumer spending patterns general economic conditions for impacts on our casino and resort customers. To share our outlook with you, with all properties being in great shape in 2025, we see us approaching €700,000,000 in revenue in 2025, with EBITDA margins into the 24% to 25% range.

Speaker 1

Our CapEx in 2025 should come in at approximately €20,000,000 to 5,000,000 Operationally, we are proactive assessing every aspect of our properties, striving for cost reductions and enhanced efficiencies. In closing, I want to reiterate our enthusiasm for the second half of this year and for next year. From the Q3 on and certainly in 2025, results in free cash flow should improve significantly for these reasons. Q3 of this year will mark the end of our elevated CapEx cycle. By then, the NAKAD and Rocket Gap acquisitions will be fully integrated.

Speaker 1

Everything will be operated as one cohesive portfolio. Also in Q3, all casinos in Poland will be up and running again. Then in Q4, we'll open the brand new land based facility in Karatasy. And from then on, we'll have no more construction disruption and all properties and operations across the entire portfolio are in the best shape. The only other point I'm going to make is that from a guidance perspective, as mentioned earlier, last year we had softness in the second half.

Speaker 1

We think that's an opportunity in the second half of this year since that comp is going to be a little easier to meet. And that concludes our prepared remarks. We will now open the call for Q and A. Operator, go ahead please.

Operator

Thank you. And our first question will come from Jeff Stancho with Stifel. Please go ahead.

Speaker 2

Hey, great. Good morning, Peter, Erwin, Margaret. Thanks for taking our questions. Maybe starting off here on the U. S.

Speaker 2

Business, Peter, you talked about broad based softening in the low income consumer, which started midway through 2023. Can you just expand a bit more on how that's trended directionally? Has the low income consumer worsened, stayed mostly stable? And then for the more mid to high worth segments, have you noticed any changes in behavior here sequentially across any of your markets? Thanks.

Speaker 3

Okay. This is Erhan Ali. I'll take the question. This is I think we have to look at it from a on market by market, it differs a little bit. In the East, our customers are visiting our properties as often as before and spend likely is less per visit.

Speaker 3

Visitation declined in Rocky Gap and in Mountaineer and the unit customer count decreased accordingly. For Mountaineer, pen trip is flat and for Rocky Gap, it's up. In Missouri, our customers are healthy. They visit more often. They spent the same as last year.

Speaker 3

Colorado visitation is also the same. People spend slightly less. The middle and lower tiers drive our business in Colorado. And in the market, overall visitation is slightly down. Unique veteran count is flat.

Speaker 3

The younger demographic under 30 years of age increased by 26%, which is interesting and spent per trip is flat. Overall, we don't think that inflation at this point in time needs to be a major concern for us.

Speaker 2

Okay, great. Thanks for all the granularity, Erwin. And then for my follow-up, turning to the Canadian business, it looks like EBITDA margins were up nearly 7% quarter on quarter despite, and correct me if I'm wrong here historically somewhat limited seasonality. Peter or Erwin, can you just expand a bit on what's driving this? Were there any one time benefits in the quarter?

Speaker 2

Is this just sort strong execution on the cost side of things? Just any thought there would be helpful. Thanks.

Speaker 3

Not one time. We think it's strong in conclusion. We really have a fantastic management team there. And it took a while for Central Mile to catch on, but now it has caught on. We were able to also find a solid customer base there.

Speaker 3

And we have every reason to believe that this will stay the same or get better. In fact, because again, going forward, in the Edmonton Casino in a few months, there will be no more impediments due to traffic. And then we're also working on improving both the out outside and the inside for the St. Albert Casino. So these are things that will be positive and we look optimistically into the future in Canada.

Speaker 2

Okay, great. Thanks for that. Erwin, if I could just squeeze one more in quickly. It looks like to me apples to apples CapEx guidance for 2024 was lowered a bit versus the 46,000,000 dollars that was cited in the press release when you reported preliminary Q4 results. Peter or Erwin, can you just talk to this decision a bit more?

Speaker 2

Are you delaying out certain of the projects that you laid out for us in the Q3 presentation? And if so, what's the overall rationale? Thanks.

Speaker 3

Yes. We just so to speak streamline the investments a little bit as we in particular at the nugget, we obviously, that was a learning or was indeed a learning process. And in that last time, we thought we would do another almost upscale restaurant, but we've delayed it a little bit now. We think we're better off focusing on upgrading the existing restaurants for now. That will take us a little time and then we'll see how that goes and then come back to the decision on what exactly we do with an additional restaurant.

Speaker 2

Okay, great. Perfect. That's all for me. Thanks for all the color.

Operator

And our next question will come from Chad Beynon with Macquarie. Please go ahead.

Speaker 4

Hi, guys. This is Sam on for Chad. Thank you for taking our questions. We know it's still early days and there's a lot to be determined on how sports betting or iGaming legalization might occur in Alberta. And now it looks like Maryland is a possibility.

Speaker 4

I was hoping to get your high level thoughts on your online strategy for those regions. And ultimately, if or when they legalize, if it can be a net positive for your operations in those regions?

Speaker 3

I'll take the first part and then hand over to Peter. OSB and iGaming is already legal in inverter. It's provided by the inverter Gaming and Liquor Commission and the casino operators are not participating in that. Peter, would you like to comment on Maryland and our overall strategy, which we'll probably keep as we have it now?

Speaker 1

Yes. The Maryland, they are discussing to legalize iGaming, and we certainly look forward to that with our license. The approach will be the same as we do in Colorado and in West Virginia and in Nevada. We are providing our license to experienced large online game operators. They pay us a percentage of their revenues they generate with our license and that has a minimum annual guarantee included for us.

Speaker 1

Outside of Maryland, we also have hopes for Missouri to legalize sports betting hopefully this year because as you know, we have 2 licenses there and there's strong interest from the online operators. So that would provide us quite a nice boost to our EBITDA in Missouri as well. We have no costs associated with these agreements. So everything that we receive goes to the bottom line. And we certainly feel it's a net net positive for us at all the locations where we have that strategy in place already.

Speaker 1

In West Virginia, as you know, it's not only sports betting, but also already iGaming. And we work with 2 providers there that work very well for us.

Speaker 4

Thank you for the color. And then a follow-up. I wanted to ask about Poland and the ramp for the remainder of the year. Is it possible you guys could start run rating the double digit EBITDA that we saw in 2022 this year? And then on the M and A front, is that something discussions you guys plan on having right away?

Speaker 4

Or do you have to are you going to wait for the properties to sort of ramp up to full capacity?

Speaker 3

I'll answer that one and then hand over to Peter again. So the reason for casino part 2 is casinos was successful. And we believe that at the latest in 2025, we will be back to what we could call normal in casinos Poland, and that would mean 2 digit EBITDA figures in USD. 2024 has started very well in spite of the fact that still Workslav is closed. It's too early to say.

Speaker 3

We don't want to speculate, but it's developing in the right direction. And Peter, maybe you want to talk about our plans for selling?

Speaker 1

Yes. As we have received only 3 licenses again, we have now restarted that sales process early stages, but we think this year second half of this year we have we should have a better chance than before to get a reasonable price for our operations there.

Speaker 4

Great. Thanks a lot for the color. Appreciate it.

Speaker 1

Thanks, Henk.

Operator

And our next question will come from Jordan Bender with Citizens JMP Securities. Please go ahead.

Speaker 5

Hi, this is Eric Ross on for Jordan. Thanks for taking our questions. So knowing that Reno has traditionally been a competitive gaming market, I was wondering if you could provide some details to the environment there nearly through the Q1 and what the group and convention outlook for the year looking like?

Speaker 3

Okay. So, Nogit, obviously arena, obviously, is a very competitive market, and I think everybody has seen pressure partly due to the coming from the bad weather. As you know, part of our market is west of the Rocky Mountains. And whenever there is either an announcement of snow possibly coming or actually snow coming, we and all of Reno Sparks is impacted. Concerning the conventions and events, 2024, in fact, is the I think it has the most exciting calendar.

Speaker 3

We have an impressive lineup of bands, and we have after events like the annual Rip Cook Up with a new radio festival, hot August 9 and a new October phase. Our 8,500 seat outdoor theater is a big draw, and it's quite frankly a unique feature at the nugget.

Speaker 5

Okay. That sounds great. And just a follow-up, with the capital plans discussed, can you give us an update on your thinking about the remaining real estate for the Nugget? Would you ever consider going 100 percent opco there to help pay down debt? Thanks.

Speaker 3

Okay. You be so kind to repeat the question? I think that Costa can not hear you. Yes. So I was wondering if

Speaker 5

you would on the remaining real estate for the nugget, would you ever consider going 100 percent OpCo there and helping pay down debt?

Speaker 3

We don't consider that at this point in time, but we have some more time to make a final decision. Great. Thank you.

Operator

You. And it appears we have no further questions at this time.

Speaker 1

All right, very good. Thanks, everybody. We appreciate you joining our call today. And we will talk again after the Q1. Until then, thank you and goodbye.

Operator

And this will conclude today's conference. Thank you for your participation and you may now disconnect.

Remove Ads
Powered by Quartr
Earnings Conference Call
Century Casinos Q4 2023
00:00 / 00:00
Remove Ads