Century Casinos, Inc.

Welcome to the Century Casinos Q1 2020 earnings conference call. This call will be recorded. At this time, all participants are in listen-only mode. Later, we will conduct a question and answer session. I would like to introduce our host for today's call, Mr. Peter Hoetzinger. Mr. Hoetzinger, you may begin.

Thank you, Ryan. Good morning, everyone, and thank you for joining our earnings call. With me on the call are my co-CEO and the chairman of Century Casinos, Erwin Haitzmann. as well as our Chief Financial Officer, Margaret Stapleton. We hope all of you, your friends and families, are safe and in good health during these challenging times of the COVID-19 pandemic. As always, before we begin, we would like to remind you that we will be discussing forward-looking information, which involves a number of risks and uncertainties that may cause actual results to differ materially 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 detailed discussion of the various risk factors in our SEC filings and encourage you to review these filings. In addition, throughout our call, we refer to several non-GAAP financial measures, including but not limited to adjusted EBITDA. Reconciliations of our non-GAAP performance and liquidity measures to the appropriate GAAP measures can be found in our release and SEC filing, available in the investor section of our website at cnty.com. I'll now provide an overview of the company's status quo in light of the current crisis, and then briefly review the financial results for the first quarter of 2020. Following the prepared remarks, there will be a question and answer session. As with almost all casino companies, we closed our operations between March 14 and March 17 to comply with the guarantees issued by governments to contain the spread of COVID-19. All of the closures are temporary, with the exception of the casino in Bath, UK, which remains permanently closed. In December of last year, we were in sale negotiations for the Bath Casino. However, in March, not surprisingly, the potential buyer terminated the negotiations. Due to the canceled sale and the negative outlook, we determined that the best course of action would be to voluntarily wind up the Bath Casino Company. We signed the voluntary liquidation resolution last week, and with that, no more losses from Bath will impact our results. In addition, after a conservative analysis, it was determined that the goodwill and license value of some of our operations is impaired, and 33 million have been written off in the quota. During the closures, we've temporarily laid off and furloughed approximately 90% of our team members, except for Poland, where all employees will continue to be paid reduced salaries based on local employment laws. We recognize the impact that these furloughs have on our team members, and we have tried to mitigate a little bit this impact by continuing to provide benefits coverage. We committed to paying benefits to all our U.S. and Canadian employees, inclusive of part-timers, until the end of May. The remaining staff, including senior management, have taken pay cuts and are busy working on budgets, negotiating with vendors, banks, and lessors to manage the cash flow, Our payroll is down significantly and many variable costs fall away while operations are closed. Yet many other expenses, like interest in our debt, rent and lease expenses for some of our properties, real estate taxes, insurance, utility costs, and other expenses continue to occur even while operations are closed. We are currently generating only very limited revenue from our properties. And the net cash outflow during the time the operations are fully suspended is close to $8 million per month. That is including full debt service and rent payments. What can we do to lower that number further and preserve cash? We've recently been able to negotiate the deferral of rent for the land at Century Mile in Edmonton for the month of May, June, and July. The deferral is up for one year and is interest free. We've amended the master lease with VG to waive the minimum capex requirements for 2020 and convert it to next year. That helps us with around $2 million now. Other possible modifications of that master lease, like partial rent relief or rent deferral, are also topics for future discussions with VG. As you know, there are several federal and state relief programs in place in the U.S. as well as in Canada. The specific rules are still evolving. but unfortunately we are pretty certain that at this stage we will not qualify for any of these programs either due to size, revenue levels or existing leverage. Our balance sheet has no new term maturities and we are in full compliance with all our debt obligations as of March 31 and also expect that to be the case for the second quarter. As of April 30 we had $50 million in cash. Again, our monthly cash plan is close to $8 million, including food debt and rent service. Our casinos will need approximately $19 million to reopen operations and cover short-term cash needs at the properties. Talking about reopening, two days ago on Monday, we announced the reopening of our casinos in Europe and in Poland. We opened all eight casinos on Monday morning. Visitation was good. and the social distancing and health and safety requirements didn't seem to pose any real difficulties. All guests were very understanding of the situation and very happy to be able to enjoy real gaming entertainment again after two months of closure. Before the closures, Poland contributed approximately 10% of our total consolidated EBITDA. In West Virginia, the governor announced that in May 14th, horse racing may resume with no spectators allowed. Following this announcement, horses are back in the barn area and started training at our mountaineer facility already. The first race is scheduled for May 31st. We will hold three races per week, all without on-site visitors. This will be very good for parimutuel horse bedding handle and will help lowering the cash burn at that property. Our golf course in West Virginia is also open already and is busier than ever. According to the latest information available, we expect to be able to open the gaming floor at Mountaineer on Friday, June 5th. In Missouri, we should be allowed to reopen our two casinos in a couple of weeks, in early June, based on information currently available. That would be very good news for us because Missouri is our most important market in terms of editor generation. As for the reopening of our casinos in Colorado, We are currently anticipating early to mid-June. And in Alberta, Canada, ADW internet betting on horse races is generating some revenue already. And we will also open the restaurants at some of our Canadian properties next week. That has already been approved and should generate not only F&B revenue, but also increase the betting action on horse races. Casino operations in Edmonton and Calgary will probably start sometime in the second half of June. So clearly the timing and official guidelines regarding the re-openings will define market restrictions, and the various approaches and requirements laid out by the governments and regulators will likely include things like use of infrared devices to check employee and guests for fever, reduced levels of gaming, restaurant, and entertainment spaces, Social distancing and slot machines, table games in the restaurants, the provision and use of gloves, face masks, and hand sanitizers, continuous disinfection of high touch surfaces at shorter intervals, limited restaurant opening hours or keeping restaurants or buffets closed, and other measures to account for varying levels of demand. We've been through all of that in our planning over the last weeks, and we feel comfortable with these requirements. Most of our revenue stems from slot machines, and it's actually relatively easy to employ social distancing in the slot machine areas. Our slot funds are not very often at greater than 50% occupancy anyway, as we've always chosen to have enough slot machines. Our geographic diversity and our locations in hyper-local markets will play a role in our recovery, especially in the early stages where we can expect some pent-up demand. Erwin and I have been in the gaming industry for around 40 years and have operated casinos in the US and internationally through a number of challenging times, including 9-11, the dot-com bust in 2000, and the financial crisis over 10 years ago. Each time, The casino industry has recovered and over time came back even stronger, especially in the hyperlocal gaming markets where we play. All our casinos predominantly rely on a very local and very loyal customer base. And as such, our operations should ramp up at a quicker rate than casinos at destination resorts. All our casinos are local places in urban and suburban locations. with the vast majority of our business coming from customers who leave within 45 minutes from our facilities. Our casinos have negligible meeting and convention business and very few of our customers, if any, travel by air to visit us. In addition, we offer a comparatively inexpensive gaming experience, one that is often still affordable in economically difficult times. So from everything we can see and from what industry consultants are forecasting, local gaming should ramp up considerably faster than destination gaming. The reopening will probably be limited from an amenity perspective, and we will probably see a more pure gamer that comes to the facility, at least initially. On top of that, don't forget most of our customers in the local markets are people who are not in the active workforce, people with pensions, with fixed incomes. Plus, they also get the stimulus check from the government. And finally, if the recent reopenings of casinos are any indication, for example, in South Dakota, Oklahoma, or an Indian country, we have all reasons to be optimistic. I'm sure you all saw the reports that the opening weekends were about 15% to 20% higher than a typical weekend, in spite of social distancing restrictions. Also, a couple of days ago, when Southland Casino West Memphis opened, We got reports of a long line around the building. In concluding my prepared remarks, here's a brief overview of our performance in Q1. The results for the first quarter of 2020 really were a stunning contrast. January and February were great months, really great months. Also, March started very strong, and we were on pace to generate approximately $105 million in revenue and $20 million in adjusted EBITDA for the quarter. Both would have been all-time records, significantly higher than our own forecasts and higher than consensus estimates. Then came temporary closures in mid-March, and we ended the quarter with $87.7 million in revenues and $9.6 million in adjusted EBITDA, increases over last year's first quarter of 92% and 44%, respectively. The growth up until mid-March was substantial, and it was broad-based. Colorado's EBITDA was up 20%, Canada was up 19%, and also the three new properties we acquired from El Dorado performed exceptionally well. Combined, their EBITDA was 25% higher compared to last year under El Dorado ownership. We look forward to ramping up to these kinds of results as soon as possible after the opening. So on behalf of the company's management and board, I'd like to thank our team members, our guests, and our stockholders for their continued loyalty and patience during these difficult times as we managed to properly position our businesses for the reopenings in the new normal. I thank you for your attention, and we can now start the Q&A session. Operator, go ahead, please.

Ladies and gentlemen, at this time we will conduct the question and answer session. If you would like to ask a question, please press star 1 on your phone now and you will be placed in the queue and the order received. If you find that your question has been answered, you may remove yourself from the queue by pressing the pound key. We are now ready to begin. And your first question comes from the line of David Bain with Roth Capital.