Century Casinos, Inc.

Welcome to Century Casino's Q3 2020 earnings conference call. This call will be recorded. At this time, all participants are in a 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.

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. 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 news release and SEC filing available in the investor section of our website at cnty.com. I'll now provide an overview of the third quarter results, and after that, there will be a question and answer session. If it wasn't for the corona pandemic, we couldn't be more excited. On a consolidated basis, we have achieved all-time record numbers in the third quarter despite these challenging conditions. Net operating revenue of $95.7 million represents an 81% increase over Q3 of last year. Adjusted EBITDA was $22.2 million, more than three times higher than in Q3 of last year. These fantastic results clearly reflect the successful integration of the three casinos we acquired late last year and the tremendous progress our local operating teams have made since we reopened all properties about five months ago. The strong trends we saw in June and July continued throughout the third quarter. Increased spend per visit, more time spent on device, plus increased return of our core customer. With a somewhat reduced capacity on our casino floors and limited amenities for our guests, Overall visitation to our properties was down compared to last year, but we quickly rebalanced our operating and marketing approach without compromising a great customer experience. Being selective with our amenities, keeping strong controls on the promotional environment, and staying focused on the high margin areas of our business brings expense reductions and new efficiencies, resulting in significantly higher operating margins. While we currently see the positive currents continuing, we have little visibility regarding the impact the corona pandemic will have on our markets going forward. Yet we see continued upside when the older demographics, and they're oftentimes more valuable, feel comfortable returning to our casinos in higher numbers. And we also expect some of the newer, younger customers will convert to regular visitors. The third quarter was the first full quarter, including the results of the three properties we acquired from Eldorado in December of last year. When we closed that transaction, we said it was a truly transformational deal for our company. And now we can demonstrate that with hard facts. Our net revenue almost doubled, our EBITDA more than tripled. And it's become a clearly US-focused operation, with 79% of our total EBITDA coming from the US, 17% from Canada and 4% from Europe. Let's now look at the performance on a segment basis, starting with Colorado. It was a great quarter for our properties in Cripple Creek and Central City. Net operating revenue was up 13% and adjusted EBITDA more than doubled as the EBITDA margin jumped from 25% to 46%. In Colorado, each city has different gaming floor restrictions. In Cripple Creek, the full slot floor is open, but table games are expected to remain closed for the remainder of the year. In Central City, the casino is currently operating approximately 65% of the slot machines, and the black check tables are open. For both cities, alcohol sales stop at midnight, but the casinos are able to operate 24-7. While limitations on the number of slot devices are difficult to manage, we see a significant increase in time on device. We have lower volumes of players, but the players that do come are spending significantly more. We see our core customers as well as some new, younger customers, and they are coming more often, staying longer, and spending more. During the quarter, we announced our third sports betting partnership deal with Tipico. All three partnerships pay us a percentage of revenue with a minimum guaranteed amount per year. This is without an investment or cost participation from our side, so it flows straight to the bottom line. One, that is the Circus Sports site, is up and running already. The other two plan to launch next year. On Tuesday, Colorado voters approved Amendment 77, which authorizes the three gaming towns Cripple Creek, Central Seed, and Blackhawk to remove the current $100 maximum bet limit, as well as to introduce new table games such as Baccarat. Currently, table games comprise less than 15% of total gaming revenue, which is well below the 25% of comparable regional gaming markets, clearly indicating significant upside for Colorado. The improved table game offering will appeal to new customer segments, and higher-worth customers, and we are well-positioned to capitalize on this opportunity. Moving on to Missouri, which is our most important market in terms of EBITDA and cash flow generation. At our two properties in Cape Chardot and Caradasville, about 95% of all slot machines and approximately 53% of all table games positions are available for play. And the results for the quarter were fantastic. Compared to Q3 of last year, when the casinos were under different ownership, we managed to grow net operating revenue by 4% and adjusted EBITDA by 33%. We increased the EBITDA margin from 32% to 41%. Our Missouri properties have done a great job in focusing on serving the best customers in an environment of reduced operating expenses and highly targeted marketing. As a consequence, the primary driver for these great results was an increase in the average bet per player of approximately 16%. Additionally, handle pulls per hour have increased. Guests appear to be playing slightly faster and betting more, which is driving the increase in revenue per player. Furthermore, the slight decline in admissions has primarily come from lower-end players. High-end play has remained strong since the properties reopened. Next is West Virginia, where we reopened our Mountaineer Casino, Racetrack, and Resort in early June. Currently, the gaming floor offers 86% of the slot machines and about 39% of the table games positions for play. Some of the food and beverage outlets have reopened with limited hours of operation. The convention space remains closed. and the hotel is operating with limited rooms available. EBITDA was down 11%. The third quarter started rather soft in July and early August, mainly because smoking was temporarily banned at that time and we only had less than half of the slot machines in operation. From the middle of August on, we were able to allow smoking again and to increase the number of slots to where we are today. that showed positive results immediately with September EBITDA up 13% year-over-year. Currently, hotel occupancy at Mountaineer runs at 88% from Sunday through Thursday and at 98% on Fridays and Saturdays, prompting us to reopen another wing of the hotel with around 100 rooms shortly. Additionally, we have just installed another 30 slots in the very popular smoking section. Because of its resort character, Mountaineer will greatly benefit from a softening or an end of the current corona situation, more so than pure local casinos. And it will also benefit when the over 55 demographic feels comfortable again to come out in larger numbers. So we feel there's good upside. Now let's take a quick look at our operations in Canada, Edmonton and Calgary. The gaming floors are currently operating approximately 60% of the total gaming machines. Hours of operation are limited. There are restrictions on spectators at the racetracks, and the hotel and showroom in Edmonton remain closed. Paper games, traditionally quite an important part of our business there because of the Asian population. We are only allowed to reopen on September 7, so no strong contribution in the quarter at all. Even so, EBITDA was down only 10% at our Edmonton properties and down only 5% at our Calgary operations. The better performers were the two-rate CINOs, Century Mile in Edmonton and Century Downs in Calgary. And as mentioned on a consolidated basis, the Canada segment accounts for 17% of the company's EBITDA. To conclude our look at the operating segments, we look at Europe. where our casinos in Poland had a softer quarter. While the casinos in the smaller cities around the country, which draw most from locals, are doing well, the results of the two larger casinos in the capital city of Warsaw are softer because of a lack of tourists and business travelers. Anyway, the operation is cash flow positive and accounts for only less than 5% of our total EBITDA. With that, a few words about our balance sheet, liquidity, and outlook. As of September 30, we had $62 million in cash and cash equivalents and $184 million in outstanding debt on the balance sheet. The outstanding debt includes $168 million related to the credit agreement with Macquarie, $10 million of bank debt in Europe, and $15 million related to a long-term length lease for Century Downs in Canada. and that's all net of 10 million in deferred financing costs. We do not foresee any substantial capex in the short and mid-term. All our properties are in good shape and we have put all non-essential capex projects on hold for now. For next year, we believe we will return to our more normalized capex program of reinvesting about three to four percent of net revenues into our properties. We are off to a very strong start after reopenings, and we make sure we stay focused on maintaining a disciplined approach throughout our business, avoiding unnecessary costs and inefficiencies to creep back in. We fully intend to keep the focus on a more efficient, higher margin business in place after this crisis is over. Overall, our business has been remarkably stable, with almost all of our business coming from customers who live within driving distance to our properties, It successfully executed a strategy built on our premium local customers. And as we look at the preliminary results for October, the positive operating trends from the third quarter have continued. Monthly EBITDA is roughly in line with July, August, and September. But as mentioned at the beginning, we have little visibility regarding the impact this pandemic will have going forward. With that, 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 enthusiasm as we manage our businesses during these challenging times. 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 in 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. Our first question comes from David Bain with Roth Capital. Please state your question.