Century Casinos, Inc.

Welcome to Century Casinos Q4 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 the 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 and 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 we encourage you to review these filings. In addition, throughout our call, we referred 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 now provide an overview of the fourth quarter results. After that, there will be a question and answer session. Net operating revenue increased by 26%, and adjusted EBITDA grew by 87% over Q4 of last year. Over 80% of EBITDA comes from our operations in the U.S., were four out of five properties posted strong gains in both revenue and EBITDA. We are pleased with the robust results for the quarter, even though our casinos in Canada and Poland were closed over the busy Christmas holiday season. Without these closures, we estimate our EBITDA in Q4 would have been 20 million or more than double that of last year. This great performance is also the result of the successful integration of the three casinos we acquired a little over a year ago and the tremendous progress our local management and operating teams have made since we reopened all properties. Since we reopened, in June that was, the three casinos we acquired from El Dorado, we have been able to grow EBITDA by a combined 26% compared to the same time last year under the previous ownership. That, by the way, on an annualized basis reduces the acquisition multiple we paid for these operations down to as low as three times. The trends we saw in the summer continued throughout the fourth quarter, increased spend per visit and more time spent on device. With a somewhat reduced capacity on our casino floors and limited amenities for our guests, Overall visitation to our properties was down a little compared to last year. But 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. As you know, this is an industry-wide trend, and it looks sustainable. We believe these higher margins will continue to be attainable throughout 2021, and we also see more upside when the older demographics feel more comfortable returning to our casinos in higher numbers. Let's now look at the performance of each reporting segment, starting with Colorado. It was a fantastic quarter for our properties in Cripple Creek and Central City. Net operating revenue was up 20%. and just EBITDA more than doubled to 3.4 million. The EBITDA margin jumped from 20% to 36%. In Colorado, each county has different gaming floor restrictions. In Crystal Creek, the full slot floor is open and half of the table game positions are in operation as of today. In Central City, the casino is currently operating approximately 65% of the slot machines and half of the table game positions. We see a significant increase in time on device and players are spending more per visit. Our market share went up in both markets, but most significantly in Crypto Creek from 10.5% to 13%. One of our three sports betting partnerships is already up and running. The other two plan to launch later this year. All three partnerships pay us a percentage of revenue with a minimum guaranteed amount per year. This is without any investment or cost participation from our side, so it flows straight to the bottom line. And in a couple of months, on May 1st, Colorado casinos will be allowed to remove the current $100 maximum bet limit and introduce new table games, such as Baccarat. Table games currently comprise less than 10% of total gaming revenue, which is well below the 25% of comparable regional gaming markets. clearly indicating some upside for our Colorado operations. The improved table game offering will appeal to new customer segments, for example, the Asian community and higher-worth customers, and we are looking forward to capitalize on this opportunity. Moving on to Missouri, which is our most important market in terms of EBITDA and cash flow generation. and our two properties in Cape Girardeau and Carradosville, about 95% of all slot machines and 58% of all table cane positions are available for play. The results for the quarter were, again, fantastic. Compared to Q4 of last year, we managed to grow net operating revenue by 3% and adjusted EBITDA by 31%. We increased the EBITDA margin from 33% to 42%. and the growth was carried by both properties in Cape Girardeau and Carradosville equally, they managed to achieve similar growth rates. In Carradosville, we even had the highest slot coin in EQ4 in the property's history. The primary driver for these great results was an increase in the average revenue per player of approximately 40%. 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. Overall visitation is down a little, but we clearly see that the decline comes more from the lower end of the database, while play from higher end players remains very strong. Table game revenue, which usually is contributing significantly, has lagged behind the strong slot volumes, because guests are still not allowed to smoke while seated at the gaming table. We hope that restriction gets lifted soon. That will be a good upside for us in Missouri. And the possibility of sports betting legislation later this year or next provides additional upside in that market. This quarter, our Missouri properties go live with a new mobile app which creates lots of opportunities to further increase customer loyalty and also save significantly on direct mail expenses. The app focuses on increasing customer engagement and provides guests access to all amenities and promotions with full account visibility and the ability to take advantage of earned rewards and offers. Next is West Virginia, where the Mountaineer Casino, Racetrack and Resort had a more challenging quarter. EBITDA was down 30%. However, that is not surprising at all because of a temporary smoking ban and, more importantly, a curfew in Ohio where the majority of Mountaineer's business comes from. Currently, the gaming floor offers 94% of the slot machines and 45% of the table game positions for play. Some of the food and beverage outlets are open with limited hours of operation, but the convention space remains closed and the hotel is operating with limited capacity. Because of its resort character, Mountaineer will greatly benefit from a softening of the COVID-19 situation, probably more so than pure local casinos. And it will also benefit when the over-60 demographics feel more comfortable again to come out in larger numbers. Additionally, Mountaineer's best quarters are the summer quarters, Q2 and Q3, so we feel there is good upside ahead. Sportsbetting at Mountaineer Race Dragon Casino operates in partnership with William Hill, and online casino gaming is expected to go live next quarter in partnership with Rush Street Interactive and also with William Hill. Our international operations in Canada and Europe had a difficult quarter. Combined, they contributed 3.7 million EBITDA to this down from 7.8 million in Q4 of last year. They operated under heavy capacity restrictions for most of the quarter and had to close for the Christmas holiday season, which usually is very busy. Since then, Poland has reopened in mid-February, but from what we hear, most likely will have to close again soon. Canada is still closed. On a consolidated basis, these international segments account for 19% of the company's total consolidated EBITDA. As reported, we are in talks with several parties about the sale of the Polish casinos, but as of today, we can't predict the outcome of these discussions and negotiations. With that, a few words about our balance sheet, liquidity, and outlook. As of December 31, 2020, we had $63.4 million in cash and cash equivalents and $184.6 million in outstanding debt on our balance sheet, resulting in net debt of 121.2 million. The outstanding debt included 168.3 million related to the Macquarie Credit Agreement, 10.2 million of bank debt in Europe, and 15.3 million related to the long-term land lease for Century Downs in Canada, all of that net of 9.3 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. We have put all non-essential capex projects on hold for now. On a normalized basis, we reinvest approximately 3% to 4% of net revenues into our properties. Overall, our business has been remarkably stable. With almost all of our revenue coming from customers, who live within a one-and-a-half-hour drive from our properties, we have successfully executed a strategy built on our premium local customers, and we fully intend to keep the focus on a more efficient, higher-margin business going forward. We see continued upside from creating efficiencies and synergies with the recently acquired casinos from El Dorado, and as mentioned, we have more sports betting and table game growth coming in Colorado. We look forward to our casinos and racetracks to reopen in Canada and to an overall very busy summer season in North America. 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 through these challenging times. Thank you for your attention, and we can now start the question and answer session. Operator, go ahead, please.

Thank you. 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 one on your phone now, and you will be placed into 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. Thank you. And we are now ready to begin. Your first question here comes from Jeff Stantio from Stifo. Please go ahead with your question.