Century Casinos, Inc.

Hello.

And pardon me, ladies and gentlemen, we apologize for the technical delay. We're now ready to begin, and welcome to the Century Casinos Q1 2021 earnings conference call. This call is being 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. and Mr. Hoetzinger, you may begin.

Good morning, everyone, and thank you for joining our next 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 will now provide an overview of the first quarter results and after that there will be a Q&A session. Adjusted EBITDA for the quarter was 14.7 million An increase of 53% over the first quarter of last year doubled the EBITDA of Q1 2019. The results were driven almost exclusively by our properties in the U.S. because our casinos in Canada were closed for the entire quarter, and in Poland they were closed for most of the quarter. Without these closures, we estimate our adjusted EBITDA would have been around $22 million. So, yes, it was a great quarter. January and February were good. March was exceptional. And it is great to see that strength continuing into April and early May. As most other local and regional casinos, we are benefiting from pent-up demand. Well, actually, I'm not sure if we can call it that because that strong demand has been around since June for almost a year now. But anyway, we are benefiting from strong demand, from easing restrictions, from the vaccine rollout, which is driving the older demographic back to the casinos, from strengthening consumer confidence, from the preference for close-to-home entertainment, and from the fiscal stimulus. All of that has improved visitation as well as spending levels at our casinos, and together with our disciplined and efficient operating strategy, contributed to these great results across our portfolio. We are confident we can keep delivering strong performances throughout the rest of the year, especially when looking at the very important 60-plus demographic segment. That lucrative 60-plus-year-old customer only started to return very recently, indicating more upside ahead. We have seen some growth from this demographic in March, but many were still cautious and remained on the sidelines. and as COVID vaccinations continue to roll out and restrictions lift, we expect visitation to improve further as the year progresses. We've also benefited from new player sign-ups, especially at our three new properties in West Virginia and Missouri, where new sign-ups were 30% higher than in Q4 of 2020, and the worth of these new players was even more impressive. It was 41% higher compared to the first quarter of 2019. This influx of new players is providing us the great opportunity to grow our database, identify high-value players, and convert them to loyal, regular visitors. The strong revenue trajectory, coupled with a substantially reduced fixed cost base, should translate to continued meaningful EBITDA levels well ahead of 2019 benchmarks. Other than the positive revenue trend, The big question is whether the high operating margins are sustainable. For the third quarter in a row, we have been able to achieve high operating margins, and yes, we do believe that we'll continue to be attainable. High operating margins depend on high revenues and a disciplined approach to operating costs and expenses. We believe we will see sustained margin improvement relative to 2019 levels through more efficient marketing practices reduced labor costs, and the elimination of certain margin dilutive amenities. Savings come from many areas, including but not limited to promotions, direct mail, advertising, outside hotel comps, and costs of goods sold, especially in S&P. Should competing operators get more aggressive with promotional activity or even start bringing back margin dilutive non-gaming amenities that have been scrapped during COVID, That could have an impact on our margins. This is something we have to watch out for. But at this point, we haven't seen any significant impact in any of our markets, even as other entertainment options, Las Vegas, for example, have started to come back quite strongly. This is encouraging and has continued into April and early May. But clearly, revenue trends have the biggest impact on whether those margins will stay up or go down a little bit. makes us feel good as we expect a significant amount of true pent-up demand from the 60-plus-year-old demographic as mentioned. The play levels of that demographic are kicking in as we speak and support and boost regional gaming revenue. And most importantly, the EBITDA flow-through should continue to be strong as the marketing spent behind this player base is pretty limited. Let's now look at the first quarter performance of each reporting segment, starting with Colorado. It was a fantastic quarter for our properties in Cripple Creek and Central City, with both casinos clearly outpacing even pre-COVID levels. Net operating revenue was up 40% over 2020, and it was up 17% over 2019 in spite of capacity restrictions throughout the quarter. adjusted EBITDA was up fourfold over 2020, and it was up 62% over 2019. The EBITDA margin jumped to a first quarter record of 33%. In Colorado, each county has different gaming floor restrictions. In Cripple Creek, the full slot floor and about half of the table game positions were open during the quarter. In Central City, the casino was operating approximately two-thirds of the slot machines and half of the table game positions. Our market share went up in both markets, in Copper Creek from 10.6 to 12.3% and in Central City from 27.4 to 30.8%. We anticipate continued strong performances in the summer months and see further upside from two more sports betting launches and we see growth in table game revenue from new games and higher limits. So far, only one out of three sports betting partnerships is 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. And that's without any investment or cost participation from our side. So it flows straight to the bottom line. Moving on to Missouri. which is our most important market in terms of EBITDA and cash flow generation. There are two properties in Cape Girardeau and Carradosville. All salt machines are in operation, but only 54% of all table game positions are available for play. And the results for the quarter were, again, fantastic. Net operating revenue was up 44% over 2020, and it was up 27% over 2019. Adjusted EBITDA was up two and a half times over 2020, and it was up 77% over 2019. The EBITDA margin jumped to a first quarter record of, listen to this, 49.7%, truly remarkable. At Cape Girardeau, slot revenue in the quarter was the highest quarterly slot revenue in that property's history. The month of March was a record-setting month for the property in several areas, Slot revenue and total revenue were both monthly records. March also had the highest monthly gas count seen at the property since reopening in June. F&B cash revenue was at its highest monthly total since reopening, while seeing only minimal increases in comps. Table drop and revenue has a lot of upside still, as we were operating at reduced capacity and with restrictions such as no eating, drinking, or smoking at gaming tables. We continue to get very good customer feedback for the new mobile app. 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 rewards and offers. And for us, that means lots of opportunities to further increase customer loyalty and also save significantly on direct mail expenses. In the not too distant future, Missouri could legalize online sports gaming and betting and iGaming, which could bring additional revenue and EBITDA upside for us in that market. Next is West Virginia, where we operate the Mountaineer Casino, Racetrack, and Resort. Adjusted EBITDA doubled compared to Q1 2020, but was down 25% compared to 2019. That is not surprising because of a temporary smoking ban and a curfew in Ohio, where the majority of Mountaineers' business comes from. Currently, the gaming floor offers about 94% of the slot machines and 47% of table game positions for play. Some of the S&P outlets are open with limited hours of operation. The convention space remains closed, and the hotel is operating with limited capacity. Because of its resort destination character, Mountaineer usually draws quite a lot of its business from customers staying for a night or two, which was difficult in the last 12 months. But now, especially since March, we see a strong uptick in business, which we believe is directly linked to more people getting their vaccinations and feeling comfortable getting out of the house for short trips or overnight stays. So we've started to see first indications that Regional Destination Business is returning. Hotel reservations have increased to the highest level in more than a year. In fact, preliminary numbers for April for EBITDA exceeding 2019 numbers. It is early days still, but we may see a great comeback of that property as the year progresses. And our online casino gaming has gone live in April in partnership with Rush Street Interactive and William Hill. Internationally, our operations in Poland were closed for most of the quarter. We operated for a couple of weeks in March only. And the very latest news we got this morning points to an opening in early June. Monthly cash burn is about a million. As already 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 negotiations. It takes time. but we are pretty certain that we will have a more precise update for you in our next earnings call. And in Canada, we were closed for the entire quarter. We currently anticipate reopening sometime next month, early June, but that's pure speculation at this point in time. Hospitalizations and vaccination rollouts as a percentage of the population are the key factors for reopening. Vaccination distribution is gaining ground It's about 30% have at least the first dose. The monthly cash burn there is about 1.4 million while we are closed. Once we are allowed to reopen, we expect to realize labor efficiencies with limiting amenities to actual customer demands, which should result in increased EBITDA margin. Additionally, the potential licensing for online sports betting in Canada could provide significant upside for us in the province of Alberta, where we have four out of 28 licenses. That concludes the roundup of operations. Now a few words about our balance sheet, liquidity, and outlook. As of the end of March, we had $66 million in cash and cash equivalents and $184.4 million in outstanding debt on our balance sheet. resulting in net debt of $118.4 million. The outstanding debt included $167.9 million related to the Macquarie Credit Agreement, $9.9 million of bank debt in Europe, $15.5 million related to long-term land lease for Century Downs in Canada, and that's a net of $8.9 million in deferred financing costs. We are going ahead with the select CapEx projects, mostly new slot product. Other than that, all our properties are in good shape and do not need any substantial investment. Overall, our business has been remarkably strong. With almost all of our revenue coming from customers who live within a one and a half hours drive from our properties, we have successfully executed a strategy built on our premium local customers. Going forward, we will stay firmly committed to our operating strategy, driving increased EBITDA as a result of continued operating discipline and a tight focus on the right cut. In particular, Las Vegas are starting to come back. We believe high margins will be sustainable in the region. Amazing to indicate that. In terms of our online business, we continue to be excited by the opportunity presented by sports betting and iGaming. It is a highly promotional and competitive landscape, but sports betting and iGaming are already generating positive cash flows for us. We believe our partnerships with Circa Sports, William Hill, Bet365, Rush Street, and Tipico are the right approach right now. It gives us guaranteed income without investment, and also lets us learn a lot about the online business. Long-term, however, we may well consider entering the online space under our own brand, thereby enhancing the multi-channel relationship with our customers. With revenue streams from land-based casinos, racetrack and race cinemas, on and off track betting, as well as sports betting and iGaming, We are developing into a truly multi-channel North American gaming company. And we are, as we speak, seriously looking at a handful of possible acquisition opportunities, all in the US, to further broaden our footprint and leverage our successful operating model. With that, we look forward to our casinos and racetracks reopening in Poland and Canada and to a busy summer season in North America as the pandemic hopefully subsides. 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 business during these challenging times. I thank you for your attention and we can now start the Q&A session. Operator, go ahead, please.