Century Casinos, Inc.

Welcome to the Century Casinos Q2 2021 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 an 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 various risk factors in our SDC 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 SDC filing available in the investor section of our website at cnty.com. I will now provide an overview of the second quarter results and after that there will be a Q&A session. The second quarter was an outstanding performance for our company and our entire team. Our focused operating strategy produced strong and robust margins and we generated the highest quarterly EBITDA in the history of our company. We're happy to report 92.2 million of revenue and 25.2 million of adjusted EBITDA. Again, this is a new quarterly record for Century Casinos. On a consolidated basis, the EBITDA margin in the quarter was 27.4%. All these numbers are substantially better than what the street expected. The quarter showed continued strength and momentum across all our local and regional properties and businesses. The results were driven almost exclusively by our properties in the U.S., because our casinos in Poland and Canada were closed for most of the quarter. They have reopened in late May and early June, respectively, and have been profitable since day one. As most other local and regional casinos, we continued to benefit from strong demand, from the strong 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. Our cost structure is more streamlined and our marketing and promotional investments are more targeted which translates into increased spend per visit especially from our most valuable players and it's very good to see that strong operating performance from the first half of the year also continuing into July. We realize there's a bit more uncertainty today about the pandemic, but we have been confident in our ability to generate results well above pre-COVID levels as we continue to successfully execute our operating philosophy with a tight focus on the right customer. Our business is largely gaming-centric Only a minority of our revenue is coming from non-gaming amenities, and many of those are open on a limited basis only, and that results in an overall lower cost structure. We will only open more non-gaming amenities or expand their opening hours as demand picks up further, so that should grow in a profitable way. At this point, we haven't seen any significant impact of more aggressive marketing from our competitors. even as other entertainment options, Las Vegas for example, have started to come back quite strongly. That's very encouraging and that as well has continued in July. Beyond the ongoing strength and growth our core properties are delivering, we continue to pursue initiatives to improve and expand our businesses further. We are developing into a multi-channel gaming company. with six traditional casinos in Colorado, Missouri, and in Canada with three racetrack and casino resorts in West Virginia and Canada and a variety of operations and partnerships in off-track betting, sports betting, and iGaming. While the traditional casino table and slot games still account for the vast majority of our revenue, The revenue from iGaming, sports betting and parimutuel betting has, for the first time, surpassed the revenue generated from our hotels or F&P operations and has become the second highest revenue generator for us. And that comes, as you know, without any significant investment from our side whatsoever. During the quarter, Our operating partners Rush Street and William Hill launched iGaming in West Virginia under our master license. And the second of our three Colorado sports betting partnerships plans to go live next month. But while digital gaming is an attractive way to grow our company, we see even more upside by reinvesting into our existing casino assets. One of these opportunities is our casino in Carothersville, Missouri, which has been a very strong performer in our regional portfolio. We are currently in the planning phase of developing a land-based casino and hotel facility at Carothersville, which will significantly enhance the guest experience and expand the reach and catchment area of that property. As soon as we've firmed up the plans and capex numbers, we'll provide more detailed information about this exciting project. Now a quick look at our balance sheet and liquidity. As a result of our strong operating performance and careful management of CapEx, we are in a much stronger financial position today than pre-COVID. Net cash provided by operating activities was 7.5 million in the quarter, based on 25.2 million of adjusted EBITDA. That's a conversion rate of 69%. That rate is driven in part by regulatory regimes in West Virginia and Alberta, Canada, where the regulatory bodies pay for half to almost all of the slot machines and related . The strength of our operating performance let our current cash position increase to 72 million. That's end of June. With outstanding debt of 184 million, our net debt sits at 112 million. as of June 30. Based on trading 12 months, the net debt to adjusted EBITDA ratio is a healthy 2.0. We have a well-maintained asset base that requires minimal levels of maintenance capex to sustain current levels of profitability. And we have no substantial debt maturities before 2026. and I'll take a quick look at the performance of each operating segment, starting with Colorado. As you see, it was an excellent quarter for our properties in Cripple Creek and Central Philly. Both casinos clearly outpaced even pre-COVID levels. The biggest difference is that our better players spent considerably more time on our slots and tables than before. Net operating revenue was up 37% over Q2 2019, and it was up 29% over the first quarter of this year. It has an EBITDA more than doubled compared to Q2 2019, and it was up 55% over the first quarter of this year. And the EBITDA margin jumped to a second quarter record of 40%. On May 1st, table limits in Colorado increased and additional table games, such as Baccarat, were allowed. As a result, the drop at our gaming tables was up over 30% compared to 2019. Moving on to Missouri, our most important market in terms of EBITDA and cash flow generation. And again, the results for the quarter were fantastic. Coin-in volumes on the slots and Rob at the gaming tables continued to be at historically high levels. Net operating revenue was up 48% over Q2 2019 and it was up 11% over the first quarter of this year. And adjusted EBITDA more than doubled compared to Q2 2019 and it was up 12% over the first quarter of this year. EBITDA margin in the second quarter 50%, truly remarkable. Marketing spend continues to remain significantly below the COVID levels, and it's expected to continue at its current run rate moving forward. The reductions that were made in advertising, direct mail, and promotion expense appears to be sustainable and has not had any negative impact on gaming volumes. A couple of weeks ago, We have announced a pretty important breakthrough in Missouri with the change of a Missouri law that required each casino to be a floating facility. Going forward, the Missouri Gaming Commission will have the ability to approve a casino facility as long as it is located within 1,000 feet of the Mississippi or Missouri rivers and includes a container with at least 2,000 gallons of water beneath the facility. This change opens the opportunity for our property in Corradoville, which, by the way, is the last remaining riverboat casino on open water in Missouri, to move to a non-floating facility. And in preparation for that, we purchased some passes of land and a small existing two-story hotel. These land purchases provide strategic options for the future casino and hotel development and better access to parking. have already started working with architects to develop plans for the new casino and hotel facility. That will be a very exciting development with a target ROI of over 20%. Next is West Virginia, where we operate the Mountaineer Casino, Racetrack, and Resort. Net operating revenue was down 6% over Q2 2019, but it was up 28% over the first quarter of this year. adjusted EBITDA increased by 5% over Q2 2019 and it was up 72% over the first quarter of this year. These are very good results, especially because a temporary smoking ban was in place for the first part of the quarter and we had to pre-screen and take the temperature of all guests until the middle of the quarter. It was only two weeks before the end of the quarter that the COVID restrictions were lifted. The F&B 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 challenging in the last 12 months. But now, for the last couple of months, we have seen a strong uptick in business, which we believe is directly linked to more people getting their vaccinations and feeling comfortable out of the house for short trips and overnight stays. We started to see indications that the regional destination business is returning. Hotel reservations have increased to the highest level in more than a year. Internationally, our operations in Poland were closed for most of the quarter, We reopened at the end of May. Business has been very strong since day one, with adjusted EBITDA averaging between $700,000 and $1 million per month. As reported, we are in talks with several parties about the sale of our Polish casinos. Three companies are on the shortlist, and detailed negotiations with them are ongoing. We are getting closer. But it's too early to predict the outcome of these negotiations. And in Canada, we were also closed for most of the quarter. We were allowed to reopen on June 10. For the first three weeks, we operated with restrictions, including a 25% occupancy capacity, social distancing protocols, and mandatory mask requirements. On July 1, we observed the government relaxed COVID restrictions province-wide Eliminating caps on occupancy, social distancing, and the mask requirement. And again, there was strong demand from day one after reopening, and coupled with labor efficiencies, we are seeing increased EBITDA margins throughout our Canadian properties. In Canada, we also look forward to the arrival of online sports betting, which could provide significant upside for us in the province of Alberta, where we have four out of 28 licenses. That finishes the roundup of our operations. In conclusion, I'd like to say that the second quarter was another remarkable performance for our company and our entire team. Our nationwide portfolio continues to generate robust levels of EBITDA and our operating strategy and tight focus on the right customer are producing the highest margins in our history. And we do believe that our strong performances since reopening are largely sustainable. With almost all of our revenue coming from customers who live within a one and a half hour's drive from our properties, we have successfully executed a strategy built on our premium local customers. We stay firmly committed to our operating strategy, driving increased EBITDA as a result of a continued operating discipline and a tight focus on the right customer. Looking forward, the trends we saw across our businesses in the first and second quarters are continuing into July and early August. In fact, some of our Canadian casinos set all-time coin-in records in July. And finally, we are looking at a handful of possible acquisition opportunities, all in the U.S., to further broaden our footprint and leverage our successful operating model. 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. I thank you for your attention, and we can now start the Q&A session. Operator, go ahead, please.

Thank you. Ladies and gentlemen, at this time, we will conduct a 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 you 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 our first question comes from the line of David Bain with B. Reilly.