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spk01: Good day everyone and welcome to today's Century Casinos third quarter 2022 earnings call. At this time all participants are in a listen only mode. Later you will have the opportunity to ask questions during the question and answer session. You may register to ask questions at any time by pressing the star and 1 on your touch down phone. You may withdraw yourself from the queue by pressing star 2. If you require technical assistance during today's event, you can reference the help link at the top of your screen. Please note today's call will be recorded. It is now my pleasure to turn the call over to Peter Holzinger. Please go ahead.
spk08: Good morning, everyone, and thank you for joining our earnings call. With me on the call are my co-CEO and the chairman of Central Casinos, Erwin Heitzman, 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 serial 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 SCC filings and encourage you to review these filings. In addition, throughout our call, we refer to several non- The considerations of our non-GAAP performance and liquidity measures to the appropriate GAAP measures can be found in our newsreels and SEC filing, available in the investor section of our website at cnty.com. I will now provide an overview of the results of the third quarter, and after that, there will be a Q&A session. Our third quarter results were up against the record performance of last year, which was fueled by listed COVID restrictions and lots of pent-up demand. Thus, while on a sequential basis revenues were up, compared to last year, revenue in the adjusted EBITDA were down 4% and 15% respectively. A large part of the decline is due to the extremely dry weather conditions affecting the water level of the Mississippi River. Low water level issues at our Caradisville, Missouri operation started in August and triggered additional expenses for dredging and caused serious issues for access with the steepness of the access bridges and the transition from the barge to the old riverboat. In addition, the dry weather kept farmers, which are a large part of our customer base, busy on their fiends and farmlands for much longer than usual. As a result, the Caradasville Casino saw revenues decline 14% compared to Q3 of last year. and that alone was responsible for around half of the company-wide revenue decline during the quarter. In addition, we incurred considerable costs in connection with preparing to integrate the soon-to-be our Nevada and Maryland operations. With the headwinds in the economy, we also saw some evidence of slight changes in our customers' behavior as the lower ADT segment has cut down on the number of trips across all our North American properties. But importantly, spend per trip from our mid and higher ADT segments helps steady. That play from our core customers is the foundation of our success, and this segment in particular continues to grow. That also helps to offset year-over-year declines in spend from retail customers, which was at elevated levels last year due to stimulus payments. On the expense side of the business, our teams are effective in managing the overall cost structure while dealing with the inflationary pressures that exist today. The promotional environment across all our markets remains relatively stable. It's pretty disciplined and rational for the most part. Not much has changed in the last several quarters. total marketing spend continues to remain below pre-COVID levels. Of our U.S. operations, Colorado was leading the way with revenue growth of 8% and EBITDA growth of 6% compared to last year. We've not seen any effect on revenues due to inflation. However, we are affected on the expense side with higher costs for utilities, repair and maintenance, as well as operating supplies. Cripple Creek increased in all carpet play analytics, with the exception of average number of trips decreasing slightly. This may be due to gas prices. However, spend per trip has increased. The Cripple Creek market continues to remain flat year over year, but due to our consistency in marketing and continued emphasis on customer service, we continue to gain market share. In Central City, Average spend per trip remained flat, and we are not seeing any inflationary effects on patron spending. In West Virginia, our Mountaineer Casino race track and resort saw a slight revenue decline compared to Q3 of last year. The number of trips to the casino was down, especially from younger customers in the lower ADT segment. Sequentially, however, looking at the last three quarters, The trend is up. We grew from Q2 over Q1, and again, Q3 over Q2 in both revenue and EBITDA. We've experienced some staffing challenges at Mountaineer, resulting in some limitations to hours of operation and availability of hotel rooms. Moving to Missouri, where coining volumes remained strong during July and early August, but began dropping off during the second half of the quarter. There it was especially the older demographic, 70 plus, and the lower ADT segment, which cut down on trips. Economic and inflationary factors may play a role here. Dangerous water level issues at the Caradasville boat and the dry weather around the farmlands this year didn't help either. So we saw revenue decline compared to the record quarter we had last year. Just last month in early October, we actually had to close the part of the casino that sits on the riverboat. And we operate with a limited number of slots and tables on the barge only. The good news for Corrado's Will is the fact that we did receive approval from the Missouri Gaming Commission a couple of weeks ago to relocate the casino operation from the barge to an existing land-based pavilion, which is not affected by water levels, and is protected by a flood wall. We are allowed to operate the casino in that pavilion until the new land-based hotel and casino development is complete, which we expect in the second half of 2024. The pavilion provides much easier access to the casino for customers, and we anticipate it will also bring operating efficiencies and cost savings. We expect to move the operations from the barge to the pavilion next month. Last week, we also opened a small 36-room hotel. We call it the Farmstead Hotel, which we bought last year and completely refurbished. It is conveniently located close to the pavilion and the parking. In our quarterly presentation of the results, you find a description as well as a site plan and pictures for better understanding. For the new land-based hotel and casino development in Corrado Swill, Construction began two weeks ago on the new 27,000 square feet casino and 30-room hotel. The total budget increased by 10% from 47 to 52 million. Once the new casino and hotel will be completed, the temporary casino in the pavilion will move to the new casino. And the new Central Casino Corral will then have a total hotel room count of 74 rooms in two hotels. one directly connected to a casino, and the other one, the standalone opposite the pavilion. The new casino will have 20% more gaming positions and provide significant operation efficiencies. It will be much more convenient for our customers, and it will also increase our catchment area. At Central Casinos Cape Girardeau, the larger of our two Missouri casinos, we have started construction of a 69-room, six-story hotel building. The project is expected to cost $31 million and be completed in the first half of 2024. This development will transform the property to a full resort destination, providing other reasons for individual and group multi-day visits for many different purposes such as gaming, dining, conferences, concerts, and more.
spk07: Moving north to Canada,
spk08: the Central Casino and Hotel in Edmonton had revenues declined by 7% due to construction works on the main road fronting the casino and due to lower flow tolls. Both of our racetrack casinos in Alberta, Central Mile and Central Downs, saw solid revenue growth of 9% and 4%, respectively. Utility costs are up 17%, the cost of goods increases could only be partially mitigated by price increases. Q4 has started really strong for Century Mile and Century Bounce, with both properties posting all-time record results for the month of October. Our casinos in Poland continued their great performance, with revenue up 25% and EBITDA up 34%. Results in Poland are consistently strong, which also helps the sale process and has led to renewed interest from smaller European casino groups and private equity investors. Anyway, there's no time pressure on our side, as we have an excellent management team in place at Casinos Poland, and there's no need for any cutbacks or investment from us. Quite the opposite, cash is flowing from Poland to us. A quick look at our balance sheet and liquidity shows that we have 100 million in cash and cash equivalents, plus the $100 million which we keep in escrow for the closing of the Nugget OpCo transaction once the Marvel license begins complete. Outstanding debt totals $367 million, which includes $348 million under the Goldman Sachs credit agreement, of which $100 million is in escrow for the Nugget, and $14 million related to a long-term land lease for Century Downs in Canada. During the quarter, we were also very busy on the M&A front. In August, we announced the acquisition of the operations of Roccat Casino Resort in Maryland for $56 million. Simultaneously with the closing of that transaction, VG Properties will acquire the real estate assets and we will amend our master base with VG to add the Roccat property. The initial annual rent for the Roccat Casino will be $15.5 million. The purchase price for the casino operation represents an implied 2021 EBITDA multiple of 4.9 times. This multiple excludes any potential cost synergies and operation improvements and deducts annual rent for the VG lease from EBITDA. This acquisition is expected to be immediately accretive to our earnings. Rocky Gap is a full-service resort less than a two-hour drive from the Baltimore and Washington DC metro areas and includes an 18-hole golf course designed by Jack Nicklaus, a 5,000-square-foot event center, several meeting spaces, a spa, and several outdoor activities. The property consists of over 25,000 square feet of gaming floor, 630 slot machines, 16 table games, 198 hotel rooms, and five food and beverage venues. The transaction is expected to close mid-2023 subject to regulatory and governmental approvals and customer closing conditions. In Nevada, we already invested $95 million and now own half of the Nugget Casino's real estate. We will close on the purchase of 100% of the operating company as soon as licensing is complete, and that will cost another $100 million. We continue to be very excited about the Nugget transaction and we see considerable upside once we operate it. With the Nugget, we purchased an existing operation with a long operating history. We do not expect any extraordinary replacement capex for the first year, some upgrading parts of the slot floor, and improvements to the facade. The acquisition also offers good potential to generate synergy effects, as we integrate that standalone property into our portfolio of 17 casinos. With the pending RocketGap and Nugget acquisitions, we will oversee the portfolio that reaches from east to west in North America, and on a performer basis, after giving effect to the two acquisitions, expect to generate approximately 95% of our EBITDA from our North American casinos. With these opportunities for growth throughout next year and beyond, we are confident our company is very well positioned for continued long-term success. We will continue to execute on our business plan by growing organically and by identifying and acquiring promising assets in stable, drive-thru markets in the U.S. In our M&A strategy, we will remain prudent with pricing and valuation. We will continue to dedicate resources
spk07: to capture synergies and provide time to digest the acquisitions and recognize value.
spk08: On behalf of the company's management and board, I'd like to thank our team members, our guests, and our stockholders for continued loyalty and their enthusiasm. I thank you for your attention, and we can now start the Q&A session. Operator, go ahead, please.
spk01: Thank you. At this time, if you would like to ask a question, please press the star and one on your touch-down zone. You may withdraw your question at any time by pressing star two. Once again, to ask a question, please press the star and one on your touch-down zone. And we will take our first question from Jeff Steintl. Please go ahead. Your line is open.
spk11: Great. Thanks. Good morning, Peter Irwin. Thanks for taking our question. I wanted to start with some of the commentary in the prepared remarks on the lower worth demographic that it sounds like softened a bit more recently in the quarter. You know, you talked about the impact across the broader North American portfolio. Is there differences in terms of how much you're noticing that asset by asset? And then can you just talk about the timing there? When did you start to notice some softening there? And, you know, has anything changed, you know, with the October trends?
spk08: Can you give some color?
spk05: Yeah, we do see some differences, not exactly the same everywhere. That softening started in the third quarter, and in the meantime, for the fourth quarter, we are already doing things to try to mitigate, to give you an example, for example, in mountaineer we we we increased the number of hotel room giveaways for the weekend we comp more we we have customers where we clearly see that they are worth being comped also in that in the upper range of the lower bracket and also we are doing a car giveaway something that we haven't done before, and indications are that this is very well received from what we see from the October numbers.
spk11: Okay, great. That's helpful. Thank you. Then moving to Missouri, so the budgets for both projects came up a decent bit. Can you just frame where you're seeing the most cost pressures, and if you think the revised budget should prove ultimately to be the right number? And then just how are you thinking about the return profile now with the total budgets picking up a bit?
spk08: Yeah, they went up about 10%, 10%, 11%. And it came from pretty much all sides. But we are extremely confident now that it's holds. And we have also, we have that in writing. We have agreements with our contractors and developers that opt it in. In terms of return, Cape Girardeau Hotel return between the low teens and Corrado'sville around 15. That's where we are, where we see it coming.
spk11: Great. That's awful. Thank you, Peter. And then if I could just squeeze in one more on the disruption with the low water levels in brothersville peter you gave some context for for how to think about the impact to revenues at the property you know could you provide similar you know similar way to think about the cost impacts um you know you talked about some some higher operating x but just any way for us to to quantify it and think about how impactful that was during the quarter and maybe any thoughts on on how impactful it should improve in q4 as well thanks
spk08: We don't have an exact number on the EBITDA side. It's like more than half. Is that what we believe, right?
spk07: Yeah, yeah, in that range, yeah. Great, understood. Very helpful. Thank you both. I'll pass it on. Thanks, Jeff.
spk01: We will move next with Chad Bannon. Please go ahead. Your line is open.
spk09: Hi, good morning. Thanks for taking my question. I wanted to ask, I guess, kind of a medium or long-term question. You guys have been successful and you're currently in process of building the portfolio. Where do you think the portfolio can get to in the next couple of years? Or I guess asked another way, you know, are there still opportunities out there and given your arrangements with, you know, your REIT partners, Should we continue to expect maybe one acquisition per year to kind of build the free cash flow levels where you start to get even greater scale?
spk07: Thanks.
spk08: We do see quite a number of interesting properties out there that would fit very well into our portfolio assets. In that range of say 15 to 50 million in EBITDA, there are not too many buyers out there because it's way too small for the larger groups. And we believe we are in a very good niche. Yes, we do have a very good partner in Vici. But let me also say that other property or real estate investors are also knocking on our doors. So there is, we believe, for the next two, three, four years, a great deal of M&A activity ahead of us. Whether it be once a year or two every other year, we look at it a little bit on an opportunistic basis. But there's plenty of opportunity out there.
spk09: Great. Thanks, Peter. And related to that, how are you thinking about the optimal debt leverage or lease-adjusted leverage, particularly during times like this when interest rates have risen?
spk08: Yeah. At the moment, I think we are at the leverage level that is okay. But as you said, we are in the process of selling our Poland assets. We can use that to pay down debt. That's the right move. We also do own Colorado assets. We own the Canadian assets. Not to say that there's any need to do anything with those, but we could if we wanted to. Currently, our net debt to adjusted EBITDA ratio is 3.4 and least adjusted net leverage, if you use an eight multiplier, it's 5.5. And with the projects that we have on hand in Missouri and also Nugget and RocketCap, we will be able to bring that ratio down.
spk07: And we feel quite comfortable with that.
spk09: Sounds great. Thank you very much, Peter. Best of luck.
spk07: Thank you, Jim.
spk01: Thank you. We will move next with Jordan Bender. Please go ahead.
spk02: Great. Thanks. Thanks for taking my question. So in Poland, in local currency, it actually looks like your margin was one of the best in maybe the last six or so years. I was just kind of wondering, you know, what's kind of driving that strength and looking forward, should we expect, I guess, a low double-digit margin within that segment?
spk05: I think... We see no signs that these numbers would not be sustainable. We think they are sustainable and everything points to us being able to keep those numbers and we also see potential to increase them further. It's hard to pinpoint the reasons down to one. It's a multitude of reasons. I think overall what can be said is finally the very strong local management that we have there, all their efforts came to fruition and just show better than it's just a year where we could compete even better than before with our local competitors. So we're really happy with the team and as we said, we think this can continue and go further up.
spk02: Great. And then Turning to Canada, kind of a similar question. You know, coming out of COVID, I guess margins were choppy just kind of given, you know, COVID reopening and then reclosing and reopening again. As we think about, I guess, the business in 23, I guess, where should we think about margin levels maybe being sustainable or where should they be trending as we think out into next year?
spk07: You want some color on them?
spk05: I would say in very general terms, we should be able to sustain the current margins and in various properties, for good reason, be able to increase them. For example, in Missouri, as we talked about, the changes there and the improvements to the properties that should improve and increase our margins relative to 22, back to old levels In Colorado, probably, we were, so to speak, margined out. We were doing very well already there. But I think, again, we consider this to be very sustainable. Again, excellent management there. And in Mountaineer, we're working hard on rolling up step by step. It's harder in Mountaineer because the gaming tax is very high, so this cannot be compared to a low-tax environment. But again, we feel solid. We have a very solid base, and we should be able to increase there as well.
spk02: Okay. And just to follow up on that, just to confirm, I mean, you historically have done low 30% EBITDA margin. You think getting back to that level is achievable over the next couple of years in Canada?
spk05: Yeah, I think that's not an unrealistic question. Okay. In Canada, one thing that works for us is that the energy oil prices are high and with a certain time delay that always is then reflected in Alberta's economy.
spk07: Okay. Thank you.
spk01: Thank you. And once again, it is star and 1 on your touch-tone phone if you would like to join the queue. We will move next with Edward Engel. Please go ahead. Your line is open.
spk03: Hi. Thanks for taking my question. Just wanted to follow up on that last one just regarding margins and, I guess, cost inflation. Just on the overall cost inflation side, whether it's utilities or labor, I guess, what have you kind of seen over the past couple months? It looks like generally affects across your properties with a slattish Q on Q minus maybe Canada. I just kind of want to wonder what you're seeing in terms of increases in OPEX.
spk05: OPEX does indeed increase, definitely. So far, also across the board, I think our management has been very skillful in finding ways through this by trying to find even further ways to save in other areas. With regard to staffing, as Peter already mentioned, it can be challenging, like Mountaineer, for example. But again, I mean, this won't go on forever. And we were able to operate well even on the higher salaried but slightly lower staffing levels.
spk07: Great. Thank you.
spk04: Thank you. We will move next with Daniel Hong.
spk01: Please go ahead.
spk06: Hi, thanks for taking the question. Just a quick one on the Carothersville and Cape Girardeau projects. Is that intended to be funded entirely out of cash on hand, or do you have financing lined up for those projects?
spk08: The Hilton project in Cape Girardeau, we finance with cash at hand. And for the one in Caradisville, we have not made the final decision, but it will be several cash on hand and financing sources. Excellent.
spk04: Thank you.
spk01: We will move next with Chris Doll. Please go ahead. Your line is open.
spk10: Yes, hi. Could you please focus and simplify? I'd like you to identify the one, two, three critical variables that we should monitor for corporate earnings modeling in the fourth quarter and then going into next year. Thank you for answering my questions.
spk08: I would say that the progress in Missouri is an important one to watch. As we have seen in Q3, what kind of an impact that has. Then continued success in Colorado is very important. And West Virginia. is sequentially on a great path, as we said, and we would like to see that continue.
spk07: So we're watching those two markets with high interest because they are very critical to our success. Thanks, Chris.
spk10: Are you providing any guidance with regard to sales or really any of the key parameters of the corporate results?
spk08: Oh, no. We, historically, the company has not provided guidance. We have a handful of excellent research reports that are out there on CNTY, and I would encourage you to get a hold of one or more and read through.
spk07: Okay. Thank you.
spk04: And it appears that we have no further questions at this time.
spk01: I would like to turn the call back over to Peter Hotzinger for any closing remarks.
spk08: Thank you, everyone, for joining our call today. For a recording of the call, please visit the financial results section of our website at cnty.com. And if you have any follow-up questions, please feel free to reach out to us. Stay well and goodbye.
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