Century Casinos, Inc.

Good day, everyone, and welcome to the Century Casino's Q4 2022 earnings call. During today's conference, you may submit questions to the presenters by pressing star 1 on your touchtone phone at any time during the broadcast. 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, and I will be standing by should you need any assistance. It is now my pleasure to turn today's call over to Peter Hotzinger. Please go ahead.

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 Heitzmann, as well as our chief financial officer, Margaret Stapleton. As always, we would like to remind you that we will be discussing forward-looking information which involves several 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 releases and SEC filings, available in the investor section of our website at cnty.com. And I'll provide an overview of the results of the fourth quarter and full year 2022. After that, there will be a Q&A session. For the year 2022, we had an all-time record with net operating revenues up 11% and adjusted EBITDA up 6% over 2021. We achieved these record results even though our Carrados Riverboat Casino in Missouri was severely impacted by weather throughout the fourth quarter. It had to close in November and then could reopen with restricted capacity only. That did cost us about 2 million in EBITDA compared to Q4 of 21. The dangerously low water levels required us to become creative and act quickly, and we did. With the approval of the Missouri Gaming Commission, just before the Christmas holidays, we moved all operations to a temporary land-based building. We typically do not like to call out weather, but in addition to the issues we had in Caradisville, severe storms and freezing temperatures in mid-December did have quite an impact at our other properties as well, and negatively impacted Q4 results. However, as the weather broke, demand returned and we ended the quarter on a high note with strong performances, not only at Caruthersville, but across the entire portfolio between Christmas and New Year's. And that has continued into January and February. The regional gaming customer is showing little signs of slowing down and many macro indicators such as unemployment and wage growth going to a rather healthy environment. Outside of weather, we see underlying demand trends remaining solid, heading into Q2 and Q3 of this year. On the expense side of the business, our teams are managing the overall cost structure while dealing with inflationary pressures that still exist. Wage inflation has largely normalized, but utilities inflation remains elevated. The promotional environment across all our markets remains relatively stable, It is pretty disciplined and we continue to envision a very rational marketing approach for all of us. Now I'll review each segment in a little bit more detail. In Colorado, we finished the year with flat revenues in the fourth quarter. EBITDA was impacted by higher labor and utility costs compared to last year. We held our market share steady. The overall number of visits was down in October and November, But it turned around in December, and that positive trend continues into Q1 of this year, especially from the higher ADT segments. This was a similar picture in West Virginia. Our mountaineer casino, racetrack, and resort had a difficult start to the quarter. The number of trips to the casino was down, especially midweek. But business came back over the holidays and currently is flat year over year. We are still experiencing staffing challenges at Mountaineer, resulting in limitations to hours of operation and availability of hotel rooms. In Missouri, we saw lower trips and revenue from all age groups, distance ranges, and ADT segments across the database. Spent per trip was even to prior year. I mentioned the dangerously low water level situation at Corralesville already, but we also had a significant winter weather impact in December during what is typically one of the biggest times of the year. Right after that, business rebounded strongly with an all-time record for daily call-in at our Cape Girardeau property on New Year's Eve. That trend has continued into the current quarter. Currently, we are up around 3% compared to Q1 of last year at both of our Missouri properties. Now let me add more color to our growth projects there. Construction of the new land-based hotel and casino development in Corradoville is progressing according to schedule and plan to open in Q4 of next year. The new property will have a total of 74 hotel rooms, 12 gaming tables and over 600 slot machines, which is a 20% increase in gaming positions compared to the old riverboat. Most importantly, it will provide significant operational efficiencies, it will be much more convenient for our customers and it will increase our catchment area. At Central Casino Cape Girardeau, the larger of our two Missouri casinos, construction of the 69-room, six-story hotel building is well on track for an opening around this time of next year. That development will transform the property to a full resort destination offering gaming, dining, conferences, concerts, events, and more. Moving north to Canada, All four properties showed nice gains in the quarter and that continued into January and February. On top of that, we got very good news from the regulatory front last week. Effective April 1 of this year, the Alberta Gaming Commission is increasing the operators portion from slot revenues by 2% to help promote overall growth in gaming proceeds by enabling operators to reinvest in their facilities. While this is a temporary message valid for two years for now, we do expect a significant increase in our results from next quarter on. Our customers in Poland continued their solid performance. Revenue was up 11%. As our results in Poland are consistently strong, we may as well wait for another licensing cycle to kickstart the sales process. We don't have any time pressure, That timing is not an issue for us, as you know. We have an excellent management team there in place, and there's no need for any investment or capex from our side. It's quite the opposite. Cash is flowing from Poland to us. A quick look at our balance sheet and liquidity shows that we have 102 million in cash and cash equivalents, plus the 100 million which we keep in escrow for the closing of the Nugget Opco transaction once Nevada licensing is complete. Outstanding debt totals $350 million, which includes $340 million under the Goldman Sachs credit agreement, of which $100 million is in escrow for the Nugget. Our two pending acquisitions are progressing as planned. We had our hearing at the Nevada Gaming Control Board the day before yesterday, happy to report that all went well. The board unanimously recommended approval to the Nevada Gaming Commission of our application to acquire the Nugget Casino Resort operations. Our application must still be approved by the Gaming Commission in Nevada at its meeting on March 23. If approved, we plan to close the Nugget acquisition in the first week of April, less than four weeks from today. We are finalizing our plans for initial investments and upgrades, and I'm more excited than ever about the potential for improvements. The immediate focus will be on the gaming floor as well as on raising the potential for synergy effects across all operational departments. Nugget is a full-service resort destination with over 1,300 hotel rooms and suites, a casino with 850 slots and 29 tables, six restaurants, several indoor and outdoor entertainment venues, as well as one of the largest conventional areas in the market. Its location on I-80 provides unmatched exposure in the Reno-Sparks area, and we plan on taking full advantage of that with a new attractive facade and signage. In Maryland, we expect to close the Rocky Gap acquisition a couple of months after the Nugget transaction, probably in June or July. Simultaneously with the closing of the transaction, VG Properties will take over the real estate assets and we will amend our existing master lease with VG to add the Rocky Gap property. Rocky Gap is a full service resort less than two hours from the Baltimore and Washington DC metro areas and includes an 18-hole golf course designed by Jack Nicklaus, 5,000 square feet event center, several meeting spaces, a spa, and several outdoor activities. Property consists of over 25,000 square feet of gaming floor, 630 slot machines, 16 table games, 198 hotel rooms, and five F&B venues. With the Nugget and Rocky Gap acquisitions, we will oversee a US portfolio that reaches from east to west. On a performer basis, after giving effect to the two acquisitions, we expect to generate over 80% of our EBITDA in the US. What is also important to note is the fact that these two acquisitions will improve our leverage ratios. Our current total debt to EBITDA ratio is 4.8 times, and that will reduce to 3.5 times. Our current net debt to EBITDA goes from 3.5 down to 3.1. The least adjusted net leverage remains flat at 4.7 times. As for the discussion about the most advantageous mix of whole costs and op costs, and with some operators being very aggressive with rent coverage, we will be at a quite healthy and conservative rent coverage of 3.1 times across our portfolio, and that's already performer for the two pending acquisitions. With that, we feel very comfortable and will continue working with real estate investors on a case-by-case basis to support our growth. As we move further into 2023, the economic uncertainty that persists today makes it difficult to predict where consumer trends are headed. We are mainly watching two economic factors that we believe are tightly correlated to the behavior of our core customers. and that have the biggest impact on our business volumes, which are the labor market and housing. Slide shifts in gas prices or interest rates don't seem to affect our customers that much. We are cautiously optimistic about the positive trends we saw in January and February across all our markets. In closing, as we look back on 2022, it was another transformative year for Century. We posted record results, and signed agreements to acquire another 180 million of revenues and over 50 million of EBITDA. Looking ahead, we are excited about the Nugget and RocketGate acquisitions, as well as the regulatory positive change in Alberta this year, and about our two Missouri growth projects coming online next year. Further, we believe there are additional opportunities to drive organic growth in our land-based operation. While there is clearly some macro risk still, these growth drivers should help to more than offset potential consumer pressure. 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. I thank you for your attention. We can now start the Q&A session. Operator, go ahead, please.

Absolutely. At this time, we will open the floor for questions. If you would like to ask a question, please press the star key followed by the one key on your touchtone phone. Questions will be taken in the order in which they are received. If at any time you would like to remove yourself from the questioning queue, please press star two. Again, to ask a question, please press star one. We will take our first question from Jeff Stanchel. Your line is open.