Century Casinos, Inc.

Good day, everyone, and welcome to today's Century Casino's Q4 2023 earnings call.

The entire corporate market. We grew by 14%, an early indication that we benefit from the hotel rooms and our proximity to their property. In Missouri, both properties posted revenue and EBITDA growth, as well as better operating margins than in Q4 a year ago. A strong and encouraging result, considering construction going on at both locations. The number of clips of our top tier segment increased meaningfully during the quarter, while the overall spend per trip was flat. In Corradoville, construction of the new land-based hotel and casino is progressing according to budget and schedule. We plan to open in Q4 of this 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 and a 50% increase in gaming positions compared to our current interim casino. Most importantly, the new property will provide significant operational efficiencies, it will be much more convenient for our customers, and it will increase our catchment area. We are more excited than ever about this permanent move to land-based. What we see now, as we operate in a small temporary pavilion, is very encouraging. The number of trips increased, and so did the spend per trip. So we really can't wait until the new facility will be open in just about eight months from now. That project is fully funded by VG at an 8% cap rate. Hence, it does not impact our liquidity position. The hotel construction in Cape Girardeau is also on budget and on time. We are very excited about the grand opening in three weeks from today on April 4th. It will be great to see how adding the hotel will transform that property into a full resort destination offering gaming, dining, conferences, concerts, and more. Total project cost is $31 million, and we fund that with cash on hand. As of December 31, we had spent approximately $23 million already. The balance of $8 million will be spent in the first half of this year. Our East segment includes the Mountaineer Casino Resort and Races in West Virginia and the newly acquired Rocky Gap Resort and Golf in Maryland. Because of that new acquisition, revenue of the segment was up 44%. EBITDA more than doubled. At Mountaineer, hours of operation for the casino, available hotel rooms, and food outlets are still limited as a result of continued staffing challenges. However, our participation in the J-1 visa program has greatly assisted us in improving our offerings. Slot coin-in was flat in Q4. Paper gains continued to be impacted versus prior year. which we believe is due to sports betting in Ohio. We should get a better picture of that going into the first and second quarters of this year, as we have just had the anniversary of Ohio sports betting. We plan to further enhance our entertainment offerings throughout the year to further diversify our portfolio, giving our guests more reasons to choose us for their entertainment. As an example, we recently had a very successful MMA boxing event in our ballroom there. Rocky Gap experienced small growth coming from the upper end of the database, offset by declines in the lower tiers. From an age standpoint, the oldest and youngest demographics increased, while the larger portion of the database, ages 40 to 70, decreased a bit. We plan to put strong focus on player development in the major feeder markets like Baltimore, Pittsburgh, and Washington, D.C., with the goal to migrate players to higher tiers and grow the overall database. As most of you know, Rocky Gate sits at a beautiful lake in Rocky Gate State Park, but up to now, the property did not have beach access for its customers. But recently, we got approval to develop a nice beach area, and we'll make sure we have it ready for our customers before this summer. It will be another great amenity that will help drive additional FIT and resort travel to the property and will also allow us to increase resort fees. Continuing to the west segment, which includes Nugget Casino in Nevada, the Nugget saw mixed results during the quarter compared to per year. Overall, the number of trips to the casino decreased, so did the spend per trip, with all declines coming from the lower-level customers. The top of the database was very healthy, as theoretical win increased by 20%. From an age standpoint, the under 50 segment grew, with CO win increasing by 10%, while the 50-plus demographic decreased by 3%. We're optimistic that the second half of this year will be strong, and most of the transition extraordinary expenses as well as most project capbacks, will be behind us. We have replaced a few key executive team members, as some positions left the nugget right after the sale closed last year, which led to a somewhat challenging initial period. The team now is in great shape and is working on remodeling three restaurants and bars, and is also getting ready to upgrade the sportsbook. In addition, a new high-limit slots area will be going in, All of these high ROIC growth projects will be completed this summer. On the marketing side, expect to go live with new marketing kiosks, along with the new marketing component of our loyalty player tracking system, also before this summer. RenoSpark's market is known as a player-friendly value market, so we want that improved flexibility with direct mail campaigns and improved marketing programs. Renovations of the facade and signage are done already, and it really looks great. Also, our entertainment and special events calendar is coming together nicely and points to a very busy summer season. In the Canadian segment, our four properties in Edmonton and Calgary saw revenue growth by 17%, and EBITDA was up by a very strong 50% in the quarter. All four were up in slot revenue, in table revenue, as well as in EBITDA. Access to our Central Casino and Hotel in Edmonton continues to be impacted by road construction, which will continue through April. The new sports band lounge at that property is driving traffic and F&B sales and also awareness in the community, especially now that the Edmonton Oilers are performing better. So overall, a very promising performance in Canada. To round out our segments, a quick look at Europe and our operations in Poland. The recent national elections triggered unanticipated licensing delays for three of our casinos, which caused quarter results to decrease materially compared to the year before. However, earlier this year, we were awarded all three licenses again, and we reopened one casino in February already. We anticipate reopening the second one next week, and the final one, which is the biggest of the three, in a new location in the third quarter of this year. So from about August on, we'll have all eight casinos in full operation again. And that should also give M&A discussions a boost. Still, our goal is to sell all Polish operations. With that, let's discuss our balance sheet and liquidity position. Our book value per share is $4. As of December 31st, we had $171 million in cash and cash equivalents and $347 million in outstanding debt. Net debt is down to $176 million. As a result, traditional net leverage is 2.7 times, and these adjusted net leverage is now 4.9 times. We are OK with our leverage, as we don't charge our leverage just based on a one-time snapshot but rather look at its development over a period of time. The leverage is elevated because of our recent significant acquisitions and investments. It will stay above the long-term range until we have fully integrated the acquisitions and until we have completed our CapEx projects later this summer, around the third quarter. From then on, it should lower down to closer to two times traditional and four times lease-adjusted next year. Our lease obligations to VG currently total approximately $15 million per quarter. Once we open the new land-based facility in Coradusville towards the end of this year, it will go up by approximately $1 million per quarter. So as a rough run rate for next year, for 2025, total lease payments to VG will be around $16 million per quarter. Interest payments on our Term Loan B Currently amount to around $10 million per quarter. Please note that we have no near-term debt maturities. It matures in 2029. And we have additional borrowing capacity of $30 million under our revolver. We can reprice or refinance the entire term loan at any time without penalty. So as soon as a window opens, we want to act on it and improve our terms. As for our capex plans for this year, we are planning to invest a total of between 35 and 40 million into our properties, and that includes normal maintenance and replacement capex, as well as the improvements at the Nugget and in Canada, and finishing the hotel in Cape Girardeau. All of these growth projects will help position our casinos for high-value customers, and will deliver attractive returns on capital to drive growth in their segment. This elevated cap-back cycle will be completed between now and late summer. What's left then is the big move to land-based in Corradoville, but that is fully funded by VG. So by late summer, you will see significant reduction in cap-backs as we move forward. Free cash flow should be improving substantially, both from revenue growth due to the improved facilities and a better customer experience, and from a reduction in cap-backs. And perhaps you'll see a first reduction in interest rates by then. Again, we are in a transitory period right now, but we have a clear plan to fully focus on generating cash to deleverage and opportunistically also buy back stock later this year and next. We are fully focused on the projects that we have underway and are really looking forward to the end of this current intense gap-back cycle. In our view, The third quarter of this year will present kind of an inflection point for free cash flow generation, given the rolling off of the CapEx projects. Thinking about our performance in operations this year, as you look forward now, mid-January and early February were terrible from a weather standpoint. I think that's well understood across the market. In the span of three to four weeks, most of the regional operators were significantly impacted by weather. So we, as everybody else, start in a January hole, as Tom Rickerson had put it. In mid-February, weather was more back to normal, and we see that customer trends over the past few weeks have rebounded to fourth-level levels. We continue to keep a close eye on consumer spending patterns and general economic conditions for impacts on our casino and resort customers. To share our outlook with you, With all properties being in great shape in 2025, we see us approaching $700 million in revenue in 2025 with EBITDA margins into the 24% to 25% range. Our capex in 2025 should come in at approximately $20 million to $25 million. Operationally, we are proactive, assessing every aspect of our properties, striving for cost reductions and enhanced efficiencies. In closing, I want to reiterate our enthusiasm for the second half of this year and for next year. From the third quarter on and certainly in 2025, results and free cash flow should improve significantly for these reasons. Q3 of this year will mark the end of our elevated gap-back cycle. By then, the Nugget and Rocky Gap acquisitions will be fully integrated. Everything will be operated as one cohesive portfolio. Also in Q3, all casinos in Poland will be up and running again. Then in Q4, we'll open the brand-new land-based facility in Krakow. And from then on, we'll have no more construction disruption, and all properties and operations across the entire portfolio are in their best shape. The only other point I'm going to make is that, from a guidance perspective, as mentioned earlier, last year we had softness in the second half. We think that's an opportunity in the second half of this year since that comp is going to be a little easier to meet. And that concludes our prepared remarks. We will now open the call for Q&A. Operator, go ahead, please.

Thank you. And at this time, if you would like to ask a question, please press star 1 on your telephone keypad. You may remove yourself from the queue by pressing star 2. Once again, that is star 1 to ask a question. And our first question will come from Jeff Stanchel with Steeple. Please go ahead.

Hey, great. Good morning, Peter, Erwin, Margaret. Thanks for taking our questions. Maybe starting off here on the U.S. business, Peter, you talked about broad-based softening in the low-income consumer, which started midway through 2023. Can you just expand a bit more on how that's trended directionally? Has the low-income consumer worsened? stayed mostly stable. And then for the more mid to high worth segments, have you noticed any changes in behavior here sequentially across any of your markets? Thanks.

Okay. This is Evan. I'll take that question. I think we have to look at it from a On market-by-market, it differs a little bit. In the east, our customers are visiting our properties as often as before, and spend likely less per visit. Visitation declined in Rocky Gap and in Mountaineer, and the unique customer count decreased accordingly. For Mountaineer, spend trip is flat, And for Rocky Cap, it's up. In Missouri, our customers are healthy. They visit more often. They spend the same as last year. Colorado, visitation is also the same. People spend slightly less. The middle and lower tiers drive our business in Colorado. And in the Nugget, overall visitation is slightly down. Unique pattern count is flat. The younger demographic, under 30 years of age, increased by 26%, which is interesting, and spent per trip is flat. Overall, we don't think that inflation at this point in time needs to be a major concern for us.

Okay, great. Thanks for all the granularity, Erwin.

For my follow-up, turning to the Canadian business, It looks like EBITDA margins were up nearly 7% quarter on quarter, despite, and correct me if I'm wrong here, historically somewhat limited seasonality. Peter or Erwin, can you just expand a bit on what's driving this? Were there any one-time benefits in the quarter? Is this just sort of strong execution on the cost side of things? Just any thoughts that would be helpful.

Thanks. Not one time. We think it's strong execution. We really have a fantastic management team there, and It took a while for Central Mile to catch on, but now it has caught on. We were able to also find a solid customer base there. And we have every reason to believe that this will stay the same or get better. In fact, because, again, going forward in the Edmonton Casino in a few months, there will be no more impediments due to traffic. And then we're also working on improving both the outside and the inside for the St. Albert Casino. So these are things that will be positive, and we look optimistically into the future in Canada.

Okay, great. Thanks for that. Erwin, if I could just squeeze one more in quickly. It looks like, to me, apples to apples, CapEx guidance for 2024 was was lowered a bit versus the $46 million that was cited in the press release when you reported preliminary Q4 results. Peter or Erwin, can you just talk to this decision a bit more? Are you delaying out certain of the projects that you laid out for us in the Q3 presentation? And if so, what's the overall rationale? Thanks.

Yeah, we just sort of streamlined the investments a little bit as we, in particular, At the Nugget, there was a learning process and in that last time we thought we would do another almost upscale restaurant, but we've delayed it a little bit now. We think we're better off focusing on upgrading the existing restaurants for now. That will take us a little time, and then we'll see how that goes, and then come back to the decision on what exactly we do with an additional restaurant.

Okay, great. Perfect. That's all from me. Thanks for all the cover.

And our next question will come from Chad Bannon with Macquarie. Please go ahead.

Hi, guys. This is Sam on for Chad. Thank you for taking our question. We know it's still early days, and there's a lot to be determined on how sports betting or iGaming legalization might occur in Alberta. And now it looks like Maryland is the possibility. I was hoping to get your high-level thoughts on your online strategy for those regions, and ultimately if or when they legalize if it can be a net positive for your operations in those regions.

I'll take the first part and then hand over to Peter. OSB and iGaming is already legal in Alberta. It's provided by the Alberta Gaming and Liquor Commission, and the casino operators are not participating in that. Peter, would you like to comment on Maryland and our overall strategy, which we'll probably keep as we have it now?

Yes.

In Maryland, they are discussing to legalize iGaming, and we certainly look forward to that with our license. The approach will be the same as we do in Colorado and in West Virginia. And in Nevada, we are providing our license to experienced large online game operators. They pay us a percentage of the revenues they generate with our license, and that has a minimum annual guarantee included for us. Outside of Maryland, we also have hopes for Missouri to legalize sports betting, hopefully this year, because, as you know, we have two licenses there, and there's strong interest from the online operators. So that would provide quite a nice boost to our EBITDA in Missouri as well. We have no costs associated with these agreements, so everything that we receive goes to the bottom line. And we certainly feel it's a net-net positive for us, at all the locations where we have that strategy in place already. In Estetina, as you know, it's not only sports betting, but also already iGaming. And we work with two providers there that works very well for us.

Thank you for the color. And then a follow-up. I wanted to ask about Poland and the ramp for the remainder of the year. Is it possible you guys could start run-rating the double-digit EBITDA that we saw in 22 this year? And then on the M&A front, is that something, discussions you guys plan on having right away, or do you have to, are you gonna wait for the properties to sort of ramp up to full capacity?

I'll answer part one, and then hand over to Peter again. So the way I think, you know, part three, the casino is so successful, And we believe that at the latest in 2025, we will be back to what we could call normal in Casinos Poland, and that would mean two-digit EBITDA figures in USD. 2024 has started very well in spite of the fact that still Wroclaw is closed. It's too early to say. We don't want to speculate, but it's developing in the right direction. And Peter, maybe you want to talk about our plans for failing.

Yes. As we have received all these three licenses again, we have now restarted the trades process, early stages. But we think this year, second half of this year, we should have a better chance than than before to get a reasonable price for our operations there.

Great. Thanks a lot for the call. I appreciate it. Thanks, Anne.

And as a reminder, that is star one to ask a question. And our next question will come from Jordan Bender with Citizens J&P Securities. Please go ahead. Hi.

This is Eric Ross on for Jordan. Thanks for taking our questions. So knowing that Reno has traditionally been a competitive gating market, I was wondering if you could provide some details to the environment there nearly through the first quarter and what the group and convention outlook for the year looking like.

Okay.

So, market obviously, arena obviously is a very competitive market and I think everybody has seen pressure partly due to the coming from the bad weather. uh as you know part of our market is west of the rocky mountains and whenever there is a either an announcement of snow possibly coming or actually no coming where we and then all of reno sparks is impacted um concerning the conventions and events uh 2024 in fact is then i think it has the most exciting calendar we have an impressive lineup of fans And we have outdoor events like the annual RIP Cook Off with a new reggae festival, Hot August Nights, and a new Oktoberfest. Our 8,500-seat outdoor theater is a big draw, and it's quite frankly a unique feature at The Nugget.

Okay, that sounds great.

And just a follow-up, with the capital plans discussed, can you give us an update on your thinking about the remaining real estate for The Nugget? Would you ever consider going 100% off go there to help pay down debt? Thanks.

Could you be so kind to repeat the question? I did acoustically not hear it.

Yeah. So I was wondering if you were on the remaining real estate for the Nugget. Would you ever consider going 100% off go there and helping pay down debt?

We don't consider that at this point in time. But we have some more time to make a fine decision.

Great. Thank you.

And again, that is Star 1 if you would like to ask a question. And it appears we have no further questions at this time.

All right, very good. Thanks, everybody. We appreciate you joining our call today, and we will talk again after the first quarter. Until then, thank you and goodbye.

And this will conclude today's conference. Thank you for your participation, and you may now disconnect.