Century Casinos, Inc.

Good day, everyone, and welcome to the Century Casino's Q2 2024 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 telephone keypad. You may withdraw your question by pressing star 2. Please note it's being recorded, and I will be standing by should you need any assistance. It is now my pleasure to turn the conference over to Peter Hotzinger. Please go ahead.

Good morning, everyone, and thank you for joining our earnings call.

After our prepared remarks, we will open the call for your questions. My co-CEO, Erwin Heitzmann, and our CFO, Margaret Stapleton, will join me for that. Before we get started, we would like to remind you that we'll be discussing forward-looking information which involves risks and uncertainties that may cause actual results to differ 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 discussion of the risk factors in our SEC filings and encourage you to review these filings. Throughout our call, we referred to several non-GAAP financial measures, including but not limited to adjusted EBITDA. Reconciliations of our non-GAAP 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. Our 2024 second quarter results were released this morning. We delivered net revenue of 146 million, an increase of 7% over Q2 of last year. The increase came from the addition of Rocky Gap in Maryland, as well as the good performance in Canada, offset by construction disruption, the poor performance of the Nugget in Reno, and the temporary closure of two casinos in Poland. Adjusted EBITDA was 27 million, down 6% from last year. That is disappointing. but the results were also impacted by one-time transitory issues, namely the construction disruption at some US properties and the temporary closure in Poland. As you've surely seen and heard from our gaming peers and from other consumer discretionary businesses, the retail customer, as well as the customers from the lower end of the database, are still relatively weak. Non-rated play was down 10% throughout our portfolio, We believe this is mostly due to macroeconomics and wallet softness in our markets. We would anticipate as inflation comes down and relief in credit markets is coming, this will begin to shift back to entertainment spend versus need spend. To dig a little deeper into the quarter, we've seen months that are not as strong as others. April was pretty bad. In fact, April was responsible for all of the quarterly year-over-year EBITDA decline. May was up almost 20%. June was down just a little, close to flat. Looking at segment results, we start with the Midwest, which includes Missouri and Colorado. Revenue of that segment was up 4%. EBITDA was down 5%. With the disruption we experienced at Carothersville, Missouri, from the development of the new land-based facility, the team delivered another strong water. And I'm happy to report that construction is progressing on budget and ahead of schedule. It plans a soft open in mid-November already. The new property will have a total of 74 hotel rooms and over 660 gaming positions. which is a 20% increase compared to the old riverboat and a 50% increase compared to our current temporary location. Our new facility will transition the Corrado's Wheel operation from an old riverboat and small temporary location to a modern-style land-based facility, adding significantly enhanced non-gaming amenities, expanded gaming options, and convenient parking for our guests. It will provide significant operational efficiencies and will increase our catchment area. We expect a strong uplift on the overall performance from that property, both in revenue and EBITDA. Cape Girardeau saw a positive revenue trend based on an increased player count and a higher visitation rate. The hotel we opened at the beginning of the quarter continues to ramp, the number of occupied room nights increased sequentially throughout the quarter with an ADR higher than budgeted. The team is in the process of fine-tuning operational expenses for the hotel and S&P operations to further increase profitability. In Colorado, our property in Cripple Creek continues to benefit from the new 300-room hotel that opened directly across the street from us earlier this year. Coin-in was up. Table crop was up, and F&B revenue was also up significantly, all because there is higher volume of visitors in town. Central City, on the other hand, suffered a bit from the hotel renovation works, which we finished in June, and from a lower spend per trip. Our East segment includes the Mountaineer Casino Resort in West Virginia and the newly acquired Rocky Gap Casino Resort in Maryland. Because of that new acquisition, revenue of the segment was up 60%. EBITDA almost doubled. At Mountaineer, the lower end of the database produced less trips as well as lower spend per trip. In addition, slot hold was down year over year. The good news is that staffing is no longer a significant challenge. We managed to keep all amenities open without labor limitations. Besides that, Rocky Gap has been impacted by reduced number of trips, as well as a noticeable decrease in unrated play. You believe this is a combination of metro and local economics, as well as the continued growth of iGaming in Pennsylvania and West Virginia. However, we do see first benefits from our efforts to attract previously untapped feeder markets, such as the D.C. metro area. The property has also done a good job of capturing to our database. It increased by 16% year-over-year. As the economy improves, that will be a great upside potential. Continuing to the waste segment, which includes the Nugget Casino Resort in Reno, Nevada. The Nugget was the disappointment of the quarter. There's nowhere around it. We knew we had to deal with disruptions from innovation and refurbishment works on and around the gaming floor, but we did not forecast a 23% revenue decline. Yes, the hold on slots and tables was significantly lower compared to last year, but that would only explain a small portion of that decline. So we've made some tough decisions. Nugget has undergone a leadership change and is implementing right-sizing and cost-cutting initiatives to improve its performance. We have appointed Eric Rose as senior VP and general manager of the property. Eric is a 32 year veteran in gaming hospitality and previously served as our VP of operations in Colorado. His career actually began in Nevada and includes leadership roles in F&B, marketing and as general manager. Throughout his career, Eric has proven himself as a leader dedicated to evolving outstanding hospitality paired with exceptional financial discipline in highly competitive casino markets. With the appointment of Eric Rose to the Nugget's top leadership role, we are finalizing their transition and integration of that property and setting it up for future success. We've also upgraded the property with more than 120 new slot machines, a high-limit room, refreshes of two restaurants, a repaint of the exterior, as well as exterior and interior signing and display packages. Most of the transitional extraordinary expenses, as well as most catbacks and the disruption that comes with it, are behind us now. And the properties, entertainment, and special events calendar for the next 12 months looks great. All of that makes us optimistic. that next year will see substantial improvement and show the Nuggets full potential. Moving to Canada, revenue in Canada grew by 5% and EBITDA was up 7%. All four of our operations in Alberta delivered a solid performance in line with our expectations. During the quarter, we saw strength from our core customer segment, and continued stability in retail play across the Edmonton and Calgary regions. In Poland, two casinos were still closed during the quarter, one of which is a very important one in the city of Wroclaw, which resulted in a significant drop in revenues. That casino in Wroclaw has been relicensed already and will be up and running again in October. As indicated in our last earnings call, After the reopening, we expect to get back to normal levels quite quickly, and that's around $12 million in annual EBITDA. The sales process is also progressing well. There's new momentum with additional parties having expressed serious interest over the last couple of months. With that, let's discuss our balance sheet and liquidity position. We ended the quarter with $123 million in cash and cash equivalents. and $342 million in outstanding debt, resulting in net debt of $219 million. The main reasons for the decrease in our cash position versus the end of last year are the cash payments of $12 million for taxes on our Canada real estate sale, a $4 million one-time principal pay down of debt, as well as a $34 million investment in property and equipment. Traditional net leverage is 4.6 times, and lease-adjusted net leverage is 6.5 times. The leverage is elevated because of our recent acquisitions and investments. It can stay above the long-term range until we have the casinos in Poland and the land-based facility in Krakow will open. But from then on, it should rank down quite quickly as we look to deliver to about three times traditional, and less than five times lease-adjusted for next year. We have no debt maturities until 2029, and we have additional borrowing capacity of $30 million under our rules. We can reprice or refinance our entire term loan at any time without penalty, and as soon as the window opens, we want to act on it and improve our terms. Turning to CapEx. During the quarter, we remain committed to strategically investing and offering new amenities to our guests at our existing locations in order to drive future incremental visitation and spend. I'm glad to report that we are nearing the end of our elevated CapEx program, as we are finishing several projects in the second half of this year for approximately $13 million. We expect these to be solid investments over the medium and long term and look forward to moving beyond the disruption challenges the properties had to deal with. For next year, we expect total capex to come down sharply to about $12 million, setting the stage for a substantial increase in free cash flow. We'll see that increase in cash flow from the Casino reopening in Poland in October and the Carradosville opening in mid-November onwards. Cash flow will be improving substantially from revenue growth due to improved facilities, as well as from the major reduction in capex. The presentation posted on our website today shows you the bridge from negative cash flow this year to the positive cash generation of a dollar per share in 2025. Shifting our outlook for the remainder of this year and next, Given the performance in the first half of this year, we are now projecting 2024 revenues of 602 million and adjusted EBITDA in the range of 105 to 115 million. For 2025, VC revenues between 650 and 675 million and adjusted EBITDA between 150 and 160 million. As we look ahead, We are confident in our business prospects moving forward. On the expense and labor side, we will focus on operational discipline and continue to look for ways to become more efficient, especially at the nugget. Again, we are still in a transitory period, but we have a clear plan to focus on generating cash to deleverage and opportunistically also buy back stock later this year and next. I want to reiterate our enthusiasm, especially for next year. We see results and free cash flow improving significantly once we have the Polish casinos and Carathasville open in just a few months from now. That concludes our prepared remarks. We'll now open the call for Q&A. Operator, go ahead, please.