Century Casinos, Inc.

Good day, everyone, and welcome to today's Century Casinos Q3 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 a question at any time by pressing the star and 1 on your telephone keypad. Please note, this call is being recorded, and I will be standing by if you should need assistance. It is now my pleasure to turn the conference over to Peter Hotzinger. Please go ahead, sir.

Good morning, everyone, and thank you for joining our earnings call. We would like to remind you that we will 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 SSE filings and encourage you to review these filings. Throughout the call, we refer 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 cntui.com. After our prepared remarks, we will open the call for your questions. My co-CEO, Erwin Heitzman, and our CFO, Margaret Stapleton, will join me for that. Our first quarter results were released this morning. We delivered net revenue of 156 million, a small decrease of 3% compared to Q3 of last year. Adjusted EBITDA was 32.9 million, down just 1%. Consolidated EBITDA margin increased from 20.6 to 21.1%. The main reason for the small revenue decline was the temporary closure of one of our casinos in Poland. I'm happy to report that in the meantime, 10 days ago, that casino has successfully reopened and Poland is back to normal run rate of around 10 to 12 million in annual EBITDA. And we had another important opening recently last Friday on November 1st, we've opened the brand new land-based casino and hotel in Missouri. It was a fantastic opening weekend there. More about it a little later. Throughout our portfolio, the underlying customer trends remain stable in the third quarter. I'm sure you have heard the same from our gaming peers and from other consumer discretionary businesses. The retail customer as well as the low-end customers are still relatively weak, stable at least. We see that more or less in all our markets. While rated play was flat, non-rated play was down throughout our portfolio. We believe this is mostly due to macroeconomics and wallet softness in our markets. To dig a little deeper into the quota, let's look at segment results, starting with the East, which includes the Mountaineer Casino Resort in West Virginia and the Rocky Gap Casino Resort in Maryland. Revenue of that segment was up 7%, EBITDA up 5%. At both properties, the low-end consumer produced less trips, with the spend per trip pretty flat. The mid and upper levels of the database also came less often, but the spend per trip increased versus last year. The performances of the hotels at Mountaineer and Rocky Gap have been improving. Cash rooms increased, while comp rooms went down. We did put a bit more marketing dollars to work to drive revenue and get more brand exposure. For Mountaineer and New Ohio and Pennsylvania feeder markets, and for Rocky Gap in the DC and Baltimore metro areas. Continuing to the Midwest with Missouri and Colorado. Revenue of the segment was essentially flat. EPITAR was down 5%. That is a respectable result considering the disruption we experienced at Corradoville from the development of the new land-based facility. As mentioned, the new property opened last Friday with a total of 74 hotel rooms and over 660 gaming positions, which is a 20% increase in gaming positions compared to the old riverboat and a 50% increase compared to the temporary location. And I can tell you, I was there, it was a fantastic opening weekend. Right from the get-go, on the very first day, the new facility set an all-time record for coin-in and daily revenue, even though we did not have all slots in operation yet. The entire team in Missouri and all of us are really excited about the bright prospects the new property offers. It provides significant operational efficiencies, it's much more convenient for our customers, and increases our catchment area. The new property transitions the Carradosville 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. We expect a strong uplift of results and should see that on the revenue side fairly soon. The impact on EBITDA will probably take a quarter or two until we have worked out the initial growing pains and figured out the most efficient staffing levels. Our other property in Missouri, in Cape Girardeau, saw a positive revenue trend in the quarter, up 7%, driven by the new hotel as well as food and beverage sales. The hotel we opened earlier this year is ramping up nicely. You see a steady incline in occupancy and revenue, and that continues into Q4 with a strong start in October. Additionally, we have been seeing a lot of multi-night stays recently, which is a nice surprise. The hotel is also driving meaningful growth in F&B sales, offset by higher COGS and staff costs. The team continues to fine-tune operational expenses to further increase profitability. Those efforts showed during the quarter. We saw gradual improvements with higher revenue and lower expenses month after month, and we expect that to continue into Q4. 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. Point in was up. Table drop was up and F&B revenue was up as well, all because there's a higher volume of visitors in town. All of that was partly offset by a lower slot hold this quarter and the loss of some of our sports betting revenue. As you know, we had three sports betting providers using our licenses in Colorado, but two ceased operations recently, namely Circa and Tipico. The one remaining is Bet365. Overall, the Missouri and Colorado segment did a great job in maintaining operating efficiencies with some property level margins at 39% during the quarter. Next is the West segment with the Nugget Casino Resort in Reno, Nevada. After a quite disappointing first half of the year, the Nugget showed good sequential growth. Sequentially, revenue was up 40% and EBITDA doubled compared to Q2. but still a bit behind last year's third quarter. Gaming revenue was flat compared to last year, but hotel and F&B declined significantly due to fewer group room nights. We've mentioned that in recent investor meetings already. The group and convention volumes are down this year. The reason for it lies two years back, before we took over the operations. Anyway, happy to say that it's looking much better going forward. New top management successfully focused on cost control. Total expenses went down by 9%. We remain focused on operational efficiencies to help offset rising labor costs. Local display was strong in the quarter, up 20% compared to last year. And we also saw a significant uptick in the number of visits from the younger age groups. Nugget has completed its capex program in the casino for this year, but we need to spend between 3 and 4 million on elevators next year, which will be increasing our estimate for total company-wide capex from 12 to 16 million in 2025. A few words about our small operations in Canada and Europe. Canada, we grew EBITDA by 6%, mainly through better cost control. consumer trends appear pretty stable at all four locations we have in Alberta. 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. In an apples-to-apples comparison of the undisturbed properties, both revenue and EBITDA grew compared to last year. Anyway, we've reopened that casino in Wroclaw 10 days ago, business volumes are great with that reopening we expect poland to get back to normal levels quite quickly which is between 10 and 12 million in annual ebitda the sales process is also progressing well we hope we're hopeful to get it done within the next couple of months now let's discuss our balance sheet and liquidity position We ended the quarter with $119 million in cash and cash equivalents and $340 million in outstanding debt, resulting in net debt of $221 million. Traditional net leverage is 4.7 times, and least adjusted net leverage is 6.6 times. Of course, the leverage is elevated because of our recent acquisitions and investments. that we have the casinos in Poland and the new land-based facility in Krakow will open, it should ramp down quite quickly as we look to deliver to three times traditional and around five times lease-adjusted for next year. We have no debt maturities until 2029, and we can reprice or refinance our 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.

Turning to CapEx.

During the quarter, we remained committed to investing and offering new amenities to our guests in order to drive future incremental visitation as well as spend. As of today, we are pretty much done with it. Just 2 million to go in Canada and Colorado. Total CapEx for this year will amount to around 38 million. For next year, we expect it to come down sharply to about 16 million, setting the stage for a substantial increase in free cash flow. But that significant cash flow growth is not only driven by the reduction in capex. The most recent casino openings in Poland and Caruthersville and the new spirit of optimism at the Nugget in Reno will contribute significantly to much better results in 2025 than in 2024. A presentation posted on our website shows you the bridge from negative cash flow this year to the positive cash generation in 2025. As we look ahead, we are confident in our business prospects moving forward. On the expense and labor side, we will continue to focus on operational discipline and look for ways to become even more efficient. As we've said in our last earnings call, This year is a transitory period for us, but we see a clear path forward to generating cash and to delever significantly. In addition, on an opportunistic basis, we also plan to buy back stock.

All right, that concludes our prepared remarks.

We'll now open the call for Q&A.

Paul, go ahead, please.

At this time, we will open the question and answer session. If you would like to ask a question, please press star and one on your telephone keypad and you'll be placed into the queue in the order received. You may remove yourself from the queue at any time by pressing pound and one. Once again, to ask a question, please press star and one on your phone now. And our first question comes from Jordan Bender of Citizens JMP.

Good morning, everyone. Thanks for taking my question. I want to start in Poland. Peter, can you just kind of help us understand what those two licenses are? Are they outstanding? Were they denied? Or should we expect them to come back? I guess I want to start there.

Peter, you want to answer? Yeah, Paul. Yeah.

We had a few licenses that that expired and the officials in charge did not start the relicensing process in time. And that's why we had to close some of the casinos earlier this year. And actually late last year. The important licenses, really important, I mean, the ones that generate significant revenue and EBITDA for us have been granted again to us. And the last one of those was the one in Wroclaw, and we opened it 10 days ago. We did not get relicensed for two smaller ones, and that does not have any meaningful impact on the revenue at EBITDA of 10 to 12 million or 100. So for all intents and purposes, Poland is back to normal. with that opening that we had 10 days ago.

Okay, perfect. And then if I can follow up on that, does the closing or the lack of relicensing of those two properties change the mindset at all of your willingness to sell those properties? Or can you just kind of update us on where you stand with that process?

No, not at all. See, over the years, Casinos Poland has always had between six and eight licenses. Sometimes you don't get a small one, and sometimes you get it back from a competitor. So there's always a little bit of a fluctuation. But the core operations are fully intact, and there's no change in our plans. And there's also no change from the investors that are interested in buying because of one or two small licenses, more or less. No change. Great.

And congrats on opening the property last week. Thank you very much. Thank you.

Our next question comes from Jeff Stanchel of Stiefel.

Hey, good morning, Peter, Erwin. Thanks for taking our questions. Maybe starting off here on the Nugget Casino, encouraging performance there during the quarter. Peter or Erwin, could you just add some color on the month-by-month performance at the property through Q3 and I guess into October? And as you look further out into 2025 and beyond, what are some of the operational levers that still left here that you can pull to help drive further sequential improvement and try to close that gap to what we'll call 2019-type profitability levels?

Thanks. Good question. I'll take that. I think what is a good question to ask because in the third quarter, what we saw is that the negative impact was basically coming almost 100% from the first month, namely from July. August and September were really getting stronger and stronger, and in a year over year were super encouraging. And we see the same trend continuing into October. So we think that we're really on a very good track there, and as Peter said, everybody is very optimistic. Concerning the next year or years, we think there are still some operational efficiencies to be found. and there is still opportunity with regard to a growing revenue as well in particular we are fine-tuning the selection of of concerts that we're doing and again we've made some good progress there already and we also put a lot of focus on getting more group business so Also, as Peter said earlier, the only difficulty with the group business is that most of that is planned two, three years ahead. So we only have a certain portion of the market that is planning with the horizon of, say, less than six months. But we're strongly after them.

Great. That's helpful. Thank you for all that color, Erwin. And then for my follow-up, turning to your Canadian assets, it looks like revenues were down year on year after a handful of quarters of some really strong growth. Peter or Erwin, can you just expand a bit on what's driving that? And more broadly, if you think about sort of post-COVID performance in that market relative to your U.S. assets, do you anticipate some mean reversion in consumer spend similar to what we've seen the last year or two in U.S. regional markets? Just any thoughts there would be great. And that's all from us. Thanks.

Sure. The decrease in net operating revenue is basically due to one casino named Century Downs, where the decrease is, rounded numbers now, about one million less in net operating revenue. That has two reasons. The first one is that around 300,000 of that are to be attributed to the fact that in 2024, we did not have a large event, which was called Chuckwagon, Last time we had it was in 23. We had it for three years in a row, but it turned out not to be profitable anymore, so we decided not to do it in 2024. So whilst we lost some revenue, it certainly had a very good impact on EBITDA. And the remaining 700,000 were due to the fact that our competitor, the Ace Airport Casino, which is the closest casino that opened earlier in 23, while it had a smaller impact to us in Q3-23, had a stronger negative impact on us in Q3-24. Having said that, we feel that now the market has stabilized and the market shares have stabilized and we don't expect any further deterioration. Rather on the opposite, I think it's well possible that we can come back there a little bit more. With regard to the revenues of the other casinos, in case you're interested, we increased the NOR in the Ford Road Casino in Ayrton by half a million, and we had small decreases of 140 and 100K in Century Casino St. Albert and in Century Mile. On the EBITDA side, however, while revenues overall were decreasing by $650,000, EBITDA increased by 180,000. So the operational efficiencies kicked in and we're not unhappy at all with the numbers. With regard to the trends, we think it's from here on out, again, it will only be going on, shall I say, mildly positive upwards.

Great. That's very helpful. Thank you, Erwin. I'll pass it on. All right.

Our next question comes from Chad Bainon of the Macquarie Group.

Hi, good morning, Erwin and Peter, and congrats on the Carothersville opening. Wanted to start with the illustrative guidance for 2025 in your investor deck. So as we think about the EBITDA bridge from 24 to 25, Obviously, most of this will come from the Carothersville opening and Cape Girardeau ramp and then, I guess, Reno improvement. But has anything changed in terms of how you're thinking about this $150 million of EBITDA? You mentioned some comments in terms of a ramp of the margin in Carothersville. So should we think about more of this growth to come? in the back half of 2025, or should it be linear? Thank you.

Peter, why don't you take that, please? Yeah, Chet, thanks for the question.

As with most property openings, and it was, for all intents and purposes, this is a new opening at Caradasville. Yes, it will take a little bit of time to for us to see the full potential also on the EBITDA line. In terms of TG and the Nugget, it's a bit more immediate, but generally speaking, it's probably more the second half or from the second quarter on of 25 that we'll see that run rate.

Okay, perfect. Thank you. And then you mentioned share repurchases could be something that continue to come in just as you're past the CapEx cycle, you have more capacity to execute on this and the stock remains at low levels. What's the, I guess, what's the total availability in terms of repurchases and how should we think about when you could start to to execute a little bit more on that strategy. Thank you.

Peter?

Yeah, we are not disclosing any absolute dollar amounts, but from that page in the presentation, you see that we expect to generate free cash of between 25 and 30 million next year. On top of that, we have over 100 million on our balance sheet. We do, however, need about roughly 40, between 40 and 45 million of the cash in the casinos. So the real available cash is... If we include next year, probably somewhere around 80 or so. We will not use all of it, but a good portion of it, and we'll split that for debt pay down and stock buyback. In terms of timing, it's opportunistic, as we have said. We'll probably start either late this year or early next.

Okay.

Thanks, Peter. What's the existing basket out there right now for repurchases for availability?

There's an existing solution that has also 15 million, but that can, of course, be changed. Awesome.

Thank you both. Appreciate it.

As a reminder, if you would like to ask a question, please press star and 1 on your phone now.

There don't seem to be any further questions.

And it appears that we have no further questions at this time. I will now turn the program back to our presenters for closing remarks.

Thanks, everybody. We appreciate you joining our call today. We'll talk again early next year.

Until then, thank you and goodbye. Thank you.

This does conclude today's Century Casinos Q3 2024 earnings call. Thank you for your participation.

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