Century Casinos Inc (CNTY) 2016 Q1 法說會逐字稿

Welcome to Century Casinos Q1 2016 earnings conference call. This call will be recorded.

(Operator Instructions).

I would like to introduce our host for today's call, Mr. Peter Hoetzinger. Mr. Hoetzinger, you may begin.

Good morning, everyone, and thank you for joining Century Casinos first quarter 2016 conference call. Earlier this morning, we released our financial results for the quarter.

If you don't have the copy of the announcement and would like one sent to you please visit the Investor Relation section of our website or contact us by sending us an e-mail to info@cnty.com.

On the call with us today are my Co-CEO and the Chairman of Century Casinos, Erwin Haitzmann; and our Executive Vice President of Finance, Margaret Stapleton.

Before we begin we would like to remind you that we will be discussing some forward-looking information which involves a number of 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, but as a result of new information, future events, or otherwise. We provide a detailed discussion of the various factors, various risk factors, in our SEC filings, and encourage you to review these filings.

In addition, throughout our call, we may 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 release and in the filings from this morning, available in the Investor section of our website at cnty.com.

With that, let me present our prepared remarks and then we will open up the call for our Q&A session.

Results of the growth of our, once again, impacted by a strong US dollar. Net operating revenue as reported under GAAP grew by 7%. Factoring in the unfavorable foreign currency effect versus the first quarter of last year of $2 million, the real revenue growth and constant currency was 14%. Adjusted EBITDA grew again in constant currency by 28%. This marked the 6th consecutive quarter with both revenue and EBITDA growth.

Consolidated earnings operations were up 61% reflecting the underlying strength and stability of our geographically diverse portfolio of casino efforts. Canada continues to be our strongest market. It generated half of our total consolidated EBITDA followed by Poland where we got 24% of our adjusted EBITDA from and Colorado which generated 21% of total adjusted EBITDA.

Our balance sheet continues to be in very good shape. Net debt decreased from $15.8 million a year ago to just $8 million now and that number even includes $60.6 million related to long-term land capital leases at Century Towns in Canada.

Net cash provided by operating activities increased 27%. Regular property CapEx was $900,000 but 2.8% of revenue spent mainly on gaming equipment for ship casinos, casino renovations at the Edmonton Casino and new slots for Century Casino Cripple Creek and Casinos Poland.

Our debt to adjusted EBITDA ratio is still at only 1.6 times3; one of the lowest in the north American casino industry. Book value per share increased from $4.33 to $5.24.

In Colorado, the solid run of both casinos continued. The economy and the consumer sentiment integrated Denver and Colorado Springs metro area continues to be strong coupled with our effective marketing programs, which led to a continued revenue and EBITDA growth of 4% and 2%, respectively. While Century Casino & Hotel [Triple] Creek led by the numbers, our property in Central City has been named Best Casino in the Denver for the fourth time in the last five years.

CityVoter.com tabulated the votes of over a two-month period in 145 diverse business categories with over 82,000 voters across the Denver metropolitan region. We found the best casino in Denver title competing against 23 other casino properties in the Blackhawk and Central City markets like Monarch, Ameristar, Isle of Capri.

Century Casino enjoys an outstanding reputation for its hospitality and guest service. The property in Central City offers 500 of the latest and most popular slot machines, a restaurant, a deli, 26 beautifully appointed boutiques like hotel rooms and suites, a 500-car covered parking garage directly adjacent to the casino and it provides easy flexibility from the Central City parkway into town from I-70.

The casino - we're featured the Best Casino title in all marketing activities and we have a lot of promotions leading up to its 10th anniversary in the third quarter. In Canada, the Canada segment showed revenue growth of 61% in local currency while adjusted EBITDA was up 29%.

The Century Casino had in Edmonton, had a very good quota on the gaming tables, so its revenue up to 7%, slot revenue was up 1%, EBITDA margin, 38%. The suspension renovation or the floor space is currently under way. I was there last weekend and was impressed with the progress.

We will expand the gaming floor, relocate the 24 poker room and enhance the highly missed VIP area, create a new bar and also expand the casino restaurant. The new design will be ready for the fourth quarter which traditionally has been the biggest for Edmonton.

Revenue at the Century Casino in Calgary was flat year-over-year while its revenue at the black jack and baccarat tables was up. The slots had a little less play due to the addition of our Century Towns Casino to the market in April of last year. EBITDA margin at Century Casino Calgary was 23% for the quarter.

The great success of our newest property, the Century Towns Racetrack and Casino North of Calgary continues. Revenue increased over the last quarter and the EBITDA margin was 44%. We began live horse racing on February 14 and has experienced increasing customer volumes every weekend since then. We continue to push our program sign ups and we also continue to specifically target the markets of north and northwest Calgary, both of which do not have a casino.

And, finally over to Europe to our 66%-owned subsidiaries of Casinos of Poland Limited. It supported in March, the supreme administration for the Poland ruled in early March that casino's Poland acting as a taxpayer must calculate, collect and pass on to the Polish tax authorities, gross on income tax and all tips received by employees from casino customer.

There's been overseas services ruling from the course, and therefore we have been in a position to report the proper additional expense related to this ruling. We are evaluating changes to payroll on a go forward basis, but no changes can be and really made until after the written verdict is received an [inner life]. This is frustrating for us as it is for you.

So far, we believe that the contingent liability we have established and it is sufficient to cover the open text period relating to personal income tax through the end of Q1. If the Polish [ides] were to continue with the tax audits. Until a written verdict is received, we cannot estimate the probability of additional employment tax obligations being assessed based on the decision relating to personal income tax.

All right, based on the information available as of March 31. 2016, the goodwill of casinos Poland will not be impaired. If that information changes based on the written verdict we will reevaluate the goodwill situation. Our Poland business is fundamentally very strong. We should get the written details of the ruling in the second quarter which will then [announce] to determine the real impact going forward.

In Q1 casino's Poland had a mixed quarter. It operates 505 machines and 81 tables, at 9 locations throughout the country. Slot revenue showed continued strong growth with [coin in] up 50% and revenue up 40%. The increase in slot revenue was broad based. It is pretty much all of our locations and it was due to the better slot product on the floor due to the new player loyalty program and also due to the closing of the last [league to suffocate] a few months ago.

On the gaming tables, there was real growth in money wager, [both poles] up 42 percent. Other match show a low percentage compared to last year, is that they fit in a 30% decline in table games revenue.

The overall EBITDA margin increased slightly to 14%. We work hard to keep casinos Poland growing and to keep operation -- operating margins close to where they are today despite of the higher compensation expenses going forward.

That concludes the presentation of the results for Q1. Overall, we are quite pleased with our progress. All operating segments are in good shape and still offer potential for further improvement.

Let me also mention that the second quarter started out really well for us. The month of April generally strong double digit growth over April of last year. This is a true apples-to-apples comparison because last April also already included the casino at the new Calgary racetrack opened April 1 last year.

We look forward to the opening of additional cruise ship casinos in the second quarter and to further advance the Company through organic growth as well as through the acquisition of additional properties.

Thank you for your attention and we can now start the Q&A session. Operator, go ahead please.

Ladies and gentlemen, at this time we will conduct the question-and-answer session. (Operator Instructions) We are now ready to begin. Your first question comes from the line of Robert Majek from CJS Securities. Your line is open.

Good morning. Peter, in Poland revenue was down year-over-year in local currency despite some benefits from the band of non-casino slot arcades. I was hoping you could give us a little more color on the market dynamics you're seeing there?

Slot revenue is really very, very strong -- 50% five, zero -- coining growth that's phenomenal and also we had real growth on the gaming tables, but in all percent, it was a little bit -- it was quite potentially lower than last year.

Erwin, would you like to add also the situation of the life gaming tables? I think we have made pretty good progress

Yes.

Because we are not so dependent anymore on one plane, right? So --

Exactly. In the past probably six, seven, eight years much of our oversight -of golf gaming revenues have been in trends and impacted by one single player. We now see that we could broaden our base and are not dependent on this particular player any longer whether he comes whether he wins or loses. So, that is very encouraging going forward.

Appreciate it. And on previous calls you discussed the potential expansion into Southeast Asia. Can you update us on your efforts there?

We are getting much, much closer. But we are not yet ready to disclose any firm deals. But we are getting very close and we believe that within the next -- either this current or the next quarter, we should be able to announce something. I'm very hopeful about that.

And on the taxation of tips in Poland. I know you haven't gotten a written ruling and you can't be specific but can you help us just very roughly quantify the range of potential impact on your results going forward in anyway?

I cannot, and I hand you over to Peggy but I feel she's also able to - not be able to do anything and that reason really isn't that our lead in, our auditing partner says they all say we have to wait. Peggy, can you explain what he said?

There's just so many moving factors related to this legal opinion that we really can't quantify it. You know, and fully -- this is actually an employee's tax but it will impact our payroll going forward in some manner.

And that's about all we could say.

I think the verbal ruling was very unprecise. Isn't that right word?

Yes.

Yes. So we really need the written ruling to make any detailed analysis. And, as I said, it's really frustrating for us. None of it [used right].

All right. Thank you. Yes. I under the complexity there. And last one for me. On Century Beds, can you discuss the increase in expenses? I'm trying to kind of gauge how much of it was perhaps one time in nature and maybe if you can just give us an idea how soon you will return to profitability there.

It was -- pretty much all of it was a one-time thing. It had to do with the right, the correct set up in Canada. It's -- Peggy, is it fair to say or Erwin that allow we the budget profitability every single quarter? Is that correct --

Absolutely.

Yes.

Yes. That's correct to say. Absolutely.

That's encouraging to hear. Thanks. Appreciate it. I'll jump back in queue.

Thanks a lot.

Our next question comes from Alex Fuhrman from Craig-Hallum Capital.

Great, thank you very much for taking my question. You know, just looking at Canada, as you start to lap the launch of Century Downs and Century Beds, what should we think about as a normalized growth rate for Canada in Q2 and looking into the back half of the year?

Erwin, can you say something about that?

Yes, so you are looking for percentage figure, right, for all over Canada?

Or however you think it makes sense to just think about, you know, because obviously, even such a huge growth and in Canada in 2015 and I would imagine that will, you know, moderate pretty quickly here.

Right, last month, not necessarily. Well, let me see -- let me say something rather (inaudible). In Century Downs we just have obviously one full year behind us. And, we feel the potential has not been reached yet and we can get more out of this operation and as we continue to grow.

So, we don't think we are leveled out there by any means yet. And we're looking it from various angles and how to serve and expand and really everything we do is very encouraging. With Century Beds, I think we mentioned before, there we don't see really a whole lot of growth at this point in time. But, it would be property (blending) will contribute. Which we cast to Edmonton the as a upgrade that Peter has been describing before.

We think will be really good and really helpful. It's -- the (propos) will be nicer there -- the highly between the nice and will have a private room that will be really nice. There's painting, about $2 million in making this really sparkling and good and great customer experience and will be totally competitive with that.

We expand also -the we do something to the entrance area which in effect brings the showroom closer to the casino entrance, we gained some space there. So, that's all really exciting.

I was also there last week, together with Peter, we went through the details once more. We are excited, we think it's really good. And, when it comes to the Calgary casino, the first one we had, the Calgary casino, then we in April, we see that in fact, by until and until March we always see -- have a little -- a few percent, a decrease in both coining and slot revenue and as Peter corrected that, due to the (essence) to Century Downs, we now see that in fact, we probably to very likely have mutually beneficial marketing effect there.

We see when we are running a marketing campaign for Century Downs is also profit as a Calgary casino, the Century Casino Calgary. So, this is for the first time I think that we -- that we really see the advantage of having the brand name in one of the same market and that's really great and encouraging. And in the life game, it's volatility based in Calgary with the baccarat, we also -- if you look at it from a larger picture we see it is growing, growing, growing. All of that looks very good.

Well, that's terrific. Thank you very much.

Thank you. If you would like to ask a question, press star then the number one on your telephone key pad. Our next question comes from the line of Robert Molti from singular research. Your line is open.

Oh, thank you. This is Debra in for Robert. Thanks for taking my questions. You have two new casino operations that you are going into on ships. I just wondered if you could give us some metrics on -- you know, in terms of tables or machines for each of those ships.

Debra, it is very similar to the existing ones that we have, [mind shape number five and Thompson discovery]. And, they really -- won't really move the needle very much, a handful of tables and I think 10 or 20 slots. So...

OK.

It is a nice addition to that segment, but nothing to write home about.

OK. Very good. And also, you didn't mention your interest in Argentina in your opening remarks. And I wondered if you could provide us with a bit of an update on how you're viewing that particular market. There have been a great deal change and there's a great of change in the political and economic development scene there.

And that's apparently from growth the market -- the international and financial markets say all for the better. However, internally within the country, the situation looks a little bit different. The currency, the free currency exchange now has resulted in pretty much all goods being more expensive for the local population.

They have less spending bargain than before. I think although it's really for the better of the country what is being done. But, the short term, the spending power of the local population is suffering and we also see that in the casino. Now, we have a small stake there, as you know, and an option to increase. That option runs for another one and a half years so, there is no pressure really on us to make a compensation. And our management fees, mostly is to fix payment and not dependent on the results too much. So, no real impact on our overall results and we have a wait and see approach because of the time arriving with the contract that we have to possibly increase and not decrease our stake there.

OK, good. Very good. And then, my last question is in regard to cost pressures. And, just in looking at the numbers quickly it looked like perhaps you are experiencing some cost pressures, perhaps particularly in Canada and I wondered if you could comment on what you are seeing in terms of labor costs and material costs and so forth.

There are mainly -- the cost pressure is mainly on the salary side. You may possibly have followed the new and growth the government has been [envisioned to wait] step by step over the next two years the minimum wage. And, once such wage has taken place recently, of a let's say -- simply everything or all hourly wages have been raised by $1, that impacts us for so that we can until adjusted. In the other areas, of course, however, we rather see the opposite due to the fact that the economy of Alberta has been suffering a little bit, too through the [let's say] taxations in oil price. Construction is now cheaper. So, now is a good time to do the renovation that we are doing. And, in fact it goes the other way.

OK. Very good, thank you.

Thanks, Debra.

I now return the call to Mr. Peter Hoetzinger for concluding remarks.

Thank you, everybody and thank you for your interest in Century Casinos and your participation in the call. For a recording of the call, please visit the financial results section of our website cnty.com. Goodbye.

This concludes today's conference call. Thank you for attending.