Century Casinos Inc (CNTY) 2016 Q3 法說會逐字稿

Welcome to Century Casinos' Q3 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' third-quarter 2016 conference call. With me on the call are my Co-CEO and 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 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 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 we 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 10-Q filing from this morning available in the investors section of our website at CNTY.com. We will now review the Company's financial results and, following our prepared remarks, there will be an opportunity to ask questions.

In constant currency, net operating revenue for the quarter was up 4% while adjusted EBITDA was down 6% year-over-year. Our strongest segment, which is Canada, which provides 43% of our consolidated EBITDA, saw revenues decrease by 2% and adjusted EBITDA by 14%. The number one reason for these declines was the extensive construction and remodel work going on during the quarter causing substantial disruptions on the gaming floor at our largest property, the Century Casino & Hotel in Edmonton. We are pretty sure that without these disruptions not only the Canada segment would have generated revenue and EBITDA increases, but we would also have seen real EBITDA growth on a consolidated level.

In other words, we are quite happy with the performance despite the construction and we are even happier with the final result with the new design, the new poker room, the new bar and especially the new beautiful VIP and private gaming rooms in Edmonton. We've posted some pictures on our website and I encourage you to take a look. Our customers love it.

The entire decline came from the tables, not to our surprise, because of the construction works. It's great to see that slot revenue was stable in Edmonton. The property has a total of 794 gaming machines right now and we believe we get more soon after we have more space available. The casino renovation project has been substantially completed this week and we look forward to a strong finish to the year in Edmonton.

The Calgary market, where we have two properties, remains challenging and a bit of a mixed bag. While the Century Casino Calgary struggled with lower volumes on the gaming tables during the quarter, the Century Downs Race Track and Casino had a really good quarter with revenues up 13%, EBITDA up 38% and an EBITDA margin of 41%. Most of the growth came from the slots, of course, but OTB revenue and ADW revenue, that's online advance deposit wagering, picked up strongly too. We continue to push our loyalty program sign-ups and to specifically target the market in [North] and Northwest Calgary, both of which do not have a casino.

The US operations in Colorado showed a very solid performance. Revenues were up 3% and adjusted EBITDA up 5%. Overall, it generated 29% of the Company's consolidated adjusted EBITDA. The economy and consumer sentiment in the Greater Denver and Colorado Springs metro areas continue to be strong. The Century Casino & Hotel in Central City serving the Greater Denver market was the stronger of the two Colorado properties. The growth came from the slot floor where [coin] increased by 12% year-over-year. Hotel and F&B revenues all show showed double-digit increases.

In Cripple Creek, our plans to convert one of the non-casino buildings that we own into a 32-room boutique hotel are well-advanced and we should see the start of development works this quarter still. The expected completion date is at the end of next year. The existing 21-room hotel has a 90% occupancy rate and has won the 2015 Best of Cripple Creek Award. More than doubling our hotel capacity will help us stay competitive in the market for higher-end players from the Colorado Springs area.

Now over to Europe where our eight casinos in Poland had another very good quarter. Revenue was up 11%; adjusted EBITDA was up 18%; and that EBITDA number even includes the considerably higher startup costs due to the unfavorable tax ruling on tipping company employees. Poland was responsible for 26% of our total adjusted EBITDA in the quarter. Coining of the slots grew by 18% with a lower hold percentage this quarter restricted growth from the slots to 5%. The increase on gaming tables was 16%, mainly driven by a great performance of our flagship property in Warsaw.

That concludes the roundup of the performance for our largest operating segments in the third quarter. Overall, we are quite pleased with our progress. All operating segments are in good shape and still offer potential for further improvement.

Besides posting solid results, we've also been very active on the project development front during the quarter. We are very excited about the closing on October 1 of the acquisition of Apex Casino in St. Albert, Greater Edmonton. We have acquired the casino, including land and buildings for a net purchase price of CAD27.9 million, which equals about $21 million. The casino operates 382 slot machines and 11 gaming tables. It features a restaurant, a bar, a lunch with live entertainment stage and a banquet facility for up to 275 guests.

St. Albert is the second-largest city in the Edmonton capital region and its city limits are directly adjacent to Edmonton. The casino is located off of the main ring road and is approximately 11 miles from our own Century Casino & Hotel in Edmonton. We have renamed the property to Century Casino St. Albert and we expect some operational synergies between our two Edmonton casino operations.

But we believe we have a project with an even greater potential than the St. Albert acquisition. Last month, we were selected as the successful applicant by Horseracing Alberta to own and operate a horse racing and gaming entertainment facility in South Edmonton, which we will call Century Mile. Century Mile will be a one-mile horse racetrack, multi-level racing and entertainment center, which will include a gaming floor with a minimum of 600 slot machines, as well as food and beverage outlets. The proposed location is on Edmonton International Airport land and close to the city of Leduc just south of Edmonton at the [exiting] off of Queen Elizabeth II highway. First rough estimates call for a total project cost of approximately CAD52 million and it was about $40 million and a completion date towards the end of 2018.

Looking at the success of our Century Downs Racetrack and Casino Calgary and understanding the potential of the underserved market of South Edmonton, we are very excited about this opportunity and will work through all open issues as swiftly as possible with our stakeholders in the process, including, but not limited to, the Alberta Gaming and Liquor Commission, Horseracing Alberta, the Leduc, Calgary and Edmonton airport officials, as well as the Thoroughbred and Standardbred Associations in Alberta.

Let's now take a look at our balance sheet. For the St. Albert Apex Casino acquisition, we entered into an amendment to our credit agreement with BMO that increases our borrowing capacity to CAD69 million and equals approximately $52 million and as of today, the total amount outstanding is $42 million. Our balance sheet is in great shape even after that. The net debt to adjusted EBITDA multiple is a mere 1.1.

Excluding the money spent for the St. Albert acquisition, capital expenditures were $1.3 million, or 3.8% of revenue, mostly spent at our properties in Edmonton at the Calgary Racetrack and Casino, as well as in Poland. Book value per share increased by 8% from $5.01 to $5.39.

All right, that's the end of our presentation. I thank you for your attention and we can now start the Q&A session. Operator, go ahead please.

(Operator Instructions).

This is Robert from CJS Securities. I'm not sure if you heard my first question. I was asking about the renovations at Edmonton. How much did that cost in Q3? When did you complete the renovations and has traffic now improved in October?

Erwin, could you please come in on that?

Yes. Total cost, $2.5 million. Renovation is done and we are seeing the volume coming back again.

That's great to hear. And as it relates to the recent tax ruling in Poland, can you give us any update on the outstanding employee union negotiation?

Still going on, right?

Still going on, yes, but we expect, as Peter earlier said, additional cost to the Company.

Got it. And on the Apex acquisition, I saw that you gave us pro forma results. Could you I guess break out what EBIT and D&A were in Q3 and then maybe just give us an update on the amount of synergies you hope to achieve and what the go-forward EPS accretion could be?

Peggy, could you answer the first part of the question with regard to the breakout? Do we have that?

No, we don't have that number yet, Peter, for Q3.

And if I may answer to the second part, we think we can pick up a few hundred thousand dollars through synergies.

Sure. And just when I think of EPS, I guess how should I think about the accretion going forward?

That we have not, Robert, we have not available for the public. We have our internal estimates and we are excited about the acquisition, but we are not giving guidance as to the direct impact on the EPS.

Okay. Thank you. I will jump back in the queue.

Mark Rosenkranz, Craig-Hallum Capital Group.

Good morning, everyone. Thanks for taking my questions. Was wondering if you could comment a little on the cruise ships that you launched at the end of Q2. What kind of traction have you seen so far and the early results from those new ships that have been added to the fleet?

Yes, we've added three new ship casinos, one for the German market with three cruises, one for the British market and those two will probably operate pretty much in line with our existing other 12 ships or so, not really very meaningful as single units, but altogether it's a nice segment. And the third one that we opened is based in Shanghai, China. We opened that a few months ago. It is cruising between China, Japan and South Korea, catering mostly to the Chinese market and that's ramping up very nicely. We are still figuring out a few things and trying to get all the marketing right and the staffing right and everything, but that one we believe has the potential to really be -- we think that ship casino (technical difficulty) will be the main driver of revenue and growth for the next couple of years.

Okay, great. And then on the Century Mile, first off congrats on the announcement. That sounds like a great development. The $50 million projected costs, when do we expect the construction to proceed and how do we see that layering out over 2017 and 2018?

We are working on that plan right now. Probably most of it will be spent from the second quarter on.

Okay, great. Thanks for taking my questions.

(Operator Instructions). There are no further questions at this time. I turn the call back over to the presenters.

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

This concludes today's conference call. You may now disconnect.