Century Casinos Inc (CNTY) 2016 Q4 法說會逐字稿

Welcome to the Century Casinos' Q4 2016 earnings conference call. This call will be recorded.

(Operator Instructions)

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

Thank you, Candy. Good morning, everyone, and thank you for joining our earnings conference call. With me on the call are my Co-CEO and the Chairman of Century Casinos, Erwin Haitzmann, as well as 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 filing from this morning available on the Investor section of our website at CNTY.com.

We will now review the Company's financial results, both for the fourth quarter and the full year, and following our prepared remarks there will be a question-and-answer session. 2016 was a tremendous year for Century Casinos, as we generated all-time record revenues and all-time record adjusted EBITDA. Erwin, Peggy and I are very pleased with these results, but we're even more pleased with the state, shape and condition our Company is in today, which is the result of a very efficient team effort of great people we have in our offices in Colorado Springs and Vienna and at casino property level.

All of them are very talented and engaged, striving for continued improvement at everything we do. Ultimately that leads to better experiences for our guests, to better results and to increased value for our shareholders and other stakeholders, such as lenders and the communities we operate in.

For the entire year, net operating revenue increased 4% and adjusted EBITDA increased 13%. In constant currency, the growth rates for the year were even higher, 7% of revenue and 27% adjusted EBITDA growth, an excellent performance. For the quarter, net operating revenue was up 14%, that's 16% in constant currency, adjusted EBITDA was up 40%, or 42% in constant currency, driven by the addition of the new property in St. Albert, Canada, and strong results in Colorado and Poland.

Our strongest segment, Canada, which provides one-third of our consolidated revenue and half of our consolidated EBITDA, saw revenues increase by 8% and adjusted EBITDA by 43% in the fourth quarter. Across all Canadian properties we achieved an impressive EBITDA margin of 35%. Looking at the Canadian results in more detail, we see that Edmonton, where we completed a major renovation of the gaming floor, the VIP areas and the poker room in November [grew] table drop and slot coining by mid-single digits, but lower hold percentages turned revenues slightly negative.

The newly acquired casino in St Albert contributed positively as planned. We closed the acquisition on October 1 for a net purchase price of CAD28 million, which is about $21 million. We continue to learn about this business and we are encouraged with the results we've seen so far. It's a great property in a strategic location, the integration process has been very smooth and slowly but surely, we are seeing synergy effects being generated by all of our Canadian properties supporting each other. That casino operates 382 slot machines and 11 gaming tables. It also features a restaurant, a bar, a lounge with live entertainment stage and a banquet facility that can accommodate up to 175 guests. The casino is located off of Edmonton's main ring route and is approximately 11 miles from our Century Casino and Hotel in Edmonton.

In the Calgary market, where we have two properties, revenue at Century Casino Calgary was down 6%, partly because of six weeks of road construction directly in front of our casino, resulting in lower visitation numbers. At Century Downs Racetrack and Casino, however, revenue was up 9% and the EBITDA margin was a very strong 43%, even though the slot hold was 10% lower than in the same quarter of last year. We continue to push our loyalty program sign-ups and to specifically target the markets of North and Northwest Calgary, both of which do not have a casino.

In the US, the operations in Colorado also showed a great performance. Revenues were up 11% and adjusted EBITDA was up 38%. Overall the Colorado operations account for 20% of our consolidated revenues and 18% of our adjusted EBITDA. The economy and consumer sentiment in the greater Denver and Colorado Springs metro areas continue to be strong and together with our marketing programs and popular VIP events, that leads to increased visitation and higher spend per visit. At the Century Casino and Hotel in Central City, serving the greater Denver market, slot coin increased by 19% year over year. F&B revenue also showed double-digit increases in the quarter.

In Cripple Creek, serving the greater Colorado Springs area, where slot revenue was up 8% at our casino, we plan to convert one of the non-casino buildings that we own into a 32 room boutique hotel. Total cost is estimated to be around $6 million and it will take approximately 12 months to build. The existing 21 room hotel that we have in Cripple Creek increased revenues by 35% and it has a 90% occupancy rate and has won the Best of Cripple Creek Award. We believe that more than doubling our hotel capacity will help us stay competitive with higher-end players from the Colorado Springs market.

Now over to Europe, where our eight casinos in Poland had another fantastic quarter. Revenue was up 23% and adjusted EBITDA was up 52%. The Poland operations were responsible for 43% of the Company's revenues and for 29% of our adjusted EBITDA. Coining on the slots grew by 33%, slot revenue was up 28%, table drop was up 26%, table revenue up 20%, driven by a great performance for our flagship property at the Marriott Hotel in Warsaw. We continue to be very disciplined on how we spend our marketing dollars, [per slot rather], focusing primarily on those incentives and rewards that our VIP and repeat customers value most.

Now, that was a great roundup of the performance of our largest operating segments in Q4 2016. Now let's take a quick look at our balance sheet. Total assets grew 17% to $218 million. Because of the St. Albert casino acquisition, net debt increased by 8% to $17.2 million. Our total debt includes $41 million related to our Bank of Montreal credit agreement and about $15 million related to Century Downs long-term land lease.

Debt to EBITDA ratio sits at 2.2. The book value per share increased to $5.41. Excluding the St. Albert casino acquisition, CapEx was $2.6 million in the quarter, mostly for renovations in Edmonton as well as for gaming equipment in Colorado and in Poland. Overall, we are very pleased with our progress. All operating segments are in good shape and still offer potential for further improvement.

Let me now provide you an update on our newest project. In September of last year we have been selected as the successful applicant by Horse Racing 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 and multilevel racing and entertainment center, which will include a gaming floor with about 600 slot machines as well as F&B outlets.

The proposed location is on Edmonton International Airport land, close to the city of Leduc just South of Edmonton and positioned off of Queen Elizabeth II Highway. First draft estimates call for total project cost of approximately CAD52 million, which equals about $40 million.

Looking at the success of our Century Downs Racetrack and Casino in Calgary and understanding the potential of the underserved market of South Edmonton, we are very excited about this opportunity and are working through all open issues as swiftly as possible with all stakeholders in the process. That's including but not limited the Alberta Gaming and Liquor Commission, Horse Racing Alberta, Leduc County and Edmonton Airport officials as well as the Thoroughbred and Standardbred Associations in Alberta. The next critical step for this development to happen is the approval from the Alberta Gaming and Liquor Commission and we will, of course, provide an update as soon as news becomes available.

We're also working on other projects that are not as far along yet but would fit very well into our plan for disciplined investments to continue growing our Company in a prudent and accretive way. That's the end of our presentation. I thank you for your attention and we can now start the Q&A session. Candy, go ahead, please.

(Operator Instructions)

Robert Majek, CJS Securities.

On the Apex Casino, in the press release you mentioned $300,000 in net earnings. What was that on an EBITDA basis and does that number build in the removal of the typically corporate costs and management fees you have previously talked about? If not, when should we expect those synergies?

Peggy, can you provide some detail on that? Do you have those numbers handily available?

Yes, I can. The EBITDA for the quarter was $595,000 and we have all the management fees in there already, so everything is accounted for to that EBITDA.

Got it. Just so you can kind of help us figure out the accretion from the deal, can you give us a total expected EBITDA contribution from Apex this year with full synergies? Is that about $4 million or so on a full run rate basis?

Robert, we are not giving guidance, as you know.

Okay.

We have said that we expect some synergies and they should really kick in from, I think, more from Q2 on [wax] products.

Thank you. That's helpful. On the Palace Hotel, you gave us the project cost of about $6.5 million. Can you help us understand the potential earnings of that investment on a return-on-capital basis?

You have some insight there, Erwin?

We think the hotel should pay for itself between, say, five and seven years.

Got it. Okay. That's helpful. When is construction expected to start?

Hard to say; let's say, maybe Q3.

Okay. Across the business, what was the hold percentage this quarter and in last year's Q4? Maybe just remind us what the normalized hold percentage is supposed to be.

We don't work with hold percentage across our operations, really. I don't have the [tenant]. Do you, Peggy? While you look for that, Robert, in the meantime I can say that for the fourth quarter in Edmonton, which is our largest property, the hold percentages were quite a bit lower compared to Q4 in 2015. For example, on the tables we had hold percentage of little bit over 18% last year and 16.7% this year.

That's why we showed a slight decrease in revenues in Edmonton whilst if you go by the crop and by the coining, revenue should have been up 3.5%, 4%, and very similar at Century Downs, which is our second strongest performer in the entire group. There was quite an impact, really.

Between those two deviations, what was the total impact of that?

In dollar terms or percentages?

In absolute dollars terms is fine.

In Edmonton it was about, for the quarter, about CAD500,000 in revenue, a little bit more than CAD500,000 and at Century Downs, a little bit less than that. Overall, probably just below CAD1 million.

Thank you. Lastly from me, in Poland pretty solid revenue growth and margin expansion there. What's the driving force behind that? Overall, what's your outlook going forward and perhaps any color if you are seeing that trend continue into Q1.

We see the trend to continue in [Q7], yes?

Yes, we see that trend continue. The one main reason has been that our main competitor had to close its doors because it's license was not extended and there was a casino in the Hilton Hotel and we saw a certain number of customers spilling over to our property. Apart from that, I think the second effect is that over the time range, that management has been working on for such a long time really come to fruition now.

What city was that competitor located in?

In Warsaw.

Got it. Okay. Thank you.

Warsaw is by far the largest of our properties, and we have been the largest within the Warsaw market, and it's the number (inaudible) the one that was expected in branches so that this had positive impact on us.

Thank you. That's perfect. That's helpful. That's all for me.

David Bain, Aegis Capital.

Hi, Erwin and Peter. I was hoping to review the timeline for Century Mile. Peter, I know you gave a little more detail at the end of the prepared comments, but it sounds like Alberta Gaming and Liquor approval would be next. I am assuming that's fairly near term, next 30, 45 days. I am hoping you could speak maybe to the timeline from there in terms of permitting augmenting your credit line.

What I'm trying to nail down is a little detail because I know Century Downs took you about a year to build, but that was a smaller project. I am trying to get a sense if the end of 2018 is right for where anticipate at this point, if that could be conservative, or any thoughts on that side of things.

The short answer, it's maybe the end of 2018 or the first half of 2019 and it depends on when the approvals are coming and how the weather is cooperating in Canada. That really is an important factor up there. Unfortunately, that's really all we can say at this time, Dave.

Okay. Do you expect to put in the market limit of 1,100 slots?

Not at the beginning. That's also not our call. Only we can ask for a certain number of slots and for more slots with the Alberta Gaming and Liquor Commission, but ultimately it's their call. Based on previous needs, whenever a casino performs very well, then they have added more machines to that casino. We are hopeful that while we may start with a lower number that we can reach there.

Okay. Great. Then a final follow up to Robert's question on holds. I understand win rate was lower, but was that out of the normal range, or is that something you typically would point out if it were? Maybe both of those answers would be helpful.

Yes and yes. It was from a normal range. It was normal last year and it was lower than normal in Q4 2016. And if you (multiple speakers) extraordinary, we'd point it out.

Okay. Great. Thank you.

(Operator Instructions)

Mike Malouf, Craig-Hallum Capital

Just another follow-up call on Century Mile. I think on the last conference call you pointed out that you might start spending part of that, or at least start the $50 million project cost, starting in the second quarter. Is that still the expectations?

That's unlikely. That's unlikely. As soon as we get the Gaming Commission approval we'd start to spend some money, planning it, obviously, on certain things because that's if -- that is small change when you completed the entire project. So in Q2 you're really not seeing any meaningful CapEx on that.

Okay. Have the approvals, you think, been a little bit delayed from what you have expected to get?

There was never really a schedule and a goal set by the Gaming Commission about when they will take that to the Board for a decision. We always hope to get it next month, next month, next month, but we never knew any date from them in the first place.

Okay. Great. You mentioned that you do have a couple other projects in your pipeline. I am wondering if you could give us a little bit of a scope. Are these projects on the same size as Century Mile, are they smaller or larger and can you give us any sense of geographic location?

We are working on two projects or more, but two are very concrete already. Pretty far along. One in North America, one in Europe, and they both are smaller than Century Mile.

Okay. Great. Thanks for the color.

Jayant Ishwar, Singular Research.

Can you give us some color on the cruise ship business?

The cruise ship business in the fourth quarter was doing very nice revenues. It's a small segment, but we increased revenues by 58% so it did very well on the revenues. However, on the cost side that was also all proportionally up. We opened a few cruise ships in the second half of the year and there was some high cost associated with the openings with the staff costs, especially the one that we opened in China and that led to lower EBITDA in Q4 being compared to Q4 2015. We are talking a difference of about $150,000 here.

Can you break out the revenue in the EBITDA for that?

Yes. Did we break it out, Peggy, in the presentation? Is it broken out in the K? Can we disclose that number?

We don't have it separately disclosed. I can update the presentation. Brianna says the presentation has it. It's $1.346 million net operating revenue.

Thank you.

There are no further questions at this time.

I turn the call back over to the presenters.

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 at CNTY.com. Goodbye.

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