Century Casinos Inc (CNTY) 2017 Q1 法說會逐字稿

Welcome to Century Casinos First Quarter 2017 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 our earnings 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 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 in the Investors section of our website at cnty.com.

I will now provide a brief review of the company's financial results for the first quarter of 2017. And following our prepared remarks, there will be a Q&A session.

In the first quarter, we generated 10% revenue and 6% adjusted EBITDA growth. We are pleased with these results, which we have achieved despite that we had an unfavorable New Year's Eve holiday calendar, which is very important in low cost markets, and lowered all percentages in major markets, such as Edmonton, Denver and Poland.

Canada remains our strongest segment, generating 36% of our consolidated revenue and 48% of our consolidated EBITDA. Looking at the Canadian results in more detail, we see that our largest property, the Century Casino & Hotel in Edmonton, had the lowest table drop, however, the total coin-in on the slot machines and VLTs, actually increased slightly compared to Q1 of last year.

This is important to note because whilst the net revenue figure shows minus 13%, the actual volume of play was really quite okay. On top of that, Q1 of last year was a record quarter for Edmonton, making comparisons especially tough.

In the Calgary market, we see a similar picture at Century Downs Racetrack and Casino with slot coin-in up 3% year-over-year, but net revenue actually down 2%. The main reason for that 2% decline was the lower number of racing days during the quarter.

Having said that, Century Downs was the only casino to grow coin-in in the Calgary market, as the entire market was down 9%.

At our other property in that market, the Century Casino Calgary, we terminated the Chairman and brought in a new one as well as a new [shift]. We're excited about the new leadership and the positive changes that will come from it.

The U.S. operations in Colorado contributed 23% of our consolidated revenue and 18% of our consolidated EBITDA. It showed a solid performance with revenues up 6% and adjusted EBITDA up 18%. We continue to see a positive regional economic outlook and anticipate continued growth due to strong focus on customer service, player development and consistent and sound promotions.

Our casinos in Poland generated 40% of the company's total revenues and 29% of our adjusted EBITDA. Another excellent quarter for Casinos Poland with revenues up 22% and adjusted EBITDA up 43%. It was a broad-based success led by table gains up 32%, slot machines up 15% and F&B revenue up 11%. Again, our flagship property at the Marriott Hotel in Warsaw was the main driver this quarter.

As reported, we are excited to have won the regularly approval to take over the location of the casino at the Warsaw Hilton hotel, which previously has been our strongest competitor. We are in the midst of preparations and expect to get that casino open before the end of this quarter.

Now a quick look at our balance sheet. Total assets grew to $218 million, net debt decreased by 11% to 14.9%. Our total debt includes $39.4 million, related to our BMO credit agreement, and $14.6 million related to a Century Downs long-term land lease.

The total debt-to-EBITDA ratio sits at 2.1%, book value per share increased to $5.55. In the quarter, we spent $1.3 million or approximately 3.6% of revenue on CapEx, mostly for renovations at Century Casino Edmonton and at the newly acquired property in Alberta, Canada, and on property improvements and equipment in Poland.

Now finally, a quick update on our newest project. In September of last year, we have been selected as the successful applicant by Horse Racing Alberta to own, build and operate a horse racing and gaming entertainment facility in South Edmonton, which we will call Century Mile. And a few weeks ago, at the end of March, we received the approval from the Alberta Gaming and Liquor Commission to go ahead with the development.

Century Mile will be a one-mile horse racetrack and multi-level racing and entertainment center, which will include a gaming floor with a minimum of 550 slot machines, as well as F&B outlets. The location is on Edmonton International Airport land, and close to the City of Leduc, just South of Edmonton, ideally positioned off Queen Elizabeth II Highway. First trust estimates call for a total project cost of approximately CAD 55 million, which equals about USD 40 million.

What is very important to realize is that Century Mile will not bring any additional gaming capacity to the market, because it will replace the existing Northlands Park Racetrack and Casino, which will close in mid-2018. Northlands Park has been operating on city-owned land for a decade, but now the City of Edmonton has other development plans for that land.

With Northlands Park closing and Century Mile opening, we believe we hit the double check book, because Northlands Park County is the closest casino to our Century Casino in downtown Edmonton, which is just 3 miles away. We will definitely benefit from Northlands closing. And then we will open Century Mile with the same amount of gaming positions, but in the underserved area in the south of Edmonton, approximately 20 miles away from the closest casinos in the downtown area.

Looking at the success of our Century Downs in Calgary and understanding the potential of the underserved market of South Edmonton, we are very excited about this opportunity. Tree clearing has started already, concreting is also going on already and the, may I say, very ambitious goal is to be up and running with this operation before the end of 2018.

We're also working on other projects that are not that far along yet, but will fit very well into our plan for disciplined investments to continue growing our company in a prudent and accretive way.

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

(Operator Instructions) Our first question comes from Robert Majek from CJS Securities.

Peter, you had touched on it in your prepared remarks. But can you just give us a more specific update on the Century Mile project? You mentioned that you received approval. What's holding up financing and starting construction at this point?

(technical difficulty)

Peter?

We are experiencing technical difficulties. Please stand by.

(technical difficulty)

Your next question comes from the line of Mike Malouf.

Operator, Kris?

Yes, I'm here.

Yes, we got disconnected just before Robert started his question.

Yes, sir, he is back into the queue, now.

Okay, okay.

All right. I guess, I'll ask a few questions. Can we start off with Edmonton area? I know in the 10-Q you kind of called out competition. And numbers are a little bit down there. Can you just give us a little bit of color on what's going on in that market?

The market is characterized at the moment by a little bit economic downturn, unemployment rates are a little higher than were anticipated, and the overall economy is still down a little bit. But we see it's already declined a little bit, so it's getting better. That will be the macroeconomic [look]. The other thing -- the other event that has potentially influence on that is that in downtown, the new Grand Villa Casino was opened last year and that -- we believe that a little bit of an impact on the -- on our casino Edmonton numbers.

Now that casino was open in September. Did you see an effect in the December quarter because I don't remember talking about that?

No, we didn't. We only saw it in this first quarter for the first time.

Interesting, okay. All right. And then with regards to Century Mile, it looks like you upped the cost a little bit from CAD 50 million to CAD 55 million. So a question on that. And then you mentioned the Downs racetrack, and I'm just wondering, do you think that the Century Mile can be at that size or maybe larger as far as revenues and EBITDA? Is that what we should be comparing it to?

With regard to the budget, we're in the final stages of fine-tuning it. And now that we have -- that the goal for opening at the end of '18, this has triggered a little bit of pressure to the upside on the budget, so that's why we are now more comfortable with the CAD 55 million number. And with regard to your other question, we would be disappointed if Century Mile wouldn't do better than Century Downs.

Okay, great. And then the margins in Poland were pretty strong and obviously with this new opening that's going to help. How do you see margins in Poland progressing over the next couple years?

This is Erwin. If there should not be any legal or tax changes then we think we still we have a little bit of an upside with regard to margin, EBITDA margin.

Okay. When you mean a little bit, are you talking about 100 or 200 basis points, something like that?

We are. We will stay between 100 and 300 and maybe slightly more basis points.

Okay, great. And then could you give us a little bit of color on how you feel St. Albert is doing after running it now for a full quarter here or so?

Yes. Yes. We in the -- after having taken it over in the first quarter of 2016, where there was a kind of -- or shall I say, realignment consolidation. People had to get used to the new style. We had to do a number of things, upgrades and standards, because we are a larger company and obviously, follow more stringent operating procedures. We now see that in Q1, we have -- we're doing in essence, the same as the previous operator did. And I think that is a solid basis now for starting to get growth into that property.

Okay. So you feel confident that you're going to be able to grow that throughout the year?

Yes. Yes.

Okay, great. And then just my final question. Obviously, the Century Mile casino is going to dominate your focus for a while now, but do you see any other -- because I thought that you had mentioned that you do have a couple other opportunities in your pipeline. I'm wondering do you still have those, and how is that -- how is the pipeline going for new opportunities?

Yes, we still have those. And each of them is a little bit smaller, yes, smaller than the Century Mile project. But we have very high hopes that we will be in a position to announce at least one later in 2017.

Okay, great. And then if I could just squeeze one more question in. You mentioned that you postponed the Denver -- I'm sorry, the Colorado refurbishments. Can you talk a little bit about that?

Yes. The construction prices went up to a point that we didn't feel comfortable at this point in time to do it. And in the mix of things of our company, we then just decided we'd postpone it a little and focus on the large ones right now. And after we're done with delivering Century Mile, we'll look at it again.

Your next question comes from the line of Robert Majek from CJS Securities.

Are you able to hear me now?

Yes, Robert.

Okay, great. Just following up on a previous question on the new competitor in Edmonton, given the moratorium there, how did they attain a license?

They had a license already. They had a casino probably 100 meters away from where they are now. But it was a -- they are an old property and very run down. And with the construction of the new hockey -- ice hockey arena, they got the opportunity to move over there to large -- much larger, much better, much more integrated premises. But it was an existing license that was just relocated 100 meters.

And on -- my initial question was on Century Mile, you've now received approval there. What's holding up financing and construction at this point?

Nothing.

Nothing. Nothing. As I said, we are clearing the site of trees. And they are doing the drilling and so we -- development is in progress.

Your next question comes from the line of David Bain from Aegis Capital.

Just a few cleanups first. You had mentioned the Century Casino Edmonton had some hold impacts. I don't believe it's quantified, or I can find it. Can you quantify that?

Dave, the table hold this quarter was 16%. And in the same quarter last year it was 18.5%.

Okay. And if I were to quantify that in absolute dollars, is there any way that you can help me with that? Or is that something I can work with you offline or...

Yes, we're [publishing].

Okay. And then is there some way that we can -- you can help us quantify the New Year's holiday and weather impact for the quarter?

No.

Okay.

No, absolute numbers, Dave.

Okay.

However, it is more [impact] -- meaningful in low cost markets. A weekend or a holiday there is just like on average 3 or 4x more meaningful than a weekday.

Right. Okay. And then can you try and help us understand the potential impact of moving one of your Poland licenses to the Hilton in Warsaw? I mean, do you anticipate to perform at par with your Marriott location? Do you expect the Marriott location to kind of revert to pre-competitor levels? I'm just trying to understand what the net impact could look like?

So we believe -- nobody knows first of all. It may (inaudible) additional revenues. But we think the most likely to narrow is that a little bit of the existing Marriott business will move over to the Hilton. But we're not thinking too much. So overall, we're totally excited. I mean, it's just fantastic. If we -- if the market would just continue to do what it did when that previous competitor had it, so that we will have to attain the numbers that we had when they were open, plus we will also make their numbers when they make them. That already would be again more than fantastic. And there is no reason to believe why it shouldn't be like that.

Right. And, so the Hilton is -- or your Marriott location is obviously your biggest earner, correct, in Warsaw?

Yes.

And so this could be something at par?

Yes. Yes. The Hilton before they closed in one of the years before has been pretty close to our revenue numbers.

Okay, great. All right. And congratulations on the Alberta gaming approval.

(Operator Instructions) We have no further questions. Mr. Hoetzinger, I turn the call back over to you for closing remarks.

Thanks, everybody, 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.