Century Casinos Inc (CNTY) 2018 Q1 法說會逐字稿

Welcome to Century Casino's Q1 2018 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'd 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 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 Investor section of our website at www.cnty.com.

We will now provide a brief review of the company's financial results for the first quarter 2018, and following our prepared remarks, there will be a question-and-answer session.

We are happy to report a 30% increase in net operating revenue, driven by strong performances in Canada, in Colorado and also in Poland. Adjusted EBITDA was 2% lower compared to last year. But that is actually pretty good considering the situation in Poland, which I will describe a little later.

Canada remains our strongest segment, generating 36% of our consolidated revenue and 55% of our consolidated adjusted EBITDA. The Canadian operations grew revenues by 12% for the quarter, adjusted EBITDA by 21%.

Looking at the Canadian results in local currency, our largest property, the Century Casinos Hotel Edmonton, offering 827 gaming machines and 35 gaming tables, showed flat revenues. EBITDA grew by 9%. The EBITDA margin jumped from 32% to 35%, despite the minimum wage increase that took effect late last year.

The Century Casino St. Albert, also located in the greater Edmonton area, had a good quarter too. Revenue was up 3% and adjusted EBITDA up 6%. These are strong results, knowing that Edmonton and the surrounding areas were burdened by below normal freezing temperatures and above average snowfall throughout the quarter, which impacted visitation to our properties from the surrounding rural areas due to poor highway and road conditions.

Further south in the Calgary market, our Century Downs Racetrack and Casino increased net operating revenue by 17%. EBITDA grew 22%.

Gaming revenue was up 9%, but other revenue such as advance deposit wagering and ticket sales for events more than doubled.

The results of our other property in that market, the Century Casino Calgary, also continued to be very strong. Revenue increased by 11% and adjusted EBITDA by 64%.

We reported already about the many changes we initiated at that property, including new top management as well as the introduction of Century Sports, a new brand, which we introduced for the bowling, mini golf and other family-style games we offer at that property. It's good to see that we are on the right track with this change.

The U.S. operations in Colorado contributed 19% of our consolidated revenue and 20% of our consolidated adjusted EBITDA. The Century Casinos and Hotels in Central City and Cripple Creek increased revenues by 3%. EBITDA was down a couple of points due to higher staff costs. Both markets continue to benefit from the robust regional economy. They both grew about 3% year-over-year. We are very proud to have won the title of Best Casino in Denver again this year, ahead of much larger properties such as Monarch or Ameristar and Black Hawk. We will aggressively use that message in our marketing campaigns throughout Colorado and anticipate continued growth due to our strong focus on customer service, clear development and consistent and strong promotion.

Over in Europe, our casinos in Poland generated 43% of our total revenue and 24% of our adjusted EBITDA. Business volumes continue to grow, mostly driven by strong slot play and a good performance of the casino at the Hilton Hotel in Warsaw, which we opened last year. As previously reported, between the summer of 2017 and the summer of this year, we have a number of our casino licenses expire for which we have already reapplied. During that process, we'll see lower revenues because some casinos will close until relicensing occurs and higher costs because we keep the leases for the casino premises in place and also keep most of the staff on payroll.

As of today, we have 4 casinos in operation in Poland, 2 in Warsaw, that is one at the Marriott and one -- the other one at the Hilton, 1 in Wroclaw at the Hilton DoubleTree Hotel and one in Bielsko-Biala. The day after tomorrow, on May 11, we'll open the casino in Katowice at the Park Inn Radisson Hotel.

We're still waiting for relicensing decisions from the authorities for the casinos in Kraków, Lodz and Poznan, which we expect to get early in the third quarter. The situation is unfortunately complicated right now, but we are really happy with the strength and performance of the existing operations. And in about August or September, the relicensing round would be over and done with, and normal EBITDA margins will kick in again.

Now a quick look at our balance sheet. Total assets amounted $272 million. Our total debt of $54 million includes $36 million related to our Bank of Montreal facility, $15 million related to the Century Downs long-term land lease and $3 million for the new project in the City of Bath in England.

Our total debt to adjusted EBITDA ratio is 2.1%. The book value per share is $6.10.

CapEx for existing operations during the quarter was $2.8 million or 7% of revenues. It was a bit higher than usual, mainly because we renovated 2 casinos in Poland.

Currently, we have $66 million in cash and cash equivalents, of which close to half is freely available for investment into new projects. The rest is tied up in casino cages and in operating cash.

In addition to this freely available amount of about $30 million, we are in the midst of completing final documentation for 2 approved loan agreements, one with BMO for $27 million increase for our existing facility, the other with Bank Austria for a new $8 million credit facility. All in, that gives us about $65 million available for investment.

We will use more than half of these funds to complete our most significant and largest project to date, the Century Mile Racetrack and Casino in Canada at the Edmonton International Airport.

So far, we have spent approximately $12 million on the development; and we expect to be on budget, which is USD 48 million, and on time for an opening in early 2019. It will be a multilevel building with a footprint of 48,000 square feet, initially accommodating 550 slot machines, restaurants, bars, a deli and off-track betting parlor and a grandstand, plus convenient parking for over 1,700 cars. For comparison, that building will be 50% larger, and the footprint will be almost twice the size of our successful Century Downs facility in Calgary.

As previously reported, the current racetrack and casino Northlands Park will close when we opened Century Mile, which means that Century Mile will not bring additional capacity to the Edmonton gaming market. And it also means that our existing casino in the northeast of the city, Century Casino and Hotel Edmonton, will greatly benefit because its closest competitor will fall away.

We believe that our ambition to generate an EBITDA return of about 25% on that $48 million investment has a really good chance of success.

Over in Europe, we will soft open the Century Casino's bar, 1.5 hour west of London, on time, that is next week on May 12, and on budget, which is $8 million. The grand opening will be held on Friday, May 25. The casino with its 18 gaming tables and 60 gaming machines and live-gaming terminals is located in the City Center in a multilevel, mixed leisure development, which eventually will also include a 147-room hotel and various restaurants. The entire city of Bath is a UNESCO World Heritage Site and draws about 5 million tourists every year.

More importantly, its catchment area includes close to 200,000 people, and we are the only casino in that area. Last month, we announced our newest project, the acquisition of 51% of Golden Hospitality Limited, a Hong Kong company, for a total consideration of $560,000.

Golden Hospitality has entered into agreements with Minh Chau Ltd, the owner of a small hotel and entertainment and gaming club, just 300 feet from the Vietnamese-Chinese border. These agreements allow Golden to manage the hotel and gaming club for a management fee and to acquire the majority of Minh Chau, the owner of the property, over the next 3 years for approximately $3.5 million. We plan to start managing the operations within the next 2 months against the management fee of 26% of the profit. The hotel offers 30 very low-standard rooms, and the gaming club currently offers just 7 electronic table games for non-Vietnamese passport holders. Obviously, our intent is to upgrade and expand the hotel and gaming entertainment facilities.

We know 3 other hotels and gaming operations along the 800-mile-long Vietnamese-Chinese border with similar demographics on the Chinese side. They all have substantially larger and better hotel and gaming facilities, demonstrating the significant potential of our location.

We are excited about this opportunity to enter the Asian land-based gaming market with a relatively small initial investment but great upside development and investment potential. It is the typical low-risk/high-reward situation we always look for when entering a new market.

Finally, our Casino Management project in Bermuda awaits the adoption of further regulations by the Parliament of Bermuda to satisfy certain terms and conditions of the provisional casino license that has been awarded to our group.

We've entered into a long-term agreement with the owner of the #1 hotel in Bermuda, the Hamilton Princess Hotel and Beach Club, to manage the operations of the casino. Once the final license is awarded, we will also provide a $5 million loan for the purchase of casino equipment. The casino will feature about 200 slot machines, 17 table games, plus electronic table games and a high-limit area and salon privé.

This will be a great project for us. It will be the only casino in Bermuda for quite some time. But we have no estimated time frame on when the government will finalize the missing regulations. So it is wait and see for us for the time being.

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

(Operator Instructions) Our first question comes from Mike Malouf of Craig-Hallum Capital.

A question on Poland, if you could. Can we talk a little bit about where the table hold was versus -- we've had that sort of vacillate in the couple of quarters. And do you think it's sort of at the normal level in that March quarter? Or if not, how it has been in the last month or so?

Yes, Mike, the table hold was 21% in the quarter, and that is the pretty normal rate. As you remember in Q4 of last year, it was about half of that, so we really got hit there, but now it has come back to normal.

Okay, that's great to know. And then, you said that the 3 other casinos that you have should be open at the -- in the early -- by the early third quarter. How much visibility do you have on that? And what's the risk that, that could be pushed maybe into the fourth quarter?

Well, we know that -- we know when they have started their relicensing process. We know how long the relicensing process has taken for the other casinos. And therefore, we have some visibility. And we believe that it's pretty -- when you say in September -- August, September, that is -- that has a very high likelihood.

Okay, then a final question. How -- can you quantify, you think, how much impact weather had for you in Edmonton? And then specifically with regards to the Denver operation, was there any effect on weather with that one as well?

Not so much in Denver. No, not so much in Colorado. And you know that Canada it's really hard to say. I mean, some industry observers say it's the high single digits, but we don't have any firm assumptions really.

Our next question comes from David Bain of Roth Capital.

I had a question on what we're looking at with the Alberta economy, and it's continuing to kind of pound out strong numbers. And I realized there were some weather issues. You still managed to beat our numbers. But when there were periods of no weather disruption, are you noticing a difference in mix of players, number of players, spend per player? Is that economic rebound starting to come through in the numbers a little bit more than we've seen in previous quarters?

Yes, we have seen these -- we're seeing a slight uptick in the number of visits and the spend per visit.

In the number of visits and the spend per visit?

Yes, we get to seeing that it's quite strong.

There are no further questions at this time. I would now return the call to Mr. Hoetzinger.

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.