Century Casinos Inc (CNTY) 2010 Q1 法說會逐字稿

Welcome to Century Casinos' quarter one 2010 earnings conference call. This call will be recorded. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session.

I would now like to introduce our host for today's call, Mr. Peter Hoetzinger. Please go ahead, sir.

Thank you, Mike and welcome, everyone for our first quarter 2010 earnings conference call. Joining me on the call today are my, co-CEO and Chairman of the Company, Erwin Haitzmann, as well as Larry Hannappel, our Senior VP and Chief Operating Officer North America, and Michael Snider, our SEC Reporting Manager.

Before we begin, I need to remind you that in our remarks today, 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 nonGAAP financial measures, including but not limited to, adjusted EBITDA. Reconciliations of our nonGAAP performance and EBITDA measures to the appropriate GAAP measures can be found in our news release and in the 10-Q filings, all of which are available in the investor section of our website at www.cnty.com.

I will now present the results of the first quarter. As mentioned at our last call, Q4 of 2009 was first quarter since the end of 2007 that showed an increase in revenues. Today I am happy the report that we managed to continue that positive development. In the first quarter, which traditionally is one of our weaker periods, we generated net operating revenues of $14.1 million up 18% from the same quarter a year ago. EBITDA was $2 million, and compared to Q1 of last year, suffered from additional costs and expenses, associated with longer opening hours and additional (inaudible) in Colorado. Compared to last quarter, the fourth of 2009, the EBITDA margin remained flat.

The very good news of this quarter is that operating earnings [hovered] from a year ago. We also generated positive net earnings, not very much with $130,000 or $0.01 per share, but it certainly shows that all our efforts, such as operational efficiency programs, focus on (inaudible) jurisdictions and larger properties, and the reduction of our debt, are all paying off.

In Colorado, business has been impacted by the slow economy. For example the Cripple Creek market, serving Southern Colorado remains under pressure as demonstrated by the fact that total revenues for the period between the introduction of the higher betting units and now are lower when compared to the same period a year ago which has fewer gains and much lower betting units.

Revenue at Womacks Casino in Cripple Creek was down 11%, EBITDA was cut in half. The reason for the decline was a decrease in coin-in of 2% and the hold percentage on the slope it was 13% lower than in Q1 of last year. The decrease in EBITDA is primarily geared to the decrease in revenue and an increase in payroll as the casino is now open 24 hours. The casino is debt free and small CapEx project such as new slot machines, some slot conversions and new carpeting will be done out of the property's own cash flow.

At our Century Casino and Hotel in Central City near Denver, revenue for the quarter was flat year-over-year to $4.2 million, EBITDA was down 13%. The EBITDA margin is currently at 22%. Net earnings of those properties climbed from a lose to positive $162,000. Coin-in increased an encouraging 7% but the lower slot totals were (inaudible) revenues. Marketing competition is fierce as properties strive to develop stronger player loyalties. Ameristar is still dominating the market with their 200 million properties capturing all of the growth in the (inaudible) Central City area.

Going forward, we continue to focus on driving revenues through our player loyalty program and on operating efficiencies through cost control. Overall we expect only modest growth for our Colorado properties due to pressure in economic conditions. However, preliminary results for April look very good, both our Colorado properties were up year-over-year.

At the Century Casino and Hotel in Edmonton, Canada, revenue was up 12% in US dollars, but down 6.7% in local currency. This decline is the result of a 22% decrease at Baccarat where we had a lower drop as well as the lower hold compared to Q1 of last year. We're glad to see that slot coin-in, obviously one of the key indicators in our business, actually increased 8%, as did food and beverage revenue. Sixty slot conversions were down during the quarter, and 20 additional slots have been installed, bringing the total number of gaming machines at that property to 687.

We've also installed a new players club loyalty program for enhanced customer experience. We continue to market and grow the players club and so we also continue to market aggressively our show room with live entertainment, our comedy club as well as the catered functions in order to drive revenue. Construction on new commercial space and 1,000 or more residential units is scheduled to begin before the summer as part of the Fort Road development project in close proximity to our property.

The Alberta casino market seems pretty robust, April was among the best month our Edmonton property ever had making us very optimistic about a good second quarter. In Calgary, we are busy furbishing and redecorating the exterior as well as most interior spaces of our newly acquired property. We expect to invest up to $2 million and relaunch under our Century Casino brand probably in Q3 of this year. We're introducing our Winner's [sound] players club loyalty program and we do, as we do at Edmonton, we will focus heavily on the show room and live entertainment to drive customers to the property and the casino. We closed the acquisition of the property out of bankruptcy in mid-January, and have been able to run it profitably from day one.

The ship casinos had an excellent quarter. Revenues increased significantly by 28% and EBITDA almost tripled. Occupancy rates have been consistently high especially under three Oceania Cruises (inaudible). Prices per cruise are also up quite well attracting passengers with more disposable income. Our casinos manage to benefit from this development and we expect the trend to continue.

Both Oceanic Cruises and the joint venture between German two operated TUI and Royal Caribbean Cruises, have announced to bring additional ships into service next year. Also, we recently added the three small luxury ships of Windstar Cruises to our fleet of ship[board] casinos. With all of these ships under contract, total passenger capacity will more than double over the next three years, and that should certainly have a positive impact on our results.

Our equity management and casinos Poland Ltd, of which we own one-third, showed a nice rebound from the end of last year. Revenues in the US dollars jumped 30% to $12.9 million for the quarter, net earnings more than doubled. In local currency, revenues grew 9%, net earnings grew at rate 90%. As most of the revenue increase came from only a handful of high volume players, it is too early to say the positive trend can continue for the remainder of 2010.

As reported earlier effective January 1, 2010, the gaming laws in Poland changed with negative but also potentially positive effects on us. On the one hand the gaming (inaudible) will increase by 5%, and the new provision of the law requires all casino licensees to go through a new licensing process once their license expires. While many industry observers believe that the existing casinos will be relicensed, it is not for certain, hence there's the potential negative for us and other existing casinos.

The positive of the new gaming law is that it provides for the expiration with no possibility for relicensing of all gaming machines outside the casinos. This means that over the next six years, more than 10,000 gaming machines that are currently operating in (inaudible) will fall away, and licensed casinos will be the only places where people can play slots. Since (inaudible) in new ownership structure of casinos Poland has been restarted recently, but the situation is still unclear as to when decisions will be made.

Finally the results of the corporate segment. Corporate general and administrative costs and expenses consist primarily of legal and accounting fees from being a public Company, corporate travel expenses, corporate payroll, the amortization of stock compensation expense and other expenses not directly related to any of our individual properties. Corporate G&A were lower by 14% to $280,000 compared to the first quarter of last year. Our current cash and cash equivalents totaled $28 million, total third party debt was $16.5 million. The current [fixed] value per share has increased to $4.58. During the quarter we repurchased 57,330 shares of our common stock at an average price of $2.46 per share. The total remaining authorization under the repurchase program was $14.7 million as of March 31, 2010, and debt repurchase program has no set expiration or termination date. With that I conclude my presentation and we can now start the Q&A session.

(Operator Instructions). And we'll take our first question from Todd Eilers of Roth Capital. Your line is open, please go ahead.

Morning, everyone. Can you hear me?

Yes. Hi, Todd.

Hey, guys. A few questions here. With respect to Edmonton you mentioned the table game revenue being down I believe 22% year-over-year, and you cited the decrease in wagering on Baccarat as well as a lower hold percentage on that business. Can you maybe give us a sense of which one was the primary driver there and then maybe can you give us a sense of what your normal hold percentage is on that business or maybe what you had last year compared to what it was-- in this year's quarter?

The total [pace of drop], decreased $1.6 million. And out of that $1.6 million, Baccarat was responsible for $1.2 million. So it was really the Baccarat players that didn't find their way to our properties this quarter. The -- as you know, the largest contributor to gaming revenue is coming from the slots and the slot coin-in actually increased 5%. So from that point of view we are not concerned and we know that there's a group of Baccarat players who, not really from quarter-to-quarter, but one year they played that they preferred that property, next year they may prefer another property. So there's I think a fight between the casinos to get those high volume Baccarat players, in this quarter we didn't get many of them. Erwin do you want to contribute to that--?

No I think that (inaudible) and that Baccarat is the main reason for the lower performance. Their -- what we got for this slot percentage, the slot totals decreased 5.32% from 8.34%, last years of 8.02%. So there was a little bit of a decrease but the main reason is as we said (inaudible) the lower business volume of the Baccarat table games.

Okay and then it sounds like Peter in your comments that April has improved a little bit or a lot I guess I should say with respect to your Edmonton property, so it sounds like the Baccarat revenue I would assume has rebounded maybe a little bit as well in the April quarter,or April month?

Yes, Baccarat more than (inaudible), yes.

Okay. Let's see. With respect to the Silver Dollar Casino acquisition you mentioned putting $2 million in CapEx into that to improve property there, that was a asset that was in receivership but I believe when you purchased it. Can you maybe give us a sense for how depressed the revenue and EBITDA might be at that facility, and maybe give us a sense of the range of possibilities going forward with the amount of capital you're putting into that property to improve things, maybe what you think you can get revenue and EBITDA to once that's complete?

Yes, Hi, Todd this is Erwin. Don't want to speculate too much, but to give you some idea, the average gross gaming revenue per day at the Silver Dollar is now around CAD70 per slot machine per day. And the market average of the (inaudible) is about three times as much. So there is a tremendous upside potentially.

Okay, that's helpful. And then let's see, and moving on to Colorado, and Cripple Creek, obviously revenue and EBITDA down there, did I see that-- did you guys make a land purchase this quarter or was that a prior quarter of roughly $2 million? And if so, can you maybe tell us what that was for?

Yes. We did make a land purchase. We had at least a piece of land, it contained lots of packing space for about 100 cars for that last I believe ten or 15 years. And that lease was-- with that lease was attached an option to purchase. And that lease had expired, so we have to make the decision on whether to let the land go or wether to purchase the land, and we decided to purchase it because we feel that in the overall assembly it is constructive to have that land.

Okay. Great, thanks, guys.

And we'll take our next question from the side of Richard Geller with Global Gaming. Your line is open, please go ahead.

Yes, hi. With regard to the situation in Poland, can you give a little more explanation about where the Government is on selling the Polish LOT airline is in selling its stake and has any development come about with that?

Well we have been pretty involved in the process which is lead by KPMG in Warsaw, but then the new gaming act get in place in January and it was pretty-- it is pretty difficult for the owners and KPMG to figure out the impact of the new gaming law has on [valuation]. So they're in the midst of-- they're running analysis in another study. And then as you know earlier this year came the tragedy of the Polish President and that also led to a situation where some of the political leaders have been held responsible for state owned companies has either changed position or has been out of their position making move for quite some time So we have another unfortunate series of delays and I think we do not speculate any longer as to whether we can get some decisions this quarter or next. It's just really not in our hands and we have to-- we've got to live with delays and postponements and I don't see any-- the situation any different in the short term.

Okay. Thanks.

And we'll take our next question from the side of Ryan Worst with Brean Murray. Your line is open, please go ahead. Good morning.

Hi good morning, guys.

Hi, Ryan.

Good morning.

Just maybe Erwin, maybe you could fill in, provide some color on the Silver Dollar Casino. You talked about how it underperformed the market in terms of slot revenue. And can you maybe provide some reasons as to why that's underperforming and what you guys could do to get that performance more on par with the rest of the market?

Right., I'm happy to. From when you entered the property , as we took it over, the lay out was very unfavorable and the whole atmosphere was, shall I say, very low end of the market. No money has been spent here in the last one or two years at all in keeping up the property. So what we do (inaudible) things, we're in the process of rearranging the game floor layout, first of all to make the overall-- to put the overall feeling to make it feel more like five or seven separate (inaudible) rooms but more like one. And secondly, in such a fashion that we can take advantage of the customer stream that-- of the people that are coming out from the event center after an event or also during the break of an event. Because a concert with 800 people, for example we would like as many of those people to come into the casino after the concert is over. We have a great event center there, which is nice, and for 1100 people, that's wonderful. It's about five times as much as our Edmonton property (inaudible) and that provides an excellent opportunity for getting extra business and for also reaching out to customers that otherwise would necessarily be casino customers.

And then with regard to the property both outside and inside we'll just-- it's like color and paint and the things that we're doing are (inaudible) but will once done, we believe will make a significant difference. We'll put a new carpet on, we'll paint the walls, we'll do something to the walls that makes them look nice. We have significantly improved the sound system, which was for ever when we were there, you couldn't hear any of the music that they played. We've put an adequate number of TV sets in, we do something to the ceiling, and very importantly we'll also significantly improve the light. We'll also improve the entrance situation, the restaurant, and we will also completely repaint and redo the outside of the property including the (inaudible) signs along the streets so that for our customers once it's done, it will present itself as a whole new casino.

On the-- next with regard to the (inaudible) property, and on the others-- on the other hand the second focus is marketing, where there hadn't been all too much happening. We had introduced the winner's circle customer, just as in the same fashion as we have it in Edmonton. We found that at the beginning of April and then by now we have approximately 4,000 participants already (inaudible). And we are in the process of having to market heavily towards those customers. Marketing is extremely important and as well is the second leg in the effort that exercise to get this property back to where it can be. On the one hand, the (inaudible) property has to be on higher standards and on the other hand, we need to inform people about it. And most importantly, we need to not only get new customers but become strong in retaining the customers that we already have.

Okay. And Erwin, when then will the physical changes be completed or have they already?

No, no, it unfortunately nothing is as fast as we would like it to be. We-- the building permits here and there take time. We're in (inaudible) and I think until it's all done, it's quite extensive. I would have estimate shall I-- cautiously between three and six months from now.

Okay. Great. And then, just going back to Edmonton, how much of the revenue comes from Baccarat play in-- or did come from Baccarat play in 2009? And was your first quarter in 2009 more heavily weighted to that than the other quarters?

Larry, can you look this up for us? Larry?

I will look it up now. Yes, I'll look it up now and maybe --

We can talk face after the call if you want, that's fine.

Okay. Ryan, I'll give you a call.

All right, thanks, Larry. Thanks, guys.

Thanks, Ryan.

(Operator Instructions). We'll take our next question from the side of Ali Motamed from Boston Partners. Your line is open, please go ahead.

Hi, guys. A couple of quick questions again on Silver Dollar, can you-- what was that daily take rate on the slots there?

CAD70 per slot per day, rounded number.

Okay. And then the industry is basically three times that. Now --

Calgary markets.

In the markets, excuse me. Now looking at the amount of money you're spending I mean it seems like the opportunities are so large in that market.

Right.

And you're not really spending that much money, and I'm wondering sort of why and how are you approaching it in that way? And maybe why wouldn't you spend more, is it-- as you really feel like you could get it up to those levels with this little capital?

We could just say that we expect to get it up to the market level to three times as much at least not in the very near future. But if you look at the numbers, if we were-- I think our goal, near-term goal has to be to double the numbers. And if we can double the-- if we can get it from CAD70 to CAD140 that would already be more than wonderful for revenue EBITDA and net income. And that's probably the realistic set goal, and after that we can see further. So we take it in the-- see if through all those renovations while the casino is still open we-- and while we through those our revenues are already showing an upward trend because people feel the energy that's coming in.

Okay. So then further down the line we will reassess and maybe--?

Yes, we'll reassess and then we'll be the last-- we will not be hesitant if we see that the thing is growing than we certainly put more [money] if we once again think that the return is there.

Thank you.

(Operator Instructions). And at this time, we have no further questions in queue.

Thank you and 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 www.cnty.com. Thank you.

This concludes today's teleconference. You may disconnect at any time. Thank you and have a wonderful day.