Century Casinos Inc (CNTY) 2010 Q2 法說會逐字稿

Good day and welcome to Century Casinos quarter two 2010 earnings conference call. (Operator Instructions). I would like to introduce our host for today's call, Mr. Peter Hoetzinger.

Welcome, everyone, to our second 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 Margaret Stapleton, Executive Vice President of Finance, and Timothy Wright, Vice President of Accounting and Corporate Controller.

Before we begin, I need 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, but as a result of new information, future events or otherwise.

We provided detailed discussion of the various risks factors in our SEC filings and encourage you, to review these findings. In addition throughout our call, we may refer to several non-GAAP financial measures, including but not limited to adjusted EBITDA.

Reconciliations of non-GAAP performance and liquidityness to the appropriate GAAP measures, can be found in our news release and in the 10-Q filing of which is available in the investor section of our web site at www.cnty.com. I will now present the results of the second quarter.

Overall the results were quite good, it was a very solid quarter. It was the third quarter in a row with an increase in revenues. In fact, this quarter shows significant increases in all fronts, compared to the same quarter a year ago.

Net operating revenues grew by 26%, operating earnings swank from a loss of profit, EBITDA increased by 28%and also the net result improved substantially. Had it not been for book [loses] on foreign currency transactions, we would have had a break-even quarter.

Earnings from our equity investment in Poland, were up by 4%. Each sync of one of our properties posted revenue increases and each sync of one of our properties did improve the bottom line. A great achievement by our managers and staff. We also note that revenues increased across the board in all segments from gaming to hotel, as well as food and beverage and other revenue.

In the quarter, we put three new cruise ship casinos into service on the vessels of the Wind Star fleet, we entered into new agreement with Regions Seven Seas cruises to take over their operation of their casinos on their three ultra luxury vessels next month. And we extended our relationship with Oceania Cruises through 2016, also including two new vessels currently under construction. We successfully restructured some of our corporate accounting and controlling functions to become more efficient and we also brought a new manager for our Womacks Casino in Cripple Creek, Colorado, onboard.

Talking about Cripple Creek, let me now give you some details about each individual property. The Colorado casino market remains under pressure, impacted by the slow economy. Revenue at Womacks Casino in Cripple Creek was up 7%, EBITDA was up 39%.

Reasons for the increases were 5% increase in slot revenue, and then 86% increase in table revenue. Despite the growth in the quarter, we could not yet speak of a trend in rebound of the Cripple Creek market. June and also July were not so great, actually a little bit behind last year.

The third quarter will probably be difficult in terms of the year-over-year comparison, as we head to higher limits and new games introduced in July of last year, with all of its units and excitement, which is definitely worn off by now. The casino is debt free and small CapEx projects such as some slot conversions and new carpeting that will be done off the properties own cash flow.

As our Century Casinos & Hotels in Central City near Denver, revenue for the quarter increased by 1% to $4.2 million. EBITDA was down 3%. Net earnings of the property swank from a loss to a positive $176,000. Slot play was flat year-over-year, while table revenue rose 78%, due to the higher limits.

Competition in the Central City (inaudible) market continues to be fierce as properties strive to develop stronger loyalties. Initial results for July indicate flat revenues of EBITDA as earnings grow. Century Casino & Hotel in Edmonton, Canada, revenue was up 14% in US dollars, flat and low co-currency. EBITDA up 13% in US dollars, flat in Canadian. Net earnings up 31% in US dollars, up 2% in Canadian.

The positive and very encouraging sign of the quarter was the 8% increase in slot coining, a key indicator for volume of play. Food and beverage revenue was up as well by 3%. 18 slot conversions were done during the quarter, a lot because of new carpet and design and decor upgrade. Looking forward, the third quarter started out a little soft, July revenue was lower compared to last year.

We continue to market and grow the Player's Club royalty program and to aggressively market our showroom with lights and entertainment, comedy trap as well as catering functions in order to drive revenue. In Calgary we are refurbishing and redecorating the exterior as well as most interior spaces of our newly required property. Revenue was up 20% year-over-year, and expenses are not yet in line with revenues due to their restructuring of some departments and the ongoing refurbishment works.

We've just introduced our Winner Some Player's Club royalty program and it's gaining momentum, resulting in a growing new customer base and bringing back old customers as well. We will also focus heavily on the showroom and life entertainment to drive guests to the casino.

We expect to relaunch on our Century Casino brand in Q4 of this year. Both the Edmonton and the Calgary Casinos will head into the busiest month after summer and we look forward to a strong finish to the year. The ship casinos has another excellent quarter.

Revenues increased significantly by 23%, EBITDA grew as well by a strong 52%. Occupancy rates have been consistently higher under the three oceanic cruise vessels and prices for cruise are up compared to last year, attracting passengers with more disposable income.

Our casinos managed to benefit from this development and we expect the trend to continue. The results for July have certainly confirmed that. In April and May, we added three small luxury ships of Windstar cruises to our fleet of ship port casinos and next month in September, we'll add three more luxury ships.

With all these new ships under contract, total passenger capacity was more than double over the next three years and that should certainly see a positive impact on our financial results. Our exiting investment in Casino Poland limited, of which we own one third, is also performed well.

Revenues in local currency increased by 5%, EBITDA by 4%, net earnings were up 5%. With that nice revenue growth, Casinos Poland now holds a dominating 53% share of the Poland casino market. There's no news on the new ownership structure, these are slow and [fracturing] process, with no progress during the summer month.

Under the corporate segment, corporate G&A 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 expenses and other expenses that are not directly related to any of our individual properties. Corporate G&A was lower by 7%, compared to the first quarter to the second quarter of last year.

Depreciation expense remained flat at $1.5 million for the quarter. We spent $600,000 less in interest payments this quarter compared to last year. Current cash and cash of goods totaled $24.5 million.

We have working capital in the amount of $15.7 million. Total third party debt is $16.5 million. The current [poke develop] per share is at $4.51. With that, I'd like to complete my presentation and we can now start Q&A session. Michael?

Certainly. (Operator Instructions). And we'll take our first question from the side of Todd Eilers with ROTH Capital Partners. Your line is open. Please go ahead.

Good morning, everyone. Peter, wanted to talk a little bit about the Silver Dollar Casino. Obviously, revenue up in the quarter. But EBITDA down there. Can you maybe give us a sense for how much I guess incremental costs, with respect to the refurbishing and redecorating, there was in there. And was there maybe some increase marketing costs as well that kind of drove that down sequentially? And then what can we expect going forward for the second half of the year? Should we expect a rebound in the EBITDA level there at that property? Just how should we look at that going forward?

Erwin, can I pass that onto you?

Absolutely. Hi, Todd. There isn't too much additional depreciation in there, because we have just -- we're in the middle of renovating. But you see additional marketing costs. We've gone into a marketing program quite similar to what we do at Edmonton. We started a winner's circle, where in the meantime we had 5,000 members. And that triggers some costs obviously. And then we also needed to get the proper organization structure in place. We added the marketing manager, for example, because it was just to strength at the time when we took over. Our goal is certainly that the numbers increase significantly. But you have to keep in mind that the propertyat this point in time, is not yet what we want it to be. We're just waiting for the new carpet to come and we expect that to happen towards the end of thethird quarter. And our goal is that the property will be new and shining around say October of this year.

Okay. And sounds like obviously then some more, improvements that need to be made. I guess in the third quarter. I guess should we expect kind of a similarimpact then on the EBITDA line? Are we going to see kind of break-even type of EBITDA in the third quarter until you kind of get through most of that?And then longer term, what are your expectations or goals in terms of EBITDA margins for that business?Do you think you can get to something similar or close to the Edmonton property?

Yes. I don't want to speculate on EBITDA obviously. But I think our goal is that we get the similar EBITDA margin than with Edmonton,although probably lower absolute numbers. And there is reasons -- one of them is at the moment we have 504 slot machines there in Calgary,we're approaching 700 in Edmonton, is one example. From a marketing point of view, with regard to EBITDA development, we are not yet in the full blown marketingmode, because we're going to wait until the properties really ready. Which I hope will be done by October. And then we do a strong marketing effort letting everybody in Calgary know that there is a new Century Casino now previously the Silver Dollar. And if it's successful, we'll certainly expect higher number of customers, new customers and customers, like Peter said earlier, previous customers coming back to us.

Okay. Also want to ask on the CapEx side, can you give us a sense for -- I guess you had about $3 million in CapEx for the quarter. I believe $2 million of that was for some land in Cripple Creek. Can you maybe give us a sense for why make that purchase? Are you guys planning an expansion there at some point? Just a little color on that. And then going forward, what sort of CapEx?I thought that you guys were going to put $2 million to $3 million in CapEx into the Silver Dollar Casino. Kind of where we are at on that and when should we expect that to be complete?

Calgary in total -- $3 million. $1 million has been spent. Another $2 million in the works between now and the end of the year.

And then the land in Cripple Creek, is that--.

Yes. The land in Cripple Creek is ten lots. We had been using that on their lease purchase arrangement for the last ten, if not more years. And we had to -- we had favorable arrangement, whereby, at the end of the lease, which was in May of this year, exercising at the end of this lease, the previous lease fees were -- could be credited against the purchase price. And we need this land for operations for parking, as it's just adjacent. We feel it's the right thing to purchase it.

Okay. And then final question regarding new opportunities. Can you maybe comment on international front with respect to maybe even Austria saw that there's some potential changes in regulatory environment there, where they might be rebidding some of the licenses, maybe issuing some new licenses. Just can you maybe comment on business development activities in general. And then maybe also specifically to Austria. There is there an opportunity for you guys there?

Yes. We are monitoring the situation. We hear that the minister of finance is working over the few months to come out with a -- documents. So once this is available, we certainly will be looking at it. Particularly high in Austria and already 12 casinos. We're looking at it and once we know the details, we decide whether we want to make a move or not. At the same time, we are also looking at various opportunities in North America . Where we see potentially one or the other acquisition opportunity, similar to what Belgrade provided for us. And there might be some -- new development opportunities, very selective, of course, in Europe and possibly in Asia. So there's lots of things on our table. But it's -- even more so these days, very critical in going through the numbers and certainly not trying to overextend ourselves.

Okay. Great. Thanks, guys.

Thanks, Todd.

(Operator Instructions). And I'm showing no questions in queue at this time. I would like to turn it back to Mr. Hoetzinger for final remarks.

Thank you, everyone. And thank you for your interest in Century Casino and your participation in the call. The recording of the call, please visit the financial results section of our web site at CNTY.com. Michael?

This concludes today's conference. You may disconnect at anytime. Thank you and have a wonderful day.