Century Casinos Inc (CNTY) 2010 Q3 法說會逐字稿

Welcome to Century Casinos, Q3 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 like to introduce our host for today's call, Mr. Peter Hoetzinger. Mr. Hoetzinger, you may begin.

Thank you, operator and welcome everyone to our third 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 Accounting and Corporate Controller. 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 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 10-Q filing, all of which are available in the investor section of our website at cnty.com.

I will now present the results. The quarter was the fourth quarter in a row with a top line increase. Net operating revenues grew by 16% to $60 million, and net earnings swung from a loss last year to a profit of $321,000 or $0.01 per share. EBITDA was down 5%, mainly because of Calgary. The new casino to in Calgary generated $2 million in revenues but negative EBITDA of around $90,000. This is not a surprise at all, because there were and still are substantial disruptions and sometimes closures of part of the gaming floor going on.

We plan to be done in one week from today, and we then have a long week of activities celebrating the relaunch of the property under the Century Casino brand. We spent about $3.7 million on a completely new slot area, new carpet and paint throughout the property, and new high-limit tables area, new tables and chairs, a new lighting system, a redesign of the main entrance, and enhancement to the entire exterior of the building. At the end of August, we have reopened our 30-lane bowling center where league play has already started, driving visitation and revenues. During this last week before the relaunch festivities, we focus heavily on customer service training. Marketing efforts will also ramp up now with cash give-aways, a car give-away, slot tournaments, direct mail, as well as increased print and radio advertising. American country music artist, Clay Walker, will be the headline act of the week-long music and entertainment program. Our Winners Zone Players Club loyalty program is gaining momentum, resulting in a growing new customer base. Overall, Erwin and I are very pleased with how everything is coming together in Calgary and we remain confident that we have a real gain on our hands with that property. Initial customer feedback on the renovations is great and we look forward to next year, which will show the real potential of that casino.

At the Century Casino and Hotel in Edmonton, Canada, revenues were up 4% in US dollars, down 1% in local currency. One of the most important indicators of our business, the amount of slot coin in, was up 8% year-over-year, but hold a percentage that was a little lower compared to last year brought revenue down a little. We are taking the Comedy Club in-house through a franchise licensing agreement with the Yuk Yuk's, which will enable us to better promote and market, banquet and dinner packages, especially for the coming holiday season. With the lobby redesign of last quarter, the renovations to the hotel elevator system and the prep work to put the kitchenette into the poker room, provides better comping and service quality to our players. The property's in good shape and ready for the strong winter is season. We continue to market and grow the Winners Zone loyalty program and to aggressively market our show room with live entertainment and catering functions, in order to drive revenue.

In Colorado, the casino market remains under pressure. Business is still impacted by the slow economy. On top of that, year-over-year comparisons are now tougher, just to have limits, new gains came into play in the comparison, but the excitement around it has certainly worn off. Revenue at the rebranded Century Casino and Hotel in Cripple Creek, formally the Womax Casino, was down 7%, EBITDA was down 17%, net earnings, however, were up 23% mainly due to lower interest expense. The lower revenue was in line with the decline of the overall Cripple Creek gaming market. We had some one-time expenses associated with the rebranding. We changed off the slots, installed new carpet throughout the property, and also moved the table pit to a more prominent location.

The fourth quarter started out a little stronger but it remains a difficult situation in a highly competitive market impacted by a slow economy. AT our Century Casino and Hotel in Central City, near Denver, revenue for the fourth quarter -- for the third quarter increased by 1% to $4.8 million. EBITDA was up nicely by 9%, and net earnings from the properties swung from a loss last year to a positive $400,000. All the revenue increase came from the slots. We will continue to drive revenues with innovative and cost effective promotions, and will maintain and hopefully even improve operational efficiencies. Between now and Thanksgiving, we will move to daily, which is now in a prime location on the main gaming floor, to the lower level and put slots into the current day space. Competition in the Central City bankrupt market continues to be fierce to as the properties strive to develop stronger player loyalties. But our initial results for October indicate a strong start into the fourth quarter.

The ship casinos increased revenues by 46% but EBITDA declined 28% due to one-time expenses associated with a set up of the casinos we to took over, on the vessels of Regent Seven Seas cruises. The revenue increase was evenly spread between tables and slots. Occupancy rates have been consistently high and also prices per cruise are up compared to last year, attracting passengers with more disposable income. Also the initial revenue restarts from October confirmed it, and are up year-over-year. We will add another two ship casinos between now and the middle of next year, one from Oceania Cruises and one from TUI our CCL Cruises. The results of Casinos Poland Limited, only operator of seven casinos in Poland which we own one-third, were down compared to last year, but only because of a lower hold on both slots and tables. Slot coining and table drop are actually up by 3% and 13% respectively. Casinos Poland still holds, dominating 33% share of Polands' casino market. Unfortunately, there are no news regarding a new ownership structure but discussions are still ongoing. Both the CEO and the CFO of LOT Polish Airlines, one of our partners in the Company, have been replaced during the quarter, which is not helping the negotiations.

On the corporate side. The corporate G&A costs and expenses that 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, was down 17%, compared to the third quarter of last year. Depreciation expense remains flat at $1.5 million for the quarter. As of September 30, 2010, the Company has $24.8 million in cash and cash equivalence and $13.6 million in long term debt obligations on it's balance sheet, with that meaning, net cash position of $11.2 million or $0.47 per share. The current book value per share is $4.59. With that, I complete my presentation and we can now start the Q&A session. Alicia.

Certainly. (Operator Instructions) And we will take our first question from Todd Eilers with ROTH Capital Management. Your line is open.

Good morning, everyone.

Hi, Todd.

Peter, in Colorado, looks like it's still somewhat soft, highly competitive markets, but yet looks like your margins improved pretty substantially in the quarter. Can you maybe talk a little bit about what you guys did specifically at those properties to kind of drive that margin expansion?

Todd, thanks for being on the call. I'll refer to Erwin.

Hi, Todd, this is Erwin. We have been doing nothing in particular we just continue to work on improving our customer service, and then that seems to show a little better in Central City than in Cripple Creek as of now. And going forward, we think that the move of the daily, from the upper level to the lower level, should have a very positive impact. Because, we then have all slot gaming on one floor and that has the potential to increase revenues, also.

Okay. And then, I guess you mentioned --. You guys mentioned, in your remarks, I think, in a couple of locations, Cripple Creek, some nonrecurring costs there, and, also, on the cruise ship segment, some start-up costs there. Can you maybe give us a sense for how much each of those were? Just to kind of get a pro forma or adjusted numbers?

Todd, for the ships, the one-time expenses was between $60,000 and $70,000, in the quarter. And for Colorado?

Similar amount for the rebranding, about $70,000 to $80,000.

$70,000 to $80,000 for the rebranding in Cripple Creek?

Right.

Okay. Okay, that's helpful. And then, can you guys talk a little bit about Calgary? Obviously the rebrand and relaunch here on November 18, you mentioned that you'll start to pump a little more marketing dollars into that property. So obviously, I would expect revenue to start to pick up here going forward. But can you maybe talk about how we should look at margins for that property going forward? I would assume that might lag by a little bit, just with the increase in marketing, but to the extent you can kind of talk about, how should we expect that to kind of trend over the next several quarters? Would be helpful. Thank you.

Well,Todd, we don't really want to speculate in numbers, and it would be difficult, you know. But what remains -- . What we see is the following. Basically, as Peter said earlier, The reconstruction is down and -- only a little because metrics are -- have been turned in this last week. We already see -- go from record to record, coin in, and from record to record, revenue spoke in the slots and the table side. Which is, of course, from a low base, but just shows, we can feel already. That what we have been doing , the reconstruction on the one hand, and getting the -- getting some new staff members--. First of all, a new general manager who is doing an excellent job, and a few other managers. It's really making -- starting to make a difference, and it's becoming visible in the numbers now.

As far as, what is the upstart potential? We're always compare -- look at Edmonton. When you compare Edmonton with Calgary, although the Edmonton property's larger, but ultimately on a slot machine per day -- across given revenue per day basis, that's what we take as a comparison.

And one other thing, I think, should be seen in -- when charting Calgary. In the past, before we took over the Calgary, Silver Dollar Casino, was certainly the least performing casino of all casinos. Where the Alberta Gaming and Liquor Commission puts their slot machines in. And it would -- it was only natural that the agency put the worst machines to the worst property. Now, that they see what we have been doing, and now that they actually see the numbers going up, we are becoming more and more eligible for new slot machines, which are distributed, also, according to performance. And we have strong increases, probably stronger than our competitors, certainly from a lower basis, but still. And so, I think that over the next year or two we will see that slot machines that we have, to dramatically increase, with regard to new machines, better programs. And that will, also do its part of increasing revenues.

Okay. Great. And then, final question. With regards to CapEx plans. Can you guys give a sense for what you're looking to spend in 4Q? And I guess maybe some initial to thoughts on maybe what 2011 CapEx might be, excluding any new to acquisitions or major expansions?

Okay. Right. In Calgary we would certainly like to see significantly higher revenues before we go into what we would call phase two. We can't imagine that we spend another $2 million to $3 million on the property, but not in 2011. Maybe at the earliest in 2012, but only if we see that the numbers justify it. But it may well be at the property as it is now turns out to be wonderful and then working very well. No significant CapEx is planned for Edmonton at this point in time. And when it comes to Colorado, nothing significant for Calgary -- sorry, for Cripple Creek. And in Central City, only what has been mentioned before, that relocation of the daily -- which hopefully will be less than $100,000. And the only replacement CapEx that we would have in the two Colorado properties would be new slot machines, but we will do that at the regular rate of, say, 5% of the total slot machines per year.

Okay. Also, no significant CapEx or replacement CapEx on the cruise ships either.

Okay. So, would you guys say that, the amount of maintenance CapEx that you spent in 2010, would you expect 2011 to be similar up or down, I guess, collectively? About the same, I would say.

About the same? Okay.

Yes, of course, carving out what we did in Calgary.

Right, right. Okay. That does it for me. Thanks, guys.

Thank you.

And we'll take our next question from Ryan Worst with Brean Murray, Carret & Company. Your line is open.

Hi, thanks, guys. Just how much do you plan to spend in Calgary? More than you have already? How much left?

Nothing now, it's all been spent.

It's all been spent, okay.

As Peter mentioned, and as I said, maybe in a year or two, we'll look at it again and do some more. But that all depends, only if we have great performance.

Okay, and Erwin or Peter, could you guys comment on what you see out there as far as, strategically, where this Company could go, and how do you plan to use the balance sheet? You know, you have a lot of cash in the balance sheet. So, what you plan to do strategically outsided of Poland, if that doesn't materialize, where else would you look to expand the Company, or would you consider buying back shares, or both?

Yes, obviously Poland is still high on our list of priorities and we're working hard on it. In addition to, we are working on some management projects, management opportunities, and then we are starting to look at some projects in Asia. And, as you know, there's not only the large scale casino industry thriving in Asia, but there's also in our midsized industry, mid-size market, there's also a vibrant situation there. And that's something that's getting more and more attention from us. Buying back stock is, yes, always an option, but we want to get a better feel in the next few months on whether Poland can be done shortly or not and we make it a little bit dependent on that -- the outcome of that.

Okay. Thanks. That was helpful.

Thanks, Ryan

(Operator Instructions) We'll take our next question from J.T. Waters, a private investor. Your line is open.

Hi, guys, congratulations on a great quarter.

Thank you.

Tell me, if you can put some color on the corporate side for me? What -- and let's kind of take out your -- you know, the salary for the two of you all and options and things like that. What does it cost us per quarter, approximately, just to be a publicly traded company? You alluded to that earlier.

Well, on the corporate side what we show, and I did some checking with other companies, it's very difficult to compare. For example, what we and what others show in that segment, because it all depends on how much do you, -- of those costs do you allocate to the individual properties and where you draw the line between them. But specifically, for being a public company, there's, of course, some costs of some auditing costs associated with being a public company that you wouldn't have otherwise. And some other -- legal and other expenses, that I would put that probably in the half a million range.

Per quarter?

Per year.

Per year. Okay. Okay. Great. Thank you. And then tell me a little bit, or -- or if you can just put in perspective for me -- licensing in the Edmonton and Calgary casinos. Are licenses -- do you anticipate more licenses in those markets being handed out in the future or is that kind of the government says we're not going to issue anymore or do you have any idea?

Yes, we get a strong indication that there won't be any more for the next , at least, three or five year.

Okay, wonderful. And last question. Can you comment just very briefly, and I know you can't speak too much to the -- how the market values of the PP&E, but it seems to me at $4.59 a share -- and I realize there's some cash there as well? Can you just comment a little bit on maybe how the market values all of our casinos on an asset basis versus what you show in the books? And that's all, and I'll just hang up and listen. Thanks, guys.

Thanks for the question. Almost -- almost any transaction that's done in our industry is based on cash flow or EBITDA market place. And hardly ever does the PP&E come into play. So, I guess that's the same for us, and, yes, not really much we can do about it. That's how the other players in the industry, the investment banks, the buyers, the investors -- most of them are looking at it. Any other questions Alicia?

It appear, I have no further questions at this time.

Great. Well, I thank you very much 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.

This concludes today's teleconference. You may now disconnect, and enjoy the rest of your day.