Century Casinos Inc (CNTY) 2010 Q4 法說會逐字稿

Welcome to Century Casinos fourth-quarter and year-end 2010 earnings conference call. This call is being recorded. At this time, all participants are in a listen-only mode. Later we will have the opportunity to ask questions. (Operator Instructions)

I would now like to introduce our host for today's call, Peter Hoetzinger. Mr. Hoetzinger, you may begin.

Thank you, Mark. And welcome, everyone, to our fourth-quarter and year-end 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.

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, EBITDA. Reconciliations of our non-GAAP performance and liquidity measures to their appropriate GAAP measures can be found in our news release, and in the 10-Q and 10-K filings, all of which are available in the investor section of our website at cnty.com.

2010 was a busy year for us. It started with the acquisition of the Silver Dollar Casino in Calgary, which we acquired in January for $11.5 million, which is less than its fair market value. In March, we announced the agreement for the casinos on the Windstar Cruise vessels, followed by the agreement with Regent Seven Seas Cruises in June. In total, we have added six new cruise-ship casinos during the year. Also in June, we successfully concluded negotiations to extend our agreement with Oceania Cruises for five more years.

September saw the successful relaunch of our casino in Cripple Creek, Colorado, under the Century brand. In November, after having spent almost $4 million on renovations that included everything from carpeting, painting, lighting, a new bowling alley, signage, new table games room, redecoration of the game floor, chairs in all [F&P] and gaming areas, we relaunched the Calgary Casino, also under the Century Casino brand. And finally, in December we announced the management contract for the casino in the Radisson Hotel in Aruba, the Caribbean. Throughout the year, we presented at five Investor Relations Conferences, and held numerous one-on-one meetings with investors and analysts in the US and in Europe.

Erwin and I are reasonably pleased with the overall performance for the fourth quarter, with net operating revenue increasing at all of our major operations, that is Edmonton, Calgary, Cripple Creek, Central City, as well as on the shipboard casinos. Revenues increased by 29% in the quarter; earnings from operations increased to $830,000; and we generated earnings per share of $0.04 in the quarter.

Let us now discuss the results for the fourth quarter property-by-property in local currency, beginning with Colorado. For our listeners who are not so familiar with the Colorado casino market, here's a brief overview. Cripple Creek, Central City, and Black Hawk and are the only three Colorado cities, exclusive of two Indian reservations in Southwest Colorado, where casino gaming is allowed. Cripple Creek located approximately 45 miles southwest of Colorado Springs, and Central City and Black Hawk located approximately 35 miles west of Denver, are historic mining towns dating back to the late 1800s, which have developed into tourist attractions.

There was a $5 betting limit in place until January 2009, but since then higher gaming limits of up to $100 per bet have been approved, as well as extended opening hours. We can now stay open 24/7 in the games of Craps and Roulette in addition to Poker and Black Jack. Today there are 13 active casino licenses operating in Cripple Creek, seven in Central City, and 17 in Black Hawk, and together they operate 14,000 slot machines and 300 gaming tables.

Revenue at our Century Casino in total in Cripple Creek, a property we've owned and operated since the mid-1990s, was up 3% in the quarter, EBITDA was down 13%, and net earnings were up 10%. We operate 440 slots, six tables, as well as 21 hotel rooms, a restaurant, and two bars at that location. Our property in Central City did better, with revenues for the quarter up 15% to $4.1 million, EBITDA up 14% to $900,000, and net earnings were up by 83%. This casino has 500 slots, 11 tables, 26 hotel rooms, two restaurants, two bars, and 500-car parking garage. Overall, marketing competition remains fierce in Colorado, as all properties strive to develop stronger player loyalties, especially with weekend promotions and point market players. But our two casinos are in pretty good shape to continue gaining market share.

In Canada, our Century Casino and Hotel in Edmonton had pretty much flat revenues, actually down 3% in local currency but up 1% in US dollars. EBITDA was down 18%, net earnings down 2%, but up 11% in US dollars. This is our largest casino, with 688 gaming machines, 35 tables, 26 hotel rooms, four restaurants, a showroom, a Comedy Club, and a heated parking garage. Slot coin-in, one of the most important measures of business volume, was up 2% in the quarter, but the tables had a lower hold compared to last year. There are a number of reasons for the lower EBITDA, including a write-off of $32,000 in bad debts from the previous Comedy Club operators, about a week of really severe snowfall that substantially ended visitation, and the substantial support the Edmonton operation provided for the Calgary rebranding and reopening in November.

Our regulator and partner in that operation, the Alberta Gaming and Liquor Commission, plans to convert and swap in new slot product, touching approximately 13% of the machines on the floor beginning in the first quarter of this year. We are also putting a new service station into our VIP and poker rooms, and we'll upgrade its decor. We will also introduce a noodle bar to increase the variety of authentic food offerings to our Asian players. Operationally, we will continue to market and grow the players club loyalty program, and to market the showroom with live entertainment as well as the Comedy Club and various catering functions to drive traffic to our property and the casino.

On November 18, we reopened our new casino in Calgary under the Century brand, as mentioned, after six months of substantial refurbishment work, and significant investment into our customer service programs. The new product showed immediate effect. Membership to the newly introduced Winners Zone players club loyalty program increased by double digits. And more importantly, casino revenues did the same. The casino showed net earnings of CAD1 million in Q4, as a result of bargain purchase accounting. Simply put, we were successful in purchasing the property well below fair market value, which results in a profit on the income statement.

The casino's 1,000-seat showroom sees some great concerts in Q1 and Q2, with names such as Julio Iglesias, Emerson Drive, or the B-52s appearing live in concert. About one-third of the slot machines will be replaced or upgraded by the AGLC during the next quarters. Also, it's clearly set on continuing to increase revenues and to gain more market share, a strategy that seems to pay off with double-digit top line increases into the first quarter of this year. After another one or two quarters, we will then analyze where we are, and then shift our attention to higher efficiency and operating margin improvement.

Our casinos in Alberta should also benefit from the improvement in the oil and gas industry there. Oil prices going up is a good thing for them, leading to lower unemployment and higher disposable incomes.

Our ship casinos saw revenues almost double. EBITDA and net earnings went down mainly because of substantial costs that we could not depreciate that were associated with the development and installation of new casinos we took over on the Regent Seven Seas fleet, and preparations for the casino on the newest ship of the Oceania Cruises fleet, The Marina, which debuts this January. In total, we now operate 11 shipboard casinos, with 350 slots and 55 table games. We have two more already under contract from Oceania Cruises and three Royal Caribbean cruises.

In December, we added a casino on the Caribbean island of Aruba to our portfolio. The Carlson Radisson Hotel Group selected us as their Management Company of choice for the casino at 355-room Radisson hotel and spa resort. The casino has 210 slots and 15 tables, and is currently undergoing an equipment and interior design upgrade. Under our long-term management agreement, we are not required to invest any amounts, but are receiving management fees consisting of a fixed amount, plus a percentage of the casino's gross revenues, plus a percentage of the casino's EBITDA. This is a great way for us to get a taste of the Caribbean and Latin American casino market, which will help determine if we will look at other opportunities in that region.

Our equity investment in Casinos Poland Ltd, of which we own one-third, did perform very well in the quarter. Revenues increased by 6%, and EBITDA was up 51%. The revenue increase came from both the tables and the slots, and despite a decline in the overall market and despite smoking restrictions that have been introduced in November.

To refresh your memory, effective January 1 last year, gaming laws changed in Poland with a negative and a potentially positive effect on us. On the one hand, the gaming tax rate was increased by 5% from 45% to 50%. And the new provision of the law requires all casino licenses to go through a new licensing process once the license expires, and that process is open to everybody. The potentially positive side of the new gaming law provides for the expiration with no possibility for relicensing of all gaming machines outside of casinos. This means that over the next five years, more than 10,000 gaming machines that are currently operating in slot arcades and bars, will fall away, and casinos will be the only venues where people can play slots. With regard to the ownership situation, unfortunately nothing new to report.

The corporate segment improved its results by 8%. Corporate costs and expenses consist primarily of legal, audit, 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. Compared to the same quarter a year ago, we faced about $110,000 thanks to a decrease in payroll expenses and stock amortization costs, offset by an increase in professional services.

Our balance sheet is strong, showing a net cash position. As of December 31, we had $21.5 million in cash and cash equivalents, and only $9.3 million in long-term debt obligations. The book value per share is $4.67.

Before we begin with the Q&A session, let's take a quick look at how the first quarter of this year is shaping up. So far, the biggest surprise is Colorado. We see single-digit growth at our property in Central City, and double-digit growth in Cripple Creek. As revenue was up in Q4 as well, this could be more than just a short-term thing, perhaps signs of a real recovery.

Edmonton also had a good start into the quarter, with high single-digit growth, and Calgary really starts to show its revenue potential with revenue gains of over 30%. The biggest revenue growth winner of all is the small cruise-ship segment, but margins there are under pressure due to higher concession fees and operating expenses.

And finally, we have applied for a casino license in Switzerland. Our project in the western part of the country has a great location in the Canton of Neuchatel, and is within easy driving range of the city's [Lineport], Berne, Lausanne and Geneva. The Swiss casino market is performing very well, with an average slot win per day of $500, and average table win per day of $2,500.

Subject to licensing, that decision is expected at the end of June this year. Our project will start with about 180 slots and 15 tables, some food and beverage offerings, and a parking garage. The 60-room Ibis Hotel is right next door. We plan for a total investment, including project debt and equity, of approximately $30 million.

Overall, we feel very good about the Company, the markets we're in, and the potential to grow organically as well as through new projects. I thank you for your attention, and invite you to ask your questions. Operator?

(Operator Instructions) And we will go first to the site of Todd Eilers with ROTH Capital. Please go ahead, your line is open.

Hi. Can you hear me?

Hi, Todd. Yes.

Hi, Peter, a question to start off in maybe Colorado, obviously seeing some better revenue trends there in the fourth quarter and you highlighted further growth in the first quarter, does that mirror the -- at least in the first quarter, does that mirror the overall market or are you taking market share? Can you help us out a little bit there?

We are definitely taking market share, especially in Cripple Creek, but I'll let Erwin answer that in more detail. He is at the moment actually at our casino in Cripple Creek.

Yes, hi, Todd, hi, everyone. I've spent the time until Monday in Central City and since then have been in Cripple Creek, I would say in Central City we are growing with the market and in Cripple Creek we are growing faster than the market.

Okay. That's helpful. And then had a couple questions on SG&A expense, and I might have missed this, if I did, I apologize. But in Calgary can you tell us how much kind of nonrecurring rebranding costs there was in the fourth quarter, and I'm assuming that shows up in your S corporate SG&A?

Margaret, did we break it out in detail, I'm not sure we did.

The nonrecurring, we did not break out in detail.

Okay. I guess --

Probably it take you a few couple hundred thousand (inaudible).

Probably 4 -- a little more than $400,000.

Okay. And then on the cruise ship segment I think I saw, I'm not sure if it was in your press release or the 10-K, but there was some upfront costs related to -- or upfront setup costs I guess with some of the new cruise ships, can you tell us how much of that hit in the fourth quarter?

Yes, that was about roughly $50,000.

Okay. And then last question, as it relates to the Switzerland opportunity, can you give us a sense for what sort of kind of upfront costs or spending we should be modeling in as we kind of head in or at least in the first half, obviously we're looking for a decision in June, but just want to make sure we're modeling in any sort of upfront costs there.

Yes, that's approximately $200,000.

And is that through the whole first half, split between each quarter?

Most likely. Most likely, yes. Maybe a little bit more in the first than in the second.

Okay. Thanks.

Thanks, Todd.

And we will go next to the site of Ryan Worst with Brean Murray. Please go ahead, your line is open.

Thanks. Good morning, Peter.

Hi, Ryan.

Yes, just a question. What do you expect the CapEx to be in 2011?

Excluding the Switzerland project, or any new project, it's about between 3% and 4% of revenue, so between $2 million and $3 million. Erwin, would you have any comment on that, any further?

$1.5 million to $2 million. Yes, $1.5 million to $2 million.

But $2 million is probably a good number?

I think so.

And then could you just talk a little bit about the -- little bit more about the environment in Switzerland, just the competitive environment, how many casinos near that location and then competition for -- or in the-- during the bidding process.

Total of 21 casinos spread all over the country. The (inaudible) which is the regulator, the Swiss Government casino regulator, they are doing a great thing in geographically locating the casino licenses so that they don't overlap too much and ultimately every region is well-served by casinos. 2 important and high income regions are currently not served, one in the west and one in the east, and we are applying for the one in the west. There's a total of 4 applicants including us, 2 French companies and 1 Swiss Company. All 3 competitors have locations directly in the city of [Lineport]. We are a few miles outside, directly on the crossroads of 2 busy highways. We believe we have a location advantage because the other sites are in the city creating traffic, potential traffic problems, near schools and universities. We believe that our site is better. It also is a greenfield development, as compared to theirs, which would be conversion of existing buildings. So we believe we have reasonable chance but as you know with these things, the others will tell you the same and we'll see in the middle or towards the end of June.

Sure.

The market there is very strong. You'll find that $500 or between $500 and $600 actually per slot machine per day, that's a number that's being generated by the casinos that have comparable markets and pretty much throughout the country. So it is really a strong performer, it has been over the last few years pretty consistently.

Sure, thanks. And just some follow up, like how many slots and tables would be in your development and how would you finance that?

We would start with around just below 200 slots and 15 tables. Total project cost, $30 million. Probably about 40-- between 40% and 45% equity, $13 million roughly, and the remainder project debt from a local bank in Switzerland. That's our plan.

So you could use just basically cash on hand. And then could you talk about your current debt and credit facility, how much you have available?

Outstanding is $9.3 million, that's all we have, that's secured by the Edmonton property. And at the moment we don't have any credit facility with anybody. We are working on that, but at the moment we having $21 million cash and cash equivalents and that would be good enough for the next 1 or 2 projects.

Sure. Okay. Thanks, Peter.

Thanks, Ryan.

(Operator Instructions) And we will wait a moment to allow any more questions to queue.

Okay.

Yes, it appears we have no questions, so Mr. Hoetzinger, if you have any closing remarks, sir.

Very good. Well thank you. Thanks, everybody, for your interest in Century Casinos and for your participation in the call. For a recording of the call please visit the financial results section of our website at cnty.com. Thank you.

This concludes today's conference. We thank you for your participation and hope that you have a nice day.