Century Casinos Inc (CNTY) 2011 Q1 法說會逐字稿

Welcome to Century Casinos' Q1 2011 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, Alicia. Good morning everyone in North America, and good afternoon to all of our European listeners. I'm joined here today as usual by Erwin Haitzmann, Co-CEO and Chairman of the Company, and Margaret Stapleton, Executive Vice President of Finance. We are very happy to have all of you join us for this call following the release of our first-quarter earnings a couple of hours ago.

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 to you 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 their 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.

We had a good quarter overall, and are happy to report strong results with great performances from most of our properties. Revenues were up 21% to $17.1 million. Adjusted EBITDA was up 27% to $2.5 million. Earnings from operations doubled, and net earning almost tripled. Earnings per share doubled from $0.01 to $0.02. It was our best performance since 2008, and we did this with net revenue increases at every single property.

In Cripple Creek, Colorado, we managed to grow our market share by 25% from 8% in the first quarter of last year to 10% this quarter. Net revenues climbed 25% with all departments contributing, from slots to tables as well as food and beverage. Adjusted EBITDA jumped 176% due to a more efficient operation and higher margins on the incremental revenue. This was really a very good performance, and it's great to see that this is continuing into the second quarter as well.

Also, our Century Casino & Hotel in Central City, Colorado continues to perform very well, and produced another quarter with positive year-over-year comparisons. During the first quarter, net revenues increased 5%, even though paper revenue was down due to a lower hold percentage. We freed up some space on the main floor by moving the deli to a downstairs area, a very good move with the new games on the main floor contributing significantly to the overall revenue increase. In general, the Colorado casino market remains very competitive with lots of promotional activity.

In Canada, our Century Casino & Hotel in Edmonton also showed growth in all key financial metrics. Serious snowstorms on 2 weekends and a waterline breakage at the casino entrance negatively affected the results compared to same quarter of last year, but the property still managed to increase net revenues by 2%, EBITDA by 6% and net earnings by 13% in local currency. In US dollars, the increases are even higher.

We 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 casino. Efficiency programs and cost controls are working well, demonstrated by an EBITDA margin of 33.5%, which is also better than last year.

The newly remodeled casino in Calgary showed mixed results. Whilst we are very pleased with net revenues climbing 41%, when adjusted 27%, I say adjusted because last year we didn't have a full quarter as we acquired the property on January 13, but the bottom line needs to improve. That, however, did not come unexpected at all, and is part of the plan we have for that new property. Our main focus is on aggressively driving revenue and gaining market share. Later in the year, we will turn to margin improvement.

13% of the slots on the floor has been converted or replaced with more to come in the next quarters. We more than doubled marketing efforts and expenses, which resulted in slot coining jumping up 47%, which is as we hear, one of the highest if not the highest increase of all casinos in the entire province. Food and beverage revenue was up 54% and also polling revenue was up 24%.

The casinos we manage on the cruise ships and in Aruba saw revenues grow by 157% to $1.5 million. This was due to more ship casinos in operation and at the addition of the casino at the Radisson Resort in Aruba. EBITDA increased by 48%, but higher concession fees payable to the cruise lines led to a lower EBITDA margin. Net earnings, however, climbed 76%. The opening of our latest ship port gaming operation tomorrow evening on the Mein Schiff 2, second best of 2 cruises in Germany, will bring our total number of cruise ship casinos to 12.

Our equity investment in Casinos Poland Ltd., of which we own one-third, performed okay in the quarter. Revenues were down 10%. The reason being that last year we had 1 single high roller on the tables who contributed about $5 million in local currency. If we adjusted for that 1 single guest, revenues this quarter would actually have been higher by 4%. Slot coining increased 8%.

There are some additional depreciation expenses. As the lease contract for the casino in Krakow has not been renewed by the hotel, and we need to relocate the casino by the end of the year. Very recently, the Company won the tender for a new casino license in Sosnowiec, a city with about 200,000 people located in one of the strongest economic regions in Poland. Casinos Poland will rank approximately 5000 square feet in a city shopping mall, and will invest $1.5 million dollars into interior design and equipment, and that new casino is expected to start operations in the fourth quarter. Lastly on Poland , there's nothing new to report with regard to the ownership situation.

On the corporate side of our results, they remain flat year over year. The decrease in payroll expenses was offset by higher legal accounting and that of professional service fees. The balance sheet and liquidity remain strong. Our net cash position increased from $8 million as of December 31, 2010, to $9.5 million at the end of Q1.

Finally, from a cash flow perspective, our total cash CapEx in the quarter was just shy of $1 million, and offset $450,000 was attributed to security, safety and surveillance equipment upgrades, $200,000 to gaming equipment, approximately $130,000 to furniture and other equipment, and the small rest was miscellaneous CapEx around the Company.

Looking ahead, I can tell you that we're off to an excellent start into the second quarter. We have to see how the year unfolds, but we're certainly more optimistic than you might have found us in the past. As you know, we had applied for a casino license in Switzerland. Our project in the western part of the country has, as we believe, a great location in the Canton Neuchatel, and is within easy driving range of the cities [Lyonquirk], Bern, Lausanne and Geneva. Subject to licensing, deposition is expected in 1 to 2 months from now. That $30 million project would start with about 180 slots and 15 tables, food and beverage offerings and a parking garage.

The results of this quarter and the great start into the second quarter make us feel very good about the Company, the markets we are in and the potential to continue to grow organically as well as through new projects. As is our practice, I'm going to wrap up the summary with that, and open the floor to questions.

Operator, go ahead, please.

(Operator Instructions) Todd Eilers, ROTH Capital.

Congrats on a good quarter. A few questions. Number one, in your comments regarding Q2 trends, you guys sound more optimistic than in the past. Can you quantify what sort of growth rates you might be seeing in Colorado and in Canada at this point for the month of April, and to the extent that you have the data through May?

No, we're not happy to give a quantification, but as of now, it's looking now even better than the growth rates we saw in Q1.

Okay. My second question, I wanted to talk a little bit about competitor disruption in the quarter, specifically in Colorado. I think in the Q, you guys mentioned in Cripple Creek a competitor, I think J.P. McGills going through some renovation and there being some disruption there. When I look at the market, they're being flat to down, and you guys up I think 25% year over year, and you mentioned your market share went from 8% to 10%. Can you help us understand how much of that is coming from your end in terms of better operations, and how much of that gain might have come from the disruption from the competitor's renovation?

And then, when is that competitor supposed to be done with that renovation? And any color on that in the Cripple Creek market would be helpful. You guys also mentioned Fortune Valley going through a change in ownership in Central City, and I'm sure that helped out a little bit as well. If you could talk to that, and what your expectations are in that market going forward, that'd be helpful.

In Cripple Creek, the McGills casino, which is our neighbor, is open and operating but with a substantial renovation disruption. We increased our market share, as I've mentioned in the presentation, which means that surely this might have helped, but it's true that helped also all other casinos that are open and operating in the market. So the fact that we increased market share surely means that we've done something better than the others.

I'll let Erwin talk a little bit more in detail and share his thoughts with you on that.

Yes. Hi, Todd. It's hard to quantify, but one of course, could that be that it's half/half, part of it will be that the McGills, not closed, but almost closed, only a few slots open. But on the other hand, I think that our quite a great marketing push has significantly contributed to the increase as well. That would be with regard to Cripple Creek.

With regard to Central City, fortunately, having new owners, we hear that they may be rebranding maybe sometime in summer, but we can't really make a judgment on that. Fortune Valley, underperformance has not hit us more or less in this quarter than in the last quarter or the quarter before. It's been a constant, I would say, the way it has been.

Okay. If I could have a follow-up on Cripple Creek. The McGills renovation, is that over with right now, or when do you expect that to be complete?

It's difficult to chart it, another few months maybe.

Okay. Last question regarding the tax rate. Looks like it was 38% in the quarter, a bit higher than I had been looking for. How should we look at that going forward? Do we expect to be in that mid- to high-30% tax rate?

Maggie, can you contribute on that one?

Tax rate this quarter was actually impacted by foreign currency. So, that can skew the way that the tax rate looks. I would expect the tax rate to be lower in this next quarter.

Okay, great. Thanks, guys.

(Operator Instructions) Ryan Worst, Brean Murray.

Hi. Just a few questions, Peter. You talked about your more optimistic viewpoint. Could you talk about what exactly is driving that optimism? Is it consumer spend, visitation, or what you're doing in terms of margins?

And then if you could also provide some details on the strategy in Calgary. You said that marketing expenses have ramped up here in the first quarter. What should we expect to see going forward? How long will that period of increased marketing spend last, and what has been the customer feedback in terms of the new facility and brand?

The growth we are seeing in the start of the second quarter is coming, again, from all operations, Canada, the US, ships as well, and we are seeing it on revenue, EBITDA, and also on the bottom line. So it's a combination of everything you said, which is very encouraging, and it's also across-the-board gaming, non-gaming revenue. A little bit more customers, a little bit more customer spending, cost controls working. We've initiated all this last year, and it just takes a few quarters until you really get a great show in the results. This is starting to happen now.

With regard to Canada, I turn it over to Erwin.

In Calgary, all the customer feedback we are getting with regard to the reconstruction is great. We think people love it. We think we need to continue to let everybody know that the property has significantly changed. As Peter said earlier, we see results. Slot coin is up 47%, paper games up, food and beverage up. So that there's significance increase in traffic.

We also started to organize concerts, smaller scale, larger scale. We had Julio Iglesias, for example. Our showroom holds 1,100 people. Tomorrow we have Buddy Guy.

All of these things enable us to reach out into customer groups that we would otherwise not reach. We have seen the same when we picked up in Edmonton. It took a little while, but then we were able to build a very solid repeat crowd of customers.

Okay. Erwin, is there any way to quantify, in terms of margins, the incremental you're spending on marketing, and how long you expect that to last?

No, I can't really quantify a whole lot. We'll keep the marketing spend about where it is, and we work on improving increasing coin in revenue drop and win.

Okay, and then one final question on CapEx. You said $1 million in the first quarter. How much do you think that will be for the year?

And then just on the Switzerland opportunity, if you get that, I think I might have missed that, but did you say $30 million in construction costs or CapEx, and how would you finance that? And when would you expect that to be able to open, if you did get the license? Thanks.

About half of the CapEx that we spent in the quarter, about $400,000 was extraordinary, so to say. So, we expect CapEx to go down from $1 million to probably about $700,000 or so for the next quarters.

And with regard to Switzerland, total project costs $30 million. We would finance that with project debt from a local Swiss bank, approximately half of that, and the other half coming from us. And it will take approximately a year to build.

Great. And then, you also said that there's $1.5 million CapEx program, or for the new casino for Casinos Poland. Was that your portion, or is that how much it will cost altogether?

Altogether, we're renting space, which is already in a new shopping mall in the city center. So, it's only some cosmetics and some gaming equipment.

Okay. Great. Thank you.

(Operator Instructions) [Irvin Lou, Securitie Capital].

I was just wondering about the timing on the Switzerland deal.

Yes -- .

Give some more clarification on that one.

The regulatory authority in Switzerland has indicated that they intend to make a decision towards the end of June, early July on who gets the license. After that, we will move to close on the land purchase where we have an option, and then we start the preparatory work and building, and we expect to be open within approximately 12 months.

12 months? And this is after you find out in the summer, right?

Yes, correct.

Okay. Thanks.

(Operator Instructions) It appears there are no more questions in queue, Mr. Hoetzinger. Do you have any closing remarks?

Thank you, operator, and thanks, everyone, 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 now disconnect, and enjoy the rest of your day.