Century Casinos Inc (CNTY) 2011 Q2 法說會逐字稿

Welcome to the Century Casinos Q2 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 to our host for today's call, Mr. Peter Hoetzinger. Mr. Hoetzinger, please begin.

Thank you, Toya. Good morning everyone in North America, and good afternoon to all of our European listeners. I'm joined 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 second-quarter earnings 2 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 provided 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 [regulatory] 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 Investors section of our website at www.cnty.com.

We had another very good quarter, and I am pleased to report some results with excellent performances from most of our properties. Net revenues were up 21% to $18 million, adjusted EBITDA was up 38% to $2.8 million, earnings from operations were up 185%, and net earnings more than tripled. Earnings per share jumped from a $0.01 loss last year to $0.03. Every property increased revenue, every property increased adjusted EBITDA, which was our best performance since 2008 and, another piece of good news, we see it continuing further into the current quarter.

I will now provide some color to each individual property's results. In Cripple Creek, Colorado, our net revenues climbed 23%, with all departments contributing to the increase, from slots to tables, as well as food and beverage. EBITDA jumped 40% and net earnings 122%, due to a more efficient operation and higher margins on incremental revenue. This is really a very good performance overall, led by the tables, which doubled revenue from a year ago, thanks to a more prominent location at the front of the casino and great quality dealers providing a fun and exciting customer experience. Slot coining increased 9%. We added 6 games in the quarter and created new, successful promotions, which were run through our popular Winners' Zone players' club. Our Century Casino & Hotel in Central City, Colorado, also continues to perform well and produced another quarter with revenue growth. During the quarter, net revenues increased 7%, even though the slot flow was lower than last year. Slot coining was up a strong 15%, table revenue up 21%.

2 competitors have revamped their products and also added new slots recently. The market -- that market certainly gets more aggressive, especially for the VIP customer segment. Central City's Streetscape project began construction on Main Street in front of our casino in July, which will last until October. So far, we see little, but no significant impact to our operations.

In Canada, our Century Casino & Hotel in Edmonton showed growth in all key financial metrics -- revenue up 12%, EBITDA up 22%, net earnings up 26%. This is our largest casino, with close to 700 slots and 35 gaming tables. During the quarter, we installed a new [look] progressive jackpot on the Three Card, Four Card, and Ultimate Texas poker games, converted and upgraded 50 slot games, and also added 5 machines. All apparently very good news, as (inaudible) slot increased at 5% to CAD273. Our [ship] revenue is up too, 5% year over year, same as hotel revenue.

Efficiency programs and cost controls are working well, demonstrated by a strong EBITDA margin of 35%, which is also better than last year. In the current quarter, we will get another 16 slots added to the floor. We have also opened a new Asian noodle bar in the baccarat room and replaced the hotel carpets. We continue to market and create a players' club loyalty program and to market the showroom with live entertainment as well as the comedy club and various gaming functions to drive traffic to our property and the casino.

Our newest property in Calgary continues to show improvements, but at a slower pace than expected. Net revenues were up 17%, EBITDA turned positive to 120,000. Slot coining was up 31%, so that side of the business is quite strong, but we have not realized the potential of the table games market yet. We made some changes there, removed Caribbean Stud and Paigow and added Let It Ride, and we've continued to try and find the right mix and product, while simply adding craps tables in the current quarter. Non-gaming revenue, mainly coming from (inaudible) and bowling, was up 17%, driven by successful events and concerts and improved food quality and customer service.

The floating casinos we manage on cruise ships and in Aruba saw revenues triple to $1.7 million, and EBITDA even quadrupled to over $300,000 in the quarter. This was mainly due to more ship casinos in operation and the addition of the casino at the Radisson resort in Aruba. We continue to see strong bookings on the cruise ships, high occupancy rates, and look forward to a strong third quarter in this segment as well.

Our equity investment in Casinos Poland Ltd., of which we own one-third, also performed well in the quarter. Revenues were up 8%, EBITDA up 38%, all driven by strong action on the gaming tables during the quarter. With regard to the ownership situation, our co-shareholders, LOT, the Polish Airline, and PPN, the Polish state-owned [airport] company, have very recently announced their intention to sell their shares to the Polish state-owned lottery company, Totalizator Sportowy. We have requested more details about the proposed transaction in order to analyze our position concerning our first right of refusal. And another prerequisite for any such transaction is our explicit consent to it, and we are requesting information and there are discussions with all parties concerned to put us in a position to decide if we can give our consent or not. The timing of all this depends, in part, on how soon we get the details from the other side so it is, as always, rather difficult to predict.

Turning to the corporate section, I'm pleased to report that our total long-term debt decreased from $13.5 million at the end of last year to $10.8 million at the end of the second quarter. Current cash and cash equivalents totaled $19.8 million, resulting in a net cash position of $9 million. Net cash flow from operating activities increased 56% to $2.6 million in the quarter. Total cash CapEx in the quarter was $1.7 million, and, of that, $825,000 were allocated to capital projects in Calgary and the purchase of a building in Central City, Colorado. $437,000 was spent on gaming equipment, and $300,000 on furniture and other equipment.

I know some of you are interested in the geographical distribution of our performance, so here's some information in that regard. Our long-lived assets are evenly spread between the US and international, about 50% each. In terms of revenue, our US operations generate 42%, our international operations 58%, and that excludes Poland. Looking at EBITDA, and including our share of Casinos Poland EBITDA, we see that the US operations currently generates 34% of all EBITDA generated by the casinos; international operations, the lion's share at 67%. However, as we are looking at several new projects and potential acquisitions, both in the US as well as outside the US, this could change soon.

Looking ahead, I can tell you that we are off to an excellent start in the third quarter. The results of the first half of this year and a great start into the current quarter make us feel very good about the Company, the markets we are in, and the potential to continue to grow. We'll have to see how the year unfolds, but we are certainly more optimistic than you might have found us in the past.

All right. As is our practice, I am going to wrap up the summary report and open the floor to questions. Operator, go ahead, please.

Okay. Ladies and gentlemen, at this time, we will conduct the question-and-answer session. (Operator Instructions).

Okay. Our first question comes from Todd Eilers with ROTH Capital. Please state your question.

Hi, guys. Thanks for taking my call.

Peter, you mentioned seeing some similar trends in the month of July. Can you maybe get a little bit more specific in terms of each property or possibly by market? I know that you've had some competitor benefits, I guess the last couple of quarters in Cripple Creek and Central City. Can you maybe put that into context, and are you seeing any sort of impact, I guess, in the current quarter from those changes? And then I have a couple of other questions.

Yes, thanks, Todd, for being on the call.

We see, starting with Colorado that in Cripple Creek, we are continuing strong growth. We had a little bit of a benefit in the first quarter and into the second quarter, because one of the neighbors was refurbishing, and they didn't close the casino, but it was certainly impacted by their refurbishment works. But our growth seems not to slow down in Cripple Creek. In Central City, we see a little bit of an impact. Competitors are adding new product, expanding the floor, and at the same time, we have the construction up on Main Street going on, so we see a little bit of an impact in Central City. In Canada, continuing very, very (inaudible) in both Edmonton and Calgary. Ships and Aruba also continuing even stronger than in the first half.

Okay, that's helpful.

And then, Peter, I know in Colorado there was a -- some movements with respect to the gaming board there. I guess they had approved a lower tax rate, and then I guess the Governor essentially removed everyone from the gaming board and replaced them with new members. Have you seen -- has there been any sort of policy changes that might impact you guys going forward from that change?

First of all, should the tax rate deduction stay as it is, then we would probably save between $100,000 and $150,000 a year. So it is nice, but not really substantial. And, secondly, the new gaming board or commission has not approached that topic yet, so we don't really have any information on whether they will -- whether the tax reduction will stay or not.

Okay.

Yes.

And I guess, if I might, I have a question on the Poland business. You had mentioned that the Polish state lottery had bid for the two-thirds ownership in Casinos Poland. Was there a price given for their bid?

No, there was no price given. And that's one of the things, obviously, that we have requested, because we need to be able to make a decision internally whether we want to match or not, so this is not officially known yet.

Okay, all right.

And then, last question, can you tell us how much, I guess, cost was in your corporate expense related to the Switzerland license bid that we could assume is non-recurring?

That was -- and please, Peggy, correct me if I'm wrong -- about $250,000.

That's correct.

Yes.

Okay, thank you.

Thanks, Todd.

(Operator Instructions).

And at this time, it appears to be no more questions. I will hand it back call back over to Mr. Hoetzinger.

Great. Thank you.

Thank you 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 conference call. Thank you for attending. You may disconnect.