Century Casinos Inc (CNTY) 2011 Q3 法說會逐字稿

Good day and welcome to Century Casinos' Q3 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. Good morning everyone in North America and good afternoon to all our European visitors. I'm happy to have all of you join us for this call following the release of our third quarter earnings a couple of hours ago.

With me on the call today are, as usual, Erwin Haitzmann, Chairman and Co-CEO of the Company and 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 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.

Q3 was another very good quarter for Century Casinos and I am pleased to report strong results throughout (inaudible) and International properties. Net revenues were up 14% to $18.1 million. Adjusted EBITDA was up 27% to $3.1 million. Earnings from operations more than doubled to $1.5 million and earnings per share jumped from $0.01 to $0.06.

This was the seventh consecutive quarter with both revenue and earnings growth thanks to our streamlined operations, (inaudible) marketing strategies and upgraded product and service offerings. We are also starting to realize positive effects from our efforts to leverage management expertise across multiple properties in Colorado and Canada, especially in the areas of guest experience, marketing and promotions.

It's great to see that all the transactions we did last year, which include the acquisition of the Calgary casino, the investments we put into our two [Kraków] properties, the new agreement to manage a casino in Aruba as well as the additional (inaudible) casino contracts, all contributed to the expansion of our business and helped improve our overall results.

We currently operate more than 2,000 gaming machines and around 220 gaming tables in 24 casinos. While most of our properties also have hotel rooms and food and beverage outlets, 80% of our total revenue comes from the gaming activities, meaning slots and tables.

Looking at it geographically, 46% of total revenue was generated by our two properties in Canada, 45% by Colorado and the remaining 9% by the ship casinos in Aruba. On an EBITDA level, Canada contributed half of total EBITDA, Colorado 45% and the ships in Aruba, 5%.

I will now provide some highlights of each individual property. In Cripple Creek, Colorado, our net revenues climbed 17%. Adjusted EBITDA grew by 26% and net earnings by 57% due to a more efficient operation and higher margins on incremental revenue. EBITDA margin was 23%, up from the 21% in the third quarter of last year.

This was another very good performance overall, led by a 48% increase in table gains revenue. Slot coining increased by 8%.

The Century Casino and Hotel in Central City, Colorado, had a bit of a challenging quarter. Net revenues decreased by 2% and EBITDA was down 21%. Despite these two negative year-over-year comparisons, we are still seeing a very solid operation here with slot coining up 5% and table [draw] up 3%.

Two competitors have (inaudible) their products and also added new [slot machines]. The marketing landscape gets more aggressive in (inaudible) Central City, especially for the VIP customer segment. But we came off quite well as our casino was voted in second place as Denver's favorite casino behind only Ameristar.

Central City's streetscape project began construction on Main Street in July and (inaudible) the entire section of Main Street in front of our casino had been dug up with no street type access to our property [door]. This is more impact than originally estimated, but it will be finally finished in the next couple of weeks.

In Canada, the Century Casino Hotel in Edmonton showed 4% revenue growth and 8% increase in EBITDA in local currency. In US dollars, the increases were 11% and 14% respectively. Net earnings in US dollars climbed 49%. This is our last casino with 705 gaming machines and 35 gaming tables. (Inaudible) slot increased 4%. (Inaudible) table increased 7%.

Food and beverage revenue was up 2 -- 4% year over year. Efficiency programs and cost controls are working well, demonstrated by a strong EBITDA margin of 33%, which is also better than last year.

We continue to market and grow the Player's Club Royalty program and to market the showroom with live entertainment as well as the comedy club and various catering functions to drive traffic to the casino.

In Calgary, slowly but surely we get closer to where we want to be. Net revenues were up 17%, EBITDA up 201%. In US dollars, the increases were 25% and 207% respectively.

Three months ago we reported that we are having difficulties in realizing the potential of the table games market. Well, we initiated some changes there, introduced new games and put heavy focus on new customer service programs. So far this led to an increase in table revenue of 17% year over year, so we clearly are heading in the right direction.

Non-gaming revenue, mainly coming from food and beverage and bowling, was also up, driven by successful events and concerts and improved food quality and customer service. Especially towards the end of the quarter and also starting into the fourth quarter, we see further substantial improvements in the performance of Calgary. As one of only seven gaming facilities in the market and the reasonably strong economy in Alberta, we continue to believe that this property is well positioned to significantly contribute to our EBITDA and bottom line.

The 13 casinos we operate and manage on cruise ships and in Aruba saw revenues increase by 83% and EBITDA almost double. This was mainly due to more ship casinos in operation and the addition of the casino at the Radisson Resort in Aruba at the end of last year.

As mentioned earlier, this relatively small segment of our operations generates 9% of revenues and 5% of our total EBITDA.

Our equity investment in Casinos Poland, Limited, of which we own one-third, performed exceptionally well in the quarter. Revenues were up a strong 44% and EBITDA more than tripled, mainly driven by strong action from a few high rollers on the gaming tables during the quarter. In the current quarter, three licenses are up for renewal and the Company is also eyeing the one or other [efficient] licensing opportunity in the country.

With regard to the ownership situation, as already reported last year, our co-shareholders, LOT and the airport company have announced their intention to sell their shares to the Polish state-owned lottery company. We have requested more details of the proposed transaction in order to analyze our position concerning our right to first refusal.

Another prerequisite for any such transaction is our explicit consent to it. And again, we have requested more information so that we are in a position to decide if we can give our consent or not.

Last month saw general elections in Poland and even though this was the first time since the end of Communism that the incumbent won, it could still mean some high level management changes in government-owned entities as we have seen in the recent past. The timing of the resolution of the ownership situation of casinos, Poland is, as it has been for quite some time, quite difficult to predict.

Turning to the corporate picture, I'm pleased to report that our total debt decreased further. It is now down to $9.4 million as of the end of the third quarter. Current cash and cash equivalents totaled $21.3 million, resulting in a net cash position of $11.9 million.

The debt has a fixed interest rate of 7% and matures in December 2012. We have started negotiations to reduce the interest rate and possibly add a standby facility for a future project.

Net cash flow from operating activities increased 22% to $5.7 million in the quarter. Total cash CapEx in the quarter was about $0.5 million.

Looking ahead, I can tell you that we are off to a promising start in the fourth quarter. The results of the first nine months of this year and the good start in the fourth quarter make us feel optimistic. But in next year we'll see the opening of another cruise ship casino aboard Oceania Cruises' Riviera, their largest ship yet.

We have an internationally experienced management team, as most of you know, and we remain location flexible to undertake projects in any well regulated casino market worldwide. We continuously evaluate marketable opportunities on a (inaudible) basis and we are currently looking at these in North America, Europe and Asia. These [deals] include Greenfield Developments as well as possible acquisitions of existing, under-performing properties.

All right, as is our practice, I'm going to wrap up the summary with this and open the floor to questions. Operator, go ahead please.

(Operator Instructions) Todd Eilers with Roth Capital.

Hi guys, how are you?

Hi Todd. Thanks for being on the call.

Several questions, I guess wanted to start off with Calgary. Obviously, strong revenue growth there, but it seems like the margin's still kind of lagging a little bit relative to the strong revenue growth. At what point do you guys start to focus attention a little bit more on the margins at that property?

Todd, this is Erwin. We're right in the middle of it. As Peter said, it took a little longer than we wanted and than we anticipated but we see the change coming.

Okay, so it sounds like starting to focus a little bit more on that in the fourth quarter or should that be more of a 2012 --?

Already in the fourth quarter and it's really a top line end cost. It's growing revenue and controlling costs.

Okay. And then, let's see, Peter, you mentioned kind of current trends in the fourth quarter being strong. Can you maybe give us a sense for what the October kind of revenue trends might be by property or by market?

In Canada we see single-digit growth in Edmonton and double-digit growth in Calgary. In Colorado we see a stable situation if I combine the two properties and look at it year over year. And the ships in Aruba are up very strong, high double digits.

Okay.

That's all. That's the picture we have in front of us right now.

Okay, great. And then let's see, I wanted to ask a question regarding the Poland operations, obviously a very strong quarter there. I think you mentioned some high rollers. I don't know if it's possible to give us a sense for what that property might have done if you X out kind of the high end play there, but that might be helpful.

And then I thought in the queue you mentioned somewhere in the queue that you had won a new casino license. Can you maybe clarify if that was a new property that's going to be developed by Casinos Poland or if that was just moving an existing license to a new location?

First of all, the -- without those high rollers, the growth that was around 44% would probably have been cut in half, so it was still a very strong performance even without those high rollers.

And the license that you're referring is in a city called Sosnowiec and I believe we're going to open the first quarter next year.

Yes.

Yes, first quarter next year. It's a relatively small size operation but something that -- and it's a little bit of an untapped market in that area and we look forward to a late Q1 opening.

Okay, and then you mentioned kind of a bit of or some comments on the proposed sale of the other two-thirds of Casinos Poland to the state-run or the lottery in Poland. If you guys decide to approve that transaction, can you maybe give us a sense for what kind of the strategy would be after that? Is there a way to extract more value from that investment with respect to maybe a higher dividend payment or possibly return of capital? And/or would you even consider selling your stake if there's interest at that point?

Certainly the goal in those talks and going forward is to achieve a higher tangible return but whether it will come in the form of this or that is really too early to comment on.

Overall we are very happy with the market and are developing and I think it will be with the existing owners or if we increase ownership position or with new owners, overall situation is healthy and we believe it will get even better from here.

You also will recall the new gaming law that basically eliminates all slot machines outside of casinos, so over the next four years, so that certainly -- most of the things we see point to a positive future.

Okay, great. Thanks. And then one final question deals with kind of way to possibly enhance shareholder value. You guys have a very strong balance sheet, got even better this quarter. You're under-levered at about I guess less than one times on an EBITDA basis, and that seems to be going lower as well. I suspect you don't have any major CapEx plans unless there's a new acquisition or something like that.

Can you maybe talk us through kind of your thought process at this point? It would seem that there might be a few options to kind of drive some additional shareholder value, whether that be establish a dividend or possibly even buying -- doing some sort of tender offer for a meaningful amount of shares outstanding. Can you maybe just talk a little bit about that?

Yes, Todd. What we have on the table is basically three options and one is dividend payment. The other one is a significant share buyback which we have options on the table. And the third one is upgrade from historically what we've been able to do is find attractive investment opportunities where we then can apply our managed -- casino management expertise.

And we have a few interesting projects on the table. I believe that there will be some decision in Q1 which way to go, but as long as we find attractive casino investment opportunities, this is pretty much the preferred route to go. If we stop seeing those opportunities coming, certainly one of the other two alternatives will jump to the top of the list.

Okay, great. Thanks guys.

Thanks Todd.

(Operator Instructions) There are no more questions at this time.

Great. Well thank you 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 cnty.com.

Thank you.

This concludes today's conference call. Thank you for attending.