Century Casinos Inc (CNTY) 2011 Q4 法說會逐字稿

Good day. Welcome to Century Casinos, Inc., quarter 4 and year-end 2011 earnings conference call. This call will be recorded. At this time, all participants are in a listen-only mode, and later we will have a question-and-answer session. At this time I'd like to introduce our host for today's call, Mr. Peter Hoetzinger. You may begin, sir.

Thank you. Good morning, everyone in North America; and good afternoon to all our European listeners. I'm happy to have all of you join us for this call, following the release of our fourth-quarter and full-year 2011 earnings a couple of hours ago. With me on the call today are Erwin Haitzmann, co-CEO and Chairman 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 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-K and 10-Q filings, all of which are available in the investor section of our website at CNTY.com.

2011 was an excellent year for Century Casinos. We managed to increase revenues by 17% and adjusted EBITDA by 35% year-over-year. Earnings from operations quadrupled and net earnings tripled. Earnings per share jumped from $0.04 to $0.13 for the year.

We've also been successful in further strengthening our balance sheet, which is one of the healthiest in the US casino industry with more cash than debt. As of December 31, 2011, our cash and cash equivalents amounted to $25.2 million. Our total, third-party debt was $9.1 million, resulting in a net cash position of $16.1 million or approximately $0.67 per share.

2011 was also successful from an operations point of view, as the eight casinos we've added in the prior year, that was Calgary, Aruba and six shipboard casinos, have been very well integrated and all have started to contribute positively to EBITDA and net earnings. We continued to make progress across the organization in enhancing operating efficiencies and maintaining a disciplined approach to marketing.

Throughout the year, because of our upgraded product and service offerings, customer spending improved despite widespread economic concerns and volatility in the capital market. And thanks to our streamline operations and profitable marketing strategies, we managed to bring a high percentage of these incremental revenues to the bottom line. With substantial cash flow being generated from our current operations, we continue to actively monitor and manage our capital structure, which provides us with the financial flexibility to leverage our balance sheet for further growth in domestic and international gaming opportunities.

Excluding the Polish operations, which we do not consolidate, half of our revenue was generated in Canada and the other half by Colorado and the cruise ship casinos. On the EBITDA level, 62% came from Canada, as we saw Calgary increase its share from just 2% in Q3 '11 to 15% in Q4, and the balance of 38% of total EBITDA was contributed by Colorado and the cruise ship casinos. Looking at the fourth-quarter results, overall revenue increased by 13% and adjusted EBITDA by 70%.

I will now highlight the quarterly results in more detail, property by property. In Canada, our Century Casino & Hotel in Edmonton showed 8% revenue growth and also an 8% increase in EBITDA. This is our largest casino with 706 gaming machines and 35 gaming tables. Slot coining increased 13% during quarter, and win-per-slot, per day increased 11% to [275] Canadian. Win-per-table per day also increased by 4%. S&P revenue was up too, 8% year-over-year, driven by highly sales in the deli and the comedy club.

During the quarter, 54 slot swaps and conversions have been done and a second Ultimate Texas Holdem game has been introduced. In the first half of this year, 20 new slots will be added to the gaming floor, increasing capacity by 3%. And so far, the first quarter of 2012 started out very well, continuing the upward trend that we saw last year.

In Calgary, slowly but surely we are getting closer to where we want to be. Net revenues were up 20%. EBITDA was up 257% to over $300,000 in the quarter. The revenue increase was driven by all sectors from tables to slots as well as S&P and showroom event sales. After 51 slot installs and conversions have been done in Q4, this first quarter of 2012 brings further changes and improvements. Earlier this month, we opened a new, 24-hour poker room and we also added a Progressive to the existing Texas Holdem game. This property too had a great start in 2012, continuing the growth rates we saw in recent quarters. We continue to market and grow a Players' Club Loyalty program and to market the showroom with live entertainment, events and concerts and various catering functions to drive traffic to the casino.

The Century Casino & Hotel in Central City, Colorado, had a relatively modest quarter. Net revenue increased by 4%. EBITDA was down 3%. However, net earnings almost tripled due to much lower interest and depreciation expenses. Both Table and Slot revenue was up, as was S&P and Hotel revenue, but higher expenses for Players' Club points and complimentaries, as well as for property taxes and utilities lead to the slight decline in EBITDA. The town of Central City also had a power outage for two days during the quarter, hurting revenue and expenses. We've continued to concentrate on maximizing marketing and promotional opportunities by keeping internal efficiencies on a high level. Initial sales for the current quarter indicated patterns similar to what we have seen at the end of last year.

In Cripple Creek, Colorado, our net revenues climbed 9% in the quarter. EBITDA grew 11% and net earnings by 158% due to a more efficient operation and higher margins on the incremental revenue. This was another very good performance by Cripple Creek, lead by an 18% increase in Table Games revenue. We've started our refurbishment program for the hotel rooms, and we'll also upgrade the smoking shelter to provide more convenience for our customers. At the beginning of this year, we had a few weekends challenged by bad weather, but the results hold up reasonably well.

The 13 casinos we operate and manage on cruise ships and in Aruba saw revenues increase by 71% and EBITDA quadruple. This was mainly due to more ship casinos in operation and the additional of the casino at the Radisson Resort in Aruba at the end of 2010. This relatively small segment of our operations generated 10% of the Company's revenues and 7% of our total EBITDA. In early May, we will open the casino on Oceania Cruises' newest ship, the Riviera. Together with our casino operation on its sister ship Marina, this will be our largest casino at sea; and we look forward to strong contributions to top and bottom line pretty much from the get-go.

Our equity investment in Casinos Poland Limited, of which we own one-third, performed okay in the quarter. Revenues were flat year-over-year, but the turbulent situation with regard to new license applications created [have and unexpected] expenses. As a result, EBITDA was down 25%. For the entire year, however, revenues increased by 9% and net earnings increased by 10%. In 2011, we recorded $600,000 of income from this investment, which we carry on our books at the value of $2.8 million.

Turning to the Corporate section. I'm pleased to report very good progress regarding the refinancing and restructuring of our debt. We anticipate being able to conclude an agreement with a well-known financial institution in the second quarter, providing for more flexibility, higher limit, and last but not least, a substantial reduction in the interest rate.

Corporate expenses decreased by 1% in the quarter. Total cash CapEx in the quarter was $736,000, pretty much equally spread between building improvements, furniture and equipment, and gaming and computer equipment. For the entire year 2011, total cash CapEx was $2.8 million, or about 4% of revenues, of which 30% has been spent on gaming equipment. Net cash flow from operating activities for the year decreased 57% to $10.7 million. Book value per share as of December 31 was $4.71.

Looking ahead, I can tell you that we are off to a very promising start in the first quarter, with indications for a great bottom line growth. We have an international, experienced, Management team and remain location-flexible to undertake projects in any well-regulated, casino market worldwide. We continuously evaluate market opportunities on a global basis. Currently we're looking at things in North America and Europe and Southeast Asia. These include [green pre-developments] as well as possible acquisitions of existing, underperforming properties.

We would also look into various ways to return value to our shareholders should no new things materialize in the near future. With that, as is our practice, I open the floor for questions. Operator, go ahead, please.

Thank you. (Operator Instructions) We'll take our first question from Russ Silvestri with SKIRITAI Capital. Your line is open. Please go ahead.

I had a question, when you look at 2012, and you look at your CapEx needs, I was trying to get a better understanding of that versus this last year where your CapEx was around $2.8 million. And I'm trying to get a little better grip of that and just trying to reconcile it with the overall cash from operations and CapEx needs and excess cash the Company seems to be generating and the like.

Russ, we believe that CapEx will stay at the 4% to 5% range of revenues. We don't see any dramatic change from that.

And then you may have said this on the call, but what prevents you guys from paying off your debt?

We have in the agreement with the bank, we have provision that allows us to pay off $2 million per year without any penalty; and that's what we have done for the last couple of years, including this year. Paying off the rest carries the penalty, but once we are done with concluding a deal with a new bank, then we'll calculate again, and then decide perhaps to pay it off in advance of the expiration date.

Okay.

Of course, the penalty decreases over time obviously.

Okay. It just seems you have all of the cash and the cash that you have on the balance sheet is generating less income than the expense of the debt that you have. It just seems like a total waste of money, but --.

It carries a penalty, so we have to be monitoring it carefully.

Okay, and then just looking at the Calgary EBITDA, it seems to be a little bit less than the rest of the business. What can you do to get the Calgary EBITDA margins up to the rest of the Company? Is it possible?

We believe so. The Calgary market also has a similar potential compared to Edmonton. It has the same number of casinos, but it's more challenging, because when we took over the property, it was really in bad shape, had a bad reputation, so it's a struggle. But quarter after quarter, we are improving; and I'd also like to ask Erwin to add to that.

Hi, Russ, this is Erwin. I hate to say, it's a little bit -- the battle is a little longer than anticipated, but we are making significant and very visible process from quarter to quarter. Just recently we have opened up a poker room, and signs are positive that this will go well, and we are now also probably doing one last, little step of modification with regard to the floor layout. Not yet visible, but everything is well underway. We are still very positive that we'll get it up to comparable numbers.

And last question, seasonality in Calgary, is it calendar or the middle part of the year better than, I would imagine, the first and fourth quarter?

Not necessarily so. The seasonality is not strong there.

Okay. Thank you.

(Operator Instructions) We'll go next to Peter [Carmack], who is a private investor.

Good morning, guys. Quick question for you. I know you mentioned briefly about the idea of returning some capital to shareholders here. You've got this share repurchase program that's in place that still has $14.7 million available and net cash of $16 million. Why aren't we -- you didn't repurchase anything during the last calendar year. Why aren't we going to be addressing that a little bit more aggressively as we go into 2012 here, given what the debt situation looks like and the apparent free cash flow that we're generating ongoing?

We are at the moment working on various things that are pretty close to being finalized and we need to keep some firing power for that. At the same time, we are considering to use the cash that we have available either for share buyback and/or for a dividend payment, should the deals that require substantial amounts of money not materialize very soon. So you'll see us do something, but it's too early for us to say whether it will be this or that.

Okay, just to follow-up on that, I would assume that there's going to be a pretty high hurdle from an IRR standpoint as it relates to the potential deals, because you guys have a tangible book value that's at $4.50, stock's at $3.00, so you're at two-thirds tangible book, and you're buying back something that you're intimately familiar with as opposed to something that's an unknown. Can you talk to the hurdle that you're looking at as it relates to new potential deals?

No, Peter, we are not making those decision parameters public, but it depends on which market we are going into. If it's a new market with great growth potential then the hurdle might be a little bit lower. If it's a mature market, then obviously it would be much higher, but it's a little bit too early to say.

Okay. Appreciate your help.

Thanks, Peter.

I show we have no further questions in queue at this time. I'll turn it back to Mr. Peter Hoetzinger for any closing remarks.

Thanks, 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 CNTY.com. Thank you.

This concludes today's conference call. Thank you for attending. You may disconnect at this time. Have a wonderful day.