Century Casinos Inc (CNTY) 2012 Q1 法說會逐字稿

Welcome to Century Casinos' Q1 2012 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, Clint. 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 first quarter 2012 earnings last Friday. With me on the call today are Erwin Haitzmann, Chairman and Co-CEO of the Company; and Margaret Stapleton, Executive Vice President of Finance.

Before we begin, let me 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 pressures to the appropriate GAAP measures can be found in our news release and in our 10-K and 10-Q filings. All of which are available in the Investor Section of our website at CNTY.com.

Remarkably, this quarter was the ninth consecutive quarter with revenue and net earnings growth. We managed to increase revenues by 3% and adjusted EBITDA at 9% year-over-year. Earnings from operations doubled. Net earnings tripled. Earnings per share jumped from $0.02 to $0.05. Our balance sheet, which is one of the healthiest in the US casino industry, shows $22.9 million in cash and cash equivalents and only $6.7 million in third-party debt, resulting in a net cash position of $16.2 million or approximately $0.67 per share as of March 31, 2012.

Excluding the Polish operations, which we do not consolidate, 50% of our revenue is being generated in Canada and the other 50% by the Colorado operations and the cruise ship casinos. In the EBITDA level, 56% comes from Canada, and the balance of 44% of total EBITDA is contributed by Colorado and the cruise ship casinos. In the quarter, we continued to make progress across the organization in enhancing operating efficiencies and maintaining a disciplined approach to marketing. Our approximately 1,600 staff, and that number includes Poland, did a great job and deserve a big thank you. With 32 different nationalities and the male/female ratio 49% to 51%, it's a great mix of experienced people that help us continue our growth and expansion plans.

I'll now highlight the quarterly results of each individual property. In Canada, the Century Casino & Hotel in Edmonton showed 5% revenue growth, but EBITDA was flat year-over-year, due to higher marketing expenses. This is our largest casino, with 726 gaming machines and 34 gaming tables. Slot coining increased 12% during the quarter. Table drop increased 4%. Hotel and S&P revenue was up too, 9% year-over-year, driven by higher occupancy rates and higher sales in the deli and the comedy club. As announced in our last conference call, 20 new slots have been added to the gaming floor, increasing capacity by about 3%.

In Calgary, we managed to grow EBITDA by 162%. Slot coining was up 6%, and table drop increased by 28%, but that is still not satisfactory. We plan another round of improvements to the gaming floor, and we focus on driving revenues even more aggressively. At the beginning of March, we opened a poker room that's open 24 hours, and we have introduced the regular weekly poker tournaments. We also introduced a link progressive side bet to the existing Automat Texas Hold 'Em tables. 44 slot machine conversions and swaps have been completed. We continue to market and grow the Players' Club loyalty program and market the showroom with live entertainment, events, and concerts and various gaming functions to drive traffic to the casino.

Our Century Casino entertainment in Central City, Colorado, had a solid quarter. Net revenues increased by 3%, EBITDA by 2%, and net earnings almost doubled due to lower interest and depreciation expenses. Both table and slot revenue was up, as was S&P revenue, offset by higher expenses for Players' Club points and complimentaries. We've continued to concentrate on maximizing marketing and promotional opportunities by keeping internal efficiencies on a high level. During the current quarter, we will paint the exterior of the building and refurbish some hotel rooms. Initial starts for the current quarter indicate a pattern similar to what we have seen in the first.

In Cripple Creek, Colorado, net revenues increased by 2%, while EBITDA was flat. This was an okay performance. Table drop went up 13%, but slot coining and slot revenue were essentially flat year-over-year. Hotel and S&P revenues were up, benefiting from slightly increased sales prices. The new smoking area has been completed, and we have also introduced 14 new slot games during the quarter. Our marketing and promotions strategy focuses strongly on weekend promotions, when customer volumes are highest.

The 13 casinos we operate and manage on cruise ships in Aruba saw revenues and net earnings increase by 7%. Just this past weekend, we opened a new shipboard casino on the newest vessel of Oceania Cruises, the Riviera. This is the largest vessel of the Oceania Cruises' fleet and also our largest casino at sea, and we look forward to strong contributions to top and bottom line, pretty much from the get-go. Overall, this relatively small segment of our operations generates 9% of our revenue and 6% of the Company's total EBITDA.

Our equity investment in Casinos Poland Limited, of which we own one-third, performed very well in the quarter, with an EBITDA increase of 21%. Net earnings were up 88%. While slot revenue decreased slightly, the gaming tables performed very strong in the quarter, especially in our operation --

Mr. Hoetzinger's line has dropped. We'll wait for him to join again. Mr. Hoetzinger has rejoined.

Yes, I was talking about our Casinos Poland's performance, which was very good in the quarter. EBITDA was up 21%, and net earnings were up 88%. This was driven mostly by the gaming tables, which had a very strong performance, especially in our operation in the capital city of Warsaw. On the ownership front, there's no news to report with regard to the ownership situation. So, it is still one-third Century Casinos, one-third LOT Polish Airline, one-third Polish Airport Authority.

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 finally conclude and announce a new credit agreement very shortly. Corporate expenses decreased by another 1% in the quarter, driven by cost savings in payroll and stock compensation, partially offset by an increase in income tax expenses. Total cash CapEx in the quarter was $644,000 or approximately 4% of revenues, spent mainly on capital projects such as the poker room in Calgary and gaming equipment for the new ship casino, as well as new carpet and equipment in Edmonton. Again, cash and cash equivalents totaled $22.9 million, debt $6.7 million, net cash position $16.2 million.

With our internationally experienced Management team, we remain location flexible to undertake projects in any well-regulated casino market worldwide. We continuously evaluate market opportunities, and we are currently negotiating deals in North America, Europe, and Southeast Asia. This includes greenfield developments, as well as acquisitions of existing properties. We are also looking to various other ways to return value to our shareholders, should no new deals materialize this year. That concludes our summary of the first quarter results, and I will now open the floor to questions. Operator, go ahead, please.

Absolutely. Ladies and gentlemen, at this time, we will conduct a question-and-answer session. (Operator Instructions). Our first question comes from the site of Todd Eilers with ROTH Capital. Go ahead. Your line is open.

Hi, guys. Good morning. Just a couple questions. First off, Peter, in your comments regarding the Calgary property, you mentioned some additional improvements, I believe, to the casino. Can you maybe talk a little bit more about what your plans include? And then, it sounds like the focus is still more on driving revenue growth at the property versus margin expansion. Is that a fair take on that, that situation?

Erwin, can you come in, please?

Yes. Hi, Todd. This is Erwin. Yes, we still -- well, first of all, the additional improvements we're going to make is we are relocating one set of rest rooms to improve the flow on the casino floor, and we have got approval from the [HLC]. We're about to get started, so we'll do that rather quickly, with minimum interruption to the gaming floor and to the business. And it -- as I'd say, it should improve just the experience on the floor and get two rooms together that have not been together as well as were in the past. And with regard to -- yes it is correct -- to your other question, it's correct that we focus on driving revenue. We think we have to get the revenues up in order to get the numbers where we want them to be. Saving -- we think that we saved as much as we can save, and everything further would not be beneficial to the business.

Okay. And then, do you plan any sort of, I guess, special marketing or promotions or anything like that, I guess, above and beyond maybe what you have been doing the last couple of quarters? And then also, with respect to Calgary, should we see the same sort of seasonal patterns that we see at the Edmonton property as well?

Yes, you should see similar seasonal patterns like in Edmonton. And yes, we are having lots of marketing sessions where we are discussing and deciding upon which new measures to take and to try out. In essence, it's a little bit of a trial and error, and some work well, others do not work so well. And we just have to plod through them until we find the right mix. One of the things we recently did is we opened, in connection with opening a poker room, we had on one weekend a Playboy model there who was giving signatures, who was playing one on one with guests, and this was one thing that was very well received and people liked it. But by all means, we are trying out new things and keep going until we are where we want to be. We still are very bullish about this casino. It just takes longer than we wanted it to take, but all the ingredients are there to make it successful.

Okay, great. And then just one final question, I guess. Just -- Peter, I think in your comments, you mentioned seeing similar trends, I believe, at the Central City property, in the -- in April relative to the first quarter. Can you maybe talk a little bit more about just trends at both of the Colorado casinos, as well as maybe the Canadian casinos also? I mean, should we -- relative to Colorado, is it kind of low single-digit growth there, or may we see something a little bit better? And then in Canada, just be curious to kind of get your take on April as well.

We are seeing similar, similar results. It's a little bit early into the quarter, but for April, it is similar to Q1, pretty much with all the properties.

Okay. All right. That's helpful. Thanks, guys.

Thanks, Todd.

Thank you.

(Operator Instructions). We'll go next to the line of Russ Silvestri with SKIRITAI Capital. Go ahead. Your line is open.

Great. Good morning. Can you hear me?

Yes. Hi, Russ.

Hi, Peter. Couple questions. First of all, why is depreciation heading lower?

Peggy, can you come in?

I can. Our Central City location has been open for five years now, so a lot of the slot equipment has a five-year life, and that has rolled off. Also, our SAP system has now hit the end of its life in depreciation as well.

So is this -- is this number going forward, is this what we should anticipate for the rest of the year?

Yes, you should.

Okay. And then looking at the business, the last few years, the EBITDA margin's been able to be expanded year-over-year. And in order for that to happen going forward, what has to happen or what needs to be maintained to maintain that experience? And if you have a target operating margin where you think it's as good as it gets, I would be curious to know that number.

Well, Russ, we still see great potential in same-store sales growth, and we drive an overproportion of the percentage of the incremental revenue to the EBITDA line. We -- that's good for all the properties, and especially for Calgary. We think that there is a potential there to substantially increase EBITDA margins. At the moment, it's approximately -- like in first quarter, it was around 10%, whereas in Edmonton, it's over 30%. Now, we will not be at 30% very, very soon, but certainly, we'll be on our way to one day reach there, and that will substantially drive the overall Company's margin.

In Calgary, is there anything happening competitively that's causing the market to grow slower or faster, or you guys to lose share? How do you measure that?

The market in essence is not growing any faster or slower than in the past. We still have to capture more of the market share.

Okay. Also, the tax rate, it looks like it's a little closer to 20% than 30%. Just trying to think about modeling that going forward. Can you help me understand what causes it to be closer to 20% or what causes it to be closer to 30%?

Peggy, please?

The tax rate's running about 20%, based on some losses in Calgary which offset the gains in Edmonton. The US is running -- probably will be cash tax profitable this year, so the rate may go up based on that. Otherwise, the rate's based on the whole international scheme, which we have a 3% rate in Mauritius.

Okay. And my last question is, Insignia was a ship that you lost, but you gained another one. Can you tell me what the relative size was and why Insignia ended the relationship with you?

The Insignia is part of the Oceania Cruises fleet. And we didn't lose it, it was just that the cruise line leased the entire ship to a German to operate for, I guess, a couple of years. And our contract is still in place, and our overall concession agreement with that cruise line, Oceania Cruises, is in place and well alive. The Insignia had a capacity of around 600 passengers and was, I think, around a 15-year-old ship or so. And the Riviera, which opened this weekend, holds -- has a capacity of double that, 1,200 people, is of a totally different class, absolute upscale wonderful ship, with much higher daily rates and revenue potential, not only for the cruise line, but also for us.

Okay, great. Actually, I missed one of my questions. Just in terms of your debt paydown, what's preventing you from using your net cash position to eliminate the debt? Obviously, that's the interest income versus interest expense, is not adding to your earnings.

Yes, there's a -- the current facility expires in December of this year, and any early repayment triggers a pre-payment penalty. And while we may consider to pay off -- we -- the plan is to pay it off once we have secured the new financing. But paying it off without having the new financing in place would just trigger this penalty for few hundred thousand in cash that would also hit the income statement right away.

So you expect to have the new financing line in place in this quarter?

That's our expectation, yes.

Okay, great. Thank you.

Thanks, Russ.

(Operator Instructions). We'll go next to the site of Ryan Worst with Brean Murray. Go ahead. Your line is open.

Good morning. Hi, Peter and Erwin. Just one question, really, Peter. I was wondering if you could shed any light on the type of new opportunities you're looking at. Are they going to be similar in size to what you've done in the past? And are they acquisitions or greenfield? And anything on timing as to when you're looking to maybe complete those? Or if not, do something with your balance sheet and kind of returning cash to shareholders?

Yes, Ryan, we are talking at the moment about two very, very concrete deals that are on the table that we are not only looking at but already in negotiations, one in North America, one in Southeast Asia. One, a greenfield development. One will be an existing operation. Size is in the high single digits or low teens, so roughly between 5 and 12 each. And we would be disappointed if we couldn't announce at least one in the next -- within the next two quarters.

Okay, great. That's helpful. Thanks, Peter.

Thanks, Ryan.

Thanks, Ryan.

There are no further questions. I'll go ahead and turn it back over to you for closing remarks.

Very well. Thank you, 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 CNTY.com. Thank you.

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