Century Casinos Inc (CNTY) 2023 Q4 法說會逐字稿

Good day, everyone, and welcome to today's Century Casinos Q4 2023 earnings call. (Operator Instructions) Please note that this call is being recorded and I will be standing by should you need any assistance.

It is now my pleasure to turn the conference over to Peter Hoetzinger. Please go ahead.

Good day, everyone, and thank you for joining our earnings call. We would like to remind you that we will be discussing forward-looking information, which involves risks and uncertainties that may cause actual results to differ 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 discussion of the risk factors in our SEC filings and encourage you to review these filings.

From our call, we refer to several non-GAAP financial measures, including but not limited to adjusted EBITDA. Reconciliations of our non-GAAP measures to the appropriate GAAP measures can be found in our news releases and SEC filings available in the Investor section of our website at cnty.com.

I will now provide an overview of the fourth-quarter 2023 results, as well as our view of how this and next year could evolve after that. My Co-CEO, Erwin Haitzmann; and our CFO, Margaret Stapleton will join me for a Q&A session.

For the quarter, we delivered net revenue of $144 million, an increase of 39% over Q4 of last year. The increase came from the additions of the market in Nevada and Rocky Gap in Maryland, as well as good performances of our Canadian operations, offset by weaker retail customer, construction disruption at a few properties, and the temporary closures of three casinos in Poland.

Adjusted EBITDA was $25 million, up 17% over last year. Canada grew EBITDA by 50%, while Poland obviously saw a substantial decline. We did, like everyone else in regional casinos, experienced market softness during the back half of 2023, especially at the lower end of our customer database and in the retail segment. Coupled with higher costs and expenses across the board, margins suffered quite a bit.

We are in a transitional period and also in a transitional process at our company with lots going on at the same time. Our local management teams carry extra burden with two major construction projects in Missouri, as well as the integration of Nugget and Rocky Gap.

Remember, we acquired Nugget and Rocky Gap less than a year ago, meaning we are still early in the process of managing everything as one cohesive portfolio. Considering all that, it was a solid operating performance in the fourth quarter and full year of 2023 with strong growth prospects going forward.

Looking at segment results for the quarter, let's start with the Midwest, which includes our Colorado and Missouri operations. Revenue was up 8% year over year. EBITDA was up 5%.

In Colorado, the results of our Cripple Creek property were flat year over year. The one in Central City was down a bit because the major roadworks on both highways that lead to Central City from the main feeder market. In Cripple Creek, a competing property opened across the street from our casino right after Christmas, but now they have their 300 rooms open as well as some of the B outlets.

January saw a 17% increase in gaming revenue for the entire Cripple Creek market. We grew by 14%, an early indication that we benefit from the hotel rooms and our proximity to their property. In Missouri, both properties posted revenue and EBITDA growth as well as better operating margins than in Q4 a year ago, a strong and encouraging result considering construction going on at both locations.

The number of trips of our top-tier segments increased meaningfully during the quarter, while the gross spend per trip was flat. In Caruthersville, construction of the new land-based hotel and casino is progressing according to budget and schedule. We plan to open in Q4 of this year. The new property will have a total of 74 hotel rooms, 12 gaming tables, and over 600 slot machines, which is a 20% increase in gaming positions compared to the old riverboat and a 50% increase in gaming positions compared to our current interim casino.

Most importantly, the new property will provide significant operational efficiencies. It will be much more convenient for our customers and it will increase our catchment area. We are more excited than ever about this permanent move to land based. What we see now as we operate in a small temporary pavilion is very encouraging.

The number of trips increased and so did the spend per trip. So we really can't wait until the new facility to be opened in just about eight months now. That project is fully funded by VICI at an 8% cap rate. Hence, it does not impact our liquidity position.

The hotel construction in Cape Girardeau is also on budget and on time, and I'm very excited about the grand opening in three weeks from today on April 4. It will be great to see how adding a hotel will transform that property into a full resort destination offering gaming, dining, conferences, concerts, and more.

Total project cost of $31 million, and we fund that with cash on hand. As of December 31, we had spent approximately $23 million already. The balance of $8 million will be spent in the first half of this year.

Our East segment includes the Mountaineer Casino Resort & Races in West Virginia and the newly acquired Rocky Gap Resort and Golf in Maryland. Because of that new acquisition, revenue of the segment was up 44%. EBITDA more than doubled. At Mountaineer, hours of operation for the casino, available hotel rooms, and food outlets are still limited as a result of continued staffing challenges. However, our participation in the J-1 visa program has greatly assisted us in improving our offerings.

Slot coin-in was flat in Q4. Table games continued to be impacted versus prior year, which we believe is still due to sports betting in Ohio. You should get a better picture of that going into the first and second quarters of this year, as we have just had the anniversary of Ohio sports betting.

We plan to further enhance our entertainment offerings throughout the year to further diversify our portfolio, giving our guests more reasons to choose us for their entertainment. As an example, we recently had a very successful MMA boxing event in our ballroom there.

Rocky Gap experienced small growth coming to the upper end of the database, offset by declines in the lower tiers. From an age standpoint, the oldest and youngest demographics increased by the larger portion of the database to just 40 to 70 decreased a bit.

We plan to put strong focus on player development in the major feeder markets like Baltimore, Pittsburgh, and Washington, DC with the goal to migrate players to higher tiers and grow the overall database. As most of you know, Rocky Gap sits at a beautiful lake in Rocky Gap State Park. But up to now, the property did not have beach access for its customers.

And recently, we got approval to develop a nice beach area, and we'll make sure we have it ready for our customers before this summer. It will be another great amenity that will help drive additional FIT and resort travel to the property and will also allow us to increase resort fees.

Continuing to the West segment, which includes Nugget Casino in Nevada. The Nugget saw mixed results during the quarter compared to prior year. Overall, the number of trips to the casino decreased 30% per trip with all declines coming from the lower-level customers.

The top of the database was very healthy as theoretical win increased by 20%. From an age standpoint, the under-50 segment grew, with [CO] win increasing by 10%, while the 50-plus demographic decreased by 3%. We're optimistic that the second half of this year will be strong than most of their transition extraordinary expenses, as well as most project CapEx will be behind us.

We have replaced a few key executive team members and some positions left the Nugget right after the sale closed last year, which led to a somewhat challenging initial period. The team now is in great shape and is working on remodeling three restaurants and bars and is also getting ready to upgrade the sportsbook. In addition, a new high-limit slot area will be going in. All of these high ROIC growth project will be completed this summer.

On the marketing side, we expect to go live with new marketing kiosks along with a new marketing component of our loyalty player tracking system also before the summer.

The Reno-Sparks market is known as a player-friendly value market. So we want that improved flexibility with direct mail campaigns and improved marketing programs. Renovations of the facade and signage are done already. And it really looks great. Also, our entertainment and special events calendar is coming together nicely and points to a very busy summer season.

In the Canadian segment, our four properties in Edmonton, Calgary, saw revenue growth by 17% and EBITDA was up a very strong 50% in the quarter. All four were up in slot revenue, table revenue, as well as in EBITDA.

Access to our Century Casino and Hotel in Edmonton continues to be impacted by road construction, which will continue through April. The new sports brand launched at that property is driving traffic and F&B sales and also awareness in the community, especially now that the Edmonton Oilers are performing better. So overall, a very promising performance in Canada.

To round out our segments, a quick look at Europe at our operations in Poland. The recent national elections triggered unanticipated licensing delays for three of our casinos, which caused quarter results to decrease materially compared to the year before.

However, earlier this year, we were awarded all three licenses again, and we reopened one casino in February already. We anticipate reopening the second next week and the final one, which is the biggest of the three, in a new location in third quarter of this year.

So from about August on, we'll have all eight casinos in full operation again. And that should also give M&A discussions a boost. Still, our goal is to sell our Polish operations.

With that, let's discuss our balance sheet and liquidity position. Our book value per share is $4. As of December 31, we had $171 million in cash and cash equivalents and $347 million in outstanding debt. Net debt is down to $176 million.

As a result, traditional net leverage is 2.7 times and lease-adjusted net leverage is now 4.9 times. We are okay with our leverage as we don't charge our leverage, just based on a one-time snapshot. I'd rather look at its development over a period of time. The leverage is elevated because of our recent significant acquisitions and investments. It will stay above the long-term range until we have fully integrated the acquisitions and until we have completed our CapEx projects later this summer around the third quarter. From then on, it should lower down to closer to 2 times traditional and 4 times lease-adjusted next year.

Our lease obligations to VICI currently total approximately $15 million per quarter. Once we open the new land-based facility in Colorado sale towards the end of this year, it will go up by approximately $1 million per quarter. So as a rough run rate for next year, for 2025, total lease payments to VICI will be around $16 million per quarter.

Interest payments on our term loan B currently amount around $10 million per quarter. Please note that we have no near term debt maturities. It matures in 2029, and we have additional borrowing capacity of $30 million under our revolver. We can reprice or refinance the entire term loan at any time without penalty. So as soon as the window opens, we want to act on it and improve our turns.

As far our CapEx plans for this year, we are now planning to invest a total of between $35 million and $40 million into our properties, and that includes normal maintenance and replacement CapEx, as well as the improvements at the market and in Canada and finishing the hotel in Cape Girardeau.

All of these growth projects will help position our casinos for high-value customers, and we deliver attractive returns on capital to drive growth in our segments. This elevated CapEx cycle will be completed between now and late summer. What's left then is the big move to land based in Caruthersville, but that is fully funded by VICI. So by late summer, we will see significant reduction in CapEx as we move forward.

Free cash flow should be improving substantially, both from revenue growth due to the improved facilities and a better customer experience and from a reduction in CapEx and perhaps you'll see a first reduction in interest rates by then.

But then again, we are in transitory period right now, but we had a clear plan to fully focus on generating cash to deleverage and opportunistically also buy back stock later this year and next. We are fully focused on the projects that we have underway and are really looking forward to the end of this current intense CapEx cycle.

In our view, the third quarter of this year will present kind of an inflection point for free cash flow generation, given the rolling off of the CapEx projects. Thinking about our performance in operations this year, as we look forward now, mid-January and early February were terrible from a weather standpoint.

I think that's well understood across the markets in a span of three to four weeks, most of the regional operators were significantly impacted by weather. So we, as everybody else started in January whole, as a way to put it.

In mid-February, weather was more back to normal. And you see that customer trends over the past few weeks have rebounded to fourth-quarter levels. We continue to keep a close eye on consumer spending patterns and general economic conditions for impacts on our casino and resort customers.

To share our outlook with you, with all properties being in great shape in 2025, we see us approaching $700 million in revenue and 2025, EBITDA margins into the 24% to 25% range. Our CapEx in 2025 should come in at approximately $20 million to $25 million.

Operationally, we are proactive, assessing every aspect of our properties, striving for cost reductions and enhanced efficiencies. In closing, I want to reiterate our enthusiasm for the second half of this year and for next year. From the third quarter on and certainly 2025, results and free cash flow should improve significantly for these reasons.

Q3 of this year will mark the end of our elevated CapEx cycle. By then, the Nugget and Rocky Gap acquisitions will be fully integrated. Everything will be operated as one cohesive portfolio. Also, in Q3, all casinos in Poland will be up and running again.

Then in Q4, we'll open a brand new land-based facility in Caruthersville. And from then on, we'll have normal construction disruption and all properties and operations across the entire portfolio are in the best shape.

The only other point I'm going to make is that from a guidance perspective, as mentioned earlier, last year, we had softness in the second half. We think that's an opportunity in the second half of this year since that comp is going to be a little easier to meet.

And that concludes our prepared remarks. We'll now open the call for Q&A. Operator, go ahead, please.

Thank you. (Operator Instructions)

Jeff Stantial, Stifel.

Great. Good morning, Peter, Erwin, and Margaret. Thanks for taking our questions. Maybe starting off here on the US business. Peter, you talked about broad-based softening in the low-income consumer, which started midway through 2023.

Can you just expand a bit more on how that's trended directionally? Has the low-income consumer worsen, stayed mostly stable? And then for the more mid- to high-worth segments, have you noticed any changes in behavior here sequentially across any of your markets? Thanks.

Okay. This is Erwin. I'll take that question. I think we have to look at it on from a market by market. It differs a little bit. In East, our customers are visiting our properties softness before. They spend slightly less per visit.

Visitation declined in Rocky Gap and in Mountaineer. And the unique customer count decreased accordingly. For Mountaineer, spend trip is flat. And for Rocky Gap, it's up. In Missouri, our customers are healthy. They visit more often; they spend same as last year.

Colorado visitation is also the same. People spend slightly less. The middle and lower tiers drives our business in Colorado. And in the market overall, visitation is slightly down; unique patron count is flat.

The younger demographic under 30 years of age increased by 26%, which is interesting. And spend per trip is flat. Overall, we don't think that inflation at this point in time needs to be a major concern for us.

Okay, great. Thanks for all the granularity around it. And then for my follow-up, turning to the Canadian business, it looks like EBITDA margins were up nearly 7% quarter on quarter despite -- and correct me if I'm wrong here -- historically somewhat limited seasonality here. Peter or Erwin, can you just expand a bit on what's driving this? Are there any one-time benefits in the quarter? Or is this just sort of strong execution on the cost side of things? Just any thought there would be helpful. Thanks.

Not one time. We think it's strong inclusion. We really have a fantastic management team there, and it took a while for Century Mile to catch on. But now it has caught on. We were able to also find a solid customer base there.

And we have every reason to believe that this will stay the same or get better, in fact, because again, going forward in the Edmonton Casino in a few months, there will not be no more impediments due to traffic. And then we're also working on improving both the outside and the inside for the St. Albert Casino. So these are things that will be a positive. And we look optimistically into the future in Canada.

Okay, great. Thanks for that, Erwin. And if I could just squeeze one more in quickly. Looks like to me, apples to apples, CapEx guidance for 2024 was lowered a bit versus the $46 million that was cited in the press release when you reported preliminary Q4 results. Peter or Erwin, can you just talk to this decision a bit more? Are you delaying out certain of the projects that you laid out for us in the Q3 presentation? And if so, what's the overall rationale? Thanks.

Yeah, just so to speak, streamline the investments a little bit as we, in particular, at the Nugget, obviously are able to learn or also indeed a learning process. And in that last time, we were -- we thought we would do another almost upscale restaurant.

But we've debated a little bit now. We think we're better off focusing on upgrading the existing restaurants for now. That will take us into the time and then we'll see how that goes and then come back to the decision on what exactly we do with an additional restaurant.

Okay, great. Perfect. That's all for me. Thanks for the color.

Chad Beynon, Macquarie.

Hi guys. This is Sam on for Chad. Thank you for taking our question. And we know it's still early days and there's a lot to be determined on how sports betting or iGaming legalization might occur in Alberta. And now it looks like Maryland is a possibility. I was hoping to get your high-level thoughts on your online strategy for those regions. And ultimately if or when they legalize, if it can be a net positive for your operations in those regions?

I'll take the first part and then hand over to Peter, OSP and iGaming is already legal in Alberta. It's provided by the Alberta Gaming and Liquor Commission and the casino operators are not participating in that.

Peter, would you like to comment on Maryland and overall strategy, which we'll probably speak as we have it now?

Yes, the Maryland, they are discussing to legalize iGaming, and we certainly look forward to that with our license. The approach will be the same as we do in Colorado and in West Virginia. And in Nevada, we are providing our license to experienced large online game operators. They pay us a percentage of their revenues they generate with our license. That has a minimum annual guarantee included for us.

Outside of Maryland, we also have hopes for Missouri to legalize sports betting, hopefully this year. Because as you know, we have two licenses there and there's strong interest from the online operators. So that would provide us a quite a nice boost to our EBITDA in Missouri as well.

We have no costs associated with these agreements. So everything that we receive goes to the bottom line. And we certainly feel it's a net-net positive for us at all the locations where we have that strategy in place already.

In West Virginia, as you know, it's not only sports betting, but also already iGaming and we work with two providers there and they work very well for us.

Thank you for the color. And then a follow-up, I wanted to ask about Poland and the ramp for the remainder of the year. Is it possible you guys could start run rating the double-digit EBITDA that we saw in '22 this year? And then on the M&A front, is that something discussions you guys plan on having right away? Or do you have -- are you going to wait for that property to sort of ramp up full capacity?

I will answer the part one and then handover to Peter again. So the way I think of our three casinos so successful. And we believe that at the late -- in 2025, we'll be back to what we could call normal in Casinos Poland, then that would be a two digit EBITDA figures in USD.

2024 has started very well in spite of the fact that there's still [Warsaw] is closed. It's too early to say; we don't want to speculate, but it's developing in the right direction. And Peter, maybe you want to talk about our plans for telling?

Yes, we have received only three licenses again. We have now restarted the sales process early stages. But we think this year -- second half of this year, we should have a better chance than before to get a reasonable price for our operations there.

Great. Thanks a lot for the color. Appreciate it.

Thanks Sam.

(Operator Instructions)

Jordan Bender, JMP Securities.

Hi Erwin. Ross on for Jordan. Thanks for taking our questions. So knowing that Reno has traditionally been a competitive gaming market, I was wondering if you could provide some details to the environment there nearly through the first quarter. And what the group and convention outlook for the year looking like?

Okay. So market obviously -- Reno, which is very competitive market. And I think everybody has seen pressure partly due to the -- coming from the bad weather. As you know, part of our market is a west of the Rocky Mountains. And whenever there is a either announcement of snow possibly coming or actually not coming in, we and all of Reno-Sparks is impacted.

Concerning the conventions and events, 2024, in fact, is the -- I think it has the most exciting calendar. We have an impressive lineup of events, and we have after-events like the Annual Rib Cook-off with the new Reno festivals, Hot August Nights, and the new Oktoberfest. Our 8,500 seat outlet theater is a big draw and it's quite frankly a unique feature at Nugget.

Okay, that sounds great. And just a follow-up, with the capital plans discussed, can you give us an update on your thinking about the remaining real estate for the Nugget? Would you ever consider going 100% [OpCo], helping on that? Thanks.

Okay. Could you be so kind to repeat the question? I did acoustically not hear you.

Yeah. So I was wondering if you would -- on the remaining real estate for the Nugget, would you ever consider going 100% OpCo there to help you pay down debt?

We don't consider that at this point in time, but we have some more time to make a final decision.

Great. Thank you.

(Operator Instructions) And it appears we have no further questions at this time.

All right. Very good. Thanks, everybody. We appreciate you joining our call today, and we will talk again after the first quarter. Till then, thank you and goodbye.

And this will conclude today's conference. Thank you for your participation and you may now disconnect.