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Century Casinos Inc (CNTY) Q1 2019 Earnings Call Transcript

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Century Casinos Inc (NASDAQ: CNTY)
Q1 2019 Earnings Call
May. 9, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, welcome to Century Casinos Q1 2019 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.

Peter Hoetzinger -- Vice Chairman of the Board, Co-Chief Executive Officer & President

Good morning, everyone, and thank you for joining our earnings call.

With me on the call are my co-CEO and the Chairman of Century Casinos, Erwin Haitzmann; as well as our Executive Vice President of Finance, Margaret Stapleton.

Before we begin, we would like to remind you that 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 do provide a detailed discussion of the various risk factors in our SEC filings, and encourage you to review these filings.

In addition, throughout our call, we 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 the SEC filing available in the Investors section of our website at www.cnty.com.

I will now provide a brief review of the company's financial results for the first quarter 2019. Following these prepared remarks, there will be a question-and-answer session.

Well, this was another very good quarter for us. Net operating revenue was up 12%, even though we were negatively impacted by exchange rates. In constant currency, revenue was up by 20%. Adjusted EBITDA increased by 2%, but that includes a full month of pre-opening costs and expenses in Century Mile Racetrack and Casino to the tune of $700,000. Our auditor say that we have to include the costs and expenses of the one month prior to opening any casino. Excluding that, what I would call, real adjusted EBITDA is $7.4 million, and that is 13% higher than last year. Earnings per share increased by 33%.

Canada remains our strongest segment generating 36% of our consolidated revenue, and 56% of our EBITDA. In local currency, the Canadian operations grew revenues by 17% and adjusted EBITDA by 12%. The two casinos we own and operate in the Greater Edmonton market, the Century Casino & Hotel Edmonton and the Century Casino St. Albert grew revenues by 1% and 4% respectively, and adjusted EBITDA by 1% and 22% respectively.

At the end of January, Northlands Park Casino, the closest competitor to our property in Edmonton, closed for good. That certainly helped bringing in quite a lot of new faces. We noticed a strong increase in sign-ups to our loyalty program. That positive momentum was offset by an extreme cold that settled over the area for about two weeks in February. The extreme temperatures combined with heavy snowfall, deterred people from venturing out unnecessarily. It was one of the coldest month on records. With that in mind, these revenue and EBITDA increases are even more remarkable.

Our two casinos in the Calgary market, Century Downs and Century Casino, performed even better and generated revenue growth of 11% and 8% respectively. Adjusted EBITDA increased by 25% and 62% respectively. As Century Downs Racetrack and Casino is doing so well, and consistently doing so well, we are expanding and planning to increase the floor space by about 20% by the end of the year. The total CapEx for that casino expansion will be around $1.5 million, and we estimate to generate an EBITDA return on that investment of approximately 80%, possibly even 100%.

In the U.S., our two operations in Colorado contributed 18% of our consolidated revenue and 22% of our EBITDA. Revenues increased by 5%, adjusted EBITDA was up 12%. Both property in Central City and in Cripple Creek did very well. In Central City, we kept our market shares steady compared to last year. In Cripple Creek, we actually gained market share. Cripple Creek increased EBITDA by 14% based on a strong 28% EBITDA margin.

We maintain a positive outlook and project further growth, due to solid regional economic conditions, a strong tourist business and the great positioning and loyal following our properties have in that market.

In Poland, our casinos generated 43% of the company's total revenue and 28% of our EBITDA. In local currency, revenue was up 27% for the quarter and EBITDA was up 30%. As most of you know, our Polish business was negatively impacted by licensing delays between Q4 '17 and Q3 '18. We're glad that things are now back to normal in Poland and look forward to generating high EBITDA margins going forward. Already things are moving in the right direction. The EBITDA margin in Q1 was 12%, up from 9% in Q4 2018.

In the U.K., the Casino in Bath is still disappointing. EBITDA was a negative $700,000. What should help is the reduction of the maximum stake at machines in betting shops, down from GBP100 to just GBP2 effective as of April 1st of this year. And in fact April results show some improvements already, but still not quite enough to reach profitability.

Now a quick look at our balance sheet and liquidity. We have $49 million in cash and cash equivalents, and $68 million in outstanding debt. That brings the total debt-to-adjusted EBITDA ratio to 2.9, and the net debt-to-adjusted EBITDA ratio to 0.8. Our debt includes $48 million related to our Bank of Montreal credit agreement, $15 million related to the Century Downs long-term land lease, and $5 million over in Europe.

Our book value per share is at $6.08. CapEx for existing operations during the quarter was $2.1 million or 4.7% of revenues, spent mainly on new gaming floor at the Marriott Casino in Warsaw Poland, as well as on new slots in Colorado, and some (inaudible) in Canada.

Total other CapEx in the quarter was $8.5 million, spent on Century Mile Racetrack and Casino in Edmonton, Canada, which opened its doors on April 1. And just a little less than two weeks ago, on April 28, we celebrated the grand opening of that facility with the first Thoroughbred races on the one-mile racetrack. It was an exciting day for the entire Century Casinos' family, seeing the hard work over the last three years coming to fruition, attracting huge crowds and strong business volumes at the gaming floor, the betting stations and the F&B outlets.

Net operating revenue for the first month of operation is estimated at CAD3 million, which equals about US$2.2 million. Century Mile in Edmonton is about 50% larger, and the footprint is almost twice the size of our successful Century Downs facility in Calgary. We expect to create some synergies between the two racing operations by further broadening the reach of the Century brand in Alberta, in Western Canada, by leveraging the two properties for reduction of costs and/or sharing contracted services, and by creating a stronger Century racing brand for the sale of races to other racetracks, OTB networks, and advance deposit wagering companies.

And that becomes increasingly lucrative for us, as we also have the exclusive license for pari-mutuel off-track and internet horse betting network in the entire province of Alberta with currently 37 off-track betting parlors in operation, and over 500 locations worldwide offering wagering on horse races at Century Mile and Century Downs.

All right. That pretty much sums up another very successful quarter. Thank you for your attention, and we can now start the Q&A session. Andrew, go ahead please.

Questions and Answers:

Operator

Ladies and gentlemen, at this time, we will conduct a question-and-answer session. (Operator Instructions) Our first question comes from the line of David Bain with ROTH Capital. Please state your question.

David Bain -- ROTH Capital -- Analyst

Great. Thanks so much and congratulations on the opening of Century Mile. It's great seeing it. And we appreciate the April net revenue. I think that's very helpful. And I know that at the Analyst Day, you reiterated the 20% to 25% return of project and there's a lot of margin catalysts and pattering catalysts in forward course, but I think it would be helpful to kind of get a sense as to what you see as EBITDA contribution in maybe 2Q or 3Q, just to get a sense again on sort of that how we should look at the margin ramp there?

Peter Hoetzinger -- Vice Chairman of the Board, Co-Chief Executive Officer & President

We believe that the margin or the return that we have indicated on 20%, may be up to 25% on the investment that should kick-in in its first full year of operation that being 2020. And until then we see it ramping up to that number, pretty gradually between now and the end of the year.

David Bain -- ROTH Capital -- Analyst

Okay. So fairly minimal for 2Q and then just ramping from there as...

Peter Hoetzinger -- Vice Chairman of the Board, Co-Chief Executive Officer & President

No, not -- ramping from the get-go actually.

David Bain -- ROTH Capital -- Analyst

Okay. Okay, great. And then for the Bath casino, do you see that is hitting breakeven in the second half?

Peter Hoetzinger -- Vice Chairman of the Board, Co-Chief Executive Officer & President

Difficult. It's on its way, whether it is in the second half or a little bit later, too early to say.

David Bain -- ROTH Capital -- Analyst

Okay. Well, great. Again, love the opening thanks for the data point on that net revenue for Century Mile. Thanks, guys.

Peter Hoetzinger -- Vice Chairman of the Board, Co-Chief Executive Officer & President

Thanks, David.

Operator

Our next question comes from the line of Brad Boyer with Stifel. Please state your question.

Brad Boyer -- Stifel -- Analyst

Yes. Thanks for taking my questions, guys. First one, just around Poland. Congrats on having Poland be a bright spot in the quarter, and not a thorn in everyone's side. So if I look at those 12% margins that you achieved in Poland in the quarter, and obviously appreciate that FX moves margins around for you guys. But, I mean, is your expectation that you're going to continue to see that margin in Poland ramp as you move further into 2019?

Peter Hoetzinger -- Vice Chairman of the Board, Co-Chief Executive Officer & President

Erwin?

Erwin Haitzmann -- Chairman of the Board & Co-Chief Executive Officer

We think that, I mean, the first quarter was excellent. We made more EBITDA than in whole of 2018, and I think it would be fair to assume that if you take the times for (ph) then you have the number for the full year.

Brad Boyer -- Stifel -- Analyst

Okay. That's helpful. And then, I mean, the results at Century Downs continue to surprise us. Obviously, the AGLC and the likes what they are seeing as well given their decision to continue to give you guys more product there. Could you just give us a sense of what in your estimation is kind of driving the strength of that property?

Peter Hoetzinger -- Vice Chairman of the Board, Co-Chief Executive Officer & President

Erwin?

Erwin Haitzmann -- Chairman of the Board & Co-Chief Executive Officer

I think that they manage it very well.

Brad Boyer -- Stifel -- Analyst

Okay. Anything more to add?

Erwin Haitzmann -- Chairman of the Board & Co-Chief Executive Officer

Yes, quickly. Sure. Racetrack casino provides a lot of opportunity to create extra traffic, more traffic than compared to a so-called -- call it a regular casino. First of all, we had 100 racing days which bring a certain amount of customers, and at some days like The Kentucky Derby like last time 2,500 (ph) people or so.

And important to note is that many of those customers that otherwise would not go to gamble. So we had the opportunity to expose our products and our gaming products to people who not necessarily seasoned sales (inaudible) of casinos. But it's a percentage game. Of the 100 that come to see the race, say it's X% of those who come back, and a certain number of those will become regular.

And then in connection with (inaudible) race in both properties, both in Century Downs and Century Mile, is where we have extra rooms that they can rent out for various opportunities like wedding parties and then birthday parties and so on. So that's another driver of traffic and ultimately driver of revenue.

And to give you another example on May the 5th (inaudible) Cinco de Mayo, for the third time in a row, an event that we're marketing together with Virgin Radio and that's a Chihuahua Race, and that where probably almost 200 Chihuahuas are racing in groups of 10, just like the horses around 50 meters or so. And every Chihuahua on that probably brings the end of '16 trends, so suddenly we have another huge crowd of people that come for the Chihuahuas, and not at all for the casino, but same thing like before a certain percentage of those will like what they see and come back. Is that helpful at all?

Brad Boyer -- Stifel -- Analyst

Yes, very helpful. I appreciate the color there. And then just lastly, like David indicated, I appreciate the color around Mile in April. I wanted to see if you could give us any sense of what you are seeing at Century Casinos, Edmonton, as we've sort of cycled through some of the weather impact that you encountered in the first quarter as a result of Northlands Park closing? And that's it for me. Thanks.

Erwin Haitzmann -- Chairman of the Board & Co-Chief Executive Officer

Erwin?

You are right. Okay. In Edmonton, we had a lower gross gaming revenue on table games side, mainly due to a decrease in the baccarat drop, but we had an increase in the slot side. And the increase in slot seats will attribute to the closing of the Northlands Park, and the decrease in the baccarat drop is probably due to a little bit of headwind from Starlight and the Grand Villa. We are working hard on regaining our market share there and we hope that we will be successful in that effort.

Brad Boyer -- Stifel -- Analyst

Perfect. Thank you.

Operator

Our next question comes from the line of Mike Malouf with Craig-Hallum. Please state your question.

Eric Des Lauriers -- Craig-Hallum Capital -- Analyst

Hi, guys. This is Eric Des Lauriers on for Mike. Thanks for taking my question, and congrats on the quarter. I was wondering if we can talk a little bit about the Northern Alberta pari-mutuel network that hit Century Mile in Q1? And specifically just how you guys are looking at the revenue breakdown of that compared to the overall revenue generated at the racetrack itself, or just the overall location itself, and whether that $3 million guide for the month of April included any of the Northern Alberta pari-mutuel network betting? Thanks.

Peter Hoetzinger -- Vice Chairman of the Board, Co-Chief Executive Officer & President

Thank you. Can you start with that? Does it -- did the number include the pari-mutuel?

Margaret Stapleton -- Executive Vice President, Finance

Yes, it does include the pari-mutuel. It is in the racing numbers for April.

Peter Hoetzinger -- Vice Chairman of the Board, Co-Chief Executive Officer & President

Okay. And anymore in terms of what we see as a potential there, either Peggy or Erwin?

Margaret Stapleton -- Executive Vice President, Finance

You could probably take Q1's pari-mutuel numbers and extrapolate those out for the year.

Eric Des Lauriers -- Craig-Hallum Capital -- Analyst

Okay. That helps. And then just kind of wondering overall top line what you guys expect? How you expect the Century Mile revenue to ramp with the pari-mutuel betting? Obviously, that's flap a bit, but I guess what I'm looking to get is how much we should expect Century Miles top line to sort of accumulate as we look from Q2 route through 2020 if it's going to be relatively flat with that $3 million monthly run rate or we should expect some increases as it matures?

Peter Hoetzinger -- Vice Chairman of the Board, Co-Chief Executive Officer & President

Well, you know, we have only one month under our belt now, so it's early for us to say. But definitely we expect to have a very busy summer with all the racing going on, and we know from Century Downs' success that -- and as Erwin indicated just now, the racing really helps us also on the gaming and the F&B revenue. So, I think, Q3 should be particularly strong and Q4 is a little bit down certain quarter here. On the one hand, we should be ramping up toward next year nicely. We should have operational headaches under control by the end, but Q4 could be a little bit weaker than Q3. Overall, I think, 2020 we should be there at those 20% to 25% EBITDA returns on the investment.

Eric Des Lauriers -- Craig-Hallum Capital -- Analyst

Okay. Great. That's helpful. And then last one from me, I appreciate the color on the GBP2 betting limit over the U.K. as it relates to the Bath casino. Could you also provide some color on the, say betting regulations that kind of requires some owners' financial disclosures to -- from the casino placings (ph) and the overall impact of that? Thanks

Peter Hoetzinger -- Vice Chairman of the Board, Co-Chief Executive Officer & President

Yes, the problem there is that, first of all they came into -- in effect after we opened and yes, they are pretty onerous. Whenever a player reaches GBP20,000 in table drop, slot coining or winnings or losses, we have to -- we are required to ask for lot of detailed financial information from that player, including income and so on. And some players our hesitant to give -- to provide that, so it takes like on a one-on-one basis, a lot of talking and discussions and that really slows the ramp-up down. But on the other hand, it's a level playing field for all the casinos in the U.K., and so one by one we are commencing players and players are coming back, but it's a very, very slow process.

Eric Des Lauriers -- Craig-Hallum Capital -- Analyst

Okay. That's helpful. Thank you.

Peter Hoetzinger -- Vice Chairman of the Board, Co-Chief Executive Officer & President

Thanks, Mike. Thank you, Eric.

Operator

Our next question comes from the line of John DeCree from Union Gaming. Please state your question.

John DeCree -- Union Gaming -- Analyst

Hi, everyone. Thanks for taking my question. Just wanted to maybe go big picture, and as we maybe talked a little bit about this recently, but now that Mile has opened, obviously plenty of work to do in ramping that up, and still a big focus. But just wondering if you could kind of talk high-level about the strategy from here, the balance sheet is obviously in great shape, additional M&A or projects that you're thinking of, so if you could kind of give us a little insight as to what might be next for Century that might be helpful?

Peter Hoetzinger -- Vice Chairman of the Board, Co-Chief Executive Officer & President

Sure, John. Yes. We've -- couple of months ago, so when we were very comfortable about how Century Mile is shaping up, we started to look around. And what we are seeing is that there is very limited, if at all, attractive greenfield situations out there. And so we are focusing on the M&A side. And we do see in North America especially in the U.S., quite a lot of attractive opportunities out there. Some of the larger companies do not really focus on assets that produce between $10 million and up to $20 million EBITDA. So, it's too small for them. But, of course, it would be meaningful for us.

And we are zooming in on the field trying to get a deal that is beneficial for Century Casinos, and in, you know, our history, we've always tried to not play too much, and to keep the balance sheet on a conservative level. So that the challenge is to find those opportunities that offer great potential for us at a price that conforms to our conservative approach. Now we believe that there are the ones or others out there, and I think we've said it before, we are very hopeful and -- to have something presentable to you guys before the end of this year.

John DeCree -- Union Gaming -- Analyst

Great. That's really helpful color. Thank you, and congratulations again on the opening in Alberta.

Peter Hoetzinger -- Vice Chairman of the Board, Co-Chief Executive Officer & President

Thanks, John.

Our next question comes from the line of Brad Boyer with Stifel. Please state your question.

Brad Boyer -- Stifel -- Analyst

Yes. Coming back here guys. John got me thinking about something else, but Peter, just curious if you could provide some perspective obviously without giving any way -- giving away any of your deep dark secrets for competitors, but give us some perspective on sort of what you are looking for as it relates to the next potential acquisition for Century Mile. Are you looking for something that is kind of a larger full-scale resort type amenity with the hotel? There are some of those out there in that range of EBITDA that you described. Are there certain market characteristics, tax rate, presence of tribal, competitors in the market, anything like that, that can you give us a flavor of sort of how you go about thinking through where that acquisition might take place? Thanks.

Peter Hoetzinger -- Vice Chairman of the Board, Co-Chief Executive Officer & President

Yes, Brad. We want to stay with some parameters that we have also used in the past and that includes that we believe that where we are best in our operating approach is to cater to locals market, and we define that as within a 75-mile radius. So, it's very unlikely that you see us going to a full destination type of target. Secondly, we like markets where the number of casino licenses is limited. And thirdly, and that's the only deviation from the past is that we want to grow into units that are largest, the largest we have today or even larger.

Brad Boyer -- Stifel -- Analyst

Thank you.

Operator

And there are no further questions at this time. I'd now like to turn the call back over to Mr. Hoetzinger for closing remarks.

Peter Hoetzinger -- Vice Chairman of the Board, Co-Chief Executive Officer & President

Thanks, everybody, for your interest in Century Casinos, and for your participation in the call. For a recording of the call, please visit the Financial Results section of our website at cnty.com. Goodbye.

Operator

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

Duration: 26 minutes

Call participants:

Peter Hoetzinger -- Vice Chairman of the Board, Co-Chief Executive Officer & President

Erwin Haitzmann -- Chairman of the Board & Co-Chief Executive Officer

Margaret Stapleton -- Executive Vice President, Finance

David Bain -- ROTH Capital -- Analyst

Brad Boyer -- Stifel -- Analyst

Eric Des Lauriers -- Craig-Hallum Capital -- Analyst

John DeCree -- Union Gaming -- Analyst

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