Century Casinos, Inc. (NASDAQ:CNTY) Q4 2023 Earnings Call Transcript
Century Casinos, Inc. (NASDAQ:CNTY) Q4 2023 Earnings Call Transcript March 14, 2024
Century Casinos, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day, everyone, and welcome to today's Century Casino's Q4 2023 Earnings Call. At this time all participants are in a listen only mode. [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.
Peter Hoetzinger: 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. Throughout 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 Investors 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 Nugget in Nevada and Rocky Gap in Maryland as well as good performances of our Canadian operations, offset by a weaker retail customer, construction disruption at a few properties and the temporary closures of three casinos in Poland. Adjusted EBITDAR was $25 million, up 17% over last year. Canada grew EBITDAR by 50%, while Poland obviously saw a substantial decline. We did, like everyone else in regional casinos, experience 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're 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 burdens 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're 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. EBITDAR 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 caused by major road works on both highways that lead to Central City from the main feeder markets. In Cripple Creek, a competing property opened across the street from our casino right after Christmas. By now, they have their 300 rooms opened as well as some of the F&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 segment increased meaningfully during the quarter while the overall spend, the 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're 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 will be opened in just about eight months from 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. We're very excited about the grand opening in thre weeks from today on the April 4. It will be great to see how adding the hotel will transform that property into a full resort destination offering gaming, dining, conferences, concerts and more. Total project cost is $31 million, and we fund 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 and Races in West Virgina and the newly acquired Rocky Gap Resort and Golf in Maryland. Because of that new acquisition, revenue of the segment was up 44%, EBITDAR 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 coining 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 from the upper end of the database, offset by declines in the lower tiers. From an age standpoint, the oldest and youngest demographics increased, while the larger portion of the database, which is 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 market 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] (ph) 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 when most of the transitional 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 projects will be completed this summer. On the marketing side, we expect to go live with new marketing kiosks, along with the new marketing component of our loyalty player tracking system, also before this 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 EBITDAR was up by very strong 50% in the quarter. All four were up in slot revenue, in table revenue as well as in EBITDAR. 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, this -- earlier this year, we were awarded all three licenses again, and we reopened one casino in February already. We anticipate reopening the second one next week and the final one, which is the biggest of the three in a new location in the 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 all 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're okay with our leverage as we don't charge our leverage just by -- just based on a onetime snapshot, but 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 project 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 opened a new land-based facility in Caruthersville 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 to 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 terms. As for our CapEx plans for this year, we're 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 Nugget and in Canada and finishing the hotel in Cape Girardeau. All of these growth projects will help position our casinos for higher-value customers, and we deliver attractive returns on capital to drive growth in their 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 the better customer experience and from a reduction in CapEx. And perhaps you'll see a first reduction in interest rates by then. Again, we're in a transitory period right now, but we have a clear plan to fully focus on generating cash to deleverage and opportunistically also buy back stock later this year and next. We're 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 it's well understood across the market. In the span of three to four weeks, most of the regional operators were significantly impacted by weather. So we, as everybody else, start in a January whole, as stormy, let me put it this way. In mid-February, weather was more back to normal, and we see that customer trends over the past two 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 in 2025 with EBITDA margins into the 24% to 25% range. Our CapEx in 2025 should come in at approximately $20 million to $25 million.
Operationally, we're 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. In Q3 of this year, we marked 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 the brand new land-based facility in Caruthersville. And from then on, we'll have no more 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 will now open the call for Q&A. Operator, go ahead, please.
See also 12 Jobs That Will Be in Demand in the Next 10 Years and 15 US States With The Highest Labor Shortages.
To continue reading the Q&A session, please click here.
