Century Casinos, Inc. (NASDAQ:CNTY) Q3 2023 Earnings Call Transcript
Century Casinos, Inc. (NASDAQ:CNTY) Q3 2023 Earnings Call Transcript November 9, 2023
Century Casinos, Inc. misses on earnings expectations. Reported EPS is $-0.47 EPS, expectations were $0.15.
Operator: Good day, everyone, and welcome to the Century Casinos Q3 2023 earnings call and webcast. [Operator Instructions]. Please note today's call will be 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 morning, 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'll 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 release and SEC filings available in the investor section of our website at cnty.com.
I will now provide an overview of the results of the third quarter of 2023. After that, Co-CEO, Erwin Haitzmann; and CFO, Margaret Stapleton, will join me for a Q&A session. We delivered a record third-quarter net revenue of $161 million, an increase of 43% over Q3 of last year. The increase came from the additions of the Nugget in Nevada and Rocky Gap in Maryland and offset to some extent by weaker retail customer and a bit of construction disruption at both Missouri properties. We also delivered a record third-quarter adjusted EBITDA of $33 million, up 19% over last year. These results reflect the value of our strategic focus on our core customers and the benefits of our recent M&A activities. In addition, our multichannel business model with revenue streams from casinos, hotels, groups and conventions, racetracks on and offline sports betting as well as iGaming provides great diversity and stability.
With the Rocky Gap and Nugget acquisitions, we operate a US casino portfolio that reaches from east to west. 82% of our EBITDA this quarter was generated in the US, 13% in Canada, and less than 5% in Europe. Overall, customer trends remained stable during the quarter. No dramatic moves whatsoever. We continued to see growth in core customer volumes offset by weaker retail play. Business from retail customers and from the low end of our database has remained at lower but consistent levels since the beginning of the year. We also saw the continued return of the 60-plus demographic and moderate growth in spend per visit trends, which helped to offset softness in the lower EDT segments. Similar to what you have heard from other operators, cost pressures impacted the margin performance in all regions during the quarter.
This effect, this will continue into next year at similar levels. Consistent with what we experienced last quarter, major expense categories that increased year-over-year wages, utilities, and insurance. On top of that, we are in a particularly transitional stage with lots going on at the same time, triggering extraordinary legal compliance, and consulting costs and expenses. Our local management teams carry burdens with the two construction projects in Missouri as well as the integration of Nugget and Rocky Gap. Overall, while we see no signs of softening in underlying consumer demand, it's a mixed picture in terms of property margins. Relative to the second quarter margins decelerated in Missouri and Nevada but improved in Colorado and West Virginia.
Looking at segment results, we first discussed the Midwest segment with our Colorado and Missouri operations. Revenue was flat year over year, EBITDA was down 4%. Not a bad result at all considering construction going on at both Missouri properties as well as construction on both roads, that's US-6 and I-70 from Denver to Central City, Colorado. The EBITDA margin of the segment was 38%, comparing to 39% in Q3 of last year. The number of trips as well as the spend per trip of our top tier segments increased meaningfully during the quarter, offset by weakness in the lower segments. In Caruthersville, Missouri construction of the new permanent land-based hotel and casino development is progressing according to budget and schedule. We plan to open in Q4 of next year.
The topping out ceremony was held two weeks ago on October 25, when the final theme of the steep portion of the project was put in place. The new property will have a total of 74 hotel rooms, 12 gaming tables, and over 600 slot machines, which is 20% decrease in gaming positions compared to the older. Most importantly, it will provide significant operational efficiencies to 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 land, this pavilion is very encouraging. Table drop in Q3 was up 26%, slot coin-in up 6%, S&P revenue up 31%. We can't wait until we opened a new facility in less than 12 months now.
Project is fully funded by VICI at an 8% cap rate. Staying in Missouri, but moving on to Century Casino Cape Girardeau, about 1 hour and 15 minutes away, a new casino opened in southern Illinois in August. We saw a small decline in revenue the first two weeks, but volumes have bounced back and leveled out throughout the end of the quarter. Our hotel project in Cape Girardeau is on budget and on track for opening in April and will transform the property into full resort destination offering gaming, dining, conferences, concerts, events, and more. Total project cost of $31 million, which will fund with cash on hand. As of September 30, we spent approximately $17 million. The balance will be spent between now and the second quarter of next year.
Our East segment includes the Mountaineer Casino Resort in West Virginia and the newly acquired Rocky Gap Casino Resort in Maryland. Because of that new acquisition, revenue of the segment was up 45%, EBITDA was up 60%. The EBITDA margin increased by 2 percentage points. Mountaineer is still battling with staffing challenges leading to limitations in hours of hotel and S&P operations during the week. Table games continued to be impacted by Ohio sports betting. The majority of that decline was experienced from guests in the lowest ST segment. And we have started to work with our sports betting partners on joint promotions to increase retail sportsbook traffic with the goal of attracting back some of the lost table crossover play. On the positive side, slot volumes were up year over year, driven by more visits and higher spend per visit from the top tiers.
Rocky Gap, which we started operating at the end of July was affected in the lower tiers of the database as well, but the substantial non-gaming revenue generators showed resilience and maintained similar volumes to prior year. Just yesterday, we successfully completed the conversion of the gaming system and player's club to aristocrat systems. That puts us in a better position and provides much more granularity to offer flexible and higher-yielding promotions throughout the database. With a strong focus on player development and focused efforts in major feeder markets like Baltimore, Pittsburgh and Washington, DC, we'll be able to migrate players to higher tiers and grow the overall database in 2024. We are also planning several growth CapEx initiatives at Rocky Gap from upgrades to restaurants, various interior renovations, two more slot machine purchases.
Continuing to the West segment, which includes the Nugget Casino Resort in Nevada, our focus has been and still is on driving revenue, increasing the database and gaining market share. Since we took over on April 3 of this year, revenue has grown by 9% compared to the same period of last year and that growth is broad-based. Gaming, S&P, and ticket revenue all increased substantially. The number of rated players increased. Trips were up and spend per trip increased as well. From an EBIT standpoint, all segments are either flat year over year or also increasing. Looking at the age demographic, the under-thirty group showed the largest increase in the number of players and trips. Innovations of the facade and sign into [Technical Difficulty] and it really looks great.
More improvements are coming, including further gaming for upgrades as well as the addition of spa and an upscale restaurant and upgrades of two existing restaurants. In the Canada segment, our four properties in Edmonton and Calgary saw revenue grow by 4% in the quarter, EBITDA was down 8%. Access to our property in Edmonton continues to be impacted by road construction, which will continue throughout the winter season. It just has opened a sports bar there and believe it will do great, especially during holiday season. Century Mile at the airport also continues to grow business volumes with slot revenue up by 7%. Same as in the US, the customer continues to be strong and stable, but inflationary pressures, higher operating costs and expenses led to an EBITDA decline.
As reported during the quarter, we closed on real estate transaction with VICI and our Canadian casinos have now been added to our existing master lease with annual rent of approximately $13 million. With that, let's have a quick look at our balance sheet. As of September 30, we had $189 million in cash and cash equivalents and $348 million in outstanding debt. Net debt is down $259 million. With funds received from VICI for the Canadian sale leaseback transaction, we paid back $30 million of debt, which we had borrowed under our revolver to close the Rocky Gap acquisition. As a result, traditional net leverage is 2.2 times. I'm pleased that adjusted net leverage is now down to 4.2 times. Our lease obligations to VICI totaled approximately $14 million per quarter.
That amount already includes Rocky Gap in Canada. Once you open the new land-based facility in Colorado Springs towards the end of next year, it'll go up by approximately $1 million per quarter. So as a rough run rate for 2025, total lease payments to VICI will be around $15 million per quarter. As you know, we report these legal obligations to VICI as a financial lease, and it's included in the same line item as the interest payments on our debt and the line item called interest expense. Interest payments on our term loan B currently run at around $11 million per quarter. Also, please note that we have no near-term debt maturities until 2029, and we have additional borrowing capacity of $30 million under our revolver. In the next 18 to 24 months, we are planning to invest a total of approximately $35 million into our properties, and that's over and above the normal maintenance and replacement CapEx of around $25 million per year.
These are attractive value-creation CapEx projects. We've projected EBITDA returns of 20% or higher. On the other hand, we do not plan any M&A activity for the remainder of for next year. We remain fully focused on our existing operations on the integration of Nugget and Rocky Gap and the delivery of the two Missouri construction projects. All of those will significantly improve customer experience and cash flow generation to further strengthen our balance sheet. Going into the fourth quarter, we expect the trends among both core customers and retail players will remain consistent with the last several quarters. We also expected overall expenses should be sequentially consistent with the levels we saw in the third quarter. In other words, while some inflationary pressure appears to be moderating, we don't expect our overall expense structure to be increasing disproportionately going forward.
Overall, we are pleased with the strength and resilience of our properties. The stability of our operations and the performance this quarter highlights the benefits of our geographically diverse portfolio. Looking ahead, we have positioned our company for strong growth for years to come with the new acquisitions and our two Missouri development projects, all of which we expect to drive material increases in revenue, EBITDA. and cash flow. That is a very strong pipeline of great new operations and projects that just joined our portfolio always come online next year. And we can't wait for 2025, which be the first full year showing the full earnings potential of everything we are working on today. So on behalf of the company's management and Board, I'd like to thank our team members, our guests, and our stockholders for their continued loyalty and enthusiasm.
I thank you for your attention, and operator, we can now start Q&A session.
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