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Century Casinos, Inc. (NASDAQ:CNTY)

Q2 2013 Earnings Call

August 14, 2013 12:00 PM ET

Executives

Peter Hoetzinger - VC of the Board, President, Co-CEO

Analysts

Russ Silvestri - Skiritai Capital

Justin Ruissi - Sidoti & Company

Operator

Welcome to Century Casinos second quarter 2013 earnings conference call. This call will be recorded. At this time, all participants are in a listen-only mode and later we will conduct a question-and-answer session. I would now like to introduce our host for today's call, Mr. Peter Hoetzinger. Mr. Hoetzinger, you may begin.

Peter Hoetzinger

Thank you Lisa. 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 second quarter 2013 earnings. With me on the call today are, Erwin Haitzmann, Chairman of the Company and Co-CEO; and Margaret Stapleton, Executive VP of Finance.

Before we begin, I need to 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 measures to the appropriate GAAP measures can be found in our news release and in the 10-K and 10-Q filings, all of which are available in our Investor Section of our website at cnty.com.

We posted excellent result in the second quarter remarkably it was the 14th consecutive quarter with either revenue on that earnings growth. The Casinos Poland acquisitions already had a very positive impact and we actually continue to make good progress across the organization in enhancing operating efficiencies and maintaining a disciplined approach to marketing.

Net operating revenue increased by 59% year-over year, EBITDA by 34%, and net earnings adjusted for the ramp on gain associated with the Casinos Poland acquisition by 38%. All our properties Arab and Central City increased earnings from operations significantly, Calgary even by 92%. To illustrate the international diversification of our portfolio, it was where EBITDA is coming from 45% from Canada, 30% from the United States operations, 20% from Poland, and 5% from our operations on the Cruise Ships and the management team in Aruba.

The cash flow continues to be strong with net cash provided for operating activities up 35%. Total debt increased as a result of the Casinos Poland acquisition which added 6.4 million to our balance sheet. Now our balance sheet shows 28.2 million in cash and cash equivalents and 16.4 million in debt obligations resulting in net cash position of 11.8 million or approximately $0.49 per share.

For all properties combined, total cash CapEx in the quarter was $973,000 or 3.4% of revenues spent mainly on capital project such as new carpet in Edmonton, remodel of hotel rooms in Cripple Creek, new slots in Central City, and furniture and equipment for Casino Poland. The current book value per share is $4.98.

Our summary property-by-property analysis begins in Canada, where essentially Casino and Hotel in Edmonton shows in local currency 5% revenue growth. EBITDA increased by 16%, resulting in a very strong EBITDA margin of 36%. This is our largest property with 759 gaming machines and 35 gaming tables. The growth was broad-based; it came from the slots and the tables as well as from the non-gaming side. Table game revenue was up despite a lower hold during the quarter.

The increase in hotel food and beverage revenue came as a result of higher hotel occupancy and increased customer volumes on the gaming floor. Early in the quarter we held the second annual Road series of Poker Charity Classic Tournament which was sold off with 200 players competing. We completed the conversion of the existing Bar into a sports themed lounge as well as the renovation of the hotel rooms with new carpet, counters of granite and new lounge chairs.

The third quarter started out well and we look forward to a great second half of the year for our flagship property. In Calgary, our focus on operating margins continues to show positive results, while revenue was down, which came as no surprise because we significantly reduced showroom concert events, resulting in lower overall visitation, we managed to grow EBITDA significantly. It was seven times higher compared to the second quarter of last year.

These results are encouraging and even more so as the casino was closed for a few days and most roads around the casinos were closed for six days due to the heavy floods in the second half of June. We continued to market and grow The Players Cup Loyalty Program and focusing on growing table game volumes.

As mentioned earlier, the results of the Century Casino Hotel in Central City, Colorado, were not satisfactory. Net revenues were down 4%. EBITDA was down 16%. While both table game revenue and hotel revenue were up a little per slot as well as the restaurants and bars didn’t perform very well, compared to the competition either we are doing all right as our market share actually increased by 4%.

Overall the Central City market was down 7% amid concerns about the general economic conditions in the U.S. and a couple of ownership changes of casinos in neighboring Blackrock which as usual brought with them some very aggressive promotion activities during their reopenings under new management. We continue to concentrate on maximizing marketing and promotional opportunities, while growing internal efficiencies to an even higher level.

In Cripple Creek, Colorado, did considerably better with revenues up 1% and EBITDA 15%. Due to successful management of marketing and operating costs for the quarter the EBITDA margin increased from 23% to 27%. We expect to see continuous flat to small growth in the Cripple Creek market and our marketing strategy focuses strongly on weekend promotions when customer volumes are highest.

The 13 casinos we operate and manage on the Cruise Ships in [Audio Gap] our revenues but EBITDA was up 6% and (inaudible) under construction and scheduled to commence operations in early 2014. On April 8th of this year we acquired the majority of Casinos Poland Limited, the market share leader in the casino industry in Poland. We paid a multiple of approximately 4.5 times EBITDA for that transaction. It’s operating period the second quarter is the first in which we consolidate Casinos Poland as a majority owned subsidiary for which we have the controlling financial interest. Casinos Poland currently operates nine casinos; most are located in four and five star hotels in major cities throughout the country. In total there are 400 slots and 77 table games in operation plus limited food and beverage facilities. 75% of the gaming revenue comes from the table games with roulette being the most popular game. 25% comes from the slots.

We are almost done with upgrading all operations to a ticket in, ticket out system and hope to grow slot revenue significantly over the next years. As for the new gaming regulations and the lease situation all gaming machines currently operating outside of Casinos (inaudible) have to seize operation within three years from now. Industry experts estimate that these machines generate around US$100 million annually. This is obviously a great long-term opportunity for licensed casinos and with our market share of approximately 45% we should be well positioned to capture a great part with it. Some of the small casinos we recently opened or reopened are still performing behind expectations and are not yet contributing positively to the bottom-line.

We are evaluating the market potential for these small operations and may decide to relocate one or two casinos this year or next which may trigger onetime costs and expenses. But in a couple of quarters the numbers in Poland will stabilize and we will be able to start realizing the full potential of this landmark acquisition.

With that a few words about new projects and opportunities. With our internationally experienced management team and our borrowing capacity under the credit agreement with Bank of Montreal we remain location flexible to undertake projects anywhere regulated to casino market worldwide.

We continuously evaluate multiple opportunities on a global basis and are currently looking at deals in North America, Europe and Asia. This includes Greenfield developments as well as possible acquisitions of existing properties. We previously announced that we are looking into a casino project in Calgary in corporation with the company called United Horsemen of Alberta. We signed credit and management agreements with them and are completing with diligence as we speak. There are still a few issues we have to overcome but we are cautiously optimistic about the project going forward. It will comprise the on the horse race track in Calgary plus a casino with 550 slots as well as food and beverage and entertainment facilities. The location is just great adjacent to the successful Cross Island regional shopping mall north of Calgary on the major highway connecting Calgary and Edmonton.

In June we submitted an application for casino license in Vienna, Austria. Currently, there is only one casino operating at Vienna, a market of almost 2 million people plus 30 million overnight stays of tourists annually. It’s one of at least four companies applying for the license. Century Casinos is managing a consortium of Austrian individuals, entrepreneurs and investors. A 26% ownership stake in the management agreement makes Century the leader of that group. We expect the total investment of approximately $18 million, of which, we would carry 26% if the casino concession would be granted.

The casino would be developed in an elegant retro 1960's style in the 450-room InterContinental hotel in Vienna and target domestic and international tourists, business travelers, congress and convention guests as well as affluent domestic and European casino visitors. After a nine months construction period, the casino would offer approximately 300 slot machines and 25 gaming tables on a 16,000 square feet gaming floor. A decision to grant the 15 year license by the Austrian Ministry of Finance is expected in Q1 of next year.

Well that concludes our summary of the second quarter 2013 results, and I’ll now open the floor to questions. Operator, go ahead please.

Question-and-Answer Session

Operator

Thank you, sir. Ladies and gentlemen, at this time, we will conduct the question-and-answer session. (Operator Instructions) And we have a question from Russ Silvestri. Please go ahead, sir.

Russ Silvestri - Skiritai Capital

Good morning, Peter. Two questions, one on Calgary. I may have missed it exactly, how many days was the facility closed in Calgary as a result of the floods?

Peter Hoetzinger

It was two days. But there also around the casinos that really impacted business that they were closed for six or almost seven days.

Russ Silvestri - Skiritai Capital

Okay. And then just trying to understand a little more about the Austrian opportunity, you went through it there pretty fairly quickly and I was just trying to follow along. But, have you been selected to provide the gaming at the InterContinental hotel and is this InterContinental hotel already built or can you just help me maybe rehash a little bit of that real quick for me?

Peter Hoetzinger

Okay, the hotel InterContinental has already been up and running for quite a number of years. And we have a joint venture company formed that includes the owners of that hotel, and some other investors. And we have a 26% stake in that newly formed company. And that newly formed company has submitted an application for the casino license.

Russ Silvestri - Skiritai Capital

And then is there a certain number of licenses that are allowed in the City of Vienna, since there is only one that seems like 2 million people it seems that there may be an opportunity there.

Peter Hoetzinger

Yes exactly, so there were three different licenses in the greater metro area of Vienna and we’re trying for one.

Russ Silvestri - Skiritai Capital

So there are three total new ones that are going to be offered by the government?

Peter Hoetzinger

Yes.

Russ Silvestri - Skiritai Capital

And then the three that will be offered by the government will be known in the first quarter of 2014?

Peter Hoetzinger

Yes, that's an indication there Steven, but it's not a firm date.

Russ Silvestri - Skiritai Capital

And what is the political climate? Has there been much push back of people embracing it?

Peter Hoetzinger

There is not really any doubt that they are going to issue those licenses, it’s a new gaming act. And it’s only really about the timing that we are uncertain of, and obviously there are other applications, so there is absolutely no indication or guarantee at all that we will be successful. We have a very great project but we submitted it and now it's up to the authorities.

Russ Silvestri - Skiritai Capital

And last question, of the three facilities, how close do you think the three would be to one another?

Peter Hoetzinger

They have proved in the regulations that they will not be that close, there is a geographical diversification in the regulations for these three licenses and we don't think that there is enough room and the market is big enough so that each one of them can be very successful.

Operator

And we'll take our next question from Justin Ruissi.

Justin Ruissi - Sidoti & Company

I just had a quick question the progression of how Poland is dealing with the removal of all the slot machines at all the locations outside of casinos. Are we looking at this on a rolling basis or will this just impact probably around that time like that 2016 marker where everybody will just kind of first push out?

Peter Hoetzinger

It's rolling but the more heavier impact will be faced at the end of the three years, because what the existing route operators can do is, if one license expires for a machine they can actually let the license of the machine that are not well performing expire and use the license that's running a little bit longer for the machines that are better performing. So we will feel the bigger impact towards the end of the three years.

Operator

And there are no further questions. (Operator Instructions).

Peter Hoetzinger

So no further questions and I thank everybody for your interest in Century Casinos and your participation on the call. For recording of the call, please visit the Financial Results section of our website at cnty.com. Thank you.

Operator

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

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Source: Century Casinos' CEO Discusses Q2 2013 Results - Earnings Call Transcript

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