Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)

Century Casinos, Inc. (NASDAQ:CNTY)

Q3 2013 Earnings Call

November 14, 2013 9:00 AM ET

Executives

Peter Hoetzinger – Vice Chairman, Co-CEO and President

Erwin Haitzmann – Chairman and Co-CEO

Margaret Stapleton – EVP, Finance

Analysts

Justin Ruiss – Sidoti

Russ Silvestri – Skiritai Capital

Operator

Good day, ladies and gentlemen. Welcome to Century Casinos’ Q3 2013 Earnings Conference Call. Today’s call is being 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. Please go ahead sir.

Peter Hoetzinger

Thank you, Sarah. Good morning everyone in North America and good afternoon to all our European listeners. I am happy to have all of you join us for this call following the release of our third quarter 2013 earnings. With me on the call today are Erwin Haitzmann, Co-CEO and Chairman of the company and Margaret Stapleton, Executive Vice President 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. We undertake 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 the Investors section of our website at cnty.com.

The third quarter was quite challenging as our feeder markets in Colorado and Calgary suffered from significant floods and we also encountered increased economic uncertainty partly driven by the government shutdown in the U.S. The period over period increases of 54% in net operating revenue and 19% in adjusted EBITDA relates primarily to the inclusion of operating results from Casinos Poland Limited. Earnings from operations decreased the two operations in Colorado, but grew 57% in Calgary and 11% in Edmonton, where we continued to make good progress in enhancing operating efficiencies and maintaining a disciplined approach to marketing.

The balance sheet continues to be strong. As of September 30, 2013, the company had $30.4 million in cash and cash equivalents and $16 million in outstanding debt for a net cash position of $14.4 million, approximately $0.59 per share. The ratio between debt and adjusted EBITDA for the trailing 12 months is at the healthy 1.3 times. The book value per share grew to $5.05. For all properties, total CapEx in the quarter was $820,000, a 2.8% of revenues and we spent mainly on upgrades to our Slot Data Systems in Cripple Creek and Central City and on the new casino location for Casinos Poland in Warsaw.

Turning to the individual operations. The Century Casino & Hotel in Edmonton showed in local currency 5% revenue growth. EBITDA increased by 14% resulting in a very strong EBITDA margin of 35%. This is our largest property with the total of 759 gaming machines and 34 gaming tables. The growth was broad-based. It came from the slots and the tables as well as from the non-gaming side. The increase in hotel and food and beverage revenue came as a result of high hotel occupancy and increased customer volumes on the gaming floor. This property will be celebrating its seventh anniversary on November 17 with the draw for a new car as well as free cake and coffee and cash give away. We continued to market and grow The Players Cup Loyalty Program and to market the showroom with live entertainment as well as our Yuk Yuk’s Comedy Club. We are expecting high customer volumes to the casino and our S&P outlets throughout the fourth quarter as holiday and Christmas events begin booking up.

In Calgary, our focus on operating efficiencies continues to show positive results. While revenue was down 14%, we still managed to grow EBITDA albeit not to the extent we had hoped for. Gaming revenues decreased primarily due to a decrease in fact to our table game hold percentage and lower customers – customer volumes for the three months ended September 30,013 compared to the same amount of last year. Beginning of this year, we began hosting strong performances from third-party vendors only resulting in decreases in S&P and other revenue. These decreases were partially offset by an increase in bowling revenue due to higher bowling customer volumes for open bowling. As mentioned previously, the results in Calgary were also impacted by the fact that some roads around the casino were closed for some time early in the quarter and most customers in our feeder market had serious issues to deal with due to the heavy floods.

Marketing situation is now back to normal. We have introduced a host of new marketing and promotions efforts such as weekly cash draws, complimentary life bands in the smaller showroom and the new menu in our Mid City Grill restaurant to support our focus on the growth of our player loyalty program. This quarter was really distinct and peculiar as natural events affected us twice, not only in Calgary, but also in Colorado. As most of you know during the second week of September, unprecedented flooding devastated parts of the State of Colorado. The flooding which occurred across 2,000 square miles had a significant negative impact on our businesses in Cripple Creek and Central City.

Several thousand people in our feeder markets of Denver, Boulder, Fort Collins, Colorado Springs and Manitou Springs, the metropolitan populations at our Cripple Creek and Central City casinos primarily were evacuated and several main hirers were closed, approximately closed to weeks after the flooding. In addition, heavy rains during the month of July through September caused periodic road closures of the main highway to our Cripple Creek property due to mudslides or threats of mudslides. Not surprisingly, net revenues of the Century Casino & Hotel in Central City were down 10%. EBITDA was down 22%. Compared to our immediate competition, we still did okay as our market share actually increased by 1% in Central City.

In Cripple Creek, Colorado, we did reasonably well under the circumstances with revenues down just 2% and EBITDA down 10%. The market share of that property increased by 6% in the quarter. We expect to see flood to small growth in the Colorado market. Our marketing and promotion strategy focuses strongly on weekend promotions and casino volumes are higher. We recently upgraded the casino management system at Central Casino, Cripple Creek and we will perform the same upgrade in Central City in December. The upgrade through Bally Technologies’ Slot Data Systems and casino marketplace versions 12 will allow our casinos to actively download the book credits, which have recently been approved in Colorado as well as connecting to the iVIEW displays on slot machines, which has graphically and promotional capabilities increasing the convenience and excitement for our players.

Now, I think a review of our European operations. Since April 8 of this year, we own a controlling 66% majority stake of Casinos Poland Limited, the market share leader in the casino industry in Poland. In the third quarter, revenues were up 8% year-over-year and adjusted EBITDA was up 34%. Casinos Poland operates nine casinos most are located in four and five star hotels in major cities throughout the country. Earlier this month on November 7, we opened a second casino in the Marriott Hotel in Warsaw. The entrance to this new venue is next to Warsaw’s main train station in the popular shopping mall providing for substantial pedestrian traffic directly in front of the new casino location.

Some of our smaller casinos in Poland are still performing behind expectations and are not yet contributing positively to the bottom line. We are evaluating the market potential for these smaller operations and may decide to relocate one or two casinos, which may trigger onetime costs and expenses. About 70% of the gaming revenue in Poland comes from the table games with roulettes being the most popular. 30% comes from the slot machines. We are almost done with upgrading all operations to a ticket in, ticket out system and hope to grow slot revenues significantly over the next years. As to the gaming regulations, all gaming machines currently operating outside of casinos (indiscernible) have to seize operation within less than three years from now.

Industry experts estimate that these machines generate around $100 million annually. This is obviously a great long-term opportunity for the licensed casinos and with our market share of about 45%, we should be well-positioned to capture a great part of it. We believe that in a couple of quarters, the performance of Casinos Poland will get even better and we will be able to start realizing the full potential of this investment. The 13 casinos we operate and manage on cruise ships and in Aruba had slightly lower revenues, down 2%. We extended the casino agreement with three cruises, which is a joint venture between TUI Germany and Royal Caribbean cruises and also included their newest project at 2,500 passenger vessel currently under construction and scheduled to commence operations in early 2014.

With that, a few words about new projects and opportunities. We previously announced that we are looking into a Racino project in Calgary in cooperation with the company called United Horsemen of Alberta, Inc. While I am happy to report significant progress with this project now has been named Century Downs racetrack and casino. We are well advanced in our negotiations with United Horsemen of Alberta to increase the size of our (indiscernible) in return for an ownership stake significantly higher than the 60% reported previously. Total CapEx for the project is budgeted at $24 million funded by us from cash on hand as well as our credit line with BMO, which we are in the process of expanding. An initial term sheet to that effect has been signed with BMO already.

The project received preliminary licensing approvals from the Alberta Gaming and Liquor Commission and all significant shareholders have already been found suitable. Horse Racing Alberta, the governing authority for horse racing in Alberta also issued the required license already. Century Downs will be the only horse racetrack in Calgary and has a casino with 550 slots as well as food and beverage and entertainment facilities. Location is just great, adjacent to the successful CrossIron Mills regional shopping mall, north of Calgary and is directly on the major highway connecting Calgary and Edmonton. It’s ideally positioned to capture the markets of North and Northwest Calgary, both of which do not have the casino. The market site development plan and the implications for final development and billing permits are all in the works expect to be in place in the first quarter. Subject to those approvals and to final BMO funding, we aim for an opening in late 2014.

In June of this year, we submitted an application for a casino license in Vienna, Austria. Currently, there is only one casino operating in Vienna, a market of almost 2 million people plus 12 million overnight stays of tourists annually. It’s one of four companies applying for this license. Century Casinos is managing a consortium of Austrian individuals, entrepreneurs and investors, a 26% ownership stake and a management agreement make us the leader of that group. We expect the total investment of approximately $28 million of which we would carry 26% if the casino concession would be granted.

Casino will be developed in an elegant, retro 1960s style at the 450-room hotel Intercontinental in Vienna and would target international tourists, business travelers, congress and convention guests as well as affluent domestic and European casino visitors. After nine-month construction period, the casino will offer approximately 25 gaming tables, 300 slot machines 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.

With our internationally experienced management team and our borrowing capacity under the credit agreement with BMO, we remain location flexible to undertake projects in any well-regulated casino market worldwide. We continuously evaluate multiple opportunities on a global basis and are currently focusing on further deals in North America and Europe. These include Greenfield developments as well as possible acquisitions. In terms of short-term guidance, I am happy to report that our existing operations have started very well into the fourth quarter. Consolidated net operating revenue for October was up sharply, was up about 62%.

Well, that concludes our summary for the third quarter 2013 results and I open the floor to questions. Operator, go ahead please.

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen at this time, we will conduct a question-and-answer session. (Operator Instructions) We are now ready to begin. We’ll go first to Justin Ruiss with Sidoti.

Justin Ruiss – Sidoti

Hi, Peter. How are you?

Peter Hoetzinger

Hi, Justin.

Justin Ruiss – Sidoti

Just had a quick question on the racetrack that’s going up in Canada, is that I guess if it’s open air or anything on that level, is that going to be an operationally year-round racetrack or do you close off that for certain months of the year?

Peter Hoetzinger

We begin on the earlier on facility. Erwin, can you provide more detail?

Erwin Haitzmann

Yes, year-around initially standard later on to operate a minimum of 100 racing days per year.

Justin Ruiss – Sidoti

Okay, perfect. Thank you very much.

Peter Hoetzinger

Sure.

Operator

(Operator Instructions) We’ll go to (indiscernible).

Unidentified Analyst

Jim Fold, thank you for taking my question. I wanted to get a perspective as to how large the Polish operation could be and how profitable? I think you mentioned that of nine casinos in Poland, one or two are not profitable, is that correct?

Peter Hoetzinger

Yes, one or two of the smaller one are not yet there where we want them to be. So we see some improvement there. As I have mentioned, we also expect over the next couple of years significant improvement on the gaming machine revenue, because all those street machines will have to close.

Unidentified Analyst

So they are closing these gaming machines when?

Peter Hoetzinger

Every gaming machine that’s operating outside of those casinos has a license and that the duration of that license is six years and the new gaming law says that these licenses will not be extended or renewed once they expire. But they have not all being granted at the same time, so they pretty much every day or every week some licenses for some of those machines expire.

Unidentified Analyst

So this will continue to benefit you?

Peter Hoetzinger

We are seeing it over time.

Unidentified Analyst

That’s interesting. What is the seasonality in Poland for gambling?

Peter Hoetzinger

This summer month middle of June to early September are the low season because many Polish people especially the affluent people take vacations and leave the country.

Unidentified Analyst

So the quarter you just reported would be the lowest quarter for revenues from Poland?

Peter Hoetzinger

Yes, it has been historically the case, yes.

Unidentified Analyst

Okay and can I assume the fourth quarter would be the largest revenue around the Christmas season?

Peter Hoetzinger

Yes, but there is not that big of difference between the fourth and the second, but yes for intents and purposes it’s strongest.

Unidentified Analyst

And the Vienna Casino how much revenue do you think in total that could generate, it sounds like a very large casino?

Peter Hoetzinger

It’s not disclosed on our estimates for that. But it would be – it would move the needle for the Century Casinos, that’s certain, both on the revenue and also on an EBITDA level.

Unidentified Analyst

Thank you very much.

Peter Hoetzinger

Thank you Jim.

Operator

Next we will hear from Russ Silvestri with Skiritai Capital.

Russ Silvestri – Skiritai Capital

Hello, good morning.

Peter Hoetzinger

Hi Russ.

Russ Silvestri – Skiritai Capital

Hi, couple of questions. First off just in regards to the Polish casinos you have talked a little bit about and the ability to expand the operating margins there, could you talk a little bit about how that’s going and when we might expect to see that, that’s my first question? I got a couple of others after that.

Peter Hoetzinger

Yes, Erwin can you say something to this?

Erwin Haitzmann

Sure, sure. Hi Russ.

Russ Silvestri – Skiritai Capital

Hi Erwin.

Erwin Haitzmann

We have – there has been a change in management since we own two-third and of the three managers that were there two are new. And they are working hard on improving a number of things. And we are seeing (indiscernible) and I think you will have to see in the numbers it changed in Q1 and Q2 of 2014. One of the more significant changes are that is with time and with groups discontinue renting space in the higher total in Warsaw because we moved license from there over to the Marriott where we opened the second casino in that building. And the higher – rent is very high, but we needed to keep it for in connection with the license application process for that big reason. But we see lot of improvements in various areas. I think it has to be said that slot machine mix has not been optimal and we are now working on improving the slot machines we have improving the mix and also increasing the number of slots so that we can accomplish what people said earlier that we see a significant increase in slot revenue.

Russ Silvestri – Skiritai Capital

Okay, then also looking at the G&A line, and I was curious how much of the G&A might be attributed to some of these development projects. Is that heightened in the current period just because of the things that are going on whether it’s the Racino or Vienna or some of the other operations that are should yield better margins in the future?

Peter Hoetzinger

Yes they should probably fit and especially the Racino project in Calgary requires quite a lot of timing and the effort and expenses. I don’t have the exact breakdown now handy but certainly there is a substantial amount and the effort for those projects.

Russ Silvestri – Skiritai Capital

So the $9.1 million I think it was I mean – is there something that you might – can you quantify it at all, is it 10%, 5%?

Peter Hoetzinger

I don’t know, Margaret can you say anything for that in terms of numbers?

Margaret Stapleton

Probably around 150,000 to 200,000 has gone into some of these projects evaluation on Poland and expenses for the United Horsemen project.

Peter Hoetzinger

And so I believe it is not going.

Russ Silvestri – Skiritai Capital

Okay and when you talk about the Racino project, I am just trying to remember now top of my head the total slots that you have today in Canada is what and then if you get the Racino project open how much more will it increase?

Peter Hoetzinger

There is – at the moment we have 750 in Edmonton and we have 504 in Calgary for a combined total of 1254.

Russ Silvestri – Skiritai Capital

Okay.

Peter Hoetzinger

Racino would add 550 so that’s…

Russ Silvestri – Skiritai Capital

Yes, I got it. But didn’t Racino also think was it unable to be increased over a period of time as well?

Peter Hoetzinger

Yes, but that’s not – is that when bookie notice that it has been slow noise that in the high likelihood.

Erwin Haitzmann

Hi I think it’s based on performance I would say between likelihood and very high likelihood.

Russ Silvestri – Skiritai Capital

Okay and then the final approval when do you start breaking ground on the Racino project?

Peter Hoetzinger

Yes, great, great.

Erwin Haitzmann

As soon as we have turn it lumpy to say and we hope that it would been in Q1, latest early Q1.

Russ Silvestri – Skiritai Capital

Okay and just in terms of the win per slot type of thing I mean would you expect the Racino to be more like Edmonton or more like Calgary or better than both?

Peter Hoetzinger

We believe it should do at least the average of what exist in Calgary casinos are doing. Yes, that’s what.

Russ Silvestri – Skiritai Capital

It sounds very conservative. Okay thank you.

Peter Hoetzinger

Yes, thanks Russ.

Operator

(Operator Instructions) Since there are no further questions at this time, I will turn the conference back over to you for any additional or closing comments.

Peter Hoetzinger

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

Operator

Ladies and gentlemen that does conclude today’s conference. Thank you for joining.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Century Casinos' CEO Discusses Q3 2013 Results - Earnings Call Transcript

Check out Seeking Alpha’s new Earnings Center »

This Transcript
All Transcripts