Earnings Labs

Century Casinos, Inc. (CNTY)

Q3 2018 Earnings Call· Sun, Nov 11, 2018

$1.41

+1.44%

Key Takeaways · AI generated
AI summary not yet generated for this transcript. Generation in progress for older transcripts; check back soon, or browse the full transcript below.
Transcript

Operator

Operator

Welcome to Century Casinos Q3 2018 Earnings Conference Call. This call will be recorded. [Operator Instructions] I would like to introduce your host for today's call, Mr. Peter Hoetzinger. Mr. Hoetzinger, you may begin your conference.

Peter Hoetzinger

Analyst · Stifel

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'd 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 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 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 SEC filings, available in the Investors section of our website at cnty.com. I will now provide a brief review of the company's financial results for the third quarter. Following the prepared remarks, there will be a question-and-answer session. We are happy to report a 6% increase in net operating revenue, driven by strong performances in Canada, Colorado and in Poland. Adjusted EBITDA was lower compared to last year due to extra cost and expenses related to the licensing situation in Poland and the slower than expected ramp up of the newly opened casino in the UK. The extra cost and expenses in Poland occurred in July and August. From September on, we are through with it finally. With the reopening of two more casinos in Poland in the latter half of the quarter, we already see strong adjusted EBITDA performance returning to…

Operator

Operator

[Operator Instructions] Our first question comes from the line of Brad Boyer with Stifel.

Brad Boyer

Analyst · Stifel

First question for you, Peter, it's just around the broader Edmonton market. The results on the quarter were a little bit softer than what we are looking for. I mean, you called out the low table hold at St. Albert. Clearly, there is I would say, some not necessarily new, but competition in that market seems to be pretty fierce. Just curious, if what you're seeing today in anyway, sort of, changes, how are you thinking about the ramp at Century Mile based on, what we've seen over the last a little bit here?

Peter Hoetzinger

Analyst · Stifel

Brad, we have seen revenue growth at our largest facility, the Edmonton, Century Casino & Hotel of 1.6% in local currency. St. Albert was a little bit down and yes, a competitor completely redesigned the casino, and they opened in the West Edmonton Mall and that was the time for about, I guess four to six weeks. Also some of our players wanted to see that new facility. But that has been fully digested. Everything is back to normal and we are very confident about the mid and long-term outlook for our growth at Edmonton.

Brad Boyer

Analyst · Stifel

Okay, that's great. And then if you shift gears to Poland, obviously actually the volume growth was quite impressive in the quarter. Just curious, if you can give us some sense of what, sort of, the same-store metrics look like if we share about some of the noise on the revenue side? What I'm getting at is, I think, that the revenue environment in Poland it feels like it's very strong today and I think people are sort of overlooking this as sort of the margin noise around the licenses renewals have has gripped the stock. So could you just give us a sense of sort of what you're seeing in Poland on a same-store, sort of, revenue basis, excluding any noise from license renewals?

Peter Hoetzinger

Analyst · Stifel

Yes. That is definitely in the double digits. As I mentioned, we saw slot coin in increased by 35%, table drop was up 20%. And that is actually better than same-store sales comparison, because that includes two-thirds of the quarter with one or two less casinos, compared to last year. So if you really compare the same number of casinos then the growth is actually even higher. We also see that filtering down to the EBITDA line at a tremendous pace. And yes, almost all of third quarter's EBITDA came from September only and October is looking even stronger.

Brad Boyer

Analyst · Stifel

Perfect. And then last question is just around your current thoughts on M&A. I mean, obviously, you guys have some dry powder above and beyond Century Mile. I mean, you have a nice flexibility on the balance sheet beyond the liquidity that's sitting there today. Just give us some thoughts around how you're thinking about potential M&A activity going forward? If there's any particular geographies that appeal to you more than others? And yes, I mean, that's pretty much it.

Peter Hoetzinger

Analyst · Stifel

Yes, Brad. You'll probably see us doing the one or the other smaller deal in like in next six months or with little CapEx requirements for us. But more importantly, we see quite a lot of opportunity for acquisitions in North America. Not so much greenfield anymore, but acquisitions in Canada and the U.S. And we are actively uptrend in marketplace and have three or four opportunities on our table in Canada and in the US that we are currently analyzing. So that's a very high likelihood that, that we'll be coming to the market with news in the next six months.

Peter Hoetzinger

Analyst · Stifel

Okay. And then just to finish on that, last question for me. To the extent that you do execute on one and/or multiple of the opportunities that you're currently looking at. Could you just remind us, sort of, how you're thinking about leverage and, kind of where you are comfortable taking leverage to the extent there is attractive accretive growth opportunities out there? That's all for me.

Peter Hoetzinger

Analyst · Stifel

We have said in the past that about three times, that's the number where we are comfortable with now. It depends on the opportunity, but around that number is something that we look for on an ongoing basis. Now if there is a few quarters where it's a bit higher, that's a possibility and if the opportunity is right, but right around that number is where we feel in the long term comfortable.

Brad Boyer

Analyst · Stifel

Perfect. Thanks Peter.

Operator

Operator

Your next question comes from the line of David Bain with Roth Capital. Your line is open.

David Bain

Analyst · David Bain with Roth Capital. Your line is open

Most of mine were just asked, actually, but I would like to follow-up one on the M&A. When you're looking at seemingly, a lot of larger companies looking to shut smaller assets. Typically, Century, to my understanding, does about one to two deals per year, one, could that accelerate given what you're seeing out there? And then two, size range, is there a way, structure wise, so that your leverage can stay three, four times that you can get multiple properties? Or what size range would you look at a single property, perhaps? That would be helpful. And then how do you balance that with share repurchases or other CapEx investments based on what you're seeing right now?

Peter Hoetzinger

Analyst · David Bain with Roth Capital. Your line is open

Thanks Dave. In markets where we are not active yet and Vietnam was such an example, the size of any deal will be small, say, $5 million or less in terms of our investment. However, in Canada and in the US, we are definitely trying to move into larger unit sizes, larger properties. And if we do an acquisition or two then we would aim for those new projects to be similar in size to the largest ones that we currently have. So in other words, the EBITDA of a new project in North America, ideally, should be $10 million plus. And definitely, new project and acquisitions, that's definitely our top priority in terms of use of funds and only if we cannot find attractive targets then we would consider share buyback or dividend.

David Bain

Analyst · David Bain with Roth Capital. Your line is open

Okay. Perfect. And there is one follow-up on Poland. So pretty clear, you did the $900,000 in EBITDA just for the month of September. So to keep it simple, bigger picture, is it fair to say that Poland is generating on a per quarter basis about 2.7? And then we look at another opening early next year in the market dynamic that you spoke to that growth, is that a kind of a, I don't know, a bare bones way to look at it at this point?

Peter Hoetzinger

Analyst · David Bain with Roth Capital. Your line is open

There is some seasonality to it. The summer is, like June, July, August, is typically slower. But yes, but that's - I think that's broad-based, but pretty good picture, yes.

David Bain

Analyst · David Bain with Roth Capital. Your line is open

Okay, great. Thank you so much.

Operator

Operator

[Operator Instructions] Your next question comes from the line of Eric Des Lauriers with Craig-Hallum Capital.

Eric Des Lauriers

Analyst · Eric Des Lauriers with Craig-Hallum Capital

I was wondering if you could help drill down a bit more on the results in Century Downs Racetrack. Just add a little bit more color to that 23% revenue jump. Was the onetime? Was there some thoroughbred racing events there? And just more of this $7.5 million level, is that a sustainable level, do you guys think?

Peter Hoetzinger

Analyst · Eric Des Lauriers with Craig-Hallum Capital

Sorry. Could not fully hear the - understand the question. The connection is very bad, but I think you were asking about Century Downs and how that - the thoroughbred racing and the weather impacted the results, right?

Eric Des Lauriers

Analyst · Eric Des Lauriers with Craig-Hallum Capital

Yes.

Peter Hoetzinger

Analyst · Eric Des Lauriers with Craig-Hallum Capital

Yes, okay. Much better. Definitely, that was a big plus and the on and off-track betting greatly benefited from that. We also had larger crowds on these weekends and more affluent people visiting our facility. And that all helps on the gaming floor and also in the F&B department. So it's an overall very positive development with thoroughbred racing. And that's where we also work very hard with the horse racing association to have thoroughbred racing right from the beginning at Century Mile also. And we've worked out the great schedule for both tracks with a great mixture of post briefs throughout the entire season. Weather wise, not really any impact. The races, they do run up until November and again start in, I believe, it's around March or April, so it's a pretty - it's going to be a pretty full schedule almost year round.

Eric Des Lauriers

Analyst · Eric Des Lauriers with Craig-Hallum Capital

Okay, that's great. And is this roughly C$30 million run rate. Is that a sustainable run rate? Or was Q3, especially, seasonally strong with a number of races?

Peter Hoetzinger

Analyst · Eric Des Lauriers with Craig-Hallum Capital

Q3 is, may be, a little bit stronger, yes. So it's may be, I don't know, 5% stronger than the other quarters, but not more than that.

Eric Des Lauriers

Analyst · Eric Des Lauriers with Craig-Hallum Capital

Okay, great. And then on the EBITDA side, I know margins were up slightly year-over-year, but almost a 6 percentage point decrease from the 45% level in Q1. I know you guys are implementing there is some extra cost associated with implementing thoroughbred racing. I'm just wondering if this high 30s margin is the sustainable run rate going forward. Or if we should see a tick up back into the low 40s?

Peter Hoetzinger

Analyst · Eric Des Lauriers with Craig-Hallum Capital

One of the other quarters should see the tick up into the low 40s. We had some costing expenses in there for the thoroughbred racing, but that's adjusted now going forward. There is no extra burden anymore. So we are comfortable in the high 30s, low 40s.

Eric Des Lauriers

Analyst · Eric Des Lauriers with Craig-Hallum Capital

Okay, great. And then final question for me on the Bath, UK casino. I know the ramp has been slower than what you expected, but I'm just wondering if you could give us, sort of, what's your outlook is at scale of what you think this property could generate on a revenue and EBITDA basis?

Peter Hoetzinger

Analyst · Eric Des Lauriers with Craig-Hallum Capital

Yes. We said before we opened that once it's fully ramped, it truly has the potential to chariot between one and two based that's on an $8 million investment. And it's just taking us longer than expected. There are some, I think, I've mentioned it before, restrictions of what we can do with - related to the pricings and promotions, also with the building for such, we are slowly working through all those issues. We see improvement. So it's probably for 2019, the goal is to have positive EBITDA and then approaching $2 million that's probably going to take a year longer than expected.

Eric Des Lauriers

Analyst · Eric Des Lauriers with Craig-Hallum Capital

Okay, great. Thanks.

Operator

Operator

I will now turn the conference back over to our moderators for concluding remarks.

Peter Hoetzinger

Analyst · Stifel

Thank you, everyone, 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

Operator

This concludes today's conference call. You may now disconnect.