Welcome to Century Casinos Q4 2019 Earnings Conference Call. This call will be recorded. [Operator Instructions]. I would like to introduce our host for today's call, Mr. Peter Hoetzinger. Mr. Hoetzinger, you may begin.

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 Chief Financial Officer, Margaret Stapleton. Before we begin, we would 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 do provide a detailed discussion of the various risk factors in our SEC filings and 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, all of which are available in the Investors section of our website at cnty.com. I'll now provide a brief review of the company's financial results for the fourth quarter 2019. Following these prepared remarks, there will be a question-and-answer session. In Q4, the big story for us was the completion of the largest transaction in the company's history. The acquisition of 3 casino operations in Missouri and West Virginia from Eldorado Resorts for $107 million, representing a 3.5 EBITDA multiple. These are 3 quality assets in strong and stable gaming markets, each enjoying a leading regional position and each with a long track record of producing solid revenue and growing EBITDA. More on the encouraging initial results in a couple of minutes. With this acquisition, we have doubled the size of our company, which truly underlines -- which underlies the truly…

[Operator Instructions]. Our first question comes from David Bain with Roth Capital.

Great. I guess the first question I have is just kind of given everything that's going on, does this make the opportunities out there, time to negotiate acquisition is -- does this put things on hold? Or does it actually make things more lubricated for you, if you will, are you assuming -- is that the REITs are still open with respect to deals you're looking at, is that the case? Or have you been in touch with them of late?

Dave. Yes, REITs are open. Other -- like debt funding is that's not so -- that's not so certain. And the targets out there when -- the publicly listed companies, they don't consider them to be sellers, of course, at this point in time with the low stock prices. But we are looking at other properties, have been looking for quite some time. And giving it a little bit of time, I think, come summertime, you'll see us active again. We don't want to rush anything just because of the current virus situation, that will not trigger any actions from us on the M&A front.

Okay. Got it. And then, Peter, also, just looking at the public revenue and some of the numbers that you cited through March. Congratulations, by the way, especially with regard to the new domestic portfolio, I'm hoping to get an idea of EBITDA flow-through. Is that kind of close to the same revenue growth? Should we look at that? Or does that expand and get refined through the year? How do we look at the kind of the flow-through as you've increased revenue at the properties?

If the cost and expense structure stays roughly the same as it has done in January and February, in other words, if there is nothing coming because of this virus situation, then the EBITDA should grow by a little bit more than the revenue growth. That's why we are pretty confident for now that we can even improve on the Eldorado margins.

Okay. And then just last one, just a follow-up on your coronavirus comments. So outside of some movement in Poland, you haven't seen any impacts to offerings, given they're local, they don't have a lot of flying. But Century Mile, that is a portion of its [indiscernible] base that comes from the Edmonton Airport, correct? Are you not seeing any sort of impact there?

Erwin?

At the moment, we don't see anything yet, so far so good.

[Operator Instructions]. Our next question is from Chad Beynon with Macquarie.

I wanted to just ask one more on the coronavirus, and all the color that you gave so far has been very helpful. But within, I guess, the closed regions where you have properties, are you aware of any other measures that the local county or city has made in terms of like school closures or any other things that could potentially scare your patrons from coming? Or do you feel like at this point, the regions where you operate, I guess, the hype is a little less than what we're seeing in some of the major cities?

Did you see, Erwin, that?

I think at this point, we don't see anything, but that can change.

Colorado has some schools closed as of today, I believe.

Okay. And then a common question that we're getting from investors this week is just around any leverage covenants. Obviously, your debt leverage is lower than most of your peers, but are there any covenants or any provisions within your debt documents that we need to be aware of?

We're very covenant light, but, Peggy, can you go into a little bit of detail?

Agree, Peter, we're just -- we're covenant light, and we would not expect to trigger any covenant issues at this point in time.

Okay. And then the last one, just with respect to your comment on some of the items that you've done since the closing of the Eldorado properties, you said you're replacing some of the lower-performing machines. Is this something that you started already? I mean could we start to see the benefits in as early as late in the first quarter or second quarter? Is this something that's already been put into place? Just kind of help us with the timing of maybe some of these revenue synergies?

Erwin, please?

This is Erwin. That has been partly put in place already. So a number of those slot machines that we took up are already on the floor and some reconfiguration that we made this way. So yes, we will see -- provided the situation stays the same, we'll see that already in the latter part of this quarter.

Our next question is from Richard Smith, a Private Investor.

Considering the considerable drop in your share price, would the company consider buying back shares at this time or in the future?

Thanks for that question. That is always a consideration. At the same time, we look at our cash needs to improve the existing operations, and we look what else is out there to improve our stock price. But this is 1 consideration that we have. But there's nothing that we will do like immediately because we are still finalizing our immediate CapEx plans for the properties that we just acquired. So don't expect anything immediately to happen.

Okay. But the company does have ample cash to buy back shares if you -- within the next -- I don't know, couple of months if you have to -- the stock drops, let's say, into the 2s or something?

Yes, we have about $51 million cash on hand and with lines of credit. So be the share buyback or other very important CapEx things that we have on our agenda, yes, we have the cash.

Our next question is from Steve Claspill with RJ & Associates [ph].

Just real quick, you kind of just addressed this, but I just think the market is not understanding the strength of your balance sheet and just if you could reiterate that? Because obviously, the stock at this price doesn't make a lot of sense. I just wanted you to kind of reiterate that.

Yes. Thanks, Steve. Listen, we have -- I think, we have one of the strongest balance sheets in the gaming industry, 2.5 net debt-to-EBITDA leverage is -- is really pretty healthy. But at the same time, we've all been through various crises over the last 30 years when Erwin and I founded the company in '92. Everything with the word casino in the name has gone through the roof in terms of stock price. And then we had over the last -- almost 30 years, we had various situations, where many of our small competitors or highly leveraged competitors did not survive. We are still here with a balance sheet that's almost stronger than ever. And you will find us continuing going forward on a more conservative way compared to many others.

Our next question is from Brad Boyer with Stifel.

And sorry, if you've already answered these. I had trouble getting on the line. First question, Peter, for you. I noticed you called out in the release that thus far outside of Poland, you hadn't seen much of an impact from the virus on the business. Could you just kind of give us a sense of does that comment relate to -- up until, say, yesterday, was that up until some other point of time? Just any context around that would be helpful.

Yes, Brad. That is up until yesterday, we don't see any real impact in Colorado, in West Virginia, in Missouri and also in Canada. Yes, and we also don't see any measures mentioned like closure of anything in the state other than Colorado, I think certain schools have closed. Poland is a bit different. Yes. But then again, so far, it's around 10%, and that has been for a couple of weeks now. It's pretty stable at that number.

Okay. That's helpful. And then, I mean, obviously, relative to the Albertan oil market, I mean, oil prices have been sort of relatively low for a while now. But obviously, there's been a little bit of a shock to the system in the last couple of days. Could you remind us just what you believe to be your relative exposure to the oil patch in Alberta is at this point from sort of a customer sourcing perspective? I know over the years, you sort of kind of helped us frame the segments of the demand pool in Alberta. Any color you could provide there?

Yes, that's a little bit of a worry for the chemical segment. I mean the companies during the last oil crisis, about 5 years ago, they have downsized. They say they have rightsized. So there's no talk of any like huge layoffs or anything at all. But we are monitoring the situation. On the flip side of it is that, as you know, gas prices has a big correlation with regional gaming revenue. And with our new strength in the U.S. regional markets, there's, I think, a lot of tool to offset a possibly weaker economy in Alberta with low gas prices helping us in the U.S. regional gaming markets.

Okay. That's helpful. And then, I mean, as we look at your Polish operation today, I realize it's a smaller percentage of the overall business than it was prior to the Eldorado deal. But it's a nice little business. It's doing, the recent headwinds aside, somewhere in the neighborhood of $10-or-so million of EBITDA. I think it's still relatively ignored by North American investors. They just don't really have a good feel for that market. How committed are you to owning that business long term? And I mean, is that something where you could potentially look? I mean, I know there's a couple of opportunistic buyers out there potentially. Do you think that's a business that you could look to eventually unwind at some point and kind of redeploy that liquidity elsewhere?

We are constantly considering various options. And with Poland, as you said, it's a nice little business, producing solid numbers. We only had the hiccup around 5 years ago, and that is still some kind of a negative effect, I believe, on some U.S. investors because it created some uncertainty, even though it was only a onetime event in the 30-year history of Polish gaming. The value of that investment is the big question because of the 6-year license -- lifetime of a license, the question is, how much can you really get if you put it on the market. So we'll see. We have not decided yet. So far, we are very happy to own it, and it generates very good revenue and EBITDA for us. And cash flow because we are getting the dividends out of the countries.

Okay. And then lastly, I don't know if you commented on this at all, but just from a housekeeping perspective, did you mention at all what you think CapEx could look like for this year?

We've said that in 2019, on a pro forma basis, including the new properties, it was $10 million, down from $11 million in 2018. And I'll pass it over to Erwin. Erwin, do we expect it to go a little bit higher because of some things that we implement at these new properties?

On one hand, yes; but on the other hand, at the moment, in the situation where we are now, we are holding off on CapEx over the next few weeks on things that are not absolutely necessary or things that are not in the middle of being completed. So depending on how quickly we can go back into normal node, that may impact -- that will impact the total CapEx spend. So if we stay on the costs aside, it could be less than $10 million. If not, then it will be a little more because of like you said, Peter, with -- due to the investment in changing of products and other things in the new properties.

Our next question is from Jamie Yackow with Moab.

So Peter, Erwin. I may have missed it, but did you guys provide any commentary or updated outlook in terms of when you're thinking to get to full run rate on the Century Mile property?

No, no, we have not given that number. It's -- as you said, it's ramping up slower than expected. Revenue is okay. But on the cost side, we are working and we are squeezing the numbers that we are trying to get the EBITDA margin to where it should be. Any more from you, Erwin, in terms of timing, when we think we'll get there?

No. I think, it's hard to say. I mean, we do not quantify these terms. Well, we see positive movement, and we're confident that we get it up, but it's hard to say. And we see now a regulation impact, but how quickly it will go, at the time, it is hard to estimate.

Got it. I think you guys have previously said you thought by like second quarter, you could have -- you can be approaching that run rate. I guess, would you say, I mean, obviously, with the virus and all the uncertainties, do you think the -- I mean, first of all, do you think the run rate of $9 million or $10 million is realistic at this point in time longer term? And would you expect, I don't know, to exit the year at the very least on that run rate, just given kind of the uncertainties?

Can you say anything to that, Erwin?

I would say long term, it's a -- long term, it's realistic projects, not realistic for 2020.

Understood. And what about -- just someone asked you about the flow-through on the upside. But what about on the downside, you said Poland was down 10%. How do we think about the flow-through to EBITDA?

Yes. I mean, same with the upside. On the EBITDA side, it's a little bit higher.

Okay. And I guess, just lastly, a comment, just given kind of where your stock price is and the cash generation and the belief that this will pass over time, the virus, I think it would be rather than -- I get it, there's exciting opportunities out there, but just given where your stock is, I think we feel strongly that you guys should be looking at buying back your own stock at a normalized 25% plus type of free cash flow yield as opposed to making further acquisitions. Are we good at that?

Thanks, Jamie.

There are no further questions at this time. I'll turn the call back to Mr. Hoetzinger for any closing remarks.

Yes, I would like to thank everybody 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.

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