Peter Hoetzinger - Vice Chairman of the Board Co CEO & President Erwin Haitzmann - Chairman of the Board & Co CEO Margaret Stapleton - Executive Vice President of Finance.

Brad Boyer - Stifel Eric Des Lauriers - Craig-Hallum David Bain - ROTH Capital.

Welcome to Century Casinos Q2 2018 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 Executive Vice President of Finance, 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 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'll 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 filing from yesterday morning available in the Investor section of our website at cnty.com.

We will now provide a brief review of the company's financial results for the second quarter and following our prepared remarks, there will be a Q&A session. We are happy to report a 6% increase in net operating revenue, driven by strong performances in Canada and Colorado.

Adjusted EBITDA was lower compared to last year due to extra costs and expenses related to the licensing situation in Poland and the newly opened casino in the UK.

The extraordinary burden in Poland was around $1 million and in the UK, almost all of the pre-opening and opening costs of around $0.5 million are included in consolidated adjusted EBITDA because of new SEC guidelines regarding the two opening expenses.

Adjusted for both of these non-recurring effects, adjusted EBITDA for the quarter would have been 6.2 million, 6.3 million instead of the 4.7 million we had report.

It was clearly a transitional quarter, a quarter which saw our entry into the UK with the opening of the Century Casino in the city of Bath, a quarter which laid the foundation to land-based presence in Asia with our project on the Vietnam-China border and a quarter which contributed a great deal to creating long term stability in Poland as we now hold eight casino licenses compared to seven previously.

Considering these achievements, it was a good and very important quarter for the long term success of our company. Canada remains our strongest segment, generating 38% of our consolidated revenue. The Canadian operations grew revenues by 9% and the adjusted EBITDA by 11%.

In local currency, the Century Casino & Hotel, Edmonton offering 825 gaming machines and 35 gaming tables had lower revenues by 1%, EBITDA declined by 5%. The Century Casino St. Albert, also located in the Greater Edmonton area, increased revenues by 1%, adjusted EBITDA was down by 6%.

The [indiscernible] on the tables at that property was 16% during the quarter versus a more normal 20% to 21% last year. In the Calgary market, our Century Downs Racetrack and Casino continued its excellent performance. Revenue increased by 11%, EBITDA by 10%. The revenue increase was broad-based.

Everything from gaming to betting and food and beverage was up. Also the racing side of our business saw strong growth with larger crowds and racing weekends contributing to the overall success. The results of our second property in that market, the Century Casino Calgary, also continue to be very strong.

Revenue increased by 14%, adjusted EBITDA quadrupled. We reported already about the many changes we initiated at that property, including new top management as well as the introduction of Century Sports, a new brand which we introduced for the bowling, mini golf and other family-style games we offer at that property.

It’s good to see that also there the growth is broad based. Everything from tables and slots to off track betting, bowling, as well as food and beverage was up. The two US operations in Colorado contributed 22% of our consolidated revenue.

Revenue for the quarter grew 7% and adjusted EBITDA also 7%, driven by an excellent performance of our Century Casino & Hotel in Cripple Creek. We expect to finalize plans for our third expand at that property very soon and look forward to further enhancing our position as one of the leaders in the Southern Colorado gaming market.

Our casino in the Central City Black Hawk area has won the title of Best Casino in Denver again this year, ahead of much larger properties such Monarch or Ameristar in Black Hawk.

We will aggressively use that message in our marketing campaigns throughout Colorado and anticipate continued growth due to our strong focus on customer service, clear development, and consistent and strong promotions.

Over in Europe, the newly opened casino in the city of Bath in the UK is ramping up as predicted with hundreds of casino club membership signups every weekend.

We are fine-tuning the F&B menu, adjusting the staff rotas, treat the interior designs here and there, hold a lot of local tourism network events including some with the local Chinese communities, just the usual post opening things.

Revenue for the one-month it was open in Q2 was $0.5 million with the substantial pre-opening and opening costs and expenses brought EBITDA down to a negative 700,000. It’s another attractive and elegant casino in a great location, and we look forward to continue to grow as it fully ramps up in the coming quarters.

The casino is located in the city center in a multilevel mixed leisure development which includes various restaurants as well as 150 room hotel that will open at the end of this month. The entire city of Bath is a UNESCO World Heritage Site, and draws about 5 million tourists every year.

More importantly, the immediate catchment area includes close to 200,000 people, and we're the only casino in that market. Our casinos in Poland generated 37% of the company's total revenue. In USD, revenue was up 2% for the quarter even though we had three fewer casinos in operation compared to the same quarter of last year.

Again, with three fewer casinos in operations, yet we increased revenues. Poland really continues to be a strong market for us.

After a rather turbulent few quarters during which the official process for the award of casino licenses came under heavy criticism, especially for its late timing, which not only resulted in several casino closings throughout Poland, but also in lost gaming tax revenue for the government and additional cost and expenses for the operators, our subsidiary Casinos Poland has been awarded a total of eight casino licenses compared to seven we had previously.

Six of the eight are already in operation. The other two will open later this year. We are really glad that we can finally leave this relicensing mess behind us and look forward to generating much stronger EBITDA margins going forward.

Just how strong the market really is may perhaps be demonstrated based by a comparison of the only two casinos that we had in operations throughout this entire licensing, relicensing situation. They are both in Warsaw.

The first one is our flagship property at the Marriott Hotel which we have had since the beginning of our investment in Poland and without the interruption. It shows an average annual revenue increase of 11% over the last three years. The other is the casino at the Hilton Hotel, and this one increased revenues by 15% since its opening over a year ago.

From Poland, we moved to Asia, where we opened our first land-based gaming facility in Vietnam at the end of June. Through our 51% stake in Golden Hospitality Limited, we had an agreement to manage a hotel and international entertainment and gaming club in the Cao Bang province of Vietnam just 300 feet from the Vietnamese-Chinese border station.

Golden Hospitality Limited also owns 6% of the company that owns the property and has an agreement to increase that ownership stake to a controlling 51% for just 3.75 million.

The hotel offers 30 low standard rooms and the international entertainment and gaming club currently offers just seven electronic table games for non-Vietnamese passport holders. Traffic is increasing day by day. We will be able to report meaningful numbers next quarter.

We are currently finalizing plans to upgrade and expand the hotel and gaming entertainment facilities as one of the upgrade will include the renovation of the existing 30 rooms, relocation and expansion of the gaming floor, as well as the introduction of restaurants and karaoke club facilities.

We are aware of three other hotel and gaming operations along the 800 mile long Vietnamese-Chinese border all of which are more than 200 miles away from our location.

They offer substantially better hotel rooms and gaming positions compared to our current product which we see as a good indication for the strong demand for such gaming properties at border locations. We are excited about this opportunity. It’s a small investment, but great upside development and investment potential.

It is the typical low-risk, high-reward situation we always look for when entering into a new market. Now a quick look at our balance sheet and liquidity. We have $54 million in cash and cash equivalents and also 54 million in outstanding debt. That is zero debt, greatly enhancing balance sheet, I am sure you agree.

Total debt to adjusted EBITDA ratio sits at 2.2. Out debt includes $34 million related to our Bank of Montreal credit agreement, $15 million related to the Central Bank’s loan term bank lease, $3 million at Casinos Poland and also $3 million at the new casino in Bath in England. The book value per share is $6.02.

CapEx of existing operations during the quarter was $2.4 million or about 6% of revenues. That was a bit higher than usual, mainly because of leasehold improvements in two locations in Poland.

We are in the closing stages of final documentation for two loan agreements, one with Bank of Montreal for a $27 billion increase of our existing credit facility, the other we spent for a new $8 million credit facility. Together with the freely available cash of $25 million, that gives us $60 million available for investments.

We will use approximately half of these funds to complete our most significant and largest project to-date, the Century Mile Racetrack and Casino in Canada at Edmonton International Airport land. So far we have spent approximately USD18 million on the development and expect back to be on budget and on time when opening on a April 1, 2019.

It will be a multilevel building with a footprint of 48,000 feet, initially accommodating 550 slot machines, restaurants, bars, daily and off track betting parlor in the grandstand plus convenient parking for over 1,700 cars.

For comparison, that building will be 50% larger and the footprint will be almost twice the size of our successful Century Downs facility in Calgary.

As previously reported, the current Racetrack and Casino Northlands Park will close when we open Century Mile which means that Century Mile will not bring additional capacity to the Edmonton gaining market.

It also means that our existing casino in the Northeast of the, Century Casino and Hotel Edmonton will greatly benefit because its closest competitor will fall away. Therefore, we believe that our ambition to generate an EBITDA return of 25% on the USD48 million investment has a really good chance of success once the property has fully ramped.

Rest assured that we are fully focused on getting this very important development done right, done successfully and done on time and on budget. All right. That's the end of our presentation. I thank you for your attention and we can now start the Q&A session. Chris, go ahead please..

[Operator Instructions] Our first question comes from Brad Boyer of Stifel. Please state your question.

Yeah. Thanks for taking my questions guys. First one, Peter, is just around the margins. If I look at the Canadian segment and the US segment, and look at the levels of revenue growth that you delivered in both of those segments, I would have expected to see a little bit more margin expansion there than what we saw.

So just curious, was there anything going on there on the cost side, revenue mix side that may have flowed through negatively to the margins in those segments?.

In Canada, we have an increase in the minimum hourly wage. Erwin, maybe you can say more to that..

Yeah. Well, that's exactly it. We had an increase in minimum hourly wage which is by law and it's now at [indiscernible] per hour and then it will go up to 16 on October 1 and then that's it. That was introduced by the new government that came on a few years ago.

And the other part is due to the fact that we decided that particularly of our some Central City to make a marketing investment higher than usual due to the competitive situation that we find there and the same goes true also for the Edmonton Casino because of the stronger competition with regards to the Grand Villa..

Okay.

And then anything around the US out in Colorado?.

In Colorado, that's what I was trying to say, as far as [indiscernible] Colorado in Central City, we have one competitor that is ramping up his efforts and we try to combat that also increasing our marketing investments..

Okay. That's good to know. And then second, just around everyone's favorite topic here, Poland. It seems like things are normalizing here a little bit. Two questions here, first, and reading through the Q, it looks like there were not new licenses awarded for Plock and Poznan, which I assume was contemplated.

I mean, was that a decision on your part to kind of reallocate resources to better locations? And then, second question on Poland would just be around, this eighth license is within the Marriott.

Just curious, your thoughts, on the ability of that facility to support two casinos within one hotel?.

With regard to Plock, we decided that we really don't want to go for it anymore because it just wasn't attractive. With regard to Poznan we applied but it was not our decision we didn't get it.

However we are not really unhappy about it because of all the markets we are in Poznan historically has been the most difficult one also may be due to the fact that there is one competitor that just had no end in spending for marketing and so we are not unhappy really the way it is.

Now with regard to the eight license in Warsaw we think, for us, that’s sensation because we have the big, big win and due to the competitive of the Polish gaming situation, we could have ended up getting closed instead of defer in Warsaw, so the Warsaw one is much better. The building itself easily would carry three licenses.

We used to have two in the past and now the third one we are just finalizing the details on how exactly we will open it. One of the possibilities would be to make it -- put it a chase into the existing casino that we have because we still – it’s all us that we still would be – it would be great if we could have more rooms.

Now we will see on how that’s possible but the more important thing with regard to Warsaw is that whenever we get a fresh Warsaw license we then interchange it in such a fashion that casino which is most successful in the Warsaw after the new six years and then we will move to the other ones, then in that case five years over the Hilton..

Okay, that's good to know..

[indiscernible] need a large building, the linked building is two huge complex towers and it has big shopping arcade underneath in the basement. Then in the basement, there is a connection across all four sections of an intersection. There is heavy foot traffic all day long, so it is complex. It’s not a problem at all such. Good to have that number..

Okay. Thanks for all that color. And then I just have two quick questions, follow-ups here.

One, Peter, you talked a little bit about some of the plans for the Vietnam property, redoing some of the rooms, adding some F&B, what have you, any idea what your portion of that CapEx would look like?.

The plan is to do it out of cash flow. If that's not sufficient then we are talking about a few hundred thousand dollars in fresh CapEx that we would like to put in, not more..

Okay. And then last one. Now this is for both of you guys, and it's a bit of a higher-level question. But with this year's trading where they are today and with some of the growth that you have in the pipeline and the capacity that you have on your balance sheet, fully appreciating that, the float is somewhat limited today.

But have you guys ever considered implementing some sort of a share buyback to buy back some stock here? I mean, it seems like it would be a really good use of capital, given that your stock is trading at a significant discount to what kind of the forward outlook on growth would suggest..

Yeah. We have a buyback program authorized actually and what we have said and what still holds true is that we prefer to grow by new developments or acquisition.

However if we do not find attractive growth opportunities within 6 or 12 months that depends on the market we are looking at, then we have serious considering to put capital towards like back to the shareholders or buyback program, that is absolutely a possibility..

Okay. Thanks for answering all the questions, guys.

Thanks, Brad..

[Operator Instructions] Your next question comes Mike Malouf of Craig-Hallum. Please state your question..

Hi, guys. This is Eric Des Lauriers on for Mike. Thanks for taking my questions. I think you detailed a bit more of the one-time expenses that were included in SG&A that were now broken out into adjusted EBITDA. Could you just go over those again? I think I may have missed some of those..

No, we said that on the Polish situation, it's around $1 million that were extraordinary, non-recurring in the quarter and for the casino, it's pre-opening and opening expenses in the UK. It was close to $0.05 million. Going forward, in Q3 there will be a little bit of that in Poland, but not very much and then it’s all over and done with..

Okay. And then switching to Century Mile, it's good to hear that's still on budget and on pace for the April 1 opening. I was wondering if you guys expect any significant operating expenses or just one-time opening expenses that might cause negative EBITDA similar to the Bath casino.

If you guys could just talk about that and just the overall EBITDA margin ramp for Century Mile that would be great..

Erwin, can you talk about that and perhaps referring to Century Downs, I think it was very strong from the get go, wasn’t it?.

It was very strong from the get go, yeah, with regard to the revenues, but when it comes to EBITDA maybe Peggy could chime in because I don't know how that – it seems to have been some change in the accounting policies on how pre-ops are treated..

So we would expect probably Q1 of next year to have some additional expenses related to the opening of Century Mile. It's a little bit hard to quantify but you're really -- as you get close to opening, it no longer becomes pre-opening expense but operating expense.

So any training and new hires of employees in the month or two before we open the property will flow through expenses..

So in other words the first quarter of results from Century Mile will not show the true EBITDA potential of it..

But there will be revenue to offset those expenses..

So are we talking about Q1 of 2019 before it opens or Q2 in its first quarter of being -- of operating?.

So Q1 just before it opens we will have some expenses flowing through and then once it opens and there's offsetting revenue, it should be just normal operating expenses..

Okay.

So you guys think of pretty -- from the first quarter of operations, you will have somewhat normal EBITDA margins and sort of a slow ramp up to your sustained margins after that?.

Yes..

What we saw at Central Downs three years ago is that we had a very strong first quarter because it was new, everybody wanted to see it, the first two months especially were very strong and then the second quarter of operation, it slowed down a little bit.

And then from the third quarter after opening it started to really ramp up to where it is now, in the EBITDA margins in the mid-40s..

Great. That’s very helpful. I appreciate it, guys. Thanks..

Our next question comes from David Bain of ROTH Capital. Please state your question..

Thank you. I just wanted to follow up quickly on the Century Mile discussion here we are just having. So with regard to the cadence to get to that 25% return after opening which I assume include some of the benefit to Hotel Edmonton.

Would that be four quarters, five quarters now just in your view? I'm just trying to get a sense as to when you think that run rate could begin to the show itself..

It really is about three to four quarters out, but it does not include the benefit that we expect for Century Casino Edmonton.

Okay. Fantastic. Thank you..

There are no further questions at this time, I would not like to return the call to Mr. Hoetzinger..

Thank you 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 Good bye..

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