Welcome to Century Casinos Q4 2018 Earnings Conference Call. This call will be recorded. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. I would like to introduce your 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'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 full year as well as for our fourth quarter 2018. Following the prepared remarks, there will be a Q&A session.

We are happy to report an all time record in annual net operating revenue in 2018, up 10% over the previous year, even though we lost approximately $10 million in revenue, because of the licensing delays in Poland throughout 2018.

Consolidated annual EBITDA was lower 2018 compared to last year due to the extra costs related to that license situation and casino closure in Poland. If you would adjust for that, the 2018 EBITDA would have been higher by approximately $4 million, resulting in an overall 5% increase over last year's EBITDA.

On a per segment basis, our operations in Canada and the U.S. generated strong year-over-year gains in both revenue and EBITDA. In Poland, business volumes and demand for casino gaming continued to be strong with annual revenue increasing by 14% over the previous year. The Poland EBITDA declined for reasons I just mentioned.

On a quarterly basis, net operating revenue for the fourth quarter was up 15% over Q4 of last year. Adjusted EBITDA was up 7%. Canada remains our strongest segment, generating one-third of our consolidated revenue and two thirds of our EBITDA. In local currency, Canadian operations grew 7% in revenues, and adjusted EBITDA grew by 6%.

The two casinos we own and operate in the Greater Edmonton market, which are the Century Casino & Hotel Edmonton and Century Casino St. Albert, generated a 2% revenue increase. EBITDA was down 4% versus last year, mainly due to minimum wage increases.

On January 31st of this year 2019, Northlands Park Casino, the closes competitor to our property in Edmonton closed for good. That will have a positive impact on our results, certainly from mid or end of February going forward. Our two casinos in the Calgary market performed very well and generated revenues that were 13% higher than last year.

EBITDA increased by a strong 20%, driven by Century Downs Racetrack and Casino, which had an EBITDA margin of 40%. The racing and betting side of the business continues to show strong results and strong growth with larger crowds on racing weekends contributing to the overall success.

In the U.S., our two operations in Colorado contributed 18% of revenue and 19% of our consolidated EBITDA. Results were okay during the quarter with revenues up 4%, EBITDA down 2%. Unfortunately, a snowstorm hit the Cripple Creek in the days around New Year’s Eve, which really slowed business down quite a bit.

We continued to promote our best casino title, great food, player development, guest service and fan promotions. We maintained a positive outlook and project further growth due to solid regional economic conditions, a strong tourist business and the great positioning and loyal following our properties have in that market.

Over in Europe, the newly opened casino, the city of Bath in the UK is ramping up slow, as reported already. We lost $0.5 million in the quarter.

Very strict rules and regulations are limiting marketing and promotional activities and the strong focus by the regulatory authorities on responsible gaming and general data protection regulations makes the interaction with our customers more difficult than anticipated.

However, this also applies to our competitors and should become less of an issue as we progress. What should also help is the reduction of the maximum stake at machines in betting shops down from £100 to just £2, effective as of April of this year. In Poland, our casinos generated 43% of the Company's total revenue and 22% of our EBITDA.

In local currency, revenue was up 33% for the quarter and EBITDA was up 83%. As already mentioned, the Polish business was negatively impacted by licensing delays between Q4 2017 and Q3 2018. We get the things now back to normal in Poland and look forward to generating high EBITDA margins going forward.

From Poland to our smaller operations on ships and in Vietnam and Argentina, we are closing the casinos on the very small ships and only keep the larger ones. Vietnam is developing as planned, step-by-step, on a small scale for now. Argentina is okay in local currency, but not contributing much in USD.

Overall, this segment was down in revenues but up in EBITDA. Now, a quick look at our balance sheet and liquidity. There's $46 million in cash and cash equivalents and $59 million in outstanding debt. The total debt-to-adjusted EBITDA ratio is 2.5, the net debt to adjusted EBITDA ratio is 0.6.

Our debt includes $40 million related to our Bank of Montreal credit agreement, $14 million related to the Century Downs long-term land lease, $3 million at Casinos Poland and $2 million at the Bath, England. The book value per share sits at $6.

CapEx for existing operations during the quarter was $1 million or just over 2% of revenues, spent namely on gaming and surveillance equipment. On the Century Mile Racetrack and Casino at Edmonton, our most significant and largest project to-date, we spent $10 million in the quarter.

That facility will open on time and will come in below the 48 million USD budget.

It will be a multilevel building with a total of 89,700 square feet, initially accommodating 550 slot machines and electronic table games, 38 stadium style games, 14 VLTs, restaurants, bars, lounges, private suites with off track betting parlor, a 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. The location is ideally positioned, exiting off the QE II highway, which is the main corridor between Calgary and Edmonton, and one of the most heavily used highways in Western Canada.

It is close to the airport, the shopping mall, retail outlets, hotels, golf course and an abundance of other businesses.

Through Century Mile, we already assume the operation of the pari-mutuel off-track and internet horse betting business in northern Alberta, adding off-track betting parlors to the 13 already operated by our Century Bets! operation in southern Alberta.

We will open the casino, restaurant, sports-bar and off-track betting lounge in three weeks from today on April 1. On the weekend of April 27 and 28, we can celebrate the grand opening of the entire facility with the horse racing season starting thoroughbred racing on the 1 mile race track for the first time on April 28th.

It’s really exciting to follow the development progress and we can't wait to see this great project open its doors. With that, I end the presentation. Thank you for your attention. And we can now start the Q&A session. Christina, go ahead please..

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

Thanks for taking my question, Peter. First question is just on Poland. You saw a nice tick up in the margin here in the fourth quarter to around 9%.

Just curious, how you are thinking about the margin ramp in Poland from here as we kind of work back towards that low to mid-teens level that we saw prior to some of the licensing renewal noise?.

Yes. That’s certainly the goal. And as you know because of the gaming tax of 50%, mid-teen EBITDA margin is pretty much the maximum we can get to and we have been there previously.

In Q4, we still had some extra costs because we were -- some of the operations just reopened and we had some marketing pushes to make, and getting the staffing levels in line. So, those are the things we are working on and obviously incremental revenue, but because that's really what then drives the EBITDA margin.

So, we are -- I think, we're in good shape in Poland, and we are gradually working our way back up to those mid-teens..

Okay.

So, you think it should be kind of a gradual ramp as we move here into 2019 back to sort of those levels?.

That's what we think, it would be. Yes..

Okay, perfect. Thanks. And then, second question, it's been a couple of weeks now since Northlands Park shutdown up in Edmonton. Just curious what you're seeing at St.

Albert and Edmonton in the wake of Northlands Park closing?.

Erwin?.

Yes. We don't see a lot in St. Albert because that's just geographically too far away. But, in Edmonton, we do see an effect, if I may say so..

Okay, thanks. And then, Peter, back to you.

I know in the past, you talked about a little bit about your desire to potentially expand your portfolio here in the U.S., just curious kind of could you update us on kind of where that stands and maybe give us a sense of kind of where you're comfortable taking leverage to in order to get a deal and/or deals done?.

Yes. We do see quite a number of interesting assets coming to market as many of our peers are getting larger and larger properties that do between 10 and 20, $5 million EBITDA getting too small for them. So, yes, there is an active market out there, and we are active in that market.

Leverage, I think, we would not feel comfortable if we would take the leverage to over 3, maximum 3.5 longer period of time. So, we feel comfortable below that..

Okay, thanks. And then, last one for me, it’s just a house keeping question.

Could you give us a sense of how you’re you thinking about CapEx for 2019?.

Erwin or Peggy, can you add - contribute here?.

I think, just as we always did some replacement of slot machines and just keeping the properties in good shape, so nothing out of the ordinary..

So, that means probably between 3% and 4% of revenue, that’s what it has been historically?.

Yes..

[Operator instructions] Our next question comes from Mike Malouf from Craig-Hallum Capital. Please state your question..

Great. Thanks for taking my questions. When I take a look at St. Albert, we’re looking at margins that haven’t been this high in a little while. I am just wondering if you could comment a little bit on the sustainability of that..

This is Erwin. I think it’s sustainable. We have a very good strong management there, and they have been consistently working with and diligently working and things start to show now. So, there’s no reason why it shouldn’t stay..

Okay, great. And then, just a little bit more color on Poland, if you could. It sounds like you’re marching back up into the mid teens, which is great. I think, you’re at the high of close to 15% just a couple of years ago.

How soon do you think you can get up to that level? Do you think we can get up to that 14 -- sort of 14%, 15% this year or is it going to be more like next year, and then, maybe just a comment on the competition that’s going on there?.

It’s not so easy to really predict the whole year with regard to EBITDA. I mean, the goal is EBITDA and we want to be back where were, ideally even better. Let me maybe say this.

We are -- we would opening in beginning of April a casino on the third floor or an extension of our existing casino at the Marriott into the third floor, which will give us significantly more room, which will be looking very good. And we think that has the potential to increase the business volumes at the Marriott even further.

But, without having on too much significant extra costs because it’s obviously the same license, same management. But, yes, I don’t think we can predict when exactly will happen, but certainly within reach..

Okay, great. And then, you didn’t mention anything about Vietnam.

I am just kind of curious, what kind of timing should we expect with regards to any decision on expansion there?.

Yes. Not before the end of the year. We are investing some small amounts and upgrading the existing facility. And we want to give us at least until the end of summer or towards the end of the year to watch what kind of an impact it has, and then make a decision..

There are no further questions at this time. I turn the call back over to Peter Hoetzinger..

All right. Thank you, everyone. 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..