Welcome to the Century Casinos Q2 2020 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 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.

As always, 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 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 earnings release and SEC filings available in the Investors section of our website at cnty.com.

I will now provide an overview of the company's status quo and the review the financial results for the second quarter 2020. After that, there will be a question-and-answer session.

Following the temporary closure of properties in mid-March, we took immediate steps to reduce operating costs and to ensure that our company preserved its financial flexibility to manage through the shutdown.

We reduced expenses throughout the company, temporarily laid off and furloughed approximately 90% of our team members, except for Poland where all employees continued to be paid reduced salaries based on local employment laws.

We continued to pay benefits to our US and Canadian employees, including part time employees, and senior executive management agreed to voluntary pay cuts. When the first reopening scenarios emerged, of focus from day one has been the health and safety of our employees and guests.

Erwin, Peggy and I thank all of our team members for their hard work to get our properties reopened in just a matter of days, dealing with many new procedures, especially regarding safety, social distancing, and extra sanitation, their competence, enthusiasm and friendliness has created an atmosphere and feeling of safety and comfort which is very much appreciated by all our guests.

We have used the time during the closures to build upon the progress we have started last year, when we closed the acquisition of three properties from Eldorado, to improve on controlling expenses and realizing efficiencies in marketing, staffing and G&A.

We are off to a very strong start and while the pandemic is not behind us, we make sure we stay focused on maintaining a disciplined approach throughout our business, avoiding unnecessary costs and efficient practices to creep back in. We fully intend to keep the focus on a more efficient, higher margin business in place after this crisis is over.

The first casinos we reopened were the ones in Europe, in Poland on May 18. The casinos in the smaller cities around the country, which draw mostly from locals, are doing very well, actually a little a be better than during the same time last year.

But the results of two larger casinos in the capital city of Warsaw are softer because of the lack of tourists and business travelers. Overall, we're down about 25% compared to last year. As you know, Poland contributes about 10% of our total consolidated EBITDA. Most importantly, however, the operation already is cash flow positive.

Next in line to be open were the 2 Missouri properties on June 1. Missouri’s are most important market in terms of cash flow generation, and what a success the reopening was and still is. Even though we have only half of the table game positions and about 80% of the slots in operation, results are record breaking.

In June, with limited competition from Illinois, Cape share though was up over 40% on revenues and more than doubled adjusted EBITDA, an absolute record for that property. Caruthersville was up 8% of revenues and up 40% on adjusted EBITDA, huge success and a tremendous achievement by our management team.

The month of July, with competition from Illinois and up and running continues with results significantly stronger than last year. Cape G almost doubled EBITDA and caruthersville is up about 30%. So it goes without saying that also this market has very quickly turned cash flow positive for us.

Then on June 5, we reopened our Mountaineer resort in West Virginia to huge crowds forming long lines around the building. Approximately half of our gaming positions and hotel rooms are open. In June, revenue was up 7% and adjusted EBITDA was up 57% compared to June of last year.

July is a little softer and down compared to last year, mostly due to the newly introduced temporary smoking ban in the Virginia. Fortunately, last week, we have been allowed to introduce Slim Plexiglass barriers between slot machines, which lets us increase the number of available slots from the current 500 to over 800.

That should have a positive impact right away. In the middle of June, our two Colorado properties reopened without table games, but almost all slots in operation in Cripple Creek and about two thirds in Central City.

Even though we had less slots in operation, and for only half of the month, adjusted EBITDA in June was at a combined 51% year-over-year, truly remarkable. And July is even better. Revenue and adjusted EBITDA almost doubled compared to last year. In July, our Cripple Creek property recorded its highest gaming revenue and EBITDA in over 10 years.

And of course, the properties are producing positive cash flow. Circa Sports, one of our sports bidding partners has started its online offering already, producing some revenue share for us already. Also in the middle of June, we reopened our Swiss Casinos and two racetrack casinos in Canada in Edmonton and Calgary.

Table games remain closed, and we were only allowed to open with 28% of the slot machines. Adjusted EBITDA or June has only been down by 31% compared to June of last year. In July, we could increase the flocks available for pay to 50% and live horse racing resumed with up to 200 spectators in April.

Live racing has been particularly strong at the new Century Mile Racetrack and Casino. July produced a couple of days with record wagering handle. The results across all our Canadian properties are great, adjusted EBITDA for July is higher than in July of last year. So I'm happy to report that also our Canada segment is cash flow positive already.

Now, let's look behind the strong performances and discuss what drives the revenue and how we manage the expense side of our businesses. Our geographic diversity and our locations in hyper local markets certainly play a big role. All our casinos predominantly rely on a very local and very loyal customer base.

And as such, our operations ramped up at a quicker rate than casinos that destination resorts. Our casino have negligible meeting and convention business and very few of our customers if any, travel by air to visit us. In addition, we offer a comparatively inexpensive gaming experience, one that is still affordable in economically difficult times.

The number of visitors has not yet fully recovered to pre COVID levels, but average length of play, as well as spend per visit has been very encouraging. As the current situation limits us from an amenities perspective, we see more of pure gamer, high quality customer that comes to our facilities.

Since the reopening of our casinos, we have adjusted the levels of services and staffing, in line with the guidelines put forward by the health and political authorities. With limited seating in our restaurants, and we have not reopened our poker rooms, our smaller hotels, the showrooms, banquet rooms and spa retail facilities.

Being selective with our amenities, keeping strong controls on the promotional environment and staying focused on the high margin areas of our business results in expense reductions and new efficiencies, which means we're operating at significantly higher margins.

All this led to a record consolidated results for the month of June, the month of June alone. Revenue was $32.5 million, which is up 82% year-over-year. And adjusted EBITDA was a record $10.8 million for the month, up more than fourfold. We achieved that with most casinos not even opened the he entire month and by far not at full capacity.

And what's even more important, the preliminary July numbers show that the strong performance continues, revenue of $30 million should generate adjusted EBITDA of about $7.4 million, almost three times the EBITDA of July last year.

And in a true like for like comparison, comparing the July results to the pre Corona month of early this year, January and February, which already included the three properties acquired from Eldorado, we're also doing better.

Please understand that when we give you these year-to-year comparisons, we want to give you some color and kind of trends on the performance of the most recent month. But we are not providing guidance. As of June 30, we had $52 million in cash, net debt was $152 million. Last week, we paid our $10 million revolver with Macquarie down to zero.

And as you have seen from our recent news release, we just announced the sale of the casino operation at Century Calgary, one of our smaller Canadian properties for about US$7 million net.

Last year which was a strong year, this casino operation generated approximately US$600,000 in adjusted EBITDA.\ As we continue to own the real estate, and we get approximately US$350,000 per year in rent income from the buyer of the casino operation, the actual annual cash flow we are selling is only around $250,000.

On top of that, we get a percentage of their revenue over certain threshold for the next few years. We have already received 100% of the purchase price as a non-refundable deposit. We keep operating the Century Sports operation, that is a sports bar with bowling and entertainment facilities, which last year generated US$600,000 in EBITDA.

So as you can imagine, we are very happy with the transaction. The sales price market is huge, and it immediately strengthens our liquidity position. As a result of the revolver pay down and the Calgary sale, as of August 5, we had approximately $48 million in cash and net debt of only $147 million.

We do not foresee any substantial CapEx in the short and midterm. All our properties are in good shape, and we've put all larger and nonessential CapEx projects on hold for now.

So with that, on behalf of the company's management and board, I'd like to thank our team members, our guests and our stockholders for their continued loyalty and enthusiasm as we manage our businesses through these challenging times. I thank you for your attention. And we can now start the question-and-answer session. Operator, go ahead please..

[Operator Instructions] Our first question is from Chad Beynon with Macquarie. Your line is open..

Thanks. Good morning. This is Jordan Bender on for Chad. Hope all is well.

What is you seeing with retail sports betting? And how should we think about your opportunity with iGaming and sports betting in your markets with the legalized product?.

Jordan, we have sports betting licenses for our Colorado properties. We have entered into two agreements, one with Circa Sports, which we just launched their app recently and another agreement Bet 365 they will launch later. And with one more license available and have interest from a handful of providers and we're negotiating that deal as we speak.

In the other markets in West Virginia, we have sports betting and iGaming already legalized. We are partnering with William Hill, and they've told us that before the end of this year, we go live with both sports betting and iGaming. And in Missouri, it has not been legalized yet.

But we have - I think there's a strong indication that it will get legalized soon, and we look forward also to working with William Hill in Missouri..

Okay. And then you obviously added a few solid assets between - at the end of 2019, and you announced this move up in Canada earlier in the week, last week.

Do you think you've rightsized your portfolio at this time? Are you still have more to go on getting rid of some of your non-core assets?.

No, I think we are happy with our portfolio there. We have two very strong performing racinos up there, one in Edmonton, one in Calgary, and the other casinos are in very good locations in strong spots. And I don't see any significant change as of today..

Okay. And if I can get one more here. Can you update us on the Colorado Max bet limit that's coming up on the ballot here November? I mean, do you guys have any thoughts around what that could possibly do for the business? Obviously, if that were the past, that would be something positive for the company here..

Yeah, but no, we've - it's tough to say, it's too early to say and we don't have any, like official guidance that we are able to give out with regard to that.

Erwin, would you like to comment further?.

No, I think it's exactly what you said..

Okay. Thank you, guys. I will pass it off..

Thanks, Jordan..

[Operator Instructions] Your next question is from Brad Boyer with Stifel. Your line is open..

Hey. Good morning, guys. Thanks for all the additional color on the quarter, very helpful. My first question is just around the preliminary July metrics that you guys presented. How are you thinking about those numbers in the context of sort of a go forward basis? Obviously, you know, there's a lot of moving parts right now.

You know, you're obviously getting the benefit of some favorable revenue mix and some operating efficiencies, but - and then at the same time, on the flip side, you're operating with limited capacity. So, you know, how are you thinking about, you know, what those numbers might look like a couple months down the road.

Do you think that sort of some of the margin performance that you're producing today is sustainable, do you expect margins to compress a little as more of the business comes back online? Just any color you can provide around that?.

Yeah. I think for the short term, like next one or two months, we don't see any significant change as assuming the situation with regard to COVID gets better then our competitors and also us will most likely open some of the other amenities. And that will most likely mean that overall and absolute revenue will grow.

But as these other amenities have lower operating margins, you will see higher revenue on the one side, but the operating margins will probably not be as high as they currently are.

And with regard to the promotional environment, I think everybody is watching each other to see if everybody stays conservative and relatively quiet or if somebody jumps out and starts some aggressive campaigning, which we don't see at the moment. That's my first take on it.

Erwin, would you like to add to that?.

Yeah, I agree with what you said and I would like to add. We have a little bit of runway with regard to measures that we can take on the floor. To give you one example, we have received approval in West Virginia to make part of our floor smoking again. So as of today, we will have 118 slot machines in a smoking area.

And that is something that will help. At the same time, we still are working on getting more slot machines, in total open all across Canada. So hopefully get from 50% to a higher percentage of slots actually being in operation. So on the revenue side, we think there is still some room to grow also in the shorter term..

Okay, that's all very helpful. And then, you know, I guess, obviously, just, you know, would you guys being a little bit closer to Poland and I know, you know, over the last couple months Peter you provided some good perspective on that market.

Could you just give us an update sort of you know, where things stand with respect to business getting back to kind of “normal” in Poland. I know sort of the pacing of COVID recovery and what have you may be a little bit different in Europe.

Just any color around that and sort of how that plays into maybe, you know, Warsaw, sort of you know, getting back on track here?.

Most of the travel restrictions are gone now, and tourism has started to come back. But obviously as we go - as we are in the summer months, July, August, to mid September was always a slower period of time in Poland because many ports go away for some of vacation and business tourism isn't in full swing yet.

But it is getting better, hotels are getting high occupancy like week-by-week now. And that helps us..

Okay. And then last one, just, you know, could you give us a little bit of an update as to where your appetite stands for, you know, growing the portfolio at this point. I mean, obviously, you know, there are some US based assets that, you know, are being sort of publicly shopped at the moment.

Just any thoughts around your desire to kind of, you know, continue to grow the portfolio at this point?.

Yes, we are watching that very closely and try to position ourselves right to possibly look at it very, very seriously, towards the end of this year and next. And as you've seen, we are trying to look at our liquidity position and see where we can get into the right position to make a move if an opportunity is good for us.

So that's certainly something that we are looking at..

Perfect. Thanks, Peter..

We have no further questions. I turn the call back to moderator for concluding remarks..

Thank you for 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. You have our best wishes for good health. Thanks again, and goodbye..

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