Welcome to Century Casinos, Q3 2021 Earnings Conference Call. This call will be recorded. At this time all participants will are in listen-only mode. Later we will conduct a question-and-answer session. I would like to introduce our host for today. Mr. Peter Hoetzinger. Please begin, sir..

Good morning, everyone. And thank you for joining our earnings call. With me on the call on 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.

We undertake 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 risks factors in our SEC filings and encourage you to review these findings.

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 filing available in the investor section of our website at cmtvy.com.

I will now provide an overview of the third quarter results. After that there will be a question-and-answer session. Our results for the third quarter has been truly outstanding. Revenues exceeded the third quarter of last year by 22% and they doubled compared to 2019.

$817 million, we set the new all-time revenue records for the second consecutive quarter. Very strong flow through and the consolidated margin of 28%, resulting adjusted EBITDA of $33.1 million for the quarter or was a new all-time record for a company. That is 49% higher than the EBITDA of Q3 of last year.

Sequentially, it is 31% higher than the EBITDA of the second quarter of this year. Considering yesterday's reaction to stock market, let me point out that our sequential revenue and EBITDA growth of 27% and 31% respectively, are some of the largest if not the largest improvements of Q3 over Q2 numbers of any listed gaming company.

And on top of that, we also generated sequential margin improvement. Our EBITDA margin in Q3 was 95% points higher than our margin was in Q2. And one more thing, sports betting iGaming is profitable for us. And it has been profitable for us since day one.

All right, now let's move on our great Q3 performance is the result of discipline, cost focused operating philosophy and effective targeted marketing to our high value customers. The quarter showed continued strength and momentum across all our local and regional properties and businesses.

We saw impressive growth with increased visitation, more time on device and higher spend per visit across our database and across our markets. We continued to benefit from strong regional demand, and the preference for close to home entertainment. All of that has improved visitation as well as spending levels in our casinos.

And together with our disciplined and efficient operating strategy, complicated to these great results across our portfolio. Our cost structure is more streamlined. And our marketing promotional investments are more targeted, which translates into increased spend per visit, especially for our most valuable players.

We achieved the record operating results and margins despite some pressure from challenging labor market and other cost inflation resulting from supply chain disruptions. Our local management teams are doing a great job dealing with inflationary pressures, whether it be on cost of goods or wage inflation.

And we're not seeing it having a meaningful impact on margins. On our busy weekend, we have been able to manage the labor shortages and operate the hotels and F&B outlets at full capacity. During the week, however, due to labor shortages, we had to operate some of our hotels below the available room capacity.

And as a result, we have not always been able to accommodate all rated customers. But as the labor market normalizes, we will be able to bring more hotel rooms online grabbing even more gaming revenue growth from these customer segments. Our business is largely gaming centric.

Only a minority of our revenue is coming from non-gaming amenities, resulting in an overall lower cost structure. With only open more non-gaming amenities, or expand the opening hours, as demand picks up further. So that should grow in a profitable way. With regard to the sustainability of our high operating margins.

At this point, we haven't seen any significant impact of more aggressive marketing from our competitors even as other entertainment options, Las Vegas, for example, has started to come back quite strongly.

That environment hasn't really changed over the last quarter or 2, most of our competitors are being disciplined and maintain their attention to cost control.

We will continue focusing on the right customer, enhancing customer convenience, building loyalty, streamlining processes, and reinforcing our operating efficiency through new initiatives and technology. A great example of that is our mobile application, the Winters’ Zone app.

With that app, we can send exclusive offers that are targeted by tier, location, date of the last visit, et cetera to our customers.

It displays direct messages, up to date, promotional information, current tier level and benefits, current point balance, as well as the value of those points, the amenities at the property, the number of entries for drawings and current offers.

The app is already live in the [indiscernible] with great success and will be rolled out in Colorado shortly. It provides great convenience for our customers. And for us it brings lots of opportunities to further increase customer loyalty. And it also saves significantly on direct mail and related expenses.

Revenue from i-gaming and sports betting and pari-mutuel betting continues at a strong pace. As you know, we've partnered with experienced companies to run these operations without any significant investment from our side whatsoever.

That may limit the upside potential in a very optimistic scenario, but we believe this approach is the prudent one for us, at least currently proving an efficient use of our capital. Beyond these digital initiatives, we're also excited about additional growth opportunities available throughout our operations, most notably in Missouri.

More about that in the mystery segment shortly. Let's now cover off balance sheet and liquidity. Today, we are financially a much stronger company than at any point in our history. Net leverage at the end of the quarter was 1.4 times. And it's expected to further decline by year-end.

The strength of our operating performance increased our current cash position to over $100 million. With outstanding debt of just $182 million, our net debt sits at $81 million as of September 30. We have a well maintained asset base that requires minimal levels of maintenance CapEx to sustain the current levels of profitability.

And with no substantial debt maturities before 2026. Next, a brief summary of the performance of each operating segment starting with Colorado. It was an excellent quarter for our properties in Cripple Creek and Central City, with both casinos clearly surpassing 2019 and 2020 levels.

Net operating revenues up 36% over ‘19 and it was up 20% over last year. Adjusted EBITDA and more than doubled compared to ‘19 and is up -- it was up 4% over last year. The EBITDA margin remained very strong at 40%. The combined market share of our Central City and Cripple Creek properties increased by 350 points.

To further solidify and strengthen our competitive position in Cripple Creek, we have decided to provide high quality employee housing. We will build housing for up to 30 of our current and future employees. And expect to have their apartments ready by September of next year.

Moving on to Missouri our most important market in terms of EBITDA and cash flow generation. Again, great results for the quarter. July had one of the highest monthly table drops in property history led by strong [Indiscernible] volumes. And July and September set monthly records for those months.

Met operating revenues up 24% over Q3 of last year, and adjusted EBITDA increase by 38%. EBIDTA the margin was 45%. Even so, we increased wages on top of the hourly minimum in order to stay competitive in the Southeast Missouri area and help attract and retain high quality team members.

Marketing spend continues to remain significantly below pre-COVID levels and is expected to come in to continue at its current run rate. With actions in advertising, direct mail and promotional expenses appear to be sustainable and have not had any negative impact on gaming volumes.

We’ve announced 2 important developments that are Missouri properties. We plan to bring the Carousel Casino which is the last remaining riverboat casino on open road in Missouri, on land to a non-floating facility. And we plan to build a hotel at our property in Cape Girardeau.

In Crossville, the new facility will include a newly designed casino with approximately 20% more gaming positions and 75 hotel rooms in total. The new development will provide significant operational efficiencies, as well as significantly more convenience for our customers.

It will increase the catchment area and also give us a chance to win back customers who didn't like the old riverboat style when they paid us first visit.

In Cape Girardeau, we will develop a 9-storey 75 room hotel building that will be single noted so that all hotel rooms will have scenic views of beautiful Cape Girardeau and the Mississippi River, including the iconic Bill Emerson Memorial Bridge.

We set to hotel development, century Casino Cape Girardeau will to a full resort destination, providing operations for individual and group, smarter day visits for gaming, dining, conferences, concerts, events and more. Total CapEx will run at about $68 million for both projects.

In terms of timing, we don't have clear visibility yet but we aim for openings in late 2023 or early 2024. Next is West Virginia where we operate the Mountaineer Casino, Racetrack & Resort. Net operating revenue was up 12% and adjusted EBITDA was up 23% over the third quarter of last year.

These are really great results, especially because of the Mountaineer Resort destination character. It usually draws square a lot of its business from hotel stays, which will somehow limited -- somewhat limited due to staffing challenges and other restrictions. Same with F&B outlets. They are opened but with limited hours of operation.

The convention space remains closed. And on top of all that we increased wages in July. So considering all these factors, a 23% uptick in EBITDA is really exciting. And we have high hopes for a strong finish to the year. Internationally, our operations in Poland generated solid numbers.

Adjusted EBITDA was just under $3 million for the quarter, fueled by a strong performance of the casinos outside the capital city of Warsaw. We do however, expect the Warsaw casinos to come back quite strongly in Q4 with international tourists business and convention business just starting.

And in Canada we operate with restrictions, our guests need to provide proof of vaccination or negative COVID test taken a maximum of 72 hours before entry. Also everybody is required to wear a face mask. Despite those challenges, net operating revenue almost reached 2019 levels and adjusted EBITDA surpass 2019 results by 56%.

All properties constituted to that EBITDA growth. And I'm happy to report that the increase was highest at Century Mile Racetrack & Casino. That finishes the roundup of operations. We are very optimistic going forward, as the recent trends have continued relative consistently into the fourth quarter.

And we expect a significant portion of the cost savings to prove permanent. We have multiple avenues for continued growth, as well as confidence that this level of performance is sustainable, and that we will maintain much of the margin improvements we have achieved over the last 12 to 18 months.

As the pandemic continues to fade, additional visitors will return to our properties. And as the labor market normalizes, we will be able to bring more hotel rooms and other amenities online, increasing our capacity to host profitable customers, thus increasing our revenue opportunities.

In conclusion, the third quarter was another remarkable performance of our company and our entire team. Our entire portfolio continues to generate robust EBITDA growth. And our operating spreadsheet and tight focus on the right customer are producing the highest margins in our history.

On the M&A front, we are looking at a handful of possible acquisition opportunities all in the U.S. to further broaden our footprint and leverage our successful operating model. We've always been strategic and value oriented and pursuing acquisitions. And that will not change.

With that discipline and our strong balance sheet, we are confident to find opportunities to deploy capital in a manner that consistently builds shareholder value.

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 during these challenging times. Thank you for your attention. And we can now start the Q&A session. Operator, go ahead please..

[Operator Instructions] First question is from Jeff Stantial. .

Hey, good morning, Thanks for taking our questions and congrats on a nice set of results here. For my first question, we've talked a lot this earnings cycle about trends here in the U.S. So I wanted to focus on the international ops for a second.

Can you talk a bit about the month-by-month cadence of performance for Canada and Poland? Has it been fairly stable since their respective reopening to the witness any acceleration or deceleration? Just curious to hear your thoughts there..

Yes. Pretty stable and very much in line with the various measures. So when we as Peter mentioned before, in Canada, we didn't have [indiscernible] and have restrictions. People have to wear a mask or produce a proof for vaccination. That of course, limits the speed of growth and the acceleration a little bit.

However, we have also seen that across both vaccines and actually both important and in Canada, people are getting used to wearing -- that were being vaccinated to wearing a mask or to have to do a test.

And more and more people have been vaccinated in the various jurisdictions, which also means that customers that may have been hesitant to visit us now feel safe. And then visitors more frequency and stay longer.

So all in all, we can say that we see growth everywhere, with the only exception that the one or the other COVID restriction limits that growth -- the speed of the growth a little bit..

Okay, perfect. And then for my follow up, Peter, any update you can provide on the Poland sale? And then on the M&A environment you’ve talked about in the U.S., how does the seller expectations feel relative to kind of one last okay, Q2 earnings? And that's all for me, thanks..

In Poland, that sales process continues. It runs, but it runs quite slowly. Several parties are showing interest on and off basis. But we are finding ways. These operations are pretty valuable. They produce nice results.

And overall they're getting like smaller and smaller relatively because they are now about 9% or less than 9% of our consolidated EBITDA. So that's the situation there. And on the M&A front in the U.S. I think it's slowly starting. I mean you you've heard Tom Rigg saying that they're interested to sell. It's starting always in Vegas.

I mean, MGM is selling the Mirage. So it's starting. And yeah, in terms of valuation, you can talk about market buzz all day long. It always depends on you apply to -- to which EBITDA do you apply? So it's a combination of finding the right multiple. And agreeing on an EBITDA to apply to.

But we see, slowly but surely more and more properties becoming available..

Okay, correct. Very helpful. Thank you both. I'll pass it on..

The next question. It's from David Bain..

Great. Thank you. Very nice quarter. A lot of the big questions were addressed. But maybe we can drill down a little bit on the eminent M&A environment that, Peter, you're just speaking to. Understanding valuations tightened a little bit, and you've always been sensitive on that front.

It seems like through earnings season, the larger companies you mentioned, one of them being increasingly focused on sort of the virtual gaming world and spending larger amounts there. I mean, could that open up baskets of sellers more? Are you hearing of new product potential? Sounds like you were to that end.

Can we see property baskets? I know you were looking at I believe 15 up to maybe $60 million of EBITDA, but given your cash accumulation, and some of the larger ones potentially looking to loosen their portfolios a little bit.

We punch through that at the right price? Are you not seeing that type of product at this point?.

Yeah, we're starting to see that. Absolutely. And, yeah, the only business does payroll. Because surely, most of the larger companies with a large footprint throughout the U.S., they do want to have at least one property in a state to secure an online license in that state. But should they have more than one in the state.

And more likely some of those will become available? And yeah, and so this is what we're seeing from pretty much all of the larger companies..

Okay, great. And then I know this was somewhat addressed as well, but maybe just kind of reiterating or drilling down on Canada. Because that was a nice outperformance versus what we were anticipating. Maybe, looking at the U.S.

reopening, has is sort of that reincarnated? And, are you seeing anything that would give you the sense that we wouldn't expect those same sort of tailwinds to be sustained like they have here? And maybe just a tad on energy prices for the portfolio in general, both domestic and Canada have that is something that's on the radar, is that typically not something that historically has caused too much volatility?.

Erwin?.

Yeah. I think I guess I tried to say earlier. Further growth will be fueled by easing the COVID restrictions, which obviously is no longer [indiscernible] and is the function of the development of the numbers there. But that means upside potential, because we would really think that these restrictions should be there forever.

And so we feel very good about Canada and enter -- and the growth that growth potential it has and that we will be able to reunite it soon as restrictions are gone..

Anything on energy prices there in the U.S.?.

It does not affect it. In Canada, that doesn't affect us significantly. .

Okay. All right. Well, great quarter again. Thank you very much..

Your next question is from Kenneth [indiscernible]..

Great quarter. I would like to just -- I think most of the question was answered. But I was wondering if you could put a percentage basis on the amount that social distancing still can restrict your ability to earn full amounts of money on all your casinos.

Do you have a possible percentage that the business would increase if this was all gone?.

Yeah. I have in mind. But I think it's problematic to speculate on that. It's really hard to say. I mean, one way to look at it is looking at our pre-COVID levels. And that's it, we look at the first goal is to look at revenue wise to come back to the pre-COVID levels and then gradually to surpass them.

And at the same time, with the cost that’s all that’s already in place, keep the EBITDA and EBITDA margins..

And also, at some of our casinos, we do not have all tailgate positions open which on a on a busy weekend has a negative effect. But we do not have detailed ends in terms of percentages yet..

Okay, thank you very much..

[Operator Instructions]. Your next question is from Colin McDonnel [ph]. .

Hi guys. Thank you for taking my questions. A few weeks ago, one of your competitors Boyd provided an interesting statistic. And I don't know if you guys could do the same thing. But they said their labor force had been about 24,000 before COVID. And it was down about 14,000.

And they expected that only 1,000 or 2,000 people would have to come back to run the casinos at a full pace.

Do you guys have any -- can you provide any similar type of information just so we can think about the fixed cost structure of the casinos in the next year?.

If we don't have that at hand, we could try to get it to you later..

Yeah, okay. I think that would be very helpful. And just, you know, the other thing just looking at -- I know, you guys don't have very many sell side analysts, but the street estimate on FactSet for this year is $66 million and for next year, it's $88 million. And I'm looking at your numbers.

So you guys have done $91 million of EBITDA in the last 12 months. So what is -- is there something missing on the street or the communication -- it seems like you guys are going to blow the numbers out of the water. And I'm just trying to figure out if I'm missing something..

Yeah. I think they wanted to be conservative. I'm sure they will update and numbers after this quarter. And but other than that, call it we don't give guidance. So it's obviously we understand in there. .

But is there any significant reason that Colorado or Missouri or West Virginia would have a worse year next year than this year?.

No. We don't see any significant reason. .

Okay. Very helpful..

We think that is upside. .

Great. Okay. Well thank you for taking my question. .

Thank you. .

And next question is from Chad Beynon..

Good morning. This is Jordan Bender on the Chad today.

If you look at M&A, would you look to use or continue to use a REIT to possibly go bigger? And I guess what would your optimal capital structure look like? And where would you want to bring leverage?.

Our goal is to grow not only in absolute revenue in EBITDA numbers, but also in property size, yes. And scatter OpCo, currently, we have 3 in the U.S. that we acquired from Eldorado Caesars on an OpCo. 2 in Colorado is PopCo. Mostly Canada is also owned by us. So that's a good mix.

And we can -- we don't have like a clear call that we don't go below a certain percentage. So I think we could easily add another OpCo or HoldCo. We're fine either way. We do not need to own the asset, but we’re comfortable owning some. It's really more on an opportunistic basis.

For us, it's more important How we like the asset how we like the market, the competitive environment, the regulatory environment. The specific location asset, those are the things that are far more important to us then then whether we can by the HoldCo or other OpCo..

Okay, perfect. And then obviously Poland outperformed -- I guess at least our expectations in the quarter. Revenues were actually over 2019 levels. You talked about that your casinos outside of Warsaw with the ones that kind of outperform in the quarter.

Can you kind of talk about where the casinos within Warsaw fit just kind of thinking about how the model in this segment looking into ’22?.

Okay. .

That’s two Warsaw at the Marriott and Hilton and the others outside of the country. And historically, the Warsaw market is in absolute numbers much stronger than the six outside of Warsaw combined. So any uptick of the Warsaw properties has a meaningful impact on the overall Poland numbers.

Erwin?.

Right. Anytime I think and if I'm accurate, we are looking at what is happening in the first quarter where we are very optimistic in that direction. We see that the business customers coming back the Marriott and the Hilton, both getting much higher occupancy and also guested on to come to our casinos.

So we're confident that in the next day so to speak, Warsaw was a casinos will follow the same trend as the casinos on the countryside..

Awesome. Nice quarter. Thank you..

[Operator Instructions] And that question is from Daniel Lang [ph]..

Hi, guys, nice quarter. I was just wondering if there's any update on the Poland strategic review processes.

Is the company sort of committing to the region at this point or any discussions there?.

We have said that Poland has become a non-core operation for us. It is -- as I've mentioned about 9% or less than 9% of our consolidated EBITDA and consists of 8 small operations. So whilst it is generating very solid EBITDA in cash flow for us and very high returns on our investment, we strategically do not have had Poland in our long-term plans.

If we get a good to get a good offer -- so in other words, it has great value for us. If we get that value, then yes, we decide to dispose of it. If not, we're happy keeping..

At this time, there are no further questions..

Thank you everyone for joining our call today. For a recording of the call, please visit the financial results section of our website at cnty.com. Stay well and goodbye..

That concludes today's conference. You may now disconnect..