Welcome to Century Casinos Q4 2021 Earnings Conference Call. This call is being recorded. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. I would now like to introduce our host for today’s call. 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 risks 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 filing available in the investor section of our website at cnty.com.

I will now provide an overview of the results of the fourth quarter. And after that, there will be a question-and-answer session. Our fourth quarter results continued the streak of record breaking performances that we have shown throughout the year. Revenues exceeded the same period of the last year by 27%. Adjusted EBITDA was 36% higher.

Most of the EBITDA growth came from our casinos in the US, but also from Poland. Despite our record performance, it could have been even better. Canada had a difficult quarter, because proof of vaccination was required to enter the casinos. And we were not allowed to serve liquor after 11 PM, which slowed traffic down significantly.

Thankfully, these restrictions have now been lifted, and we are already seeing a nice rebound. Our other operations were also impacted by the Omicron variant and COVID related restrictions, as well as some supply and labor shortages. But our team successfully navigated through all of that, and delivered great results.

Our stronger performance is the result of a disciplined operating philosophy and effective targeted marketing for our high value customers. Our cost structure is more streamlined. And our marketing and promotional investments are more targeted, which translates into increased spend per visit, especially from our most valuable players.

The promotional environment in all our markets remains disciplined and rational. And where labor is tight in some markets, it's been able to maintain our highest standards of guest experience. Our business is largely gaming centric. Only a minority of our revenue is coming from non-gaming amenities.

And we will only open more non-gaming amenities, or expand the opening hours, as demand picks up further. So that it grows in a profitable way. The geographic diversity of our portfolio with locations in hyper-local drive to markets, with a loyal customer base has proven extremely resilient in light of the pandemic.

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. Sports betting, iGaming both are profitable for us and have been profitable for us since day one.

But early on, we decided not to participate in the costly rat race for customer market share. We took a zero investment and zero risk approach, meaning we simply provide our license to specialized sports betting companies. They pay us a revenue share with a minimum annual guarantee. And what we get from them goes straight to our bottom line.

We have no cost against it. Our two properties in Colorado in Cripple Creek and Central City increased EBITDA by 14%. The EBITDA margin was 35%. Two out of the three sports betting licenses we have in Colorado are in operation already. The third one with bet365 as a partner is anticipated to go live next quarter.

In Missouri, which is our most important market in terms of EBITDA and cash flow generation, we grew EBITDA by 23%. The EBITDA margin increased from 42% to 45%, even so we increased some wages on top of the hourly minimum wage 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 continue -- to continue at its current run rate moving forward. With actions in advertising, direct mail and promotional expense, it appear to be sustainable and have not had any negative impact on gaming volumes.

We’ve announced two important developments at our 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, the savings on insurance alone will be around $50 million per year. It will also be significantly more convenient for our customers.

It will increase our catchment area and also give us the chance to win back customers who didn't like the old riverboat style when they paid us first visit. We plan to open that new facility in early 2024.

In Cape Girardeau, we're developing a 75 room hotel that will transform the property to a full resort destination with gaming, various bars and dining venues, as well as conference, concerts and event spaces. This hotel is slated for opening at the end of next year. Another opportunity for growth in Missouri is sports betting.

It has not been legalized yet, but there's a good chance it will this year, which obviously would be very beneficial for us. In West Virginia, our Mountaineer Casino, Racetrack & Resort had a great quarter. EBITDA was up 34% over Q4 of last year.

We continue to make incremental investments into property, such as refurbishing some of the F&B outlets and upgrading the grand entrance experience. We also reconfigured several areas of the slot floor and introduce new and additional slot product as well as the new VIP gaming area.

Hotel enhancements include new windows, new bathrooms, new and bigger TVs for the hotel suites to attract higher work players and also the total repeat of the outside pool. Internationally, our operations in Poland generated excellent results. Revenue was up 67% and EBITA turned to a positive $3.2 million for the quarter.

All our casinos over there are doing well, even without any meaningful business tourism. In fact, revenue over the last couple of weeks was at an all time high. In Canada, you're presented with severe restrictions during the quarter as already mentioned, all that’s needed to provide proof of vaccination.

Everybody was required to wear face masks and casinos were not allowed to serve liquor after 11 PM. As a result, adjusted EBITDA was down 15%. But as mentioned, this restriction has been lifted last week actually. And as a direct consequence, results are on the up again. Actually, they are up by more than 20% in just the first couple of days.

Let's now cover our balance sheet and liquidity. As of the end of December 2021, we had $108 million in cash and cash equivalents and $189 million in outstanding debt balance sheet, resulting in a net debt of $81 million. The year earlier, our net debt was $130 million, meaning we generated $49 million in free cash in the last 12 months.

Our strong free cash flow generation is driven by efficient and prudent CapEx spending program at our properties and favorable regulatory regimes in West Virginia and Alberta, Canada, but it stays to our respectively pays for half or even all of the slot machines aspects.

Overall, we had a well-maintained asset base that requires minimum levels of maintenance CapEx to sustain a current level of profitability. And we've always had a conservative leverage profile, and we anticipate remaining conservative in the future.

And now to the most recent news, the most exciting news, our announcement to acquire the Nugget Casino Resort in Reno Sparks, Nevada. Two weeks ago, we entered into a definitive agreement to acquire 50% of the Nugget Property Company, and 100% of the Nugget’s Operating Company for a combined total purchase price of $195 million.

In addition, we have a five-year option to purchase the remaining 50% of PropCo for $105 million plus 2% per year. In connection with that transaction, we have received a firm commitment that from Goldman Sachs for $350 million senior secured term loan and a $30 million senior secured revolving credit facility.

We expect to close the purchase of 50% of the property company next month in April. And from that time on, we will receive $7.5 million in rent, which is our half of the annual rent payment that flows from the operating company to the property company.

We will close the operating company purchase as soon as we get the Nevada Gaming license, which is expected to take nine to 12 months. And from then on, we will get all the EBITDA and we will pay as the operating company rent to the property company, half of which we obviously pay to ourselves.

In 2021, The Nugget did $33 million in EBITDA on revenues of $100 million. We see upside to these numbers, mainly for three reasons. First, during the first half of the year, 2021 there were no conventions or concerts, which normally are very profitable part of Nugget’s business.

Secondly, we anticipate to create synergy effects when we integrate The Nugget into our portfolio of North American operations. And thirdly, we already have identified various opportunities to improve the operations, mainly on the slot floor, the most profitable area of ours. Here’s some key data of The Nugget Resort.

50,200 square feet of Casino floor, 859 slots and 29 tables, 1,382 rooms and suites in two hotel towers, and variety of casual and fine dining restaurants, 110,000 square feet convention space and a very popular amphitheater with 8,555 seats.

With The Nugget being directly chased into I-80 and with direct highway on and off roads and for parking both surface and parking garage, is perfectly located for customers coming by car. The traffic count at nearby intersection is an amazing 260,000 cars per day. Here are the top 10 reasons why we love The Nugget.

First of all, we purchase an existing operation with a long operating history. That means we have no development risk, no risk of construction delays and no risk of cost overruns. Secondly, The Nugget is in a great location. Located directly on I-80, the property gets an exposure that is unparalleled in the Reno-Sparks market.

Then the combination of hotel rooms and convention space, with 110,000 square feet, The Nugget has the largest convention facilities of any hotel casino resort in the market, and it has sufficient rooms to support large conventions.

For us, the previous owner, the Marnell companies have invested more than $90 million since 2016; upgrading all hotel rooms, most public areas, they did a top notch steak house, upgraded or replaced the houses and the equipment where necessary and they right-sized the operation.

Therefore we do not expect any external, ordinary or meaningful replacement CapEx in the next years. And there's a brand new 8,555 plus seat amphitheatre and provides us with excellent marketing opportunities. The Nugget gaming floor provides opportunities for improvement in growth.

We can further improve the slot mix, further improve the traffic flow, increase the square footage. And The Nugget has a database of 80,000 active players that we will be able to market in a highly efficient manner. The acquisition offers great potential for synergy effects, as we integrate the standalone property into our portfolio of 17 casinos.

The transition support of the seller, Anthony Marnell, the III and his team is perfect. We are grateful for that partnership. And last but not least, potential reason why we love The Nugget is management. Management of The Nugget is excellent. We want them to stay and continue the growth ahead with us.

We have communicated this to management in person on the day we sign the deal. In terms of the broader market dynamics, there's substantial economic growth in the Reno-Sparks regions. Companies like Tesla, Google, SwitchData, Amazon or Apple are coming to the area with the capacity to hire tens of thousands of employees.

Consequently, the population growth is outpacing the national average and the personal income per capita already at over $72,000 in 2021 is expected to grow further with a CAGR of 4%. And not surprisingly, the unemployment rate is only 2.9%. What we also love about the Nugget transaction is that it significantly increases our scale.

Our revenue is expected to grow by over 25%. But not only that, it also increases our geographic diversity, which substantially reduces our reliance on any one market or property.

Pro forma for the Nugget transaction, we generate our cash flows from 18 properties in seven different markets across -- in regions across North America and Europe and no single property contributes more than 25% of our total EBITDA.

That is something we always aim for and that is part of our overall strategy, no reliance on any one market or property. Our team has an excellent track record of improving the performance of properties we have acquired. In fact, we've improved the results of each and every property we have purchased within the first six to 12 months of acquisition.

When we acquired the three casinos from Eldorado Caesars, a company with a reputation of being very disciplined and efficient operators, we increased revenue and EBITDA almost immediately. And that was before COVID-19 that had nothing to do with stimulus payments or any other COVID-19-related effects.

We did that by listening to local management and focusing the operations on the more profitable revenue centers and drive additional value.

And after the very successfully acquisition and integration of these three acquired properties over the last couple of years, all of us are very excited about doing the same all over again, if not better, with the Nugget transaction. In conclusion, the fourth quarter was another great performance of our company in the entirety.

Our diversified portfolio continues to generate robust EBITDA growth and our operating strategy and tight focus and the right customer are producing strong and sustainable margins. We will continue to execute on our business plan by growing organically and by identifying and acquiring under managed assets and stable drive through markets in the US.

In our M&A strategy, we will remain prudent with pricing and valuation, we will continue to dedicate resources to capture synergies, and provide time to digest the acquisition and recognize value.

With that discipline in our strong balance sheet, we are confident to find further opportunities to deploy capital in a manner that consistency 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 business during these challenging times. I thank you for your attention and we can now start the Q&A session. Operator, go ahead please..

[Operator Instructions] Your first question comes from the line of David Bain with B. Riley. Please state your question..

Great. Thank you and congratulations on the latest acquisition. I think, it's a great market. Very exciting milestone for Century. Peter, you did a good job of sort of outlining the structure.

But if we can just take a second to review, so you take over 50% of PropCo next month, and you'll begin to receive about $1.9 million per quarter in rent like directly to EBITDA really flowing all the way through.

And then upon Nevada approval, you know, beginning of next year, let's call it, you get the whole EBITDA trailing 12, $33 million less $7.5 million in rent.

But that doesn't include certain shows, events that you outlined, that weren't in there, probably, some benefits from structural upgrades and certain cost synergies and other performance enhancers that you've executed on previous mergers.

Is that kind of summarize things just so I can get it, right?.

Yes, absolutely, Dave. That's the right picture..

Okay, perfect. And then it looks like there's a lot of growth and synergies that, you know, are identified revenue and cost-wise. And I know you're not quantifying it today, per se.

But are you seeing, material potential increases versus that $33 million? You know, at this point or is there anything more that you can give us there?.

Erwin, can you comment on that?.

Yes. Yes, the short answer would be yes, we see material possibilities and upside. To give you just two examples, as Peter mentioned, already, the slot floor, we think provides a significant upside potential. The average age of machines is rather old, let me say. And we know that bringing new product will just help the revenues immensely.

And the second thing that we want to do is – when you look at the EBITDA [ph] of the five large properties -- the five large resorts in Reno, there is only one which is not literally were late night and that's the night stage [ph].

And we think that the number of cars that Peter mentioned before 260,000 per car, it take – it just makes a lot of sense to invest into a very little cars with good signage and good light. That’s two examples, and of course, we could go on but just to be good as I first see it...

Right. And then my second follow-up, if I could.

You know, and I know you've addressed this one in the past? And Peter, but just given the macro or geopolitical environment, are you still not seeing any pockets or rising oil costs could have a material impact, and really either direction, throughout the portfolio?.

If I may take it. No, you know, oil prices have been going up and down over the years. And we have never -- when they start -- when the oil prices went up, we haven't really seen a negative impact on the business. And conversely, when they went down again, it wasn't the other way around, either.

The one thing that could be shared is with regard to our facilities in Alberta, Canada, in that area, higher oil prices, obviously boost for the economy so what's even good..

Okay, very good. Thanks, guys. Appreciate it..

Thanks, Dave..

Your next question comes from the line of Chad Beynon with Macquarie. Please state your question..

Hi, good morning. Thanks for taking my question. Peter, I wanted to start with Poland. You said that the fourth quarter, obviously, was very strong. And you even said the past couple of weeks revenues have continued without any international inbound. Just wondering how we should think about this, given the current situation in Ukraine and Russia.

Obviously that could have stuck the international inbound but just wanted to get a better sense of what you're seeing on the ground and what your consumers are thinking from a day-to-day standpoint? Thanks..

We -- yeah, it's in the way fortunate, but we see only positive impact so far. There's more people in Poland than before, I don't know if that has something to do with it. But the impact is positive.

I mean, do we know exactly what's behind the uptake in revenues?.

I think it's mainly just the pent up of demand. We had so many restrictions for such a long time and people are just so happy that they finally can go in unrestricted again, and that's why the Poland. And then maybe I would like to mention also all of our casinos outweigh Warsaw and west of Vladivostok.

So we are quite far away from the border to the Ukraine..

Okay, thanks.

Also on Poland, is there any additional thought in terms of how we're thinking about the more slot [ph] license, which I believe is up for renegotiation of rebidding in 2022? Is that something given the Nugget acquisition and some of the other cash needs in the United States? How are you thinking about rebidding in that market?.

Chad, when we apply for new licenses in Poland, there's absolutely no investment necessary. It's all done on qualitative criteria. We will simply continue paying rent at the properties at the hotels where we have our casinos.

Right Erwin, do you want to add something?.

No, no, it’s okay. I was about to say the same..

Yeah, so there's no investment associated with getting a new license..

Okay, great. And then lastly, just a follow-up to David's question on the PropCo, OpCo, Nugget, calculus. Can you just explain why the 50% made sense? And how we should think about the likelihood of you taking everything in house or if the opportunity would be more for, I guess, taking that ran-off of your balance sheet? And that's all for me.

Thank you very much..

Yeah. Thanks, Chad. Ultimately, it was the outcome of a negotiation and we very much like that structure, because it gives us a lot of flexibility. We control the entire resort. We can close on that option to require the remaining 50% at any time at a fixed price. But we don't have to.

So, what that means for us is like in terms of CapEx, we continue to look for interesting M&A opportunities. And if you find one, we can then evaluate our cash position, the funds we have available at that time and we then decide whether we want to use the funds for the new acquisition or for acquiring the other 50%.

Or theoretically, we could also sell our 50% in the Nugget and just keep the OpCo. But as of today, we like the Nugget very much and as of today, our intention is to also acquire the remaining 50%..

Okay, great. Thanks and congrats on the acquisition..

Thank you..

Your next question comes from the line of Jeff Stantial with Stifel. Please state your question..

Hey, good morning Peter, Erwin. It’s great to hear from you guys. Thanks for taking our questions. I just wanted to start the two projects in Missouri, it did look like the total project cost ticked up a bit, since the last time we spoke.

You just talked to your degree of comfort that this should be where things shake out ultimately, or should be kind of expect that target to potentially continue to drift off of a bit from the earnout?.

Erwin, do you have something on that?.

What's the question, whether we think it's going to be more expensive?.

Yes, we have -- I think since the last time we gave the numbers, they were about 5% lower. I think we added some facilities, we changed a little bit the design of the Missouri hotel tower.

So, those numbers that we provided now are the most recent ones and we have high confidence in those numbers, right?.

Yes, right..

Okay.

So, just to be clear, this is more just a function of design plans as opposed to the kind of inflationary pressures?.

Yes. We changed the design here, Jeff..

Okay, perfect. That's really helpful and then switching gears, on the margins front looked encouragingly stable here in the US quarter-on-quarter aside from just some seasonality in Colorado.

Can you just frame the puts and takes here into 2022? Sounds like you highlighted some potential for lower margin but EBITDA accretive non-gaming revenues to tick back up.

And it does sounds like the labor market remains tight in some of these markets that they keep call that Missouri, but just curious to get your thoughts there on how we should think about the margin profile entering this year?.

Erwin?.

All-in-all, we think we can keep it that -- like it was in 2021. And we can also say that while it's not been easy with the labor market, but we think the rest is over, we were fine with in most departments, except maybe in food and beverage and housekeeping, but in essence, that is not such an urgent question anymore..

Okay, great. Perfect. Very helpful and encouraging. Thanks guys..

Thank you, Jeff..

Thank you..

Your next question comes from the line of Edward Engel with ROTH Capital. Please state your question..

Hi. Thank you for taking my question.

Just back to Poland, do you think the geopolitical kind of issues in that part of world could impact your timing or the ability to maybe divest some of those assets?.

We don't know yet. We have two companies that are looking at that. They are seeing that the results are very strong, and they're just getting stronger day-by-day. So, as of now, we don't see that that picture changing..

Great. And then on to St.

Louis, are there any benchmarks or hearings that we should kind of think about or put a radar maybe track the progress of that lawsuit?.

I do not know that exactly. I can come back to you on that. What I do know is that we -- that there's two avenues that our people are going; one is that we are opposing what the city of St. Louis wants to do.

And separately from that, we are also introduced with the help of the broad support of political parties, a separate team that would only deal with – with our project, like bringing – bringing the riverboat on land, because it's much safer for everybody.

And that, there's been has a lot of support from all political sides, and it's moving out with the committee's. So, we will see by the end of the session in May. What kind of progress we’re making..

Great. Thanks. Again, congrats on the – on the Reno transaction..

Thank you, Ed..

At this time, there are no further questions. I would now like to turn the floor back to Mr. Hoetzinger for any additional or closing remarks..

Thank you, and 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 everyone and goodbye..

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