Good day, everyone and welcome to today's Century Casinos' Third Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. Later you'll have the opportunity to ask questions during the question-and-answer session. [Operator instructions] Please note, today's call will be recorded.

And it is now my pleasure to turn the call over to Peter Hoetzinger. Please go ahead..

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 several 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 filing available in the Investors section of our website, at cnty.com.

I will now provide an overview of the results of the third quarter, and after that there will be a Q&A session. Our third quarter results were up against the record performance of last year, which was sued by listed COVID restrictions and lots of pent-up demand. Thus, while on a sequential basis, revenues were up.

Compared to last year, revenue and adjusted EBITDA were down 4% and 15% respectively. A large part of the decline is due to the extremely dry weather conditions affecting the water level of the Mississippi River. Low water level issues at our Colorado, St.

Missouri operation started in August and triggered additional expenses for [indiscernible] and caused serious issues for access the steepness of the access bridges and to transition from the barge to the old river boat.

In addition, the dry weather kept farmers, which are a large part of our customer base, busy on the themes and farmland for much longer than usual. As a result, the [indiscernible] casinos revenues declined 14% compared to Q3 of last year, and that also was responsible for around half of the company-wide revenue decline during quarter.

In addition, we incurred considerable costs in connection with preparing to integrate the soon to be our Nevada and Maryland operations.

With the headwinds in the economy, we also saw some evidence of slight changes in our customer's behavior as the lower ADT [ph] segment has cut down on the number of clips across all North American properties, but importantly spend portrayed from our mid and higher ADT segments head steady.

That play from our core customers is the foundation of our success, and this segment in particular continues to grow. that also hates to offset year-over-year decline spent from retail customers, which was an elevated levels last year due to the stimulus payments.

On the expense side of the business, our teams are effective in managing the overall cost structure while dealing with the inflationary pressures that exist today. The promotional environment across all our markets remains relatively stable. It's pretty disciplined and rational for the most part. Not much has changed in the last several quarters.

Total marketing spend continues to remain below pre-COVID levels. Of our US operations, Colorado was leading the way with revenue growth of 8% and EBITDA growth of 6% compared to last year. We've not seen any effect on revenues due to inflation.

However, we are affected on the expense side with higher costs for utilities, repair and maintenance, as well as operating supplies. Cripple Creek increased in all card play analytics with the exception of average number of trips decreasing slightly. This may be due to higher gas prices, however spend to trip has increased.

The Cripple Creek market continues to remain flat year-over-year, but due to our consistency in marketing and continued emphasis on customer service, we continue to gain market share. Central City, average spent per trip remained flat and we are not seeing any inflationary effects on patron spending.

In West Virginia, our Mountaineer Casino, Racetrack & Resort saw a slight revenue decline compared to Q3 of last year. The number of trips to the casino was down, especially for younger customers in the lower ADT [ph] segment.

Eventually however, looking at the last three quarters the trend is up, we grew from Q2 over Q1 and again Q3 over Q2 in both revenue and EBITDA. We experienced some staffing challenges at Mountaineer resulting in some limitations to our hours of operation and availability of [indiscernible].

Moving to Missouri where volumes remained strong during July and early August, but began dropping off during the second half of the quarter. There it was especially to older demographics 70-plus and the lower ADT segment, which cut down on trips. Economic inflationary factors may play a role here.

Dangerous water level issues at the Caruthersville and the dry weather around the farmland this year didn't help either. So we saw revenue decline compared to the record quarter we had last year.

Just last month in early October, we actually had to close the part of the casino that sits on the river boat and we operate with a limited number of slots and tables on the barge only.

The good news for Caruthersville is the fact that we did receive approval from the Missouri Gaming Commission a couple of weeks ago to relocate the casino operation from the barge to an existing land-based pavilion, which is not affected by water levels and is protected by flood wall.

We are allowed to operate the casino in that pavilion and build a new land-based hotel and casino development is complete, which we expect in the second half of 2024. The pavilion provides much easier access to the casino for customers and we anticipate it'll also bring operating efficiencies and cost savings.

We expect to move the operations from the barge to pavilion next month. Last week we also opened a small 36 room hotel. We call it the Farmstead Hotel, which we bought last year and completely refurbished. It is conveniently located close to the pavilion and to parking.

In our global presentation of the results, you find a description as well as a site plan and pictures for better understanding, but a new land-based hotel and casino development in Caruthersville, construction began two weeks ago on the new 27,000 square feet casino and 30 room hotel. The total budget increased by 10% from $47 million to $52 million.

Once the new casino hotel will be completed, the temporary casino in the pavilion will move to the new casino and the new Century Casino Caruthersville we then have a total hotel room count of 74 rooms in two hotels, one directly connected to a casino, and the other one the standalone opposite the pavilion.

The new casino will have 20% more gaming positions and provide significant operation efficiencies to be much more convenient for our customers and it will also increase our catchment area. At Century Casinos' Cape Girardeau, a large of our two Missouri casinos, we have started construction of a 69 room six story hotel building.

The project is expected to cost $31 million and be completed in the first half of 2024. This development will transform the property to a full destination, providing after reasons for individual and group multi day visits for many different purposes, such as gaming, dining, conferences, concerts and more.

Moving north to Canada, the Central Casino Hotel in Edmonton had revenues declined by 7% due to construction works on the main road in front of the casino and due to lower slot hold. Both of our racetrack casinos and Alberta Century Mile and Century Downs saw solid revenue growth of 9% and 4% respectively. Utility costs are up 17%.

The cost of goods increases could only be partially mitigated by price increases. Q4 has started really strong for Century Mile and Century Downs with both properties posting all time record results for the month of October. Our casinos in Poland continued their great performance with revenue up 25% and EBITDA up 34%.

Results in Poland are consistently strong, which also helps the same process and has led to renewed interests from smaller European casino groups and private equity investors. Anyway, there's no time pressure on our side as we have an excellent management team in place at Casinos Poland, and there's no need for any CapEx or investment from us.

Quite the opposite, cash is flowing from Poland to us. Quick look at our balance sheet and liquidity shows that we have $100 million in cash and cash equivalent, plus the $100 million which we keep in escrow for the closing of the Nugget OpCo transaction once their license gets complete.

Outstanding debt totalled $367 million, which includes $348 million under the Goldman Sachs Credit Agreement, of which a $100 million is escrow for the Nugget and $14 million related to a long term land lease for Century Downs in Canada. During the quarter, we were also very busy on the M&A front.

In August, we announced the acquisition of the operations of Rocky Gap Casino Resort in Maryland for $56 million. Simultaneously, with simultaneously with the closing of that transaction, VICI Properties will require the real estate assets and will amend our masterpiece with VICI to add the Rocky Gap property.

The initial entered rent for the Rocky Gap casino will be $2.5 million. The purchase price for the casino operation represents an implied 2021 EBITDA margin of 4.9 times. This multiple excludes any potential cost synergies and operations improvements can deduct annual rank for the VICI lease from EBITDA.

This acquisition is expected to be immediately accretive for our earnings. Rocky Gap is a full service resort, less than in a two hour drive from the Washington DC metro areas and includes an 18 hotel golf course designed by Jack Nicolas, a 5,000 square foot event center, several meeting spaces at spa and several outdoor activities.

The property consists of about 25,000 square feet of gaming floor, 630 slot machines, 16 table games, 198 hotel rooms and five food and beverage venues. The transaction is expected to close mid 2023 subject to regulatory and governmental approvals and customer closing conditions.

In Nevada, we already invested $95 million and now own half of the market casinos real estate. We will close on the purchase of a 100% of the operating company as soon as licensing is complete, but that'll cost another a $100 million. We continue to be very excited about the Nugget transaction and we see considerable upside ones we operate it.

With the Nugget repurchase an existing operation with a long operating history, we do not expect any extraordinary replacement CapEx for the first year. Some upgrading parts of the slot floor and improvements to the place [ph].

Acquisition also offers good potential to generate synergy effects as we integrate a stand property into our portfolio of 17 casinos.

With the pending Rocky Gap and market acquisitions, we will oversee the portfolio that reaches from East to West in North America and on a pro forma basis, after giving effect to the two acquisitions, we expect to generate approximately 95% of our EBITDA from our North American casinos.

With these opportunities for growth throughout next year and beyond, we are confident our company is very well positioned for continued long-term success. We will continue to execute on our business plan by growing organically, by identifying and acquiring promising assets in stable drive to markets in the US.

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

On behalf of the company's management and board, I'd like to thank our team members, our guests, and our stockholders for continued loyalty and their enthusiasm. I thank you for attention and we can now start the Q&A session. Operator, go ahead please..

[Operator instructions] And we will take our first question from Jeff Stadel. Please go ahead. Your line is open..

Great, thanks. Good morning, Peter, Irwin, thanks for taking our questions. I wanted to start with some of the commentary in the prepared remarks on the lower worth demographic that it sounds like softened a bit more recently in the quarter. You talked about the impact across the broader North American portfolio.

Is there differences in terms of how much you're noticing that asset by asset? And then can you just talk about the timing there? When did you start to notice some softening there and has anything changed, with the October trends?.

Erwin, can you give some color?.

Yeah, we do see some difference is not exactly the same everywhere. That softening started in the third quarter and in the meantime for the fourth quarter, we are already doing things to try to mitigate. To give you an example in -- for example in Mountaineer we increased the number of hotel room giveaways for the weekend. We count more.

We have customers, but we clearly see that they're worth comps also in that in the upper range of the lower bracket. And also we are doing a car giveaway, something that we haven't done before, and indications are that this is very well received from the -- what we see from the October numbers..

Okay, great. That's helpful, thank you. Then moving to Missouri, so the budgets for both projects came up a decent bit.

Can you just frame where you're seeing the most cost pressures and if you think the revised budget should prove ultimately to be the right number, and then just how are you thinking about the return profile now with the total budgets picking up a bit?.

They went up about 10% and 11% and it came from pretty much all sides. But we are extremely confident now this whole, and we have also -- we have that in writing.

We have agreements with our contractors and developers that in terms of return Cape Girardeau hotel return between the low teams and Girardeau around 15, that's where we are, where we see it coming..

Great. That's, that's helpful, thank you, Peter. And then if I could just squeeze in one more on the disruption with the low water levels in Caruthersville. Peter, you gave some context for how to think about the impact to revenues at the property.

Could you provide similar way to think about the cost impacts? You talked about some higher operating, but just any way for us to quantify and think about how impactful that was during the quarter and maybe any thoughts on how impactful it should improve in Q4 as well? Thanks..

We, don't have an exact number on the plus side.

Do we have, It's like more than half, is that what we believe? Right?.

Yeah, yeah. In that range. Yeah..

Great. Understood. Very helpful. Thank you both. I'll pass it on..

And we'll move next with Chad Beynon. Please go ahead here. Your line is open..

Hi, good morning. Thanks for taking my question. Wanted to ask I guess kind of a medium or long term question. You guys have been successful in your currently in process of building the portfolio.

Where do you think -- where do you think the portfolio can get to in the next couple years? Or I guess asked another way, are there still opportunities out there and given your arrangements with your REIT partners, should we continue to expect, maybe one acquisition per year to kind of build the free cash flow levels where you start to get even greater scale? Thanks..

We do see quite a number of interesting properties out there that would fit very well into our portfolio assets. In that range of say $15 million to $50 million in EBITDA. There are not many -- not too many buyers out there because it's way too small for the larger groups and we believe we are a very good niche.

Yes, we do have a very good part in VICI, but let me also say that other property or real estate investors are also knocking on our doors. So there is we believe for the next two, three, four years a great deal of M&A activity ahead of us.

Whether it be once a year or two every year, we look at it a little bit on an opportunity basis, but that's plenty of opportunity out there..

Great. Thanks Peter.

And related to that, how are you thinking about the optimal debt leverage or least adjusted leverage particularly during times like this when interest rates have risen?.

At the moment, I think we are at the leverage level that is okay. But as we said, we are in the process of selling our Poland assets. We can use that to pay down that if you believe that's the right move. We also do own Colorado assets. We own the Canadian assets. Not to say that as any need to do anything with those, but we could if you wanted to.

Currently our net debt to adjusted EBITDA is 3.4 and lease adjusted net leverage if you use an eight multiplier is 5.5. And we believe with the projects that we have on hand in Missouri and also market and graphic cap we will be able to bring that ratio down and we feel quite confident with that..

Sounds great. Thank you very much, Peter. Best of luck..

Thank you. We will move next with Jordan Bender. Please go ahead..

Great, thanks. Thanks for taking my question. So in Poland, in local currency, it actually looked like your margin was one of the best and maybe the last six or so years.

I was just kind of wondering, what's kind of driving that strength and looking forward should we expect, I guess, a low double-digit margin within that segment?.

I think we can -- we see no signs that these numbers would not be sustainable. We think they are sustainable and everything points to us being able to keep those numbers, and we also see potential to increase them further. It's hard to pinpoint the reasons down to one. It's a multitude of reasons.

I think overall what can be said is finally the very strong locally management that to have all their efforts came to fruition and just show better than -- it's just a year where we could compete even better than before with our all those local competitors.

So really we're really happy with the team and as we said, we think this can continue and go further up..

Great. And then turning to Canada, kind of a similar question, coming out of COVID, I guess margins were choppy, just kind of given, COVID reopening and then re-closing and reopening again.

As we think about, I guess the business in '23, I guess where should we think about margin levels maybe being sustainable or where should they be trending as we think out into next year?.

Some color, I would say in very general terms, we should be able to sustain the current margins and in various properties for good reason, be able to increase them. For example, in Missouri as we talked about the changes there and the improvements to the properties that should improve and increase our margins relatives to '22 back to old levels.

In Colorado, probably it's we'll so to speak, margined out. We are doing very well already there, but I think again, we consider this to be very sustainable again. Excellent management there. And in Mountaineer we're working hard on crawling up step by step. It's harder in Mountaineer because the gaming tax is very high.

So this cannot be compared to a low text environment. But again, we feel solid with a very solid base and we should be able to increase there as well..

Okay. And just to follow-up on that, just to confirm, you historically have done low 30% EBITDA margin.

You think getting back to that level is achievable over the next couple years in Canada?.

Yeah, I think that's not unrealistic to assume..

Okay, great. Thank you..

In Canada, one thing that works for us is that energy worker oil prices are high and with a certain time delay that always is then reflected in for this economy..

Okay. Thank you..

[Operator instructions] We will move next with Edward Engel. Please go ahead. Your line is open..

Hi. Thanks for taking my question.

Just wanted to follow up on that last one, just regarding margins and I guess cost inflation just on the overall cost inflation side, whether it's utilities or labor, I guess what are -- what have you kind of seen over the past couple months? It looks like generally OpEx across your properties with flattish Q-on-Q minus, maybe Canada just kind of want to wonder what you're seeing in terms of increases in OpEx?.

OpEx did increase definitely. So far also across the board, I think our management has been very skilful in findings ways through this by trying to find even further ways to save in other areas. With regard to starting speed, I mentioned it can be challenging, not here, for example.

But again, this don't go on forever and we were able to operate well even on say higher sell rate, but slightly lower staffing levels..

Thank you. We will move next with Daniel Honk [ph]. Please go ahead..

Hi, Thanks for taking the question.

Just a quick one on the Caruthersville and Cape Girardeau projects, is that intended to be funded entirely out of cash on hand or do you have financing lined up for those projects?.

The hotel project in Cape Girardeau, we finance with cash at hand. And for the one in Caruthersville, we have not made the final position, but it'll be several like cash on hand and financing sources. .

Thank you. We will move next with Chris [ph]. Please go ahead. Your line is open..

Yes. Hi. Could you please focus and simplify? I'd like you to identify the one, two, three critical variables that we should monitor for corporate earnings modeling in the fourth quarter and then going into next year. Thank you for answering my question..

Yeah, I would say that the progress in this Missouri is an important one to watch as you've seen in Q3 or kind of an impact that has, then continued success in Colorado is very important. And we're switching. There is secondly on a great path as we said, and we would like to see that continuum.

So we are watching those three markets with high interest because they're very critical to our success..

Are you providing any guidance with regard to sales or really any of the key parameters of the corporate results?.

Oh, no, historically the company has not provided guidance. We have a handful of excellent research reports that are out there on CNTY [ph], and I would encourage you to get a hold of one or more and read through..

And it appears that we have no further questions at this time. I would like to turn the call back over to Peter Hoetzinger for any closing b remarks..

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. And if you have any follow-up questions, please feel free to reach out to us. Stay well and goodbye..

This does conclude today's program. Thank you for your participation. You may disconnect at any time..