Good day, everyone, and welcome to the Century Casinos Q1 2023 Earnings Call Webcast. [Operator Instructions] Please note today's call will be recorded. [Operator Instructions]. It is now my pleasure to turn the call over to Peter Hoetzinger. Please go ahead, sir..

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, we would like to remind you that we will be discussing forward-looking information, which involves several risks and uncertainties that may actual -- 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. [Audio Dip] 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 releases and SEC filings available in the Investors section of our website at cnty.com. I will now provide an overview of the results of the first quarter 2023. After that, there will be a Q&A session.

We delivered record first quarter net revenue and record first quarter adjusted EBITDA. Net revenue was $108.5 million, an increase of 5%. Adjusted EBITDA was $26.1 million, a 9% increase. We are particularly pleased that each single one of our reportable segments showed revenue growth compared to Q1 of last year.

So it was an excellent start to year for our company, once again demonstrating the strength of our business model and the resilience of our diversified portfolio. Our strategy of focusing on increasing play from our co-customers and managing our business efficiently has delivered record results.

We generated solid business from our core customers especially in January and February. As you get lower in the database, we didn't perform quite as well. We saw that in March and also going into April. Hence, our focus on increasing play from the upper segment of our database, which is our core customer.

On the expense side of the business, we continue to see inflationary impacts. We are dealing with cost pressures whether they be wage pressures, insurance cost increases or utility cost increases across the board, but our teams are effectively managing through them. Wage inflation is largely normalized but utilities inflation stays elevated.

The promotional environment across all our markets remains relatively stable. It is pretty disciplined, and we continue to envision a very rational marketing approach for all of us going forward. Nothing unusual, and we are not seeing competitors do anything unusual either. Looking at segment results.

Our Colorado business had a solid quarter with revenue up 3%. While Central City was down a little, Cripple Creek was up on revenue as well as EBITDA. The overall EBITDA margin of Colorado came down to 30% from 32% in Q1 of last year due to higher utility and labor costs.

We saw a slight increase in guest count and in trips, but with a slightly lower spend per trip. From an age standpoint, the number of trips increased significantly from the younger demographic, the under 40 age group. In Cripple Creek, we will complete our employee housing project this summer, providing accommodation for 30 employees.

In this tight labor market, especially in Cripple Creek, a small historic gold mining town with a population of less than 2,000 and at an elevation of 9,200 feet we are certain that gives us a good competitive advantage. Moving on to West Virginia. Revenue at our Mountaineer Casino, Racetrack & Resort grew slightly by 1.5%. Slot play was strong.

It was up 7% but the quarter saw a decline in table drop of 12%, which was mainly unrated drop. Our analysis indicates that most of this was due to a loss in crossover play from sports betting due to higher went live on January 1 of this year. EBITDA was under pressure by high expenses related to horseracing and insurance.

The hotel and F&B departments are still experiencing staffing challenges, resulting in limitations to hours of operation and availability of hotel rooms. In the casino, we saw high single-digit increases in guest count and number of trips, particularly from senior customers in the higher ADT ranges which is about an hour's drive from Mountaineer.

In Missouri, revenues were up a bit despite a difficult comp. For example, Q1 of last year had the highest table drop in Cape Girardeau's history.

At the very end of the quarter, the threat of severe weather, the Tornado was approaching impacted several days, including a significant decline of visitation on the final day of the quarter, Friday, March 31. But all in all, it was a good quarter for Missouri. EBITDA margin sits at 44%, down just 1% from last year's 45%.

We saw less number of trips, but with a slightly lower spend per trip. Those properties had some negative impact, not only related to the severe weather late in the quarter, but also from whole percentages. Normalizing the whole percentage to prior year would have picked up enough additional EBITDA to bring the margin up to where it was last year.

The strongest age group adds Cape Girardeau was the under 40 demographic with a significant increase in the number of trips. It was different in Caruthersville, where the 70-plus age group showed strong growth, most likely because of the casino moving from the river boat into the temporary land-based building allowing for much easier guest access.

Construction of the new permanent land-based hotel and casino development in Caruthersville is progressing according to budget and schedule. We plan to open in Q4 of next year. The new property will have a total of 72 hotel rooms, 12 gaming tables and over 600 slot machines which is a 20% increase in gaming positions compared to the old riverboat.

But most importantly, it will provide significant operational efficiencies. It will be much more convenient for our customers and it will increase our catchment area. A new development in Illinois over an hour away from Cape Girardeau is expected to open with a temporary casino this summer.

With that in mind, we have taken steps to create more excitement around our Cape Girardeau casino and have started construction of a 69-room six-story hotel. It is on track for opening early next year and we transform the property to a full resort estimation, offering gaming, dining, conferences, concerts, events and more. Moving north to Canada.

Our four properties showed solid gains in the quarter, increasing revenue by 3% and EBITDA by 14%. We achieved these strong results even though access to our property in Edmonton was impacted by road construction. The Century Mile Race posted the largest gains and doubled EBITDA compared to last year.

As reported during last earnings call, effective April 1 of this year, the Alberta Gaming Commission has increased the operator's portion from slot revenues by 2% for the next couple of years. giving us a nice boost for the rest of this year and next. Finally, some color on our European casinos in Poland. They had another great performance.

Revenue was up 17%, EBITDA was up 24%. Casinos Poland has been able to more than compensate for inflation-related expense increases through strong revenue growth. Slot gaming was higher, table drop was higher and so was F&B revenue. All around a very good quarter in Poland.

As mentioned previously, the war in the Ukraine is not impacting our results negatively and we have no significant number of employees or suppliers from the Ukraine. All right. With that, let's have a quick look at our balance sheet. As of March 31, we had $103 million in cash and cash equivalents and $365 million in outstanding debt.

The net debt-to-EBITDA ratio was 3.5. The lease adjusted net leverage 4.8x. These ratios will improve if we look at it on a pro forma basis, including the Nugget and the Rocky Gap transactions. Net leverage goes down to 3.1, and the lease adjusted net leverage goes down to 4.7. As reported, we closed the Nugget transaction on April 3.

Now we own half of the Nugget's real estate and 100% of the operating company. We also have an option to buy the other half of the real estate.

With the closing of that transaction, we anticipate an immediate impact to net income as we have been paying interest on the $100 million that we borrowed to finance the acquisition without any income from the Nugget to support it.

The Nugget is a full-service resort destination with over 1,300 hotel rooms and suites, a casino with 850 slots and 29 tables, six restaurants, several indoor and outdoor entertainment venues as well as one of the largest convention areas in the market.

This location provides unmatched exposure in the Reno-Sparks area, and we plan on taking full advantage of that with a new attractive façade and signage. We are more than excited than ever about the potential for improvements.

The immediate focus will be on the gaming floor as well as on raising the potential for synergy effects across all operational departments. We implemented small operational changes already and are seeing good results with significant year-over-year revenue growth, especially in the Nugget group and convention business.

For this year and going into next, the Nugget is expecting record business from group and convention sales. Several new high-spending groups have allowed us to increase our casino comp criteria, leading to better overall profitability.

Group room nights, ADR and banquet revenue are pacing ahead for the rest of the year, and we expect to generate record overall group and convention results in 2023. In Maryland, we expect to close the Rocky Gap acquisition in July. We paid $56 million with cash on hand.

After rent expenses, we expect Rocky Gap to generate more than $10 million in additional stable EBITDA for our company.

Rocky Gap is a full-service resort less than two hours from the Baltimore and Washington DC Metro areas, and includes an 18-hole Jack Nicklaus golf course, a 5,000 square foot event center, several meeting spaces, a spa and several outdoor activities.

The property consists of over 25,000 square feet of gaming floor, 600 slot machines, 60 tables, 198 hotel rooms and five food and beverage venues. With the Rocky Gap and Nugget acquisitions, we operate the U.S. casino portfolio that reaches from East to West.

On a pro forma basis, after giving effect to the two acquisitions, we generate over 80% of our EBITDA in the U.S. As we move further into 2023, economic uncertainty that persists today makes it difficult to predict where consumer trends are headed.

But for the most part, our core customer continues to be resilient which is probably the most important takeaway from the results of the first quarter.

Looking ahead, we have positioned our company for strong growth for years to come with the Nugget and Rocky Gap acquisitions and our two Missouri development projects, all of which we expect to drive a material increase in EBITDA and free cash flow in the coming years.

In conclusion, this was another strong quarter for our company further demonstrating the resilience of our business and the strength of an efficient operating model built on driving play from our core customers.

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. I thank you for your attention. And operator, we can now start the Q&A session..

Thank you. [Operator Instructions]. Our first question comes from Jeff Stantial..

Great. Thanks. Good morning everyone. Thanks for taking our questions. Helpful commentary earlier in the call regarding March and April trend, Peter or Erwin, whoever wants to take this, can you just frame out a bit more the pullback that you called out in some of the lower income demographics in the database.

I guess what percentage of the database does this cohort constitute? Or even better, what percentage of your revenues? And then just sort of -- what sort of income band does this group fall into to the extent you have looked at things this way? Thanks..

It was, as you said, more on the lower end and it was -- I don't -- it's not a trend, because we saw it in the last few days in March and then going into the second week of April. But from -- like from the third week of April on, it came back. So we had -- it was about a three week period of softness. So far, we are not see continuing.

Maybe it has to do with the tax refund season. We're hearing that the refunds are about 10% lower this year. So that maybe we'll have to do something with it.

Erwin, do you have additional color on that?.

We don't -- no, no, we don't have the details that we asked for at hand, we would have to look and then send later..

That's helpful. I appreciate that commentary. And I tend to agree with your points there, Peter, on some of the timing of tax refunds playing the role here. Perfect. And then moving to my follow-up question. It looks like margins were up for your Canadian assets really quite nicely quarter-on-quarter.

Can you just expand a bit more on kind of what's driving that?.

Erwin?.

I think it's just a good management, right? And we see various things falling into place and it's nothing in particular. What might be mentioned is that in the year-over-year, COVID has been lifted only, I think it was the end of February last year. So that has been franchise well..

Okay. Perfect. Very helpful. Thank you both all. I'll pass it on. And congrats on the nice quarter..

Our next question comes from Chad Beynon..

Hi, good morning. Thanks for taking my question. I wanted to ask about just kind of the balance sheet and capital allocation. On recent calls, you've mentioned that there's really no need to monetize anything, whether it's selling operations or some land value, which you might not be getting credit for.

But now that the Nugget has closed, how are you thinking about I guess, just really revisiting that question with some real estate either to build or sell on that? And then on the international operations with Poland, if that still makes sense to operate into the future.

Seems like there's a disconnect with where the stock is trading versus what the business and the asset value is? Thank you..

Thanks, Chad. Yes, we are evaluating that constantly. Also in light of the high interest we're paying on our debt. And yes, you're right, we're sitting on real estate in Colorado and Canada, and also partly in the market. So there are some very interesting discussions going on.

And it's something that it's pretty high on our list to make some very positions there in near future.

The value -- the land value that we still have is I think it's fair to assume that this is -- even though it's only with this was more casinos in Canada and plus the Colorado is substantially higher than our current market captures from the point of view, it's intriguing..

That's great. Thanks Peter. And then just with the rare weather that we saw in the first quarter and even the fourth quarter in Reno. You hadn't assumed operations at that point.

But wondering if those lost trips from over the mountain led to pent-up trips? Or were those just simply lost during the period and maybe when elsewhere? Trying to figure out if Q2 and maybe into the summer period could benefit from how bad the weather was prior to that? Thank you..

Margaret, can you address that?.

Yes, absolutely. I mean nobody knows for sure, but our guess would be maybe half of the trips are lost and the other half to worth like pent-up demand, and then there were more people coming and that might well continue.

But with regard to the numbers, I think it's important to point to what Peter said anyway during his presentation that with regard to group business, concessive conventions we expect 2024 to be a very strong year for the Nugget..

Good point. Thank you both very much..

2023, I'm sorry..

Okay. Got you. Thank you both very much. Appreciate it..

Thanks Chad..

Our next question comes from Edward Engel..

Hi, thanks for taking my question. The Caruthersville property had a nice bounce back in the first quarter.

Just wondering, was that a steady trend throughout the quarter? And I guess, does that kind of put this property on track to maybe start growing revenue versus the order facility? And then is the cost base, it should it be generally a higher margin property too since it's been relocated to land?.

Erwin?.

I'm not sure, I understood the question well..

Could the property I mean -- yes, I guess since Caruthersville has been moved into the temporary pavilion facility, is it possible to see revenue and margins higher than it was when it was on the River?.

Yes. Yes, it could be. One of the things is, for example, that it's now easier -- accessibility is easier. And I mean as a whole, is just no comparison. I mean, so let's say, we were told there wasn't a single customer that has missed the ship. It's just so much better even if it's only temporary..

Okay. Helpful. And then is it fair to assume that for the month of April, since you took over the Nugget, it's been a relatively clean month in terms of not many big snow storms or anything, I guess.

If so, is it possible to give us maybe some sort of EBITDA margin that you're kind of seeing that property run rate at right now?.

I think that's too early..

Got it. Thanks..

Our next question comes from Jordan Bender..

Great. Thanks for taking my question. You mentioned kind of the uptick in your properties in Colorado. One of your competitors in Cripple Creek is under going to renovation. How much of that is maybe just business you're taking from that property versus maybe structurally taking some of these people and building loyalty from those customers? Thank you..

This is Erwin again. We have a very strong customer -- a loyal customer base in Colorado. In Cripple Creek, in particularly with regard to the construction going on from our competitors. We think we get a little bit of that -- as a result of their slightly disturbed operations, but it's not substantial.

I think we are standing on our own, even after the opened, we are very confident that we will continue to be doing very well..

Okay. Great. Thanks. And then on my follow-up, Peter, you kind of walked through some of the puts and takes in the margin within the quarter. Within the U.S.

business, is this kind of the right way to think about that margin progressing through the rest of the year, just given some of the renovation and then some strength in some other properties as well?.

Yes. I mean we're getting into some stronger quarters now, summer. So we would hope that the margins will go up a bit from here for the rest of the year..

Okay. Great. Thanks guys..

[Operator Instructions]. Our next question comes from David Bain..

Awesome. Thank you. Just a follow-up on that previous question. So if we were to look at year-over-year in '23, it looks like margins were off like 170 basis points or something just on a consolidated basis.

Is that kind of year-over-year -- is that something to sort of look for that sort of trend? Or should we start from a new baseline of where we are and see margins sort of going down from 1Q?.

Now it should not go down from 1Q, Dave. They should go up a little bit from this quarter as we're heading into the summer season. And yes, as the revenue grows. As I said, we had some hold impact on slot and table hold in Without that, we would have been at the same margin as last year. And going forward, a little bit higher from [indiscernible]..

Okay. Perfect. And then just we're trying to refine our nugget model based on last year's $27 million. I'm trying to understand if there's a percentage weighting that's typical on a quarterly basis? And then I understand that the strength with the convention.

I didn't hear much on the -- unless I missed it on the entertainment calendar and kind of the CapEx investments like the slot floor when that could take hold? And just your overall sort of cadence to ramp as we look at the next several quarters to even year, that would be really helpful..

And at Erwin take that, he is in Reno right now..

We have a strong entertainment calendar for the remainder of '23 and also a strong group business calendar. We will -- we ordered 100 new slot machines, and we expect most of them to come in starting mid-May. So that should have a positive impact on the second quarter.

And then in addition to that, we are looking at a series of what we call on the floor to make things nicer to improve on the layout of the slot machines, how they are laid out. We do a lot of work on the slot floor, and there is, we think, quite some upside. A lot of ups had potentially, in fact, and so from many angles, it looks very good..

Okay. Great. And that -- those investments that you make, are those -- I mean, given the patronage, does it take a while for them to sort of understand that there's -- those improvements that have been made? Or will there be marketing? I'm just kind of trying to figure out, again, sort of on a year-over-year basis, how we....

Yes. first of all, I think everybody in the floor knows already that there is a new ownership, and we have nothing but positive and nice comments. But another thing that we are doing is we're about to order the build the outside of the building to be repainted.

So pretty soon, they will start painting and then everybody will again see that something is happening. We put on new signage on the two towers. So we'll have for new signs, large ones, better we brightened the rate of the Nugget slightly.

We made the font more eligible all of which will be coming in the next month, and we think that it just will signal the new spirit. Then we also completely revamped the marketing approach, and we're in the middle of working on that. We will continue what is there now.

But we will, in addition, focus more on the local market, we think there is certainly upside as well..

Thank you, Erwin. Thank you Peter..

Thank you..

we have no further questions in the queue at this time. I would now like to turn the call back over to today's speakers..

We appreciate everybody 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. Thank you..

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