Century Casinos, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. Although the request identifies 2023 Q4, this filing reports full-year results, not a standalone fourth-quarter income statement. Century operates gaming, lodging, food and beverage, racing and related businesses in the United States, Canada and Poland.
Financial performance and liquidity
| Metric | FY2023 | FY2022 |
|---|---|---|
| Net operating revenue | $550.2 million | $430.5 million |
| Earnings from operations | $64.0 million | $67.6 million |
| Net earnings (loss) attributable to Century shareholders | ($28.2 million) | $8.0 million |
| Basic loss (earnings) per share | ($0.93) | $0.27 |
| Adjusted EBITDAR, non-GAAP | $114.0 million | $103.3 million |
| Net cash provided by operating activities | $24.1 million | $37.4 million |
| Cash and cash equivalents at year-end | $171.3 million | $101.8 million |
| Debt principal, before deferred financing costs | $346.8 million | $366.4 million |
| Net debt, non-GAAP | $175.5 million | $264.6 million |
Revenue increased 27.8%, while earnings from operations declined 5.3%. The approximate operating margin was 11.6%, versus 15.7% in 2022; the approximate shareholder net margin was negative 5.1%, versus positive 1.9%. Net loss included $93.9 million of interest expense, including a $7.3 million loss on extinguishment of the CDR land lease. Interest expense rose 42.7% year over year. Adjusted EBITDAR is a non-GAAP measure that excludes, among other items, Master Lease interest; it should not be treated as cash flow or as a substitute for GAAP earnings.
Revenue growth reflected the 2023 additions of Nugget Casino Resort and Rocky Gap, which contributed $80.8 million and $31.7 million, respectively, in net operating revenue after their acquisition dates. Hotel revenue rose to $42.3 million from $9.6 million, and food and beverage revenue to $50.3 million from $24.1 million, substantially reflecting those additions. U.S. revenue increased 41.7%; Canada increased 5.4%; Poland increased 4.4%.
Cash used in investing activities was $207.0 million, including acquisition spending and construction. Cash provided by financing activities was $149.9 million, including $162.6 million of proceeds from the Canadian real estate sale. Reported cash and cash equivalents exclude the $100.2 million acquisition escrow included in 2022 cash-flow totals. About $118 million of year-end cash was held by foreign subsidiaries and was not available for U.S. operations unless repatriated.
In addition to $346.8 million of debt principal, the balance sheet included a $658.0 million VICI financing obligation. The Master Lease is accounted for as a financing obligation and covers significant North American properties. Scheduled 2024 Master Lease cash rent, including CPI adjustments, was estimated at about $52.2 million; the filing separately estimates 2024 cash payments of $52.5 million in its liquidity discussion. The Nugget lease also entails an estimated $7.0 million 2024 payment attributable to its non-controlling partner. Most bank debt was variable-rate; a one-percentage-point rate change was estimated to change annual cash interest by about $3.5 million.
Material changes and unusual items
- Century acquired Nugget’s casino operations in April 2023 and Rocky Gap’s operations in July 2023. Nugget contributed $1.3 million of shareholder-attributable earnings for its included period; Rocky Gap contributed a $2.5 million shareholder-attributable loss.
- Century sold the real estate assets of its Canadian portfolio to VICI in September for $162.6 million gross proceeds, while continuing to operate the properties under an amended Master Lease. The transaction and purchase of CDR land resulted in a $7.3 million debt-extinguishment loss.
- Three Polish casinos closed temporarily in late 2023 after licenses expired. New licenses were subsequently awarded; Bielsko-Biala reopened in February 2024, Katowice was expected to reopen in March, and Wroclaw was expected to reopen at a new location in the third quarter of 2024. Before closure, the three sites together generated about 32% of Casinos Poland revenue through September 30, 2023.
- Century’s final ship-based casino concession ended in April 2023. Its Caruthersville casino moved from a riverboat to a land-based pavilion after low Mississippi River levels disrupted access.
- Net loss also reflects acquisition and integration costs, higher borrowing costs, higher property costs and labor expenses, and the end of ship-based casino operations. The 2022 comparison included a $7.7 million income tax benefit from release of a U.S. valuation allowance.
Outlook, risks and contingencies
The filing gives no formal revenue or earnings guidance. Management expected the $51.9 million Caruthersville casino and 38-room hotel project to be completed in the fourth quarter of 2024; $20.7 million had been spent by year-end, with $40.1 million received from VICI for the project. The $30.5 million Cape Girardeau hotel was expected to open in April 2024; $22.8 million had been spent, with the remaining $7.7 million expected in the first half of 2024. Planned 2024 capital expenditures excluding the Missouri construction projects were estimated at $24.5 million to $35.9 million.
- Management cited inflation, rising interest rates, foreign-exchange volatility, staffing constraints and intense competition as risks. New or expanded competitors, including in Colorado and Missouri, may affect results; Ohio sports betting has pressured gaming revenue at Mountaineer.
- Debt, variable interest rates and substantial rent obligations constrain financial flexibility. Master Lease payments and debt service remain payable even if properties are disrupted or underperform. The company reported compliance with Goldman Credit Agreement financial covenants at year-end.
- Gaming licenses are essential and subject to renewal and regulatory approval. Delays in Polish licensing caused temporary closures; some other licenses also had 2024 expirations or renewals.
- Management maintained a $11.4 million valuation allowance on foreign deferred tax assets and judged $21.5 million of U.S. net deferred tax assets more likely than not to be realized. Failure to generate sufficient U.S. taxable income could require a valuation allowance and materially increase tax expense.
- The company reported no pending litigation expected by management to have a material effect, apart from matters disclosed in the notes. The auditor issued an unqualified opinion on the financial statements and internal controls; the internal-control assessment excluded Nugget and Rocky Gap, which were still being integrated.
Important facts for investors to verify
- Track post-acquisition operating performance and integration costs at Nugget and Rocky Gap, including whether their carrying values and goodwill remain supportable; the filing says their estimated fair values equaled carrying values at year-end.
- Confirm the timing, final cost and operating contribution of the Caruthersville and Cape Girardeau projects, and the resulting rent and financing obligations.
- Monitor cash available for U.S. needs, the timing and tax cost of Canadian cash repatriation, and the company’s ability to meet debt service and Master Lease payments.
- Verify reopening progress and operating results for the Polish casinos, and the outcome of upcoming license renewals.
- Assess the impact of competition, cost inflation, staffing limits, interest rates and currency movements on margins and operating cash flow; operating cash flow fell despite higher revenue.
- Reconcile reported net loss with Adjusted EBITDAR and other non-GAAP measures, including their exclusion of Master Lease costs and other items.