Century Casinos, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual report, not a quarterly filing; the fourth-quarter figures below are unaudited. The company operates casinos and related lodging, dining, racing, betting and entertainment businesses in the United States, Canada and Poland, plus corporate and other activities.
Financial performance and condition
| Metric | FY2020 | FY2019 |
|---|---|---|
| Net operating revenue | $304.3 million | $218.2 million |
| Operating income (loss) | $(0.1) million | $(5.2) million |
| Net income (loss) attributable to Century shareholders | $(48.0) million | $(19.2) million |
| Diluted earnings (loss) per share | $(1.62) | $(0.65) |
| Adjusted EBITDA, a non-GAAP measure | $48.4 million | $30.3 million |
| Net cash provided by operating activities | $9.0 million | $18.8 million |
| Cash and cash equivalents at year-end | $63.4 million | $54.8 million |
FY2020 operating margin was approximately negative 0.04%; net loss margin was approximately negative 15.8%. Adjusted EBITDA margin was approximately 15.9% and is not a GAAP measure.
- Fourth quarter: Revenue was $84.8 million, operating income $18.7 million, net income attributable to shareholders $6.7 million and diluted EPS $0.22. In Q4 2019, revenue was $67.2 million, operating loss $14.7 million, attributable net loss $20.1 million and diluted loss per share $0.68.
- Liquidity: Year-end working capital was $34.5 million, versus $22.8 million in 2019. Cash, cash equivalents and restricted cash totaled $63.7 million. The company reported $9.0 million of operating cash flow, $5.3 million of net cash used in investing activities and $3.1 million of cash provided by financing activities.
- Debt and lease obligations: Debt principal was $193.8 million, including $168.3 million under the Macquarie term loan; reported debt net of deferred financing costs was $184.6 million. Net Debt, as defined by the company, was $130.4 million. The separate VICI financing obligation was $278.9 million. Scheduled 2021 Master Lease rent was approximately $23.1 million; 2021 debt maturities were $10.7 million.
Changes versus prior period
- Revenue rose 39.4%, largely because the Missouri and West Virginia casinos acquired in December 2019 contributed a full year in 2020; the comparison is not like-for-like. Revenue declined in Canada and Poland amid COVID-19 closures and restrictions.
- Despite higher revenue and Adjusted EBITDA, attributable net loss increased to $48.0 million from $19.2 million. Interest expense rose to $43.1 million from $8.3 million, and the company recorded $35.1 million of impairment charges, compared with $16.5 million in 2019.
- Operating cash flow declined to $9.0 million from $18.8 million. Cash and cash equivalents increased, supported in part by borrowing proceeds and the Calgary casino-operations sale.
Outlook, commentary and key risks
- COVID-19 materially disrupted operations. All properties closed temporarily in March 2020; Canadian and Polish casinos closed again in December. Poland reopened in February 2021, while Canadian casinos remained closed as of the filing. Management expected the pandemic to adversely affect results at least through the first half of 2021; the duration and effects remained uncertain.
- The company estimated first- and second-quarter closures reduced revenue by approximately $91.3 million and Adjusted EBITDA by $34.3 million; December closures reduced them by approximately $9.2 million and $1.7 million, respectively. Net cash outflows during full suspension averaged approximately $8.0 million monthly.
- Management planned approximately $8.0 million of 2021 capital expenditures, subject to reassessment and possible postponement. No specific financial guidance was provided. Management intended to reduce costs where possible and monitor liquidity.
- Major unusual items included $35.1 million of impairment charges; a $6.5 million gain on the sale of Calgary casino operations; and a gain from deconsolidating Century Casino Bath after it entered creditors’ voluntary liquidation. The Calgary real estate was retained and marketed for sale, with a sale expected by year-end 2021.
- Key risks include renewed closures or operating restrictions, consumer demand uncertainty, substantial debt and fixed lease payments, variable-rate borrowing, competition, gaming-license renewals, foreign exchange exposure, and potential further impairments. All $193.8 million of debt principal was variable rate; management estimated each one-percentage-point rate change would affect annual cash interest by about $0.7 million.
- The company disclosed Polish tax litigation over employee tips. It had paid PLN 14.3 million (approximately $4.2 million) through year-end, recorded a $0.5 million estimated contingent liability for open periods, and said additional exposure could be material but was not then estimable. Management also reported that a Macquarie covenant was waived and testing suspended through the quarter ending September 30, 2021; the company reported covenant compliance at year-end.
Important facts for investors to verify
- Current reopening status, capacity limits and operating performance—especially in Canada—and whether pandemic-related demand and cash-flow estimates prove accurate.
- Debt, interest costs, covenant testing after the temporary waiver, and ability to meet Macquarie debt service and VICI Master Lease obligations.
- Support for impairment valuations and remaining goodwill and intangible-asset carrying values, including the narrow valuation cushions disclosed for certain Canadian assets.
- Outcome and potential additional exposure from the Polish employee-tip tax proceedings, and status of gaming-license renewals in 2021.
- Completion, proceeds and financial effects of the planned Calgary real-estate sale, and performance of new sports-betting and interactive-gaming arrangements.