Century Casinos, Inc. — Form 10-Q Summary
Reporting period: Quarter ended September 30, 2019; comparisons are with the three and nine months ended September 30, 2018. Unless noted, amounts are in U.S. dollars. The company operates casinos and related businesses in Canada, the United States, Poland, and England, plus cruise-ship casino concessions. Century Mile opened in April 2019.
Key financial metrics
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Net operating revenue | $52.9 million | $43.6 million | $151.0 million | $123.8 million |
| Operating earnings | $3.5 million | $3.2 million | $9.5 million | $7.5 million |
| Net earnings attributable to Century shareholders | $0.5 million | $1.6 million | $1.0 million | $2.9 million |
| Diluted earnings per share | $0.02 | $0.05 | $0.03 | $0.10 |
| Adjusted EBITDA (non-GAAP) | $7.1 million | $6.4 million | $20.5 million | $17.6 million |
- Revenue grew 21.5% in Q3 and 21.9% year to date. Gaming revenue was $42.0 million in Q3 and $121.3 million year to date. Q3 growth was led by Canada and Poland; U.S. revenue declined 1.7%.
- Operating costs rose 22.6% in Q3 and 21.6% year to date. General and administrative expense increased 28.0% in Q3 and 26.0% year to date. Operating margin was approximately 6.6% in Q3 versus 7.4%; year-to-date margin was approximately 6.3% versus 6.0%.
- Adjusted EBITDA increased 11.7% in Q3 and 16.7% year to date, but shareholder-attributable earnings fell as higher interest expense and income taxes, among other items, outweighed operating growth. Interest expense was $1.4 million in Q3 and $4.1 million year to date.
- Net cash from operations was $10.9 million for the nine months, down from $14.6 million. Investing used $18.7 million, including $18.5 million of property and equipment purchases; financing provided $9.1 million. Cash, cash equivalents and restricted cash ended at $44.9 million.
- At September 30, cash and cash equivalents were $44.0 million; working capital was $5.8 million. Total debt principal was $71.5 million ($71.1 million net of deferred financing costs), including $17.4 million current. Management’s non-GAAP net debt was $27.4 million, versus $6.7 million a year earlier. Operating and finance lease liabilities totaled $50.1 million.
- Total assets were $339.9 million and total equity was $186.6 million. The current ratio was approximately 1.11.
Material changes and drivers
- Canada revenue rose 40.7% in Q3 and 32.1% year to date, substantially reflecting Century Mile and its off-track betting operations. Century Mile generated $14.2 million of year-to-date revenue but reported a $1.6 million net loss.
- Poland revenue increased 21.6% in Q3 and 23.7% year to date, with more casinos operating during 2019 than in the comparable periods. Licensing expirations and casino openings affected comparability.
- The U.S. segment was relatively flat: revenue declined 1.7% in Q3 and increased 2.1% year to date. U.S. Adjusted EBITDA declined 13.7% in Q3 and 1.5% year to date.
- Corporate and Other results were affected by higher acquisition-related costs, casino operations in Bath, and the reduction in cruise-ship concessions. The company recorded a $1.0 million write-down related to the Glory Sea agreement and assets.
- Lease accounting adoption on January 1, 2019 added recognized right-of-use assets and lease liabilities; prior-year balance-sheet figures were not restated, limiting direct balance-sheet comparability.
Outlook, risks and unusual items
- The company agreed to acquire operations of Cape Girardeau, Caruthersville and Mountaineer for approximately $107 million. VICI was to acquire the real estate for approximately $278 million, with Century entering a triple-net lease at initial annual rent of approximately $25 million for a 15-year initial term. The transaction was expected to close by year end, subject to regulatory and customary approvals.
- Century reported a commitment for a $180 million financing package—$170 million senior secured term loan and $10 million revolving facility—to finance the acquisition and repay the BMO facility. A BMO maturity trigger was extended to January 31, 2020; approximately $11.6 million of BMO principal was due then. Management expected available cash and operating cash flows to fund operations and obligations for at least 12 months, while noting the planned acquisition and other capital needs.
- Polish tax authorities have pursued employee-tip income tax assessments. The recorded contingent liability was $0.8 million; the company stated possible additional obligations were not probable or estimable and could be material if assessed.
- The nine-month effective tax rate was 50.7%, up from 35.7%, including a $0.5 million valuation allowance for Century Casino Bath deferred tax assets.
- Foreign exchange exposure is material because Canadian and Polish operations contribute substantially to results. Year-to-date currency translation reduced reported revenue growth relative to constant currency. The company also cited potential future competition from Polish online gaming and slot arcades and U.K. regulatory requirements and Brexit-related consumer uncertainty.
- No formal earnings guidance was provided. Management anticipated a CDR gaming-floor expansion costing approximately CAD 1.5 million, with completion expected in November 2019, and was exploring a hotel expansion in Cripple Creek. A $0.6 million acquisition-completion bonus was approved after quarter-end.
Most important facts for investors to verify
- Whether the three-property acquisition closed as expected, its final financing terms, and the resulting annual lease burden and covenant capacity.
- Century Mile’s operating trajectory, including whether revenue growth can offset its launch-period losses and continuing costs.
- Cash generation, near-term debt maturities, liquidity after the acquisition, and the impact of lease obligations on leverage.
- Whether earnings pressure from interest expense, taxes, corporate costs and non-controlling interests continues despite higher revenue and Adjusted EBITDA.
- Developments in the Polish employee-tip tax matter, casino license renewals, and currency movements affecting reported results.