Business context and reporting period
Century Casinos, Inc. filed this unaudited Form 10-Q for the three months ended March 31, 2019. The company operates casinos and related businesses in Canada, the United States, Poland and England, alongside cruise-ship concessions and other activities. Unless stated otherwise, financial amounts below are in U.S. dollars.
Century Mile’s casino opened April 1, 2019, after quarter-end; its first horse race was held April 28. The filing reports approximately CAD 3.0 million ($2.2 million) of estimated net operating revenue there for April.
Financial performance and condition
- Revenue: Net operating revenue was $45.6 million, up 12.3% from $40.6 million. Gaming revenue rose 9.8% to $37.3 million; other revenue increased 56.7% to $4.1 million. On the company’s non-GAAP constant-currency basis, revenue grew 20%.
- Earnings and margins: Operating earnings were $3.4 million, up 6.0%; operating margin was approximately 7.6%, versus 8.0% a year earlier. Net earnings were $1.7 million versus $1.3 million; earnings attributable to Century shareholders were $1.1 million, up 15.3%, and diluted EPS was $0.04 versus $0.03. Adjusted EBITDA, a non-GAAP measure, was $6.7 million, up 2.1%.
- Costs and interest: Operating costs rose 12.8% to $42.2 million, including a 17.5% increase in general and administrative costs. Interest expense increased 22.1% to $1.3 million, primarily due to Century Mile borrowing and the Century Downs land-lease financing obligation.
- Cash flow: Operating cash flow was $4.2 million, compared with $5.8 million in Q1 2018. Capital spending was $7.6 million, mainly for Century Mile and Poland. Borrowings net of principal payments provided $7.3 million; cash, cash equivalents and restricted cash increased $4.0 million to $50.3 million.
- Debt and liquidity: Debt, net of deferred financing costs, was $67.8 million, including $18.0 million current; net debt, as defined by the company, was $18.7 million. Cash and cash equivalents were $49.5 million, and working capital was $4.6 million. The company had approximately $12.0 million available under the BMO agreement, subject to facility terms. It said cash and expected operating cash flow should fund operations, planned capital expenditures and debt obligations for at least 12 months.
- Lease obligations: Adoption of the new lease standard resulted in $40.3 million of operating lease liabilities at March 31, 2019, plus $0.1 million of finance lease liabilities. The filing also reports $14.6 million for the Century Downs land-lease financing obligation within debt.
Changes versus the prior comparable period
- Canada revenue increased 11.1%, including $1.6 million from operating the Northern Alberta off-track betting network; Canada Adjusted EBITDA rose 6.9%. Pre-opening expenses and operating costs at the new project weighed on results.
- U.S. revenue increased 4.7% and Adjusted EBITDA rose 11.5%, with improved gaming revenue at both Colorado properties.
- Poland revenue increased 13.6% and Adjusted EBITDA rose 16.4%. Results benefited from casinos operating for more of the quarter than in 2018 following prior license expirations and tender delays. Currency translation reduced reported growth; the company’s constant-currency figures show a stronger increase.
- Corporate and Other revenue increased 74.0%, but its Adjusted EBITDA loss widened to $2.7 million from $2.0 million. The Bath casino was operating in Q1 2019, while it was under construction in Q1 2018; cruise-ship concession activity also declined.
- Effective January 1, 2019, the company adopted the lease accounting standard without restating prior periods, recording an approximately $0.3 million cumulative-effect reduction to equity.
Outlook, commentary and risks
- A CAD 16.1 million ($12.0 million) portion of BMO debt was due in August 2019. Management expected to refinance it in the third quarter of 2019; successful refinancing was not assured. The company reported compliance with BMO financial covenants at quarter-end.
- Management identified planned spending for existing properties and potential expansions at Century Downs and Cripple Creek. The proposed Century Downs expansion, subject to regulatory approval, was estimated at approximately CAD 1.0 million; timing and completion remained conditional.
- Polish tax authorities have pursued assessments concerning personal income tax on casino employee tips. The company had paid PLN 14.3 million through March 31 and accrued a further PLN 3.2 million ($0.8 million) for open periods. Additional future obligations were not considered probable or estimable, but could be material.
- Polish casino licenses are non-renewable and generally run for six years; competition from state-run slot arcades and online gaming could affect results. Several cruise-ship casino concessions had ended or were scheduled to end in 2019.
- Foreign exchange movements affect translated results: the filing reports weaker average foreign-currency exchange rates against the U.S. dollar versus Q1 2018. Other risks include operating and regulatory conditions, project execution, and availability and terms of financing. Bermuda’s proposed casino remained dependent on required approvals and regulations.
- No specific consolidated earnings or revenue guidance was provided. Management cautioned that quarterly results are not necessarily indicative of full-year results.
Important facts for investors to verify
- Whether the August 2019 BMO maturity was refinanced as anticipated, and the resulting borrowing terms and covenant headroom.
- Century Mile’s post-opening performance, costs, and contribution to cash flow and earnings beyond the April estimate.
- Future capital spending and returns at Century Mile, Poland, and any proposed property expansions.
- Developments in the Polish employee-tip tax proceedings and the status, renewals, and expiration dates of casino licenses.
- Changes in cruise-ship concessions, foreign-exchange exposure, and the company’s reported non-GAAP Adjusted EBITDA and net debt measures.