Century Casinos, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. The company operates casinos and related hotels, racing, food and beverage, and betting businesses in the United States, Canada and Poland. Results include Nugget Casino Resort from its April 3, 2023 acquisition.
Key financial results
Amounts below are in millions of U.S. dollars, except per-share data and percentages.
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Net operating revenue | $136.8 | $111.1 | $245.3 | $214.2 |
| Earnings from operations | $18.6 | $20.8 | $37.0 | $33.8 |
| Net earnings (loss) attributable to Century shareholders | $(2.0) | $8.9 | $(3.2) | $9.1 |
| Basic and diluted earnings (loss) per share | $(0.06) | $0.30 basic; $0.28 diluted | $(0.11) | $0.30 basic; $0.29 diluted |
| Adjusted EBITDA (non-GAAP) | $29.3 | $29.8 | $55.3 | $53.6 |
| Operating margin (operating earnings / revenue) | 13.6% | 18.7% | 15.1% | 15.8% |
| Adjusted EBITDA margin | 21.4% | 26.8% | 22.6% | 25.0% |
Q2 revenue grew 23.1%, while operating costs and expenses rose 29.3%; operating earnings fell 10.4%. For the first half, revenue rose 14.5%, operating earnings rose 9.4%, and Adjusted EBITDA rose 3.2%. Adjusted EBITDA is a company-defined non-GAAP measure and may not be comparable with similarly named measures at other companies.
Cash flow, debt and liquidity
- First-half operating cash flow was $21.1 million, down from $26.1 million a year earlier. Investing activities used $119.9 million, primarily reflecting the $98.0 million net cash outflow for Nugget and property investment. Financing activities provided $5.1 million.
- Cash and cash equivalents were $108.6 million at June 30, 2023, versus $101.8 million at December 31, 2022. Working capital was approximately $65.1 million. About $36.7 million of cash was held by foreign subsidiaries and was not available for U.S. operations unless repatriated.
- Long-term debt, net of deferred financing costs, was $348.6 million, including $5.1 million current; total principal was $364.1 million. Net Debt, a non-GAAP measure, was $255.5 million. The company also reported a $285.6 million VICI financing obligation. Goldman term-loan principal was $345.6 million, at a reported weighted-average rate of 10.92%; $30.0 million of revolving capacity remained available at quarter-end.
- Interest expense was $18.3 million in Q2 and $36.0 million for the first half. The company reported compliance with applicable Goldman Credit Agreement financial covenants at June 30.
Material changes and operating developments
- Nugget contributed $27.0 million in revenue and $2.8 million in earnings attributable to Century shareholders in the period since acquisition. U.S. revenue rose 34.3% in Q2, but U.S. operating earnings were slightly lower; management cited the acquisition and higher costs. The East and Midwest operations reported weaker gaming revenue, including pressure associated with Ohio sports betting competition and property construction.
- Hotel revenue increased substantially, mainly reflecting Nugget and the Farmstead hotel. Gaming revenue rose 6.7% in Q2. Pari-mutuel, sports betting and iGaming revenue declined 3.8%.
- Canada revenue was approximately flat in Q2 in U.S.-dollar terms; the company cited unfavorable currency translation, competition affecting Century Downs, and higher payroll, marketing and food costs. Alberta’s temporary increase in the slot-machine revenue retention rate from 15% to 17% began April 1, 2023 and is scheduled through March 31, 2025.
- Poland revenue rose 8.3% in Q2, but operating costs increased 13.4%, reducing segment operating earnings. Casino licenses in Bielsko-Biala and Katowice expire in October 2023, and the Wroclaw license expires in November 2023; Polish licenses are not renewable, and replacement licenses are subject to application and approval.
- The ship-based casino concession ended April 16, 2023. A Calgary sale earn-out generated $0.7 million in Q2 and $1.2 million in the first half. First-half results also included $3.5 million of CDR cost-recovery income.
Outlook, risks and contingencies
- The filing gives no specific company-wide earnings or revenue guidance. Planned remaining-2023 capital spending included approximately $22.9 million for gaming equipment, renovations and security upgrades. The Cape Girardeau hotel project was estimated at $30.5 million, with completion expected in the first half of 2024; the Caruthersville casino and hotel project was estimated at $51.9 million, with completion expected in the second half of 2024.
- After quarter-end, Rocky Gap’s operations were acquired on July 25 for approximately $61.2 million. The acquisition was funded with $30.0 million borrowed under the revolver on July 20 and cash on hand. The related VICI lease amendment adds approximately $15.5 million in initial annualized rent and extends the initial lease term by 15 years.
- The proposed sale of real estate for the Canadian portfolio to VICI was valued at CAD 221.7 million (approximately $167.3 million at the June 30 exchange rate). It was expected to close in Q3, subject to regulatory approvals and other conditions, and would add approximately CAD 17.3 million ($13.1 million) of annual rent while extending the lease term.
- Management cited risks from competition, staffing and cost inflation, foreign-exchange movements, casino regulation and license renewals, and potential COVID-19 disruptions. It also cautioned that additional financing may not be available on acceptable terms; failure to fund debt service, rent and other requirements could materially harm liquidity. The company’s existing Master Lease is triple-net, and its obligations cannot be terminated early without landlord consent.
- The Nugget purchase-price allocation remained provisional, including estimates for certain acquired assets and liabilities. Management stated that ordinary-course legal proceedings were not expected to have a material effect. Estimated Nugget acquisition-related contingencies were $0.1–$0.2 million and were not expected to materially affect results.
Investor verification priorities
- Check the final Nugget purchase-price allocation and performance relative to its contribution to reported results.
- Track the Rocky Gap and Canadian real-estate transactions, their closing conditions, added rent, and resulting cash and debt levels.
- Review debt-service capacity and liquidity after the revolver draw, including the high stated Goldman borrowing rate and VICI lease obligations.
- Monitor Poland license renewals, Century Downs competition, and gaming trends in the U.S. East and Midwest.
- Distinguish recurring operating performance from the Calgary earn-out, CDR cost-recovery income, non-controlling interests, and the prior-year $10.2 million tax valuation-allowance release that benefited 2022 results.