Century Casinos, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; compared with the same period in 2022. Century Casinos operates casinos and related hospitality, racing, sports betting and online gaming businesses in the United States, Canada and Poland. Amounts below are in U.S. dollars unless noted.
Financial performance
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Net operating revenue | $108.5 million | $103.1 million |
| Earnings from operations | $18.4 million | $13.0 million |
| Consolidated net earnings | $3.0 million | $2.7 million |
| Net earnings (loss) attributable to Century shareholders | $(1.2) million | $0.2 million |
| Basic and diluted EPS attributable to Century shareholders | $(0.04) | $0.01 |
| Adjusted EBITDA (non-GAAP) | $26.1 million | $23.8 million |
| Cash provided by operating activities | $12.3 million | $11.5 million |
| Capital expenditures | $13.6 million | $5.2 million |
Revenue rose 5.2%, led by Poland, where revenue increased 17.2%; United States revenue grew 1.7% and Canada 3.2%. Gaming revenue increased 4.9%, hotel revenue 21.6% and food-and-beverage revenue 14.5%. Operating earnings increased 41.1%; operating margin was approximately 17.0%, versus 12.7% in Q1 2022. Adjusted EBITDA increased 9.4%, with a margin of approximately 24.0%, versus 23.1%.
Despite higher operating earnings, Century shareholders’ result turned to a loss. Interest expense increased $6.8 million to $17.6 million, principally reflecting higher borrowings under the Goldman Credit Agreement; the company also incurred interest on $100 million held in escrow for the Nugget acquisition before receiving Nugget’s operating earnings. Non-controlling interests’ share of earnings increased to $4.3 million from $2.5 million.
Financial position and liquidity
- At March 31, cash and cash equivalents were $102.7 million, versus $101.8 million at year-end 2022. A further $100.2 million was restricted in escrow for the Nugget purchase; it was used at the April 3, 2023 closing.
- Working capital was $161.2 million, including the restricted escrow balance. The company reported $30.0 million available on its revolving credit facility.
- Long-term debt, net of deferred financing costs, was $349.0 million, including $5.2 million current. Total principal debt was $365.2 million. Management’s non-GAAP Net Debt measure was $262.5 million, up from $71.1 million at March 31, 2022.
- The balance sheet also included a $285.2 million VICI financing obligation related to the Missouri and West Virginia properties’ failed sale-leaseback arrangement. Master Lease payments were $6.9 million in the quarter; the filing estimates $18.3 million of remaining 2023 payments.
- Operating cash flow was $12.3 million; investing activities used $10.8 million and financing activities used $0.3 million. Cash, cash equivalents and restricted cash increased by $1.0 million.
- The Goldman term loan carried a 10.62% weighted-average rate at quarter-end and matures in 2029; the company reported compliance with its financial covenants.
Material changes and notable items
- United States Adjusted EBITDA declined 2.7% to $19.8 million; Canada increased 14.1% to $4.6 million and Poland increased 24.0% to $3.3 million. Corporate and Other remained loss-making, with Adjusted EBITDA of $(1.6) million.
- Canada’s operating result benefited from the absence of the prior-year $2.2 million loss on the Calgary land and building sale and a $0.6 million earn-out received in Q1 2023. Q1 2023 also included $3.5 million of CDR cost-recovery income, $1.1 million of equity earnings from Smooth Bourbon, and a $0.6 million Calgary earn-out gain.
- Caruthersville’s casino moved to a temporary land-based pavilion in December 2022 after record-low Mississippi River water levels made its riverboat inaccessible. Management reported gaming revenue remained constant year over year and described customer response as positive.
- The Nugget operating-company acquisition closed April 3, 2023 for approximately $100 million, funded from the previously borrowed acquisition escrow. Nugget contributed no Q1 revenue or earnings. Century owns the operating company and a 50% interest in the property-owning Smooth Bourbon; it has an option to acquire the remaining 50% by April 2027 for $105 million plus 2% annually.
Outlook, risks and contingencies
- Planned 2023 capital expenditures were approximately $27.4 million for gaming equipment, property renovations and security upgrades. Management expected to spend about $34.6 million more on the VICI-financed Caruthersville casino-and-hotel project and $22.5 million more on the Cape Girardeau hotel during the remainder of 2023.
- The Caruthersville project is estimated at $51.9 million and expected to be completed in the second half of 2024. The $30.5 million Cape Girardeau hotel is expected to be completed in the first half of 2024 and is to be funded with cash on hand.
- The Rocky Gap, Maryland operating-business acquisition was expected to close in summer 2023, subject to remaining regulatory approvals. The operating purchase price is approximately $56.1 million; VICI is to acquire the real estate and add it to the Master Lease, with initial annual rent of approximately $15.5 million. Century received its Maryland gaming license approval on April 27, 2023.
- Century cited staffing challenges, inflationary cost pressures, foreign-exchange exposure and competition. A nearby competitor has pressured Century Downs; potential Central City competitors could open in 2024. The Alberta regulator’s temporary increase in casino slot-machine revenue retention from 15% to 17%, effective April 1, 2023 through March 31, 2025, is expected to benefit Canadian operations.
- Casinos Poland licenses are non-renewable and require new applications; licenses in Bielsko-Biala and Katowice expire in October 2023 and Wroclaw in November 2023. The company also disclosed a $0.5 million unrecognized tax benefit under review by the Canada Revenue Agency, with the examination not expected to conclude until 2024.
- Management stated that future COVID-19 impacts and closures remain uncertain and could materially affect operations. It also warned that financing may not be available on acceptable terms if additional capital is needed. A potential Nevada Department of Transportation expansion of I-80 could require rebuilding the Nugget casino; compensation may not cover the full construction cost.
- Management provided no specific earnings or revenue guidance. It said U.S. domestic cash resources were expected to cover U.S. operating activities and cash commitments, while noting approximately $39.3 million of cash was held by foreign subsidiaries.
Important facts for investors to verify
- How post-acquisition Nugget results, integration costs and funding needs affect earnings, cash flow and leverage.
- The company’s interest burden and liquidity after escrow was spent, including debt service and VICI rent obligations.
- Progress, total costs and financing of the Caruthersville and Cape Girardeau projects, and the timing and financing of Rocky Gap.
- Renewal outcomes for Casinos Poland licenses expiring in 2023 and the continuing effect of competition in Alberta and Colorado.
- The composition and sustainability of Adjusted EBITDA growth, including its non-GAAP adjustments and one-time or non-cash items.