Century Casinos, Inc. — Q2 2011 Form 10-Q
Business context and reporting period. The company operates casinos in Colorado and Alberta, manages casinos on cruise ships and in Aruba, and holds a 33.3% equity-method interest in Casinos Poland Ltd. This report covers the quarter and six months ended June 30, 2011; comparisons are with the corresponding 2010 periods. Amounts below are in U.S. dollars.
Financial performance
| Metric | Q2 2011 | Q2 2010 | Six months 2011 | Six months 2010 |
|---|---|---|---|---|
| Net operating revenue | $18.0m | $14.9m | $35.1m | $29.1m |
| Earnings from operations | $1.0m | $0.3m | $1.7m | $0.7m |
| Net earnings (loss) | $0.6m | $(0.3)m | $1.0m | $(0.1)m |
| Diluted EPS | $0.03 | $(0.01) | $0.04 | $(0.01) |
| Operating cash flow | Not separately presented by quarter | $2.6m | $1.7m |
- Net revenue rose 20.5% in Q2 and 20.8% year to date. Gaming revenue increased 20.3% and 19.1%, respectively.
- Operating costs grew more slowly than net revenue: 18.0% in Q2 and 17.8% year to date. Operating earnings margin was approximately 5.4% in Q2 versus 2.3% a year earlier; year-to-date margin was 4.9% versus 2.4%.
- Q2 improvement reflected stronger results at Edmonton, Central City and Cripple Creek, as well as growth in ship-based casinos; Calgary remained loss-making. Foreign currency gains and lower interest expense also supported comparisons.
Cash, debt and liquidity
- Cash and cash equivalents were $19.8m at June 30, down from $21.5m at year-end 2010. Working capital was $11.2m, up from $9.4m.
- Six-month cash flow: $2.6m provided by operations, $1.7m used in investing and $2.9m used in financing. Capital expenditures were $1.7m; debt repayments were $3.1m.
- Balance-sheet debt totaled approximately $10.8m, including $2.3m current and $8.5m long-term. The company reported $10.8m remaining on its Edmonton mortgage and compliance with its covenants at June 30.
- Management said cash on hand and operating cash flows should cover anticipated operating costs, existing-property capital spending and current debt payments. New development or acquisitions may require additional debt, equity or bank financing.
Material developments, outlook and risks
- Revenue gains were broad-based. The Canadian properties benefited partly from a stronger Canadian dollar; management also cited customer volume, gaming mix and property-level operating changes. A new ship casino, Mein Schiff 2, began operations in May 2011.
- Competition is a concern in Colorado: management expected additional competition from a Central City casino expansion. Q2 market-share gains at Central City and Cripple Creek were partly attributed to temporary disruption at competitors.
- CPL’s Krakow casino lease expires December 31, 2011 and will not be renewed; CPL intends to relocate. An estimated 2.24m Polish zloty ($0.8m) of further leasehold-improvement write-offs was expected in 2011, of which the company’s share was estimated at $0.3m.
- On July 29, 2011, CPL’s other shareholders indicated intent to sell their combined 66.66% interest to Poland’s state-owned lottery group; Century’s consent is required for the transfer. The filing does not state the outcome.
- The company did not receive the Swiss casino license it had sought. No specific financial guidance was provided. Management cautioned that interim results are not necessarily indicative of full-year results.
- Tax realization is uncertain: valuation allowances were $5.5m for U.S. deferred tax assets and $0.9m for foreign deferred tax assets. The company also faces foreign-currency exposure and property-level competitive and operating risks.
Important facts for investors to verify
- Whether revenue and margin improvement persists after currency effects, competitor disruptions and new ship operations are considered.
- Calgary’s operating trend and the cost and timing of relocating CPL’s Krakow casino.
- Any developments in the proposed CPL share sale and its implications for Century’s investment and influence.
- Debt repayment requirements, covenant terms, planned capital spending and the potential need for external financing.
- Potential additional CPL leasehold write-offs and the recoverability of deferred tax assets.