Century Casinos, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited. Century Casinos operates gaming, lodging, racing, food and beverage, and sports betting businesses, principally in the United States, Canada, and Poland. Unless otherwise noted, amounts are in U.S. dollars.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Net operating revenue | $103.1 million | $72.4 million |
| Earnings from operations | $13.0 million | $8.2 million |
| Net earnings (loss) attributable to shareholders | $0.2 million | $(1.4) million |
| Diluted earnings (loss) per share | $0.01 | $(0.05) |
| Adjusted EBITDA, a non-GAAP measure | $23.8 million | $14.7 million |
| Net cash provided by operating activities | $11.5 million | $5.1 million |
- Operating margin was approximately 12.7%, compared with 11.4% in the prior-year quarter. The company reported net income before non-controlling interests of $2.7 million; $2.5 million was attributable to non-controlling interests.
- Cash and cash equivalents were $117.2 million at March 31, 2022, versus $107.8 million at December 31, 2021. Working capital was $80.1 million. Cash, cash equivalents, and restricted cash totaled $117.4 million.
- Debt under bank borrowings and other agreements was $181.0 million net of deferred financing costs ($188.3 million principal); the balance sheet also reported a $282.2 million VICI financing obligation. Net Debt, as defined by the company, was $71.1 million, down from $127.3 million a year earlier.
- Capital expenditures were $5.2 million. Investing cash flow was positive $1.1 million, including $6.3 million of Calgary property sale proceeds. Financing cash outflow was $3.4 million.
Changes versus the prior comparable period
- Revenue rose 42.4% and Adjusted EBITDA rose 61.6%. Much of the revenue and earnings improvement reflects Canada and Poland casinos reopening after COVID-related closures in early 2021; management estimated those closures reduced Q1 2021 revenue by $15.7 million and Adjusted EBITDA by $6.7 million.
- Canada revenue increased to $16.0 million from $2.0 million and Poland revenue to $21.8 million from $5.9 million. U.S. revenue increased 1.4% to $65.2 million, while U.S. Adjusted EBITDA declined 8.2% to $20.3 million. Missouri revenue declined, partly offset by growth in Colorado and West Virginia.
- Operating costs and expenses rose 40.3%, less than revenue growth. General and administrative costs increased 33.1%; results also included a $2.2 million loss on sale of the Calgary land and building.
- Interest expense increased to $10.8 million from $10.5 million. The reported effective tax rate was 34.6%, versus a negative 5.5% on a pretax loss in Q1 2021; management said the rate is sensitive to earnings.
Outlook, developments, and risks
- No specific consolidated revenue or earnings guidance is provided. Management said operations were open with few COVID-related restrictions, but future pandemic effects, demand, or closures remain uncertain and could materially affect results. It reported no material negative operating impact from the war in Ukraine to date, while warning that continued conflict could affect results.
- On April 1, 2022, the company closed on a 50% interest in Nugget Casino Resort’s property-owning entity for approximately $95 million. It agreed to acquire the operating company for approximately $100 million, subject to Nevada Gaming Commission approval, with funds placed in escrow. The company also has a five-year option to acquire the remaining 50% of the property entity for $105 million plus 2% per year.
- To refinance existing debt and fund the Nugget transaction, the company entered into a $350 million term loan and $30 million revolving facility on April 1, 2022, repaid the $166.2 million Macquarie term loan, and funded the acquisition escrow. The term loan bears a 6.00% margin for SOFR loans or 5.00% for ABR loans, in addition to the applicable benchmark; scheduled quarterly principal payments are 0.25% of original principal. The Macquarie refinancing is expected to result in a $7.3 million deferred financing cost write-off in Q2.
- Planned projects include a $26 million Cape Girardeau hotel, a $47 million Caruthersville land-based casino and hotel, and refurbishment of a nearby hotel. The Caruthersville casino project is delayed by litigation challenging the state law change that permits a non-floating facility. Planned remaining 2022 capital expenditures were approximately $6 million, apart from these projects.
- Polish casino licenses are not renewable; the Warsaw Hilton license was due to expire in September 2022. Management identified possible future goodwill or intangible impairment if operating results or assumptions weaken. It also noted that approximately $36.4 million of cash was held by foreign subsidiaries and was not available for U.S. operations unless repatriated.
- The company reported no material change in market-risk exposure and concluded disclosure controls were effective. It did not repurchase common shares during the quarter.
Important facts for investors to verify
- Whether the Nugget operating-company acquisition receives regulatory approval and closes, and how the related debt and lease commitments affect leverage and cash flow.
- Post-quarter debt terms, interest-rate exposure, covenant headroom, and the cash balance after the acquisition and escrow funding.
- How much of the year-over-year improvement reflects recovery from prior-year closures versus sustainable underlying growth, especially in the U.S. segment.
- Status of the Warsaw Hilton gaming license and the Caruthersville lawsuit, along with timing, costs, and funding for planned construction projects.
- Potential effects of renewed COVID-19 restrictions, inflation and labor costs, foreign exchange movements, and the war in Ukraine on operating performance.