Century Casinos, Inc. — Form 10-Q Summary
Reporting period: Three months ended March 31, 2014. Dollar amounts below are in millions unless otherwise stated. The company operates casinos in the U.S., Canada and Poland, manages shipboard casinos and an Aruba casino, and is developing Century Downs in Alberta.
Financial results and liquidity
| Metric | Q1 2014 | Q1 2013 |
|---|---|---|
| Net operating revenue | $29.11 | $17.99 |
| Earnings from operations | $0.98 | $2.05 |
| Consolidated net earnings | $0.23 | $1.66 |
| Net earnings attributable to Century Casinos shareholders | $0.51 | $1.66 |
| Basic and diluted EPS | $0.02 | $0.07 |
| Net cash from operating activities | $0.31 | $1.19 |
- Revenue rose 61.8%, primarily because Casinos Poland was consolidated for the full quarter following the April 2013 acquisition of an additional 33.3% stake. Poland contributed $12.4 million of revenue and less than $0.1 million of earnings. Consolidation of UHA also affects comparability.
- Operating costs increased 77.5% to $28.13 million, exceeding revenue growth. Operating margin declined to approximately 3.4% from 11.4%. The company reported $0.51 million attributable to its shareholders because $0.284 million of net losses were attributable to non-controlling interests; consolidated net earnings were $0.226 million.
- Interest expense increased to $0.685 million from $0.082 million, principally due to CPL and UHA debt. Income tax expense was $0.215 million on $0.441 million of pretax income; the reported effective tax rate was 48.8%, versus 16.0%.
- Cash and cash equivalents were $26.44 million at March 31, down from $27.35 million at year-end. Working capital was $3.74 million, versus $5.56 million. Operating cash flow was $0.31 million; investing outflow was $1.50 million, mainly capital spending, and financing inflow was $0.54 million.
- Total debt, including the UHA land-lease financing obligation, was $33.84 million: $5.64 million current and $28.20 million long-term. The company reported a weighted average debt rate of 8.2%; the UHA financing obligation carries an implicit 10% rate. It had approximately CAD 17.0 million (about $15.0 million) available under its BMO facility and approximately $0.8 million remaining on CPL’s revolving line. Debt covenants were met.
Material changes and operating developments
- All four existing U.S. and Canadian casino properties reported lower revenue year over year. Management cited reduced customer volumes at the Colorado properties, lower gaming revenue in Calgary, and currency translation effects in Canada. Calgary’s operations reported a loss of $0.026 million.
- Casinos Poland generated only $0.026 million in operating earnings; results included approximately $0.1 million of one-time Poznan relocation costs. The relocated casino opened April 12, 2014.
- Century Downs construction began in March 2014. Completion was anticipated by Q1 2015; the project proposes a racetrack and 550 slot machines. UHA’s final gaming license remained subject to approval when the facility opens.
- The company announced a shipboard casino agreement for the Nova Star ferry, scheduled to begin service May 15, 2014. The filing also describes planned casino operations aboard the Star Pride and Mein Schiff 3, and expected 2015 launches for two additional Windstar ships.
Outlook, risks and contingencies
- Management stated that cash on hand, operating cash flow and additional BMO borrowing for Century Downs were expected to fund operating costs, existing-property capital expenditures and current debt obligations for at least the next 12 months. The company may need additional financing for larger development or acquisition opportunities.
- Approximately $22.0 million of the $26.4 million in cash was held by foreign subsidiaries and was not available for U.S. operations without repatriation; repatriation could have adverse tax consequences.
- Century Casinos was awaiting a decision, expected in Q2 2014, on a Vienna casino license application. If awarded, it expected to invest approximately $7.9 million toward an estimated $18.0 million project. There was no assurance of receiving the license.
- Casinos Poland had a recorded contingent liability estimated at PLN 14.8 million (about $4.9 million) relating to disputes with Polish tax authorities over taxation of employee tips. Appeals were pending, with decisions expected in 2014.
- Foreign exchange movements affect translated results and can affect tax expense. Management also identified gaming demand, project execution and financing needs as relevant uncertainties. Forward-looking statements are subject to risks described in the company’s 2013 Form 10-K.
- The filing reported no goodwill or trademark impairment in the quarter, no material change in market-risk exposure, and effective disclosure controls.
Important facts for investors to verify
- How much of the revenue increase reflects acquired operations versus underlying performance, particularly given declines at existing casinos.
- Whether existing properties can stabilize revenue and improve operating margins, and how CPL performs after its relocation and any strategic changes.
- Century Downs construction progress, total funding needs, final licensing, and whether its anticipated completion schedule is maintained.
- Cash availability by jurisdiction, borrowing capacity and maturities, including the short-term CPL loan due in September 2014 and the high-cost UHA land obligation.
- Outcomes and potential cash exposure from the Polish tax-tip appeals, and any tax consequences if foreign cash is repatriated.