Century Casinos, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Amounts are in U.S. dollars unless noted. The company operates casinos and related gaming, hotel, food and beverage, pari-mutuel, sports betting and iGaming businesses in the United States, Canada and Poland.
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net operating revenue | $92.2 million | $36.1 million | $164.6 million | $123.8 million |
| Operating income (loss) | $18.1 million | $(2.1) million | $26.4 million | $(33.9) million |
| Net income (loss) attributable to Century shareholders | $6.9 million | $(12.6) million | $5.4 million | $(58.5) million |
| Diluted earnings (loss) per share | $0.22 | $(0.43) | $0.18 | $(1.98) |
| Adjusted EBITDA (non-GAAP) | $25.2 million | $(1.8) million | $40.0 million | $7.8 million |
Operating margin was approximately 19.6% in Q2 2021, versus negative 5.9% in Q2 2020; for the first half it was approximately 16.0%, versus negative 27.4%. Adjusted EBITDA is a company-defined non-GAAP measure and may not be comparable with similarly named measures at other companies.
- Cash flow: First-half operating cash flow was $22.7 million, compared with cash used of $10.4 million a year earlier. Investing activities used $3.5 million and financing activities used $2.3 million. Cash, cash equivalents and restricted cash increased $16.8 million to $80.4 million; balance-sheet cash and cash equivalents were $80.2 million.
- Liquidity: Working capital was $53.7 million at June 30, compared with $34.5 million at December 31, 2020. The company had $10.0 million available under its Macquarie revolver. About $24.6 million of cash was held by foreign subsidiaries.
- Debt and leases: Debt principal was $192.3 million; carrying value after deferred financing costs was $183.9 million, including $4.5 million current. Reported net debt, a non-GAAP measure, was $112.2 million. Separately, the VICI failed-sale-leaseback financing obligation was $280.1 million. The company reported $34.9 million of operating lease liabilities.
- Interest and taxes: First-half interest expense was $21.2 million. Income tax expense was $1.2 million on $5.6 million of pretax income, an effective rate of 21.8%.
Changes versus the prior comparable period
Revenue and earnings improved sharply year over year, primarily because U.S. properties were open and operating during the period, while the 2020 comparison included extensive COVID-19 closures and restrictions. The company estimated closures reduced first-half 2021 revenue by $35.9 million and Adjusted EBITDA by $13.1 million; estimated 2020 impacts were $91.3 million and $34.3 million, respectively. Accordingly, the reported growth rates are not a like-for-like view of normalized operations.
- U.S. first-half revenue rose 82.6% to $141.1 million and segment Adjusted EBITDA rose to $50.4 million from $10.9 million.
- Canada first-half revenue fell 58.5% to $8.7 million, reflecting closures and the December 2020 sale of Calgary casino operations. Canada segment Adjusted EBITDA was negative $1.9 million versus positive $3.0 million.
- Poland first-half revenue fell 40.3% to $14.6 million amid temporary closures and reduced Warsaw tourism; segment Adjusted EBITDA was negative $3.6 million versus negative $0.4 million.
- The 2020 comparison included $35.1 million of impairment charges and a $7.4 million gain from deconsolidating Century Casino Bath. No impairment charge was recorded in the first half of 2021.
Outlook, risks and notable items
- Management provided no specific earnings or revenue guidance. It said COVID-19 impacts, consumer demand, health restrictions and possible future closures remain uncertain and could materially affect results and liquidity. All facilities were open as of the filing, though reopening and capacity restrictions varied by market.
- Management planned approximately $4.6 million of 2021 capital expenditures, plus an estimated $1.5 million to refurbish a 36-room hotel near Caruthersville, with completion targeted for early 2022. It may defer other projects to 2022. The company is exploring relocating the Caruthersville casino to a non-floating facility but gave no cost or completion estimate.
- The Calgary casino operations were sold in December 2020; the company retained the sports, bowling and entertainment operation and real estate, which was held for sale. Management expected a property sale by year-end 2021.
- Macquarie covenant testing had been suspended through the quarter ending September 30, 2021 under an amendment; the company reported compliance with applicable covenants at June 30. Casinos Poland obtained a waiver of specified cash-inflow and financial-covenant requirements through October 31, 2021.
- Potential additional Polish employment-tax exposure related to employee tips is not recorded beyond the approximately $0.5 million accrued liability because further amounts were not considered probable or estimable; future assessments could be material. Poland casino licenses are nonrenewable, with the next listed expiration in September 2022. Proposed changes to Warsaw licensing could affect future license availability.
- Management said additional capital might be needed if conditions deteriorate. It cited potential debt or equity financing, which may not be available on acceptable terms and could dilute shareholders. The company also disclosed a $14.7 million remaining authorization under its share repurchase program but made no repurchases in the first half.
Important facts for investors to verify
- Whether post-reopening revenue and margins are sustainable, particularly after accounting for the exceptional shutdown-driven comparison.
- Cash generation and liquidity by geography, including the availability of foreign-held cash and cash needs if Canada or Poland operations face restrictions again.
- Debt service, the large VICI lease-financing obligation and rent commitments, and the status of covenant waivers and testing.
- Progress and proceeds from the expected Calgary real estate sale, Caruthersville hotel refurbishment, and any casino relocation plans.
- Outcomes of Polish tax proceedings and casino-license renewals, including the potential effect of changes to Warsaw licensing.