CENTURY CASINOS INC annual report, FY2021

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Century Casinos, Inc. — 2021 Form 10-K

Reporting period: Fiscal year ended December 31, 2021. This is an annual filing, not a standalone fourth-quarter report. Century Casinos operates gaming and related hospitality, racing and entertainment businesses in the United States, Canada and Poland.

Financial performance

  • Revenue: Net operating revenue was $388.5 million, up 27.7% from $304.3 million in 2020. Gaming revenue rose 31.0% to $331.9 million. Revenue benefited from U.S. properties operating throughout 2021 and the reopening of Canadian and Polish casinos during the year.
  • Profit: Operating earnings were $68.5 million, versus an operating loss of $0.1 million in 2020. Net earnings attributable to Century shareholders were $20.6 million, or $0.70 per basic share, compared with a $48.0 million loss, or $1.62 loss per share, in 2020. The 2020 results included $35.1 million of impairment charges.
  • Margins and adjusted EBITDA: Operating margin was approximately 17.6% and net margin approximately 5.3% in 2021. Adjusted EBITDA, a non-GAAP measure, was $97.9 million, up 102.3% from $48.4 million; its margin was approximately 25.2%. Management cautions that its Adjusted EBITDA calculation may not be comparable to similarly named measures at other companies.
  • Cash flow: Operating cash flow was $59.2 million, versus $9.0 million in 2020. Investing activities used $10.0 million and financing activities used $4.7 million. Cash, cash equivalents and restricted cash totaled $108.0 million at year-end, including $107.8 million of cash and cash equivalents.
  • Liquidity: Working capital was $80.2 million, compared with $34.5 million in 2020. Approximately $32.1 million of cash and cash equivalents was held by foreign subsidiaries and was not available for U.S. operations unless repatriated.
  • Debt and lease obligations: Face-value debt was $189.2 million, including $166.6 million under the Macquarie credit agreement; reported debt net of deferred financing costs was $181.5 million. Net Debt, a non-GAAP measure, was $81.4 million, down from $130.4 million, principally due to higher cash. The separate VICI financing obligation was $281.9 million. Most debt was variable-rate; management estimated that a one-percentage-point rate change would alter annual cash interest expense by about $1.7 million.
  • Taxes: Income tax expense was $6.4 million on $28.1 million of pretax earnings; the reported effective tax rate was 22.6%.

Material changes versus 2020

  • U.S. revenue increased 42.8% to $283.3 million, with strong contributions from Missouri and West Virginia. The company attributed improvement to reopened operations, increased visits and, in Colorado, removal of betting limits and introduction of new games.
  • Canada revenue declined 7.6% to $46.4 million, and segment Adjusted EBITDA fell 17.3% to $9.5 million. Closures, the sale of Calgary casino operations in December 2020 and the timing of reopenings affected comparability.
  • Poland revenue increased 7.3% to $58.2 million as casinos reopened and Warsaw tourism improved, but the segment still reported an operating loss of $0.4 million.
  • The company estimated COVID-related closures reduced 2021 net operating revenue by approximately $35.9 million and Adjusted EBITDA by $13.1 million, less than the estimated 2020 impacts of $100.5 million and $36.0 million, respectively.
  • In 2021, the company transferred operation of the southern Alberta pari-mutuel network to Century Mile, sold its minority interest in MCE for nominal consideration, and recorded no impairment charges, compared with $35.1 million of impairment charges in 2020.

Outlook, developments and risks

  • No quantified earnings or revenue guidance: The filing does not provide formal financial guidance. Management expected approximately $8.0 million of 2022 capital expenditures for gaming equipment, renovations and security upgrades.
  • Projects: Missouri hotel and casino projects were estimated to cost $73.0 million, with $1.0 million spent by year-end 2021. Cape Girardeau construction was expected to begin in summer 2022, subject to approvals. Caruthersville’s land-based casino project was delayed by a City of St. Louis lawsuit challenging the state-law change that would permit a non-floating casino facility. A separate 36-room Caruthersville hotel refurbishment was estimated at $3.6 million.
  • Nugget transaction after year-end: In February 2022, the company agreed to acquire 50% of the Nugget property company for approximately $95 million and, subject to Nevada regulatory approval, 100% of the operating company for approximately $100 million. Goldman Sachs provided a commitment letter for $350 million of secured term debt and a $30 million revolving facility to support the transaction, refinance existing debt and fund general corporate purposes.
  • COVID-19 and labor: Management said the pandemic’s duration and effects remain uncertain. Staffing shortages continued, including at Mountaineer, and may constrain operating hours or amenities. Management expected Canadian payroll costs to rise as business volumes recover and government wage subsidies end.
  • Concentration and competition: Missouri and West Virginia together represented 61% of 2021 net operating revenue and 90% of earnings from operations, increasing exposure to regional conditions. The filing also identifies potential new or expanded competitors, including in Alberta and Missouri.
  • Regulatory and legal matters: Cape Girardeau and Mountaineer casino licenses, and a Warsaw casino license, were scheduled for renewal or expiration in 2022. Caruthersville construction depends on resolution of the lawsuit or an alternative legislative path. The company reported no pending litigation it believed would materially affect its financial position or results, except matters disclosed in the financial-statement notes.
  • Other risks: Key exposures include variable interest rates, foreign exchange movements, gaming regulation and taxation, construction cost and schedule overruns, lease obligations, cybersecurity, and possible further pandemic-related restrictions. The company reported that it was in compliance with applicable Macquarie financial covenants at December 31, 2021.

Important facts for investors to verify

  • Confirm the source and sustainability of the 2021 earnings recovery, including how results compare after accounting for closures, acquisition timing and the unusually difficult 2020 comparison.
  • Track cash generation, working capital and the availability of foreign-held cash, alongside the company’s variable-rate debt and VICI financing obligation.
  • Review the final financing, regulatory approvals and closing conditions for the Nugget acquisition, including the total funding required and resulting leverage.
  • Monitor the Caruthersville lawsuit, required approvals, project budget and schedule, as well as progress and costs at Cape Girardeau.
  • Check casino license outcomes in 2022, especially the Warsaw license, and assess the impact of staffing constraints, competition and any renewed COVID-related restrictions.
  • Assess the assumptions underlying goodwill and intangible-asset valuations. The auditor identified the $9.6 million Century Casino St. Albert indefinite-lived intangible asset impairment analysis as a critical audit matter.