Century Casinos Inc. Q1 2011 Filing Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 2011. Century Casinos, Inc. is an international casino entertainment company operating properties in North America (Edmonton, Calgary, Central City, Cripple Creek), managing cruise ship casinos on international waters, and holding a 33.3% equity interest in Casinos Poland Ltd (CPL). The company is classified as a smaller reporting company.
Key Financial Metrics
| Metric | Q1 2011 | Q1 2010 |
|---|---|---|
| Net Operating Revenue | $17.1 million | $14.1 million |
| Net Earnings | $0.4 million | $0.1 million |
| Earnings Per Share (Diluted) | $0.02 | $0.01 |
| Operating Cash Flow | $2.3 million | $1.3 million |
| Cash and Equivalents | $20.7 million | $27.8 million |
| Total Debt (Current + Long-term) | $11.2 million | $13.5 million |
| Working Capital | $10.7 million | $9.4 million |
Note: Debt figures derived from Balance Sheet current and long-term debt portions. Q1 2010 cash flow data reflects the period ended March 31, 2010.
Material Changes vs. Prior Period
- Revenue Growth: Net operating revenue increased 21.1% ($3.0 million) year-over-year. This was driven by the full quarter impact of the Century Casino Calgary acquisition, the addition of seven new ship-based casinos, and a 5.3% favorable shift in the USD/CAD exchange rate.
- Profitability: Net earnings surged 180% to $0.4 million. Earnings from operations increased 116% to $0.8 million.
- Property Performance:
- Edmonton: Net earnings up 24.5% due to increased customer volume and FX rates.
- Calgary: Reported a net loss of $0.2 million (vs. $0.1 million profit in 2010) due to heavy marketing spend, new player club programs, and staffing increases, despite a 48.6% revenue increase.
- Cripple Creek: Turned profitable with a 380% increase in net earnings, aided by competitor disruption (J.P. McGills remodel) and new slot machines.
- Central City: Net earnings up 21%, benefiting from competitor disruption (Fortune Valley ownership transition).
- Equity Investment: Earnings from the 33.3% stake in CPL decreased 51% to $0.1 million due to lower gaming revenues and accelerated depreciation.
Outlook, Risks, and Contingencies
- Switzerland Project: The company applied for a casino license in Neuchatel, Switzerland, with a decision expected in June 2011. If granted, the project requires an estimated $30 million investment (40% equity, 60% debt).
- CPL Lease Expiry: CPL was notified that the lease for its Krakow casino will not be renewed (expires Dec 31, 2011). The company anticipates a write-off of approximately $0.3 million (its 33.3% share) in 2011 for leasehold improvements.
- Cruise Operations: The Silversea Cruises agreement expired and was not renewed. However, operations began on the Mein Schiff 2 with TUI Cruises in Q2 2011.
- Liquidity: Management believes current cash ($20.7 million) and operating cash flows are sufficient for operations and debt service. However, additional financing may be required for the potential Swiss project.
- Debt Repayment: The company repaid $2.5 million of its Edmonton mortgage during the quarter. The remaining balance is $11.2 million.
Investor Verification Checklist
- Calgary Turnaround: Verify if the heavy marketing and staffing costs incurred in Q1 2011 at the Calgary property are sustainable or one-time ramp-up costs.
- Swiss License Probability: Assess the likelihood of securing the Neuchatel license and the terms of the proposed 60% debt financing.
- CPL Write-off Impact: Confirm the timing and exact amount of the $0.3 million write-off related to the Krakow casino lease non-renewal.
- Competitor Disruption: Evaluate the sustainability of revenue gains in Central City and Cripple Creek, which were partially attributed to temporary disruptions at competitor properties.
- FX Sensitivity: Monitor the impact of the Canadian dollar exchange rate on reported earnings, as a significant portion of revenue is CAD-denominated.