Century Casinos Inc. 10-Q Summary: Period Ended September 30, 2010
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended September 30, 2010, for Century Casinos, Inc. (CCI), an international casino entertainment company. CCI owns and manages casinos in North America (Edmonton, Calgary, Cripple Creek, Central City) and operates ship-based casinos for various cruise lines. The company also holds a 33.3% equity interest in Casinos Poland Ltd. (CPL). The reporting period includes the full impact of the January 2010 acquisition of the Silver Dollar Casino in Calgary, Alberta, which was rebranded as The Century Casino Calgary.
Key Financial Metrics
| Metric (in thousands) | 3 Months Ended Sep 30, 2010 | 9 Months Ended Sep 30, 2010 |
|---|---|---|
| Net Operating Revenue | $15,984 | $45,061 |
| Operating Earnings (Continuing Ops) | $744 | $1,433 |
| Net Earnings (Continuing Ops) | $321 | $191 |
| Net Earnings (Total, incl. Discontinued) | $321 | $191 |
| Cash and Cash Equivalents | $24,804 | $24,804 (Ending Balance) |
| Working Capital | $15,470 | $15,470 (Ending Balance) |
| Total Debt (Current + Long-term) | $15,434 | $15,434 (Ending Balance) |
| Operating Cash Flow (9 Months) | N/A | $4,618 |
Note: Discontinued operations (sales of Prague and South Africa casinos) generated significant gains in 2009 but had no impact on 2010 results.
Material Changes vs. Prior Period
- Revenue Growth: Net operating revenue increased 16% for the quarter and 20% for the nine months compared to the prior year periods. This growth is primarily driven by the addition of the Century Casino Calgary and new cruise ship agreements (Windstar and Regent Seven Seas).
- Profitability: Operating earnings from continuing operations decreased 6% for the quarter ($744k vs $788k) but increased 118% for the nine months ($1.433m vs $657k). The nine-month improvement was aided by a $0.8 million reduction in corporate stock compensation expenses.
- Interest Expense: Interest expense dropped significantly, decreasing by $1.3 million for the quarter and $2.6 million for the nine months compared to 2009. This is due to the repayment of all third-party debt related to Colorado casinos in late 2009.
- Cash Position: Cash and cash equivalents declined from $37.0 million at year-end 2009 to $24.8 million at September 30, 2010. The decrease is attributed to the $9.3 million cash payment for the Calgary acquisition and $6.4 million in capital expenditures.
Guidance, Outlook, and Risks
- Capital Expenditures: The company expects to complete approximately $3.7 million in renovations at the Century Casino Calgary by the end of 2010, with a grand re-opening planned for November 18-21, 2010.
- Cruise Expansion: CCI expects to operate casinos on two additional ships in the fourth quarter of 2010 (Marina for Oceania Cruises and Mein Schiff II).
- Regulatory Risks (Poland): New gaming laws in Poland increased the tax rate from 45% to 50% and required license renewals. While CPL successfully renewed licenses for two major casinos, the Stettin slot casino was required to close in September 2010.
- Liquidity: Management believes current cash and operating cash flows are sufficient to fund operations, capital expenditures, and debt obligations. However, future development may require additional financing, which may not be available on acceptable terms.
- Internal Controls: The company implemented additional review processes for earnings releases following errors identified in the June 30, 2010 release.
Investor Verification Checklist
- Calgary Acquisition Integration: Verify the performance of the newly acquired Century Casino Calgary post-renovation and re-opening in late 2010.
- Poland Regulatory Impact: Monitor the financial impact of the increased 50% gaming tax rate in Poland and the closure of the Stettin slot casino on the CPL equity investment.
- Colorado Market Dynamics: Assess the long-term impact of competitor hotel expansions in Black Hawk on the Central City and Cripple Creek properties.
- Debt Covenants: Confirm continued compliance with the Edmonton term loan covenants, which remains the primary debt obligation ($15.1 million balance).
- Stock Repurchase Program: Track the utilization of the remaining $14.7 million under the discretionary stock repurchase program.