Century Casinos, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Century Casinos operates gaming, hospitality and related businesses in the United States, Canada and Poland. Most U.S. properties operated throughout the period; Canada and Poland properties reopened in 2021 after pandemic-related closures.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net operating revenue | $116.6m | $95.7m | $281.2m | $219.5m |
| Operating earnings (loss) | $25.7m | $15.0m | $52.1m | ($18.9m) |
| Net earnings (loss) attributable to Century shareholders | $11.2m | $3.7m | $16.7m | ($54.7m) |
| Diluted EPS | $0.36 | $0.13 | $0.54 | ($1.85) |
| Adjusted EBITDA | $33.1m | $22.2m | $73.0m | $30.0m |
Q3 revenue rose 21.8% year over year; nine-month revenue rose 28.1%. Operating margin was approximately 22.1% in Q3 versus 15.7% a year earlier, and 18.5% for the nine months versus a loss from operations in 2020. Adjusted EBITDA is a company-defined non-GAAP measure. Comparisons are affected by 2020 closures and restrictions, as well as $35.1m of impairment charges in the first nine months of 2020.
Q3 growth was broad across the U.S., Canada and Poland. For the first nine months, U.S. revenue increased 53.7%, while Canada revenue declined 19.9% and Poland revenue declined 12.4%, largely reflecting closures, reopening dates and, in Canada, the December 2020 sale of Calgary casino operations. Management estimated COVID-related closures reduced nine-month revenue by $35.9m in 2021 and $91.3m in 2020, and Adjusted EBITDA by $13.1m and $34.3m, respectively.
Cash, debt and liquidity
- Cash and cash equivalents were $100.8m at September 30, 2021, up from $63.4m at December 31, 2020; cash, cash equivalents and restricted cash totaled $101.2m. Working capital was $69.7m, compared with $34.5m at year-end 2020.
- Nine-month operating cash flow was $48.7m, compared with $5.4m in 2020. Investing activities used $7.4m and financing activities used $3.3m. Capital expenditures were $7.4m in the cash flow statement.
- Debt principal was $190.5m, including the CDR land-lease financing obligation; reported debt net of deferred financing costs was $182.4m. The company’s non-GAAP net debt measure was $89.8m. Separately, the VICI failed sale-leaseback financing obligation was $280.9m.
- The Macquarie term loan was $167.0m, with a 6.69% weighted-average interest rate; $10.0m remained available on its revolver. The company reported compliance with applicable Macquarie financial covenants at quarter-end.
- Approximately $34.4m of cash was held by foreign subsidiaries and was not available for U.S. operations unless repatriated. The company stated its U.S. cash resources were expected to cover U.S. operating and cash commitments.
Outlook, plans and notable risks
- No formal earnings or revenue guidance is provided. Management said the pandemic’s duration and effects remain uncertain; future closures, restrictions, demand changes, staffing issues or supply disruptions could materially affect results and liquidity.
- Planned projects include a new land-based Caruthersville casino and small hotel, estimated at $45.2m with an early-2024 target opening, and a Cape Girardeau hotel estimated at $23.1m with a late-2023 target. The company expects to fund the approximately $65m combined cost with cash, financing or both. A nearby 36-room Caruthersville hotel refurbishment was estimated at $2.2m; $0.9m had been spent by quarter-end.
- Canadian government wage subsidies reduced operating expenses by $2.5m for the first nine months of 2021 and ended October 23, 2021. Management expected Canadian payroll costs to increase as business volumes recovered and subsidies ended.
- Casinos Poland’s licenses are nonrenewable; its next expiration is September 2022. Proposed changes to Warsaw casino licensing could affect future license availability. CPL had a lender waiver of certain cash-inflow and covenant requirements through October 31, 2021.
- Century disclosed a $0.5m accrued potential Polish employee tip-tax liability. Further assessments are not considered probable or estimable, but could be material. The company received a $0.6m Polish tax reimbursement in September 2021.
- The company was exploring gaming projects and acquisitions. Discussions regarding a potential sale of its Casinos Poland interest were suspended and may not resume. It was also marketing the Calgary land and building for sale.
Important facts for investors to verify
- Whether post-reopening revenue, margins and operating cash flow are sustainable after comparing against pandemic-affected periods and accounting for the end of Canadian wage subsidies.
- Project budgets, timing, funding plans and any resulting effect on cash, debt and lease obligations, particularly for the approximately $65m casino and hotel projects.
- Debt service and covenant headroom, including Macquarie borrowing terms, CPL’s lender waiver status and the substantial VICI financing obligation and rent commitments.
- Renewal prospects and timing for Casinos Poland licenses, especially the September 2022 expiration, and any developments in the Polish tax-tip proceedings.
- Availability of foreign-held cash for U.S. needs and whether future pandemic-related restrictions or operating challenges could require additional financing.