Century Casinos, Inc. — 2022 Q3 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022; unaudited. The company operates casino, racing, hotel, food and beverage, and online and sports betting businesses in the United States, Canada, and Poland.
Financial performance and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net operating revenue | $112.6m | $116.6m | $326.8m | $281.2m |
| Earnings from operations | $20.0m | $25.7m | $53.9m | $52.1m |
| Adjusted EBITDA | $28.1m | $33.1m | $81.7m | $73.0m |
| Net earnings attributable to Century Casinos shareholders | $2.9m | $11.2m | $12.0m | $16.7m |
| Diluted EPS | $0.09 | $0.36 | $0.38 | $0.54 |
| Net cash from operating activities | — | $36.7m | $48.7m |
- Q3 revenue declined 3.5% year over year, while Adjusted EBITDA fell 15.1% and shareholder-attributable earnings fell 73.8%. Nine-month revenue rose 16.2% and Adjusted EBITDA rose 11.8%, but attributable earnings declined 27.9%.
- For the nine months, operating margin was approximately 16.5%, versus 18.5% in 2021. Higher operating costs, interest expense, and acquisition-related costs weighed on results. Interest expense increased 52.0% to $48.6m, including a $7.3m write-off of deferred financing costs related to refinancing.
- Nine-month income tax benefit was $8.1m, including release of a $10.2m U.S. deferred-tax valuation allowance. The benefit materially affected reported earnings; the company said its effective tax rate is sensitive to earnings forecasts.
- At September 30, cash and cash equivalents were $99.3m, plus $100.1m restricted in escrow for the Nugget operating-company acquisition. Working capital, excluding restricted cash, was $65.2m. Operating cash flow was $36.7m; investing used $100.9m and financing provided $158.4m.
- Bank debt carrying value, including current debt, was $349.8m; principal before deferred financing costs was $367.3m. Net Debt, the company’s non-GAAP measure, was $268.0m, versus $89.8m a year earlier. The balance sheet also included a $284.1m VICI financing obligation. The company reported $30.0m available under its revolving facility and compliance with applicable Goldman Credit Agreement financial covenants.
Changes versus the prior comparable period
- Q3 U.S. revenue decreased 4.3%, primarily reflecting lower gaming revenue in West Virginia and Missouri. Management attributed lower customer volumes in part to economic and inflationary factors; staffing issues also constrained table-game offerings.
- Canada revenue fell 6.1% in Q3, while nine-month revenue rose 83.5%, largely reflecting the 2021 COVID-related closures and reopening. Poland revenue increased 2.8% in Q3 and 82.6% for nine months, also benefiting from reopening comparisons. Currency translation was a headwind: the average U.S. dollar exchange rate strengthened against the Canadian dollar and Polish zloty.
- The company sold its Calgary land and building in February 2022 and ceased operating Century Sports. It acquired a 50% interest in Smooth Bourbon, which owns the Nugget Casino real estate; the investment contributed $2.1m of earnings for the nine months.
Outlook, management commentary, and risks
- The filing does not provide a quantified consolidated earnings or revenue forecast. Management said inflation-related cost increases and possible customer-volume effects had not been material to date, but noted staffing challenges in some U.S. and Canadian locations.
- The company agreed to acquire Rocky Gap’s operations for approximately $56.1m, subject to transaction terms and closing conditions. VICI is to acquire the real estate, with expected initial annual rent of approximately $15.5m under the amended master lease. Management planned to fund its acquisition with cash on hand.
- The Nugget operating-company purchase price is approximately $100m and remains subject to Nevada Gaming Commission approval. The company had placed $100.1m in restricted acquisition escrow. It also has an option to buy the remaining 50% of the real estate venture for $105m plus 2% annually.
- Caruthersville’s riverboat became inaccessible after record low Mississippi River levels in October 2022. The casino was operating from the barge; regulators approved an interim move to a land-based pavilion, which management expected by year-end 2022. A new casino and hotel project is estimated at $51.9m, with completion expected in the second half of 2024.
- A Cape Girardeau hotel project is estimated at $30.5m, with completion expected in the first half of 2024. The company expects to fund it with cash on hand. It also opened a refurbished 36-room Caruthersville hotel on October 30, 2022.
- Risks include possible future COVID-related closures, inflation and demand changes, foreign-exchange movements, licensing in Poland, and financing needs. Several Polish casino licenses expire in 2023; Polish licenses are not renewable, and replacement licenses require applications and approval. Management said ordinary-course litigation was not expected to materially affect results.
Most important facts for investors to verify
- Whether Rocky Gap and Nugget acquisitions close on schedule, and their final funding, rent, and debt-service effects.
- How unrestricted liquidity develops after the Nugget escrow is applied, given planned projects and higher debt service.
- Caruthersville’s operating performance during the water-level disruption and transition to the pavilion.
- Whether U.S. customer volumes, staffing, inflation, and foreign-exchange rates further pressure margins.
- Renewal outcomes for Poland licenses expiring in 2023 and the assumptions underlying future tax benefits.