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Century Casinos Inc (CNTY 2.98%)
Q2 2019 Earnings Call
Aug 8, 2019, 10:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Welcome to Century Casinos Q2 2019 Earnings Conference Call. This call will be recorded. [Operator Instructions]
I would now like to introduce our host for today's call, Mr. Peter Hoetzinger. Mr. Hoetzinger, you may begin.
Peter Hoetzinger -- Vice Chairman, President, Co-Chief Executive Officer
Thank you, Emily. Good morning, everyone, and thank you for joining our earnings call. With me on the call are my Co-CEO and the Chairman of Century Casinos, Erwin Haitzmann as well as our Executive Vice President of Finance, Margaret Stapleton.
Before we begin, we would like to remind you that we will be discussing forward-looking information which involves a number of risks and uncertainties that may cause actual results to differ materially from our forward-looking statements. The company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise. We provide a detailed discussion of the various risk factors in our SEC filings and encourage you to review these filings.
In addition, throughout our call, we refer to several non-GAAP financial measures, including, but not limited to, adjusted EBITDA. Reconciliations of our non-GAAP performance and liquidity measures to the appropriate GAAP measures can be found in our news release and the SEC filing available in the Investors section of our website at www.cnty.com.
And I'll provide a brief review of the company's financial results for the second quarter 2019. Following the prepared remarks, there will be a question-and-answer session. Well, this was another very good and very active quarter for us. Net operating revenue was up 32%. Adjusted EBITDA increased by 44%, but that includes 900,000 in non-recurring expenses related to the writedown in connection with the casino aboard the Chinese cruise as Glory Sea, which stopped operating and has an uncertain future. Excluding that what I would call real adjusted EBITDA is $7.6 million for the quarter and that's actually 62% higher than last year.
For now Canada remains our strongest segment generating 42% of our consolidated revenue. In local currency, the Canadian operations grew revenues by 49% and adjusted EBITDA by 23%. As expected most of that growth came from the newly opened Century Mile Racetrack and Casino in South Edmonton.
We are very pleased with its initial performance. Revenue is 20% higher than the revenue generated at our very successful Century Downs facility in Calgary and that's a very good sign that in line with our ambitious expectations.
As with any new casino, it takes about a year to reach its potential, meaning, we have another three quarters or so of increasing penetration in the Greater Edmonton market to get to the full potential of that facility. It is the same with the expense side of the new casino. Higher expenses initially, but after a few quarters we will be able to generate more normal operating margin.
We're also working on creating synergies between our two Canadian racing operations and further broadening the reach of the Century brand in Alberta and Western Canada by leveraging the two properties for a reduction of cost and sharing in contracted services and by creating a stronger Century racing brand for the sale of races to other racetracks, OTP networks and advanced deposit wagering companies.
The other two casinos we own and operate in the Greater Edmonton market, the Century Casino and Hotel Edmonton and the Century Casino St. Albert grew revenues by 2% and adjusted EBITDA by 3% on a combined basis.
In Calgary, our two properties Century Downs Racetrack and Casino and Century Casino performed even better and generated combined revenue growth of 10%. Adjusted EBITDA increased by 27%. We've now received all approvals necessary for and started construction of a 20% expansion of the gaming floor at Century Dance.
Total capex will be approximately $1.5 million and we plan to open that expansion before the end of the year with a new bar and additional slot machines. In the US, our two operations in Colorado increased revenues by 4% and adjusted EBITDA was up 4% as well. Both properties in Century City and in Cripple Creek did very well and increase their respective market share.
We maintained a positive outlook and project further growth due to solid regional economic conditions. The strong tourist business and the great positioning and loyal following our properties have in that market. In Poland revenue was up 47% in local currency. EBITDA increased more than tenfold.
We had three more casinos in operation compared to Q2 of last year and the growth came from both the slots and the table games at all locations. During the quarter, we expanded the gaming floor at our flagship operation, the casino at the Marriott Hotel in Warsaw, which was very well received by our regulars.
In addition, we have been granted a license for a third casino in Warsaw that we go live next month. In the UK, the Casino Bath disappoints. EBITDA improve a little compared to last year, but still showed a loss of $600,000. We are in the midst of a management change there.
The outlook remains challenging as the gaming business throughout the UK is being hampered by tough regulations regarding anti-money laundering, social responsibility, and general data protection. We have received a few inquiries about the possibility of us selling that operation, but it's too early to tell if any of that will lead to anything and if we actually go that route.
Now a quick look at our balance sheet and liquidity. We have $47 million in cash and cash equivalents, and $72 million in outstanding debt. Total debt to adjusted EBITDA ratio is 2.8, while the net debt to adjusted EBITDA ratio is 1.0.
Our debt includes $52 million related to our Bank of Montreal credit agreement, $15 million related to the Century Downs long-term land lease and $5 million over in Europe. The book value per share increased to $6.14. Capex for existing operations during the quarter was $3.5 million or 6.5% of revenues, spent mainly on Century Mile and in Poland. The big news this quarter obviously was our announcement about the acquisition of three casino operations from Eldorado Resorts for $107 million at what I would call impressively accretive 4.1 acquisition multiple.
VICI Properties is buying the real estate underlying casinos for $278 million and leasing it to us under long-term triple-net master lease agreements. The three casinos are the Isle Casino Cape Girardeau in Cape Girardeau, Missouri, the Lady Luck Casino Caruthersville in Caruthersville, Missouri and the Mountaineer Casino, Racetrack and Resort in New Cumberland, West Virginia.
These are three quality assets in strong and stable gaming markets, each enjoying a leading regional position and each with a long track record of producing solid and growing revenue and EBITDA. With this acquisition, we're adding approximately $220 million in net operating revenue and approximately $26 million in adjusted EBITDA and that is after rent expenses to our income statement.
That pretty much doubles the size of our company and underlines the truly transformational nature of this deal. Erwin, together with the group of our Senior Operations Managers just completed another two of the three properties and came back more optimistic than ever.
Great properties, stable markets, great local management teams and exciting small and not so small opportunities to increase business volumes and reduce operating expenses. The transaction is subject to gaming regulatory approval in Missouri and West Virginia as well as customary closing conditions and is expected to close in early 2020.
These three casinos meet all our criteria. They are mid-sized operations that target the mid-market local customer. They have been generating strong and stable cash flows for many years. They provide opportunities to drive incremental growth through operational improvements and significantly enhance our scale and presence in North America.
On a pro forma basis, we have five casinos in the US five in Canada and eight in Europe with a total of 7,200 gaming machines, 250 gaming tables, 430 hotel rooms and three horse racetracks. Net operating revenue would be around $400 million, adjusted EBITDAR around $75 million and adjusted EBITDA around $55 million.
Going forward we expect those amounts to grow due to the new Century Mile Racetrack and Casino. Strong business volumes in Poland and our efforts to expand operating margins and to realize synergies through cost reductions and rationalizing promotional expenses at all existing and newly acquired properties. We financed his transaction with $170 million term loan facility for which we have already had a bank commitment.
This facility will also take out the existing debt we have with BMO. On a pro forma basis, we'll have total debt of $176 million and net debt of $111 million resulting in leveraged multiples of 3.4 and 2.2 respectively. Our conservative capitalization together with a strong operating performance and great relationships with gaming REITs should provide us ample capacity to pursue further growth opportunities especially as regional gaming trends in North America remain healthy.
Okay, that pretty much sums up another very successful and very active busy quarter. Thank you for your attention and we can now start the Q&A session. Emily, please.
Questions and Answers:
Operator
Ladies and Gentlemen at this time we will conduct the question-and-answer session. [Operator Instructions] And our first question comes from the line of Mike Malouf from Craig-Hallum. Your line is open.
Michael Malouf -- Craig-Hallum -- Analyst
Great. Thanks for taking my questions. I'd love to focus in on those three -- on the three acquisition, on the three casinos you acquired. Just a little bit. You said you just went and visited them and went through some of the operations. I'd love to sort of get a real time a little bit more color with regards to what you're thinking about your ability to drive revenues and profitability at those over the next couple of years after you get ownership?Thanks.
Peter Hoetzinger -- Vice Chairman, President, Co-Chief Executive Officer
Erwin please.
Erwin Haitzmann -- Chairman, Co-Chief Executive Officer
Yeah. As Peter said everything that we saw in our previous visits was confirmed and more than confirmed. Great teams that are working very well together. It is our intent. We would like to keep everybody from the manager down.
No need to change anything and I think that the first -- the first course of action will be, as I said, to leave everything the same and our financial model works if we just repeat the same EBITDA than what has been done by the previous owners before we came.
And then as we go and then we'll continue discussions with the local managements there. I would imagine that there is a number of possibilities to further increase EBITDA. It's still early to give any details and as I said we're not even in yet. We have to go slowly and cautious.
I think it's important for the existing staff to know that we just -- we don't want to come in and turn everything upside down. We want to keep things as they are and then look for opportunities as we started discussing and that they started presenting to us in the bundled ones that had the opportunity to have with the various department heads.
Michael Malouf -- Craig-Hallum -- Analyst
Okay, great. And can you remind us or at least a little bit of an update if there's been any change with regards to timing on the closing of these?
Peter Hoetzinger -- Vice Chairman, President, Co-Chief Executive Officer
No, we're still trying to close in early 2020.
Michael Malouf -- Craig-Hallum -- Analyst
Early 2020. Okay, great. And then just a follow-up on Century Mile. When you take a look at the margins and expect sort of normal margins. Can you give us a sense of timing on something like that and where you take normal margins shake out?
Peter Hoetzinger -- Vice Chairman, President, Co-Chief Executive Officer
I think this is for you. Go ahead.
Erwin Haitzmann -- Chairman, Co-Chief Executive Officer
It should probably kick in about a year from now. And with normal margins, we do not mean the same margins that we generate at Century Downs. It is simply due to the fact at Century Downs. The rent that we pay for the land comes below the EBITDA line and at Century Mile it is above the EBITDA line and Peggy can give more detail on that. I think it's because it's a financial lease at Century Downs. Right, Peggy.
Margaret Stapleton -- Executive Vice President, Principal Financial/Accounting Officer and Corporate Secretary
That's correct. It's the financing at Century Downs where it's not at Century Mile.
Michael Malouf -- Craig-Hallum -- Analyst
So, where do you think those numbers end up shaking out?
Peter Hoetzinger -- Vice Chairman, President, Co-Chief Executive Officer
Well at Century Downs, they are in the very high 30s and sometimes even in the 40s and at Century Mile that will probably be somewhere in the high 20s or low 30s.
Michael Malouf -- Craig-Hallum -- Analyst
Okay. All right. Thanks for the help.
Peter Hoetzinger -- Vice Chairman, President, Co-Chief Executive Officer
Thanks.
Operator
[Operator Instructions] And there are no further questions. I will now turn the call back to Mr. Hoetzinger for closing remarks.
Peter Hoetzinger -- Vice Chairman, President, Co-Chief Executive Officer
Yes. Okay. Thank you very much, everybody for your interest in Century Casinos and for your participation in the call. For a recording of the call, please visit the financial results section of our website at cnty.com. Thank you and goodbye.
Operator
[Operator Closing Remarks]
Duration: 16 minutes
Call participants:
Peter Hoetzinger -- Vice Chairman, President, Co-Chief Executive Officer
Erwin Haitzmann -- Chairman, Co-Chief Executive Officer
Margaret Stapleton -- Executive Vice President, Principal Financial/Accounting Officer and Corporate Secretary
Michael Malouf -- Craig-Hallum -- Analyst
