Welcome to the Century Casinos' Q3 2020 Earnings Conference Call. This call will be recorded. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. I would like to introduce our host for today's call, Mr. Peter Hoetzinger. Mr. Hoetzinger, you may begin.

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 Chief Financial Officer, Margaret Stapleton. As always, 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'll 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 SEC filings available in the Investors section of our website at cnty.com. I will now provide an overview of the third quarter results and after that, there will be a question-and-answer session. If it wasn't for the Corona pandemic, we couldn't be more excited. On a consolidated basis, we've achieved all-time record numbers in the third quarter despite these challenging conditions. Net operating revenue of $95.7 million represents an 81% increase over Q3 of last year. Adjusted EBITDA was $22.2 million, more than three times higher than in Q3 of last year. These fantastic results clearly reflect the successful integration of the three casinos we acquired late last year and the tremendous progress our local operating teams have made since we reopened all properties about five months ago. The strong trends we saw in June and July continued throughout the third quarter, increased spending per visit, more time spent on devices, plus increased return of our core customer. With somewhat reduced capacity on our casino floors and limited amenities for our guests, overall visitation to our properties was down compared to last year. But we quickly rebalanced our operating and marketing approach without compromising a great customer experience. By being selective with our amenities, keeping strong controls on the promotional environment, and focusing on the high margin areas of our business, we bring about expense reductions and new efficiencies, resulting in significantly higher operating margins, while we currently see the positive trends continuing. We have little visibility regarding the impact the Corona pandemic will have on our markets going forward. Yet we see continued upside when the older demographics and the often more valuable customers feel comfortable returning to our casinos in greater numbers. We also expect some of the newer, younger customers will convert to regular visitors. The third quarter was the first full quarter including the results of the three properties we acquired from Eldorado in December of last year. When we closed that transaction, we said it was a truly transformational deal for our company. Now we can demonstrate that with hard facts. Our net revenue almost doubled, our EBITDA more than tripled. And it's become a clearly US-focused operation with 79% of our total EBITDA coming from the US, 17% from Canada, and 4% from Europe. Let's now look at the performance on a segment basis, starting with Colorado. It was a great quarter for our properties in Cripple Creek and Central City. Net operating revenue was up 13% and adjusted EBITDA more than doubled. EBITDA margin jumped from 25% to 46%. In Colorado, each city has different gaming floor restrictions. In Cripple Creek, the full slot floor is open. But table games are expected to remain closed for the remainder of the year. In Central City, the casino is currently operating approximately 65% of the slot machines and the Blackjack tables are open. For both cities, alcohol sales stop at midnight. But the casinos are able to operate 24x7. While limitations on the number of slot devices are difficult to manage, we see a significant increase in time on device. We have low volumes of players, but the players that do come are spending significantly more. We see our core customers as well as some new younger customers, and they're coming more often, staying longer, and spending more. During the quarter, we announced our third sports betting partnership deal with Tipico. All three partnerships pay us a percentage of revenue with the minimum guaranteed amount per year. This is without the investment or cost participation from our side, so it flows straight to the bottom line. One, that is the Circa Sports site is up and running already. The other two plan to launch next year. On Tuesday, Colorado voters approved Amendment 77, which authorizes the three gaming towns; Cripple Creek, Central City, and Black Hawk to remove the current $100 maximum bet limit as well as to introduce new table games such as baccarat. Currently, table games comprise less than 15% of total gaming revenue, which is well below the 25% of comparable regional gaming markets, clearly indicating significant upside for Colorado. The improved table game offering will appeal to new customer segments and higher growth customers and we're well positioned to capitalize on this opportunity. Moving onto Missouri, which is our most important market in terms of EBITDA and cash flow generation. At our two properties in Cape Girardeau and Caruthersville, about 95% of all slot machines and approximately 53% of all table game positions are available for play and the results for the quarter were fantastic. Compared to Q3 of last year, when the casinos were under different ownership, we've managed to grow net operating revenue by 4% and adjusted EBITDA by 33%, with increased EBITDA margin from 32% to 41%. Our Missouri properties have done a great job in focusing on serving the best customers in an environment of reduced operating expenses and highly targeted marketing. As a consequence, the primary driver for these great results was the increase in average bet per player of approximately 16%. Additionally, handle pulls per hour had increased. Guests appeared to be playing slightly faster and betting more, which is driving the increase in revenue per player. Furthermore, the slight decline in admissions has primarily come from lower-end players. High-end players remained strong since the properties reopened. Next is West Virginia, where we reopened our Mountaineer Casino, Racetrack, and Resort in early June. Currently, the gaming floor offers 86% of the slot machines and about 39% of the table game positions for play. Some of the food and beverage outlets have reopened with limited hours of operation. The convention space remains closed and the hotel is operating with limited rooms available. EBITDA was down 11%. The third quarter started rather soft in July and early August mainly because smoking was temporarily banned at that time and we only had less than half of the slot machines in operations. From the middle of August on, we were able to allow smoking again and to increase the number of slots to where we are today, that showed positive results immediately with September EBITDA up 13% year-over-year. Currently, hotel occupancy at Mountaineer runs at 88% from Sunday through Thursday and at 98% on Fridays and Saturdays, prompting us to reopen another wing of the hotel with around 100 rooms shortly. Additionally, we have just installed another 30 slots in the very popular smoking section. Because of its resort character, Mountaineer will greatly benefit from a softening or an end of the current Corona situation more so than pure locals casinos and it will also benefit when the over-55 demographic feels comfortable again to come out in larger numbers, so we feel there's good upside. Now let's take a quick look at our operations in Canada, Edmonton, Calgary. The gaming floors are currently operating approximately 60% of the total gaming machines, hours of operation are limited. There are restrictions on spectators at the racetracks and the hotel and showroom in Edmonton remain closed. Table games, traditionally quite an important part of our business there, because of the Asian population, were only allowed to reopen on September 7, so no strong contribution in the quarter at all. Even though EBITDA was down only 10% at our Edmonton properties and down only 5% at our Calgary operations. The better performance came from the two racinos Century Mile in Edmonton and Century Downs in Calgary. And as mentioned, on a consolidated basis, the Canada segment accounts for 17% of the company's EBITDA. To conclude, a look at the operating segments: we look at Europe where our casinos in Poland had a softer quarter. While the casinos in the smaller countries around the country, which grow most from locals, are doing well. The results of the two larger casinos in the capital city of Warsaw are softer because of the lack of tourists and business travelers. However, the operation is cash flow positive and accounts for less than 5% of our total EBITDA. With that, a few words about our balance sheet, liquidity, and outlook. As of September 30, we had $62 million in cash and cash equivalents and $184 million in outstanding debt on the balance sheet. The outstanding debt includes $168 million related to the credit agreement with Macquarie, $10 million of bank debt in Europe, and $15 million related to a long-term land lease for Century Downs in Canada, and that's all net of $10 million in deferred financing cost. We do not foresee any substantial CapEx in the short and mid-term. All our properties are in good shape and we've put all non-essential CapEx projects on hold for now. For next year, we believe it will return to our more normalized CapEx program of reinvesting about 3% to 4% of net revenues through our properties. We are off to a very strong start after reopening and we will ensure we stay focused on maintaining a disciplined approach throughout our business and avoiding unnecessary costs and inefficiencies. We fully intend to keep the focus on a more efficient, higher margin business in place after the crisis is over. Overall, our business has been remarkably stable with almost all of our business coming from customers who live within driving distance of our properties. We've successfully executed a strategy built on our premium local customers. And as we look at the preliminary results for October, the positive operating trends from the third quarter have continued. EBITDA is roughly in line with July, August, and September. But as mentioned at the beginning, we have little visibility regarding the impact this pandemic will have going forward. With that, on behalf of the company's management and board, I'd like to thank our team members, our guests, and our stockholders for their continued loyalty and enthusiasm as we manage our businesses during these challenging times. Thank you for your attention, and we can now start the Q&A session. Operator, go ahead please.

[Operator Instructions] our first question comes from David Bain with ROTH Capital. Please state your question.

Thank you. Congratulations on the quarter. I was hoping we could discuss corporate strategy first, if it's okay. And potentially divesting or pruning some of the smaller maybe non-US portfolio, how that makes sense for capital redeployment or if it does? Essentially, I guess kind of trading into heavier domestic EBITDA utilizing some of that lower rank non-US portfolio piece and potentially mitigating equity components as you get larger. Is that fair to think about or how are you guys looking at that, at this point?

Yes, Dave. We have sold the casino operations in Calgary a couple of months ago and we still own the real estate, but as you can imagine, that's not really our intent to hold it for a very long time, so we will intend to sell that real estate in Calgary. And then the European operations now make up 4% of our total EBITDA, so that has moved from a very interesting and important part of our business a couple of years ago to being non-core. And therefore, you may assume that we are thinking of trying to get a good deal for these assets in Poland. On the acquisition front, yes absolutely, we see quite a lot of very interesting opportunities in the US; the regional players have become very big and naturally they are somewhat less interested in some of the properties that would be very important for us. We've now shown that we can successfully negotiate contracts, close, and then integrate a large transaction. And so I think that makes us a good buyer for some more of these mid-size assets, so yes, we are looking already, and I think next year will be a very busy M&A situation in the US.

All right, fantastic. That's great color. And then if I could ask one more follow-up or one follow-up. We watched the gaming stocks move on COVID news almost seemingly daily. And I'm curious as to what you see on the ground in terms of the visitation or spend volatility in various markets? Or I'm not talking about the structural hurdles mandated by the agencies; I'm talking about new spikes. Are you seeing any of that same volatility that we see in the market or has this been a fairly even recovery? And then just as kind of bifurcating component to that? Any 4Q events to be aware of that may have caused disruption? I don't know if like voting with the election or New Year's versus last year could couple with that positive momentum that we see with West Virginia.

I don't see any of these events. Erwin, would you like to give your thoughts on those two questions?

Yes, with regard to the volatility on recent events. We don't see that volatility in the US and Canada. But we see it in Poland. Again, Peter said before, not very important.

Great and then New Year and things like that shouldn't be really material as we look at this year versus last.

No.

Okay, great quarter again. Thank you.

Your next question comes from Chad Beynon with Macquarie.

Good morning, thanks for taking my question. Peter, you ran through the great detail with all of the segments. I wanted to dive into the sustainability of the margins and thinking about some costs that are currently out of the business, if they could come back. So in markets where your margins were really high and the number of positions were low and some of the non-gaming was low. Should we think that the margins will decline as some of these come back online? And then the second part of that; yes, how are you thinking about reinvestment rate and labor currently right now? Thanks.

Erwin, would you like to start?

Yes, happy to. We really would like to keep the margins and we think we have a realistic chance to do that. We'd be very hesitant to reintroduce many of the things that were there before. And when I say that, we also hear that our competitors are thinking the exact same way and that is quite a good chance that everybody in any competitive market will have the same attitude and just not reintroduce. Most particularly on the lower end of what we gave away to the players with less volume. And that is also true with regard to the reinvestment rate. We feel comfortable with where we are and again, unless something really shocking happens, we want to hold on to our current strategy. Concerning labor, once again, what we have now is fine. If we need to add labor, I mean, naturally, we will have to add labor if and when we get table games reinstituted where we don't have them yet and if we should broaden the F&B offerings for guests, but it will all be very well thought through and will really involve zero budgeting so nothing would just be reintroduced because it was there before.

Great, thanks. And then on Amendment 77 passing, how should we think about the opportunity? I believe you said that currently less than 15% of revenues come from tables and this will obviously increase that percentage. But do you believe that tables can climb up to more of a national average and then how should we think about the timing of when this can go into effect, obviously notwithstanding other regulations related to tables in Colorado?

Erwin?

Yes, the timing I think will be sometime in end of Q1, early Q2 and with regard to the quantitative effect, it will be difficult to project, but what I can say is that, in both our properties in Cripple Creek and in Central City, we have a number of very nice hotel rooms; they are certainly competitive. So we have the tools to entertain. We think it's good to offer adequate hotel rooms to players that want to play higher volumes.

Thank you. Last quick one. Just on the free cash flow conversion from EBITDA. It looks like it was a little bit light and there were some working capital headwinds this quarter. How should we think about a normalized percentage of flow through to cash flow from operations? And should that working capital start to swing back given you're in a more normal period, that's all from me. Thanks.

Can you provide some comment on that?

Sure. In Q3, we had some cash outflows catching up on things that were pushed off during the pandemic. We had a large payment on gaming licenses in West Virginia that was $2.5 million. So there were just a few higher cash flow items that you wouldn't see in EBITDA because they were in previous quarters and we expect it will normalize now in Q4.

Thanks, nice set of results.

Your next question comes from the line of John DeCree with Union Gaming.

Answered most of my questions already. But just one from me and I wanted to see if you could talk a little bit more about the older demographic that hasn't quite returned yet given the pandemic and something that your peers have talked about a little bit? I'm wondering if you can give us a sense of how important that segment is. If there's any kind of way you could quantify this big piece of your database and how much has come back so far? It has been trailed by other segments. But have come back less than that. Any kind of rough guidelines would be good given how important that segment is to the industry.

We see that Mountaineer as well as Colorado and in Missouri. Erwin, do you have some detail on that segment?

Not to answer exactly this question. We look at it from the volume of play just as much as from the age. But if I would have to guess, I would say more than half of the players are back and that is particularly true in the higher volume play.

Got it. And was that segment more frequent customers, I guess as we kind of try to understand it, when you think about those segments? Are they coming more often? Do they generally spend more? I mean, what kind of makes them a bit more valuable or important when you think about upside going forward?

Both. They come more often, and they spend more, they stay longer, and that's good enough, right?

In addition to that, they're primarily interested in the gaming side of things. They're not so much interested in the other amenities that we offer. They're mostly pure gamers which makes them again higher margin customers.

Yes, that's great. And I guess that's kind of good segue into my follow-up question. I think you talked a little bit about marketing and labor. But in your prepared remarks, you mentioned kind of being selective with the amenities that you bring back and you're kind of still attracting younger demographics that are going to convert hopefully into real customers. How do you think about bringing back amenities as the pandemic hopefully winds down in the not too distant future? Is there some amenities that are maybe going to fade away permanently? How do you think about bringing some of those back and what you might need or not need to bring back?

We have no intention to bring any of these amenities back, so they are gone permanently, whatever permanently means, but certainly, in any foreseeable future, we don't intend to have any of them back. And then when it comes to the others, you can take the food and beverage outlet, we would just take a step-by-step approach. For example, the Steakhouse in Mountaineer, that is not so much catering to the younger people, that is more for those around 40, 45 and above. As Peter mentioned earlier, maybe not even that important, the Sports Bar restaurant in Mountaineer attracting younger people, yes, that probably will open on the weekends, and then we will probably move on with the next steps post-pandemic. But it will be a little bit of trial and error and we will approach this cautiously and with the mindset to err on the side of offering fewer hours than too many.

Thanks, Erwin. Congratulations on the quarter everybody.

There are no further questions at this time. Do you have any closing remarks Mr. Hoetzinger?

Yes, I would like to thank 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. You have our best wishes for good health. Thanks again and goodbye.

This concludes today's conference call. Thank you for attending.