Welcome to the Century Casinos Q2 2021 Earnings Conference Call. This call is being 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 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 filing available in the Investor section of our website at cnty.com. I will now provide an overview of the second quarter results, and after that, there will be a Q&A session. The second quarter was an outstanding performance for our company and our entire team. Our focus operating strategy produced strong and robust margins, and we generated the highest quarterly EBITDA in the history of our company. We're happy to report $92.2 million of revenue and $25.2 million of adjusted EBITDA. Again, this is a new quarterly record for Century Casinos. On a consolidated basis, the EBITDA margin in the quarter was 27.4%. All these numbers are substantially better than what the market expected. The quarter showed continued strength and momentum across all our local and regional properties and businesses. The results were driven almost exclusively by our properties in the U.S., because our casinos in Poland and Canada were closed for most of the quarter. They have reopened in late May and early June, respectively, and have been profitable since day one. As most other local and regional casinos continued to benefit from strong demand from the strong preference for close to home entertainment and from the fiscal stimulus. All of that has improved visitation as well as spending levels with our casinos, and together with our disciplined and efficient operating strategy contributed to these great results across our portfolio. Our cost structure is more streamlined, and our marketing and promotional investments are more targeted, which translates into increased spend per visit, especially from our most valuable players. And it's very good to see that strong operating performance from the first half of the year also continuing into July. You realize there's a bit more uncertainty today about the pandemic, but we're confident in our ability to generate results well above pre-COVID levels as we continue to successfully execute our operating philosophy with a tight focus on the right customer. Our business is largely gaming-centric; only a minority of our revenue is coming from non-gaming amenities, and many of those are open on a limited basis only, resulting in an overall lower cost structure. We will only open more non-gaming amenities by expanding the opening hours as demand picks up further, so that should grow in a profitable way. At this point, we haven't seen any significant impact of more aggressive marketing from our competitors even as other entertainment options in Las Vegas, for example, started to come back quite strongly. That's very encouraging, and that as well has continued in July. Beyond the ongoing strength and growth our core properties are delivering, we continue to pursue initiatives to improve and expand our businesses further. We are developing into a multi-channel gaming company with six traditional casinos in Colorado, Missouri, and Canada, with three racetrack and casino resorts in West Virginia and Canada and a variety of operations and partnerships in off-track betting, sports betting, and iGaming. While traditional casino table and slot games still account for the vast majority of our revenue, the revenue from iGaming, sports betting, and parimutuel betting has, for the first time, surpassed the revenue generated from our hotels or F&B operations and has become the second highest revenue generator for us. And that comes, as you know, without any significant investment from our side whatsoever. During the quarter, our operating partners, Rush Street and William Hill, launched iGaming in West Virginia under our master license, and the second of our three Colorado sports betting partnerships plans to go live next month. But while digital gaming is an attractive way to grow our company, we see even more upside by reinvesting into our existing casino assets. One of these opportunities is our casino in Caruthersville, Missouri, which has been a very strong performer in our original portfolio. We are currently in the planning phase of developing the land-based casino and hotel facility at Caruthersville, which will significantly enhance the guest experience and expand the reach and catchment area of the property. As soon as we firm up the plans and CapEx numbers, we will provide more detailed information about this exciting project. Now a quick look at our balance sheet and liquidity. As a result of our strong operating performance and careful management of CapEx, we are in a much stronger financial position today than pre-COVID. Net cash provided by operating activities was $7.5 million in the quarter based on $25.2 million of adjusted EBITDA, that's a conversion rate of 69%. Debt rate is driven in part by regulatory regimes in West Virginia and also in Canada, where the regulatory bodies pay for half to almost all of the slot machine and related CapEx. The strength of our operating performance means that our current cash position increased to $72 million at the end of June. With outstanding debt of $184 million, our net debt sits at $112 million as of June 30. Based on trading 12 months, the net debt to adjusted EBITDA ratio is a healthy 2.0. We have a well-maintained asset base that requires minimal levels of maintaining CapEx to sustain current levels of profitability. We have no substantial debt maturities before 2026. I'll now take a quick look at the performance of each operating segment, starting with Colorado. As you see, it was an excellent quarter for our properties in Cripple Creek and Central City; both casinos clearly outpaced even pre-COVID levels. The biggest difference is that our better players spend considerably more time on our floors and tables than before. Net operating revenue was up 37% over Q2 2019, and it was up 29% over the first quarter of this year. Adjusted EBITDA more than doubled compared to Q2 2019 and it was up 55% over the first quarter of this year. The EBITDA margin jumped to a second quarter record of 40%. The table limits in Colorado increased, and additional table games such as Baccarat allowed. As a result, the drop in our gaming tables was up over 30% compared to 2019. Moving on to Missouri, our most important market in terms of EBITDA and cash flow generation, and again, the result for the quarter was fantastic; growth in volumes on the slots and drop at tables continue to be at historically high levels. Net operating revenue was up 48% over Q2 2019, and it was up 11% over the first quarter of this year, and adjusted EBITDA more than doubled compared to Q2 2019 and it was up 12% over the first quarter of this year. The EBITDA margin in the second quarter was 50%, truly remarkable. Marketing spend continues to remain significantly below pre-COVID levels, and it's expected to continue at its current run rate moving forward. The reductions made in advertising, direct mail, and promotional expenses appear to be sustainable and have not had any negative impact on gaming volumes. A couple of weeks ago, we announced a pretty important breakthrough in Missouri with the change of a Missouri law that requires each casino to be a floating facility. Going forward, the Missouri Gaming Commission has the ability to approve a casino facility as long as it is located within 1,000 feet of the Mississippi or Missouri rivers and encloses a container with at least 2,000 gallons of water beneath the facility. This change opens the opportunity for our property in Caruthersville, which, by the way, is the last remaining riverboat casino on open water in Missouri, to move to a non-floating facility. In preparation for that, we purchased some parcels of land and a small existing two-story hotel. These land purchases provide strategic options for a future casino and hotel development and better access to parking. We have already started working with architects to develop plans for a new casino and hotel specifically. That will be a very exciting development with a target ROI of over 20%. Next is West Virginia, where we operate the Mountaineer Casino, Racetrack & Resort. Net operating revenue was down 6% over Q2 2019, but it was up 28% over the first quarter of this year. Adjusted EBITDA increased by 5% over Q2 2019, and it was up 72% over the first quarter of this year. These are very good results, especially because the temporary smoking ban was in place for the first part of the quarter, and you had to pre-screen and take the temperature of all guests until the middle of the quarter. It was only two weeks before the end of the quarter that the COVID restrictions were lifted. The F&B outlets are open with limited hours of operation. The convention space remains closed, and the hotel is operating with limited capacity. Because of its resort destination character, Mountaineer usually draws quite a lot of its business from customers staying for a night or two, which was challenging in the last 12 months. But now, for the last couple of months, we’ve seen a strong uptick in business, which we believe is directly linked to more people getting their vaccinations and feeling comfortable getting out of the house for short trips and overnight stays. We've started to see first indications that the regional destination business is returning. Hotel reservations have increased to the highest level in more than a year. Internationally, our operations in Poland were closed for most of the quarter. We reopened at the end of May. Business has been very strong since day one, with adjusted EBITDA averaging between $700,000 and $1 million per month. As reported, we are in talks with several parties about the sale of the Polish casinos. Three companies are on the shortlist, and detailed negotiations with them are ongoing. We are getting closer, but it's too early to predict the outcome of these negotiations. In Canada, we were closed for most of the quarter. We were allowed to reopen on June 10. For the first three weeks, we operated with restrictions including 25% occupancy capacity, social distancing protocols, and mandatory mask requirements. On July 1, the government relaxed COVID restrictions province-wide, eliminating guest occupancy limits, social distancing, and the mask requirement. Once again, there was strong demand from day one after reopening, and coupled with labor efficiencies, we are seeing increased EBITDA margins throughout our Canadian properties. In Canada, we also look forward to the arrival of online sports betting, which could provide significant upside for us in the province of Alberta, where we have four out of 28 licenses. That finishes the round of our operations. In conclusion, I'd like to say that the second quarter was another remarkable performance for our company and our entire team. Our nationwide portfolio continues to generate robust levels of EBITDA, and our operating strategy and tight focus on the right customers are producing the highest margins in our history. We do believe that our strong performances since reopening are largely sustainable. With almost all of our revenue coming from customers who live within a 1.5-hour drive from our properties, we have successfully executed a strategy built on our premium local customers. We will stay firmly committed to our operating strategy, driving increased EBITDA as a result of continued operating discipline and a tight focus on the right customer. Looking forward, the trends we saw across our businesses in the first and second quarters are continuing into July and early August. In fact, some of our Canadian casinos set all-time coin-in records in July. Finally, we're looking at a handful of possible acquisition opportunities, all in the U.S., to further broaden our footprint and leverage our successful operating model. 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 through these challenging times. I thank you for your attention, and we can now start the Q&A session.

Thank you, everyone. We will now begin the question-and-answer session. Our first question comes from David Bain with B. Riley.

Great. Thank you for the very nice results and exciting opportunity in Caruthersville. I guess first, maybe you could speak a little bit more to the M&A dynamic in the current environment, just assuming price creep out there. Is it still overall rational in your view? Are you seeing supply levels where you feel you can still do one acquisition a year as a goal, including this year?

Thanks, Dave. Yes, the M&A landscape is a little bit quieter compared to a couple of years ago, but there are some interesting targets out there. Obviously, the big question is valuation. That's really the one and only focal point. The targets are out there, and they're interesting, and they would also provide great upside for us and fit very well into our portfolio. To do one acquisition every 12 to 18 months is absolutely still our goal.

Okay, great. I have a couple more, but I know we're limited to two. I'm going to go with Colorado. I mean, looking at the early results post Amendment 77, the same trends that you cited. We've seen some capacity announcements in that market. Do you plan on reassessing the previous hotel room expansion or any other opportunities in Colorado to expand?

Erwin?

At this point, we do not plan to expand our capacity, particularly in Cripple Creek. We want to observe how the competition is performing with their expansions first. However, our approach in Cripple Creek is unique; we are constructing employee housing, which is expected to be completed in the first half of 2022. We believe this will give us a competitive advantage, as employment is a significant issue.

Okay, great. Thank you both again.

And your next question comes from the line of Jeff Stantial with Stifel.

Hey, good morning, everyone. Thanks for taking our questions, and congrats on a nice set of results here. I want to just follow up around your comments on the labor market. I wanted to drill in a little bit more here. Aside from Colorado, which I think has been historically a pretty tight labor market, are you having issues hiring across any of your other markets? And if so, how should we think about this dynamic relative to the margin profile you've been running over the past several quarters?

We experienced some pressure like everybody in the industry, but it's manageable. We don't think that whatever we do will have any significant impact on our results going forward.

Perfect, very helpful. Regarding the margin profile a bit more here, you talked about a demand-based decision to bring back some non-gaming amenities back online over time. Do you still expect certain amenities to stay out of the business permanently? What are you hearing from customers here? Are they fairly agnostic to things like buffets coming back, or is there an expectation that all those loss leader amenities come back once COVID is fully in the rearview mirror?

I think in the very short term, we feel that our customers are happy with what we're offering them now, even if it is significantly less than it used to be pre-COVID. This is an interesting phenomenon to see. We don't see any pressure, for example, to come up with buffets, keeping in mind also that same maybe very important for Vegas, it's a completely different situation in a local market.

All right, that's all for me. I'll pass it. Appreciate all the colors.

And your next question comes from Chad Beynon with Macquarie.

Good morning, guys. This is Jordan Bender on for Chad. I just want to revisit Colorado for a second here. In terms of the Maxbay, are you starting to see people come to the market that might have been going to other markets where they weren't limited on their bets, or are you willing to see that your core customers just spending more on machines or tables?

I think you're mainly referring to – yes, sorry? Yes. We see a couple of new customers coming in, but I should also say that we have taken a conservative approach with regards to the maximum bets that we offer. We don't want to expose our casinos to the risk of higher fluctuations. Some other casinos did, not all successfully. We decided to go slow and step by step. It is also a question of the training of our own staff; it's better to be a chance to get used to the higher limits. We see an increase, which is healthy, and we think there is more to go. Having said that, particularly in the Denver and Central City market, we do not think that we can or would like to compete with the large market participants there.

Thanks. And then in terms of how the COVID restrictions impacted results in the quarter. The margin expansion you're seeing there isn't quite up to what you're seeing in terms of a basis point growth versus your other markets. As the restrictions loosen there, do you expect to start to see that market grow margin a little bit more, I guess, to the upside disproportionately to your other U.S. outfits?

I didn't hear the first time; which market are you asking about?

West Virginia.

In West Virginia, as Peter mentioned earlier, the situation is such that our customers are, to quite an extent, also coming from neighboring states. So whatever happens here is also impactful or maybe impactful to our casinos. We have been burdened by COVID restrictions up until quite late in the quarter when everything has been lifted. Since then, we see our volumes really shooting up, and again, as Peter said, July looks very friendly and very positive. We think it’s very well possible that we can exceed pre-COVID levels rather quickly. Again, with regard to the mix of the gaming, people seem to be happy with what they find.

Awesome. Nice results. Thank you.

Thank you, Chad.

And there are no further questions at this time. I'll now hand the call back over to Peter for closing remarks.

Thank you, everybody for your interest in Century Casinos and 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. You may now disconnect.