Welcome to Century Casinos, Q3 2021 Earnings Conference Call. This call will be recorded. At this time all participants are in listen-only mode. Later we will conduct a question-and-answer session. I would like to introduce our host for today, Mr. Peter Hoetzinger. Please begin, sir.

Good morning, everyone. And thank you for joining our earnings call. With me on the call is 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. We undertake 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 findings. 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 cmtvy.com. I will now provide an overview of the third quarter results. After that there will be a question-and-answer session. Our results for the third quarter have been truly outstanding. Revenues exceeded the third quarter of last year by 22% and they doubled compared to 2019. $817 million, we set the new all-time revenue record for the second consecutive quarter. Very strong flow-through and the consolidated margin of 28% resulted in adjusted EBITDA of $33.1 million for the quarter, which is a new all-time record for the company. That is 49% higher than the EBITDA of Q3 of last year. Sequentially, it is 31% higher than the EBITDA of the second quarter of this year. Considering yesterday's reaction to the stock market, let me point out that our sequential revenue and EBITDA growth of 27% and 31% respectively, are some of the largest, if not the largest, improvements of Q3 over Q2 numbers of any listed gaming company. And on top of that, we also generated sequential margin improvement. Our EBITDA margin in Q3 was 95 basis points higher than our margin in Q2. And one more thing, sports betting and iGaming are profitable for us. And they have been profitable since day one. All right, now let's move on. Our great Q3 performance is the result of a disciplined, cost-focused operating philosophy and effective targeted marketing to our high-value customers. The quarter showed continued strength and momentum across all our local and regional properties and businesses. We saw impressive growth with increased visitation, more time on device, and higher spend per visit across our database and our markets. We continued to benefit from strong regional demand and the preference for close-to-home entertainment. All of that has improved visitation as well as spending levels in 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 promotional investments are more targeted, which translates into increased spend per visit, especially for our most valuable players. We achieved record operating results and margins despite some pressure from the challenging labor market and other cost inflation resulting from supply chain disruptions. Our local management teams are doing a great job dealing with inflationary pressures, whether it be on cost of goods or wage inflation, and we're not seeing it having a meaningful impact on margins. On our busy weekends, we have been able to manage the labor shortages and operate the hotels and F&B outlets at full capacity. During the week, however, due to labor shortages, we had to operate some of our hotels below the available room capacity. As a result, we have not always been able to accommodate all rated customers. But as the labor market normalizes, we will be able to bring more hotel rooms online, capturing even more gaming revenue growth from these customer segments. Our business is largely gaming-centric. Only a minority of our revenue comes from non-gaming amenities, resulting in an overall lower cost structure. As we open more non-gaming amenities or expand the opening hours as demand picks up further, that should grow in a profitable way. Regarding the sustainability of our high operating margins, we have not observed any significant impact from our competitors' more aggressive marketing, despite the resurgence of other entertainment options like Las Vegas. The competitive environment has largely remained stable over the past couple of quarters, as most of our competitors are maintaining discipline and focusing on cost control. We will keep prioritizing the right customer base, improving customer convenience, fostering loyalty, streamlining processes, and enhancing our operational efficiency through new initiatives and technology. A prime example is our mobile application, the Winters’ Zone app. This app allows us to send tailored exclusive offers to our customers based on factors such as tier, location, and their last visit date. It provides direct messages, the latest promotional information, current tier level and benefits, point balances, point values, property amenities, drawing entries, and current offers. The app has already been successfully launched in a few areas and will soon be available in Colorado. It offers great convenience for our customers and opens up numerous opportunities for us to boost customer loyalty while significantly reducing direct mail and related costs. Revenue from iGaming, sports betting, and pari-mutuel betting continues at a strong pace. As you know, we've partnered with experienced companies to run these operations without any significant investment from our side whatsoever. That may limit the upside potential in a very optimistic scenario, but we believe this approach is the prudent one for us, at least currently, proving an efficient use of our capital. Beyond these digital initiatives, we're also excited about additional growth opportunities available throughout our operations, most notably in Missouri. More about that in the mystery segment shortly. Let's now cover our balance sheet and liquidity. Today, we are financially a much stronger company than at any point in our history. Net leverage at the end of the quarter was 1.4 times and is expected to further decline by year-end. The strength of our operating performance has increased our current cash position to over $100 million. With outstanding debt of just $182 million, our net debt sits at $81 million as of September 30. We have a well-maintained asset base that requires minimal levels of maintenance CapEx to sustain the current levels of profitability, and with no substantial debt maturities before 2026. Next, a brief summary of the performance of each operating segment starting with Colorado. It was an excellent quarter for our properties in Cripple Creek and Central City, with both casinos clearly surpassing 2019 and 2020 levels. Net operating revenues were up 36% over 2019 and it was up 20% over last year. Adjusted EBITDA more than doubled compared to 2019 and was up 4% over last year. The EBITDA margin remained very strong at 40%. The combined market share of our Central City and Cripple Creek properties increased by 350 points. To further solidify and strengthen our competitive position in Cripple Creek, we have decided to provide high-quality employee housing. We will build housing for up to 30 of our current and future employees, and expect to have their apartments ready by September of next year. Moving on to Missouri, our most important market in terms of EBITDA and cash flow generation. Again, great results for the quarter. July had one of the highest monthly table drops in property history, led by strong volumes. July and September set monthly records for those months. Net operating revenues were up 24% over Q3 of last year, and adjusted EBITDA increased by 38%. The EBITDA margin was 45%. Even so, we increased wages on top of the hourly minimum to stay competitive in the Southeast Missouri area and help attract and retain high-quality team members. Marketing spend continues to remain significantly below pre-COVID levels and is expected to continue at its current run rate. Actions in advertising, direct mail, and promotional expenses appear to be sustainable and have not had any negative impact on gaming volumes. We’ve announced two important developments at our Missouri properties. We plan to bring the Carousel Casino, which is the last remaining riverboat casino on the open road in Missouri, onto land to a non-floating facility. We plan to build a hotel at our property in Cape Girardeau. In Crossville, the new facility will include a newly designed casino with approximately 20% more gaming positions and 75 hotel rooms in total. The new development will provide significant operational efficiencies, as well as substantially more convenience for our customers. It will increase the catchment area and also give us a chance to win back customers who didn't like the old riverboat style when they paid us their first visit. In Cape Girardeau, we will develop a nine-storey, 75-room hotel building that will be singled noted so that all hotel rooms will have scenic views of beautiful Cape Girardeau and the Mississippi River, including the iconic Bill Emerson Memorial Bridge. With this hotel development, Century Casino Cape Girardeau will become a full resort destination, providing operations for individual and group smarter day visits for gaming, dining, conferences, concerts, events and more. Total CapEx will run at about $68 million for both projects. In terms of timing, we don't have clear visibility yet but we aim for openings in late 2023 or early 2024. Next is West Virginia, where we operate the Mountaineer Casino, Racetrack & Resort. Net operating revenue was up 12%, and adjusted EBITDA was up 23% over the third quarter of last year. These are really great results, especially considering the Mountaineer Resort destination character. It usually draws a lot of its business from hotel stays, which have been somewhat limited due to staffing challenges and other restrictions. The F&B outlets are open but operating with limited hours. The convention space remains closed. And on top of all that, we increased wages in July. So considering all these factors, a 23% uptick in EBITDA is really exciting. And we have high hopes for a strong finish to the year. Internationally, our operations in Poland generated solid numbers. Adjusted EBITDA was just under $3 million for the quarter, fueled by a strong performance of the casinos outside the capital city of Warsaw. We do however, expect the Warsaw casinos to come back quite strongly in Q4 with international tourist business and convention business just starting. And in Canada, we operate with restrictions. Our guests need to provide proof of vaccination or a negative COVID test taken a maximum of 72 hours before entry. Also, everyone is required to wear a face mask. Despite those challenges, net operating revenue almost reached 2019 levels and adjusted EBITDA surpassed 2019 results by 56%. All properties contributed to that EBITDA growth, and I'm happy to report that the increase was highest at Century Mile Racetrack & Casino. That finishes the roundup of operations. We are very optimistic going forward as the recent trends have continued relatively consistently into the fourth quarter. We expect a significant portion of the cost savings to prove permanent. We have multiple avenues for continued growth, as well as confidence that this level of performance is sustainable and that we will maintain much of the margin improvements we have achieved over the last 12 to 18 months. As the pandemic continues to fade, additional visitors will return to our properties. And as the labor market normalizes, we will be able to bring more hotel rooms and other amenities online, increasing our capacity to host profitable customers, thus increasing our revenue opportunities. In conclusion, the third-quarter performance was remarkable for our company and our entire team. Our entire portfolio continues to generate robust EBITDA growth. Our operating spreadsheet and tight focus on the right customer are producing the highest margins in our history. On the M&A front, we are looking at a handful of possible acquisition opportunities all in the U.S. to further broaden our footprint and leverage our successful operating model. We've always been strategic and value-oriented in pursuing acquisitions, and that will not change. With that discipline and our strong balance sheet, we are confident to find opportunities to deploy capital in a manner that consistently builds shareholder value. 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.

First question is from Jeff Stantial.

Hey, good morning. Thanks for taking our questions and congrats on a nice set of results here. For my first question, we've talked a lot this earnings cycle about trends here in the U.S. So I wanted to focus on the international ops for a second. Can you talk a bit about the month-by-month cadence of performance for Canada and Poland? Has it been fairly stable since their respective reopening or have you witnessed any acceleration or deceleration? Just curious to hear your thoughts there.

Yes, it has been quite stable and aligns well with various metrics. As Peter mentioned earlier, in Canada, we have certain restrictions in place such as mask mandates and proof of vaccination requirements. This does slow down growth a bit. However, we've observed that people are becoming accustomed to vaccinations, wearing masks, and testing. With more individuals vaccinated across different regions, customers who were previously hesitant to visit now feel more secure. This has led to increased visit frequency and longer stays. Overall, we are experiencing growth in all areas, with the exception of a few COVID-related restrictions that slightly limit the pace of growth.

Okay, perfect. And then for my follow-up, Peter, any update you can provide on the Poland sale? And then on the M&A environment you’ve talked about in the U.S., how does the seller expectations feel relative to kind of the last few quarterly earnings? And that's all for me, thanks.

In Poland, that sales process continues. It runs, but it runs quite slowly. Several parties are showing interest on and off basis. We are finding ways; these operations are quite valuable. They produce nice results. Overall, they’re getting smaller and smaller relatively because they are now about 9% or less than 9% of our consolidated EBITDA. So that's the situation there. On the M&A front in the U.S. I think it's slowly starting. You've heard Tom Rigg say they're interested in selling. It's starting, always in Vegas. I mean, MGM is selling the Mirage, so it's starting. And yeah, in terms of valuation, you can talk about market buzz all day long. It always depends on which EBITDA you apply. So it's a combination of finding the right multiple and agreeing on an EBITDA to apply. But we see slowly but surely more and more properties becoming available.

Okay, correct. Very helpful. Thank you both. I'll pass it on.

The next question is from David Bain.

Great. Thank you. Very nice quarter. A lot of the big questions were addressed. But maybe we can drill down a little bit on the imminent M&A environment that, Peter, you were just speaking to. Understanding valuations tightened a little bit, and you’ve always been sensitive on that front. It seems like through earnings season, the larger companies you mentioned, one of them being increasingly focused on sort of the virtual gaming world and spending larger amounts there. I mean, could that open up baskets of sellers more? Are you hearing of new product potential? Sounds like you were to that end. Can we see property baskets? I know you were looking at, I believe, 15 up to maybe $60 million of EBITDA, but given your cash accumulation, and some of the larger ones potentially looking to loosen their portfolios a little bit. Are you not seeing that type of product at this point?

Yeah, we're starting to see that. Absolutely. And, yeah, the only businesses that pay roll. Because surely, most of the larger companies with a large footprint throughout the U.S., they do want at least one property in a state to secure an online license in that state. But should they have more than one in the state, more likely some of those will become available. So this is what we're seeing from pretty much all of the larger companies.

Okay, great. And then I know this was somewhat addressed as well, but maybe just kind of reiterating or drilling down on Canada. Because that was a nice outperformance versus what we were anticipating. Maybe, looking at the U.S. reopening, has that sort of reincarnated? And, are you seeing anything that would give you the sense that we wouldn't expect those same tailwinds to be sustained like they have here? And maybe just a tad on energy prices for the portfolio in general, both domestically and Canada; is that something that's on the radar or is that typically not something that historically has caused too much volatility?

Erwin?

I believe I mentioned earlier that further growth will be supported by the easing of COVID restrictions, which is now mainly dependent on the improvement of the situation. This indicates potential for growth since we do not anticipate these restrictions lasting indefinitely. We are optimistic about Canada and the growth opportunities it presents, and we expect to reunite once the restrictions are lifted.

Anything on energy prices there in the U.S.?

It does not affect us. In Canada, it doesn't affect us significantly.

Okay. All right. Well, great quarter again. Thank you very much.

Your next question is from Kenneth.

Great quarter. I think most of the questions were answered, but I was wondering if you could provide a percentage estimate regarding how much social distancing still limits your ability to generate full revenue from all your casinos. How much do you think the business would increase if these restrictions were lifted?

Yeah. I have that in mind. But I think it's problematic to speculate on that. It's really hard to say. One way to look at it is by observing our pre-COVID levels. The first goal is to look at revenue-wise to come back to the pre-COVID levels and then gradually to surpass them. At the same time, with the costs that are already in place, keep the EBITDA and EBITDA margins.

And also, at some of our casinos, we do not have all tailgate positions open, which on a busy weekend has a negative effect. But we do not have detailed ends in terms of percentages yet.

Okay, thank you very much.

Your next question is from Colin McDonnel.

Hi everyone. I appreciate the opportunity to ask my questions. A few weeks back, one of your competitors, Boyd, shared an interesting statistic. They mentioned that their workforce was around 24,000 before COVID and has decreased to about 14,000. They anticipate that only 1,000 or 2,000 employees will need to return for the casinos to operate at full capacity. Do you have any similar information to share that could help us understand the fixed cost structure of the casinos for the coming year?

If we don't have that at hand, we could try to get it to you later.

I think that would be very helpful. Looking at the street estimate on FactSet for this year, it’s $66 million and for next year, it’s $88 million. Your numbers show $91 million of EBITDA in the last 12 months. Is there something that the street is missing or not communicating? It seems like you are set to exceed those numbers, and I’m trying to understand if I’m overlooking something.

Yeah. I think they wanted to be conservative. I'm sure they will update their numbers after this quarter. And but other than that, we don't give guidance, so obviously we understand there.

But is there any significant reason that Colorado, Missouri, or West Virginia would have a worse year next year than this year?

No. We don't see any significant reason.

Okay. Very helpful.

We think that is upside.

Great. Okay. Well, thank you for taking my question.

Thank you.

And next question is from Chad Beynon.

Good morning. This is Jordan Bender on behalf of Chad today. If you look at M&A, would you look to use or continue to use a REIT to possibly go bigger? And I guess what would your optimal capital structure look like? And where would you want to bring leverage?

Our goal is to grow not only in absolute revenue and EBITDA numbers, but also in property size, yes. Currently, we have three in the U.S. that we acquired from Eldorado Caesars on an OpCo. Two in Colorado are PopCo. and mostly Canada is also owned by us. So that's a good mix. We don't have a clear call that we won't go below a certain percentage, so I think we could easily add another OpCo or HoldCo. We're fine either way. We do not need to own the asset, but we’re comfortable owning some. It's really more on an opportunistic basis. For us, it's more important how we like the asset, how we like the market, the competitive environment, the regulatory environment, and the specific location asset; those are the things that are far more important to us than whether we buy the HoldCo or other OpCo.

Poland performed better than we expected in the quarter, with revenues exceeding 2019 levels. You mentioned that the casinos outside of Warsaw performed particularly well. Can you discuss how the casinos within Warsaw are performing as we consider the model for this segment going into 2022?

Okay.

That’s two Warsaw at the Marriott and Hilton, and the others outside of the country. Historically, the Warsaw market is much stronger in absolute numbers than the six outside of Warsaw combined. So any uptick in the Warsaw properties has a meaningful impact on the overall Poland numbers.

Right. Anytime I think, and if I'm accurate, we are looking at what is happening in the first quarter where we are very optimistic in that direction. We see that the business customers are coming back as the Marriott and Hilton both have much higher occupancy and also guests tend to come to our casinos. So we're confident that in the next days, Warsaw casinos will follow the same trend as the casinos in the countryside.

Awesome. Nice quarter. Thank you.

And that question is from Daniel Lang.

Hi guys, nice quarter. I was just wondering if there's any update on the Poland strategic review processes. Is the company sort of committing to the region at this point or any discussions there?

We have indicated that Poland is no longer a core operation for us. It accounts for about 9% or less of our consolidated EBITDA and consists of eight small operations. Although it is generating solid EBITDA and cash flow with high returns on our investment, we do not include Poland in our long-term plans. If we receive a favorable offer, meaning it holds significant value for us, we would consider selling it. If that value is not realized, we are content to retain it.

At this time, there are no further questions.

Thank you, everyone, for joining our call today. For a recording of the call, please visit the financial results section of our website at cnty.com. Stay well and goodbye.

That concludes today's conference. You may now disconnect.