Welcome to Century Casinos Q4 2021 Earnings Conference Call. This call is being recorded. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. I would now like to introduce our host for today’s call. 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 we 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 results of the fourth quarter. And after that, there will be a question-and-answer session. Our fourth quarter results continued the streak of record-breaking performances that we have seen throughout the year. Revenues exceeded the same period last year by 27%. Adjusted EBITDA was 36% higher. Most of the EBITDA growth came from our casinos in the US, but also from Poland. Despite our record performance, it could have been even better. Canada had a difficult quarter because proof of vaccination was required to enter the casinos, and we were not allowed to serve liquor after 11 PM, which significantly slowed traffic. Thankfully, these restrictions have now been lifted, and we are already seeing a nice rebound. Our other operations were also impacted by the Omicron variant and COVID-related restrictions, as well as some supply and labor shortages. But our team successfully navigated through all of that and delivered great results. Our stronger performance is the result of a disciplined operating philosophy and effective targeted marketing for our high-value customers. Our cost structure is more streamlined, and our marketing and promotional investments are more targeted, translating into increased spend per visit, especially from our most valuable players. The promotional environment in all our markets remains disciplined and rational. And where labor is tight in some markets, we've been able to maintain our highest standards of guest experience. Our business is largely gaming-centric. Only a minority of our revenue is coming from non-gaming amenities, and we will only open more non-gaming amenities or expand the opening hours as demand increases further so that it grows in a profitable way. The geographic diversity of our portfolio with locations in hyper-local drive-to markets, with a loyal customer base has proven extremely resilient in light of the pandemic. We will continue focusing on the right customer, enhancing customer convenience, building loyalty, streamlining processes, and reinforcing our operating efficiency through new initiatives and technology. Sports betting and iGaming have both been profitable for us since day one, but early on, we decided not to participate in the costly race for customer market share. We took a zero investment and zero-risk approach, meaning we simply provide our license to specialized sports betting companies. They pay us a revenue share with a minimum annual guarantee that goes straight to our bottom line. We have no cost against it. Our two properties in Colorado, in Cripple Creek and Central City, increased EBITDA by 14%. The EBITDA margin was 35%. Two out of the three sports betting licenses we have in Colorado are already operational. The third one with bet365 as a partner is anticipated to go live next quarter. In Missouri, which is our most important market in terms of EBITDA and cash flow generation, we grew EBITDA by 23%. The EBITDA margin increased from 42% to 45%, even as we increased some wages above the hourly minimum wage to remain 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 maintain its current run rate moving forward. 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 open road in Missouri, on land to become a non-floating facility. We also 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. The savings on insurance alone will be around $50 million per year. It will also be significantly more convenient for our customers and increase our catchment area, allowing us to win back customers who didn't like the old riverboat style during their first visit. We expect to open that new facility in early 2024. In Cape Girardeau, we're developing a 75-room hotel that will transform the property into a full resort destination with gaming, various bars and dining venues, as well as conference, concerts, and event spaces. This hotel is slated for opening at the end of next year. Another opportunity for growth in Missouri is sports betting. While it has not been legalized yet, there's a good chance it will be this year, which would be very beneficial for us. In West Virginia, our Mountaineer Casino, Racetrack & Resort had a great quarter. EBITDA was up 34% over Q4 of last year. We continue to make incremental investments into the property, such as refurbishing several food and beverage outlets and upgrading the grand entrance experience. We also reconfigured several areas of the slot floor and introduced new and additional slot products, as well as a new VIP gaming area. Hotel enhancements include new windows, new bathrooms, larger TVs in the hotel suites to attract higher-value players and a complete makeover of the outside pool. Internationally, our operations in Poland generated excellent results. Revenue was up 67% and EBITDA turned to a positive $3.2 million for the quarter. All our casinos over there are doing well, even without any meaningful business tourism. In fact, revenue over the last couple of weeks was at an all-time high. In Canada, we experienced severe restrictions during the quarter, as previously mentioned, whereby all visitors needed to provide proof of vaccination. Everybody was also required to wear face masks and casinos were restricted from serving liquor after 11 PM. As a result, adjusted EBITDA was down 15%. However, as mentioned, this restriction was lifted last week, and as a direct consequence, results are improving again, actually up by more than 20% in just the first couple of days. Let's now cover our balance sheet and liquidity. As of the end of December 2021, we had $108 million in cash and cash equivalents and $189 million in outstanding debt, resulting in a net debt of $81 million. A year earlier, our net debt was $130 million, which means we generated $49 million in free cash over the last 12 months. Our strong free cash flow generation is driven by an efficient and prudent CapEx spending program at our properties and favorable regulatory regimes in West Virginia and Alberta, Canada. Overall, we maintain a well-kept asset base that requires minimal levels of maintenance CapEx to sustain our current level of profitability. We've always held a conservative leverage profile, and we anticipate remaining conservative in the future. And now to the most recent and exciting news: our announcement to acquire the Nugget Casino Resort in Reno Sparks, Nevada. Two weeks ago, we entered into a definitive agreement to acquire 50% of the Nugget Property Company and 100% of Nugget’s Operating Company for a combined total purchase price of $195 million. In addition, we have a five-year option to purchase the remaining 50% of PropCo for $105 million plus 2% per year. In connection with that transaction, we've received a firm commitment from Goldman Sachs for a $350 million senior secured term loan and a $30 million senior secured revolving credit facility. We expect to close the purchase of 50% of the property company next month in April, and from that time on, we will receive $7.5 million in rent, which is our half of the annual rent payment flowing from the operating company to the property company. We will close the operating company purchase as soon as we get the Nevada Gaming license, which is expected to take nine to twelve months. From then on, we will get all the EBITDA, and we will pay the operating company rent to the property company, half of which we obviously pay to ourselves. In 2021, The Nugget generated $33 million in EBITDA on revenues of $100 million. We see upside to these numbers, mainly for three reasons. First, during the first half of 2021, there were no conventions or concerts, which normally are very profitable parts of Nugget’s business. Secondly, we anticipate creating synergy effects when we integrate The Nugget into our North American operations portfolio. Finally, we have already identified various opportunities to improve operations, mainly on the slot floor, which is our most profitable area. Here’s some key data about The Nugget Resort: 50,200 square feet of casino floor, 859 slots, 29 tables, 1,382 rooms and suites in two hotel towers, a variety of casual and fine dining restaurants, 110,000 square feet of convention space, and a very popular amphitheater with 8,555 seats. The Nugget is perfectly located directly off I-80 with excellent access for customers arriving by car. The traffic count at a nearby intersection is an astounding 260,000 cars per day. Here are the top ten reasons why we love The Nugget. First, we are purchasing an existing operation with a long operating history, meaning we have no development risk, no risk of construction delays, and no risk of cost overruns. Second, The Nugget is in a prime location, receiving unparalleled exposure in the Reno-Sparks market. Furthermore, the combination of hotel rooms and convention space, with 110,000 square feet, gives The Nugget the largest convention facilities of any hotel casino resort in the area, along with sufficient rooms to support large conventions. From the previous owner, the Marnell companies, we benefit from over $90 million invested since 2016. This investment included upgrading all hotel rooms, improving most public areas, developing a top-notch steakhouse, and upgrading or replacing essential fixtures and equipment. Thus, we do not expect any significant capital expenditures in the upcoming years. Additionally, a new 8,555+ seat amphitheater provides us with excellent marketing opportunities. The Nugget’s gaming floor presents opportunities for growth; we can further improve the mix of slots, enhance traffic flow, and increase square footage. The Nugget boasts a database of 80,000 active players, which we will market efficiently. The acquisition offers great potential for synergy effects as we integrate this standalone property into our portfolio of 17 casinos. The seller, Anthony Marnell III and his team, are providing excellent transition support. Finally, we value The Nugget's management, which is outstanding; we want them to stay and continue growing with us. Regarding the broader market dynamics, there is substantial economic growth in the Reno-Sparks area, with companies like Tesla, Google, SwitchData, Amazon, and Apple relocating and bringing tens of thousands of jobs. Consequently, population growth is surpassing the national average, and personal income per capita, already over $72,000 in 2021, is projected to grow further at a CAGR of 4%. Not surprisingly, the unemployment rate is only 2.9%. We also find great merit in the Nugget transaction as it considerably increases our scale. Our revenue is expected to grow by over 25%. Additionally, it enhances our geographic diversity, significantly reducing our reliance on any single market or property. Pro forma for the Nugget transaction, we generate cash flows from 18 properties across seven different markets in North America and Europe, with no single property contributing more than 25% to our total EBITDA. This diversification aligns with our strategy to mitigate reliance on any one market. Our team has a proven track record of enhancing the performance of the properties we acquire; in fact, we have improved the results of every property acquired within the first six to twelve months. When we acquired the three casinos from Eldorado Caesars, known for their disciplined and efficient operations, we saw a quick increase in revenue and EBITDA, even before COVID-19 had any effect. We achieved this by listening to local management and focusing operations on the more profitable revenue centers. Following the successful acquisition and integration of these three properties over the last few years, we are excited to replicate this success, potentially even better, with the Nugget transaction. In conclusion, the fourth quarter was another outstanding performance for our company overall. Our diversified portfolio continues to generate robust EBITDA growth while our operational strategy and focused marketing towards the right customers produced strong, sustainable margins. We will continue to execute our business plan by growing organically and identifying and acquiring under-managed assets and stable drive-to markets in the US. In our M&A strategy, we will remain prudent regarding pricing and valuation, continue to dedicate resources to capture synergies, and allow time to digest acquisitions to recognize their value. With that disciplined approach and our strong balance sheet, we are confident in discovering further opportunities to deploy capital effectively to consistently build shareholder value. On behalf of the company's management and Board, I would like to thank our team members, guests, and stockholders for their loyalty and enthusiasm as we manage our business during these challenging times. Thank you for your attention, and we can now start the Q&A session. Operator, please go ahead.

Your first question comes from the line of David Bain with B. Riley. Please state your question.

Great. Thank you and congratulations on the latest acquisition. I think it's a great market. A very exciting milestone for Century. Peter, you did a good job of outlining the structure. But if we can take a moment to review, you take over 50% of PropCo next month and you'll begin to receive about $1.9 million per quarter in rent, which will flow directly through to EBITDA. Upon Nevada approval, let's call it at the beginning of next year, you will get the full EBITDA trailing twelve, $33 million less $7.5 million in rent. But that doesn't include certain shows and events that you previously outlined, as well as some benefits from structural upgrades and potential cost synergies from mergers. Is that a correct summary?

Yes, absolutely, Dave. That's the correct picture.

Okay, perfect. It appears there's a lot of growth and synergies identified revenue and cost-wise. I know you're not quantifying it today, but are you seeing any material potential increases versus that $33 million at this point, or can you provide any further detail?

Erwin, can you comment on that?

Yes, the short answer would be yes; we see material possibilities and upside. To give you just two examples, as Peter mentioned, already, the slot floor provides significant upside potential. The average age of the machines is rather old, and we know that bringing new products will help revenues immensely. The second thing we want to do is, when you look at the EBITDA of the five large properties in Reno, there is only one that is not literally fully utilized. We think that the number of cars that Peter mentioned before—260,000 per car—makes it sensible to invest in good signage and lighting for our facilities. These are just two examples, and of course we could go on, but that’s how I see it first.

Right. And my second follow-up, if I could. I know you've addressed this in the past. Peter, given the macro or geopolitical environment, are you still not seeing any pockets where rising oil costs might have a material impact, in either direction, throughout the portfolio?

If I may take it. No, you know, oil prices have been going up and down over the years. When oil prices increased, we never noticed a negative impact on business. Conversely, when oil prices decreased, it was the opposite; it didn't affect us adversely either. The only thing to mention is regarding our facilities in Alberta, Canada—higher oil prices boost the economy, which is good for us.

Okay, very good. Thanks, guys. I appreciate it.

Thanks, Dave.

Your next question comes from the line of Chad Beynon with Macquarie. Please state your question.

Hi, good morning. Thanks for taking my question. Peter, I wanted to start with Poland. You said that the fourth quarter was very strong, and you mentioned that the past couple of weeks revenues have continued to be robust even without any international inbound tourism. Given the current situation in Ukraine and Russia, I just wanted to get a better sense of what you're seeing on the ground and how your consumers are reacting day-to-day?

It's unfortunate, but we see only positive impacts so far. There are more people in Poland than before, and while I'm not sure if that is related, the effect has been positive. We don't know exactly what is driving the increase in revenues.

I think it's mainly just pent-up demand. We faced so many restrictions for an extended period, and people are thrilled that they can finally go in unrestricted again, which explains the activity in Poland. Also, I want to mention that all of our casinos are located west of Warsaw and Vladivostok. Therefore, we are quite far away from the border to Ukraine.

Okay, thank you. Also, on Poland, do you have any thoughts on the more slot licenses, which I believe are up for renegotiation in 2022? Given the Nugget acquisition and some other cash needs in the United States, how are you thinking about rebidding in that market?

Chad, when we apply for new licenses in Poland, there's absolutely no investment necessary. It's all done based on qualitative criteria. We will simply continue paying rent at the properties at the hotels where we have our casinos. Right, Erwin, do you want to add something?

No, no, it’s okay. I was about to say the same thing.

Yes, so there is no investment required to obtain a new license.

Okay, great. Lastly, just a follow-up to David's question regarding the PropCo and OpCo Nugget structure. Can you explain why the 50% made sense? How should we consider the likelihood of taking everything in-house versus potentially selling part of it off your balance sheet?

Thanks, Chad. Ultimately, it was the result of a negotiation. We very much like that structure because it gives us a lot of flexibility. We will control the entire resort. We can close on the option to acquire the remaining 50% at any time at a fixed price, but we do not have to. This structure allows us to consider our CapEx needs; we can explore other M&A options, and if we find one, we can evaluate our cash position and determine if we want to use the funds for acquiring the 50%. Theoretically, we could also sell our 50% in the Nugget and just keep the OpCo. Nonetheless, as of today, we really like the Nugget and intend to acquire the remaining 50%.

Okay, great. Thanks, and congratulations on the acquisition.

Thank you.

Your next question comes from the line of Jeff Stantial with Stifel. Please state your question.

Hey, good morning, Peter, Erwin. It's great to hear from you both. Thanks for taking my questions. I wanted to start with the two projects in Missouri. It looks like the total project cost has increased a bit since the last time we spoke. Can you talk about your degree of comfort that these costs are where they should ultimately land, or should we expect potential increases?

Erwin, do you have something on that?

What’s the question? Are you asking whether we think it’s going to be more costly?

Yes, I think since the last time we provided numbers, they were about 5% lower. I think we added some facilities and altered the design of the Missouri hotel tower. So, the numbers we provided now are the most recent ones, and we have high confidence in them, right?

Yes, right.

To clarify, this is more due to design adjustments rather than inflationary pressures?

Yes, we modified the design here, Jeff.

Perfect, that’s really helpful. Switch gears now—but the margins look encouragingly stable in the US quarter-on-quarter, aside from some seasonality in Colorado. Can you frame how we should think about the margin profile entering this year, considering potential lower margins but EBITDA accretive non-gaming revenues to tick back up?

Erwin?

All-in-all, we believe we can maintain the margins we had in 2021. While it hasn't been easy with the labor market, we believe the worst is over. We are in good shape in most departments, except perhaps in food and beverage and housekeeping, but that is not an urgent problem anymore.

Okay, great. Very helpful and encouraging. Thanks, guys.

Thank you, Jeff.

Thank you.

Your next question comes from the line of Edward Engel with ROTH Capital. Please state your question.

Hi, thank you for taking my question. Back to Poland, do you think the geopolitical issues in that part of the world will impact your timing or ability to divest some of those assets?

We don't know yet. We have two companies that are currently considering that. They're seeing the results are very strong and they're getting stronger day-by-day. So, as of now, we don’t see any change in the situation.

Great. And regarding St. Louis, are there any benchmarks or hearings we should be monitoring to track the progress of that lawsuit?

I am not fully sure about that. I can follow up with you. What I know is that we oppose what the city of St. Louis wants to accomplish. Separately, with broad political support, we have introduced a separate team to advocate for our project—bringing the riverboat on land, which is a much safer option for everyone. This effort has garnered substantial support and is progressing through the committees. We expect to see some progress by the end of this legislative session in May.

Great. Thanks again, and congrats on the Reno transaction.

Thank you, Ed.

At this time, there are no further questions. I would now like to turn the floor back to Mr. Hoetzinger for any additional or closing remarks.

Thank you, and 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 everyone, and goodbye.

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