Greetings, and welcome to Century Casinos' Q2 2022 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 now 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 several 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 Investors section of our website at cnty.com. I'll now provide an overview of the results of the second quarter. After that, there will be a Q&A session. Our second quarter results continued the streak of record-breaking performances that we have shown throughout last year. We generated record second quarter revenue and record second quarter adjusted EBITDA. Revenue was up 21%, and adjusted EBITDA grew 18% compared to the second quarter of last year. Basic earnings per share for the quarter were $0.30. We recognized two items that impacted our net earnings attributable to shareholders this quarter. First, due to the prepayment of the Macquarie credit agreement, we wrote off $7.3 million in deferred financing costs to interest expense. And secondly, we released a $10.2 million U.S. valuation allowance resulting in an income tax benefit. Even so, last year's second quarter performance was heavily fueled by government stimulus payments, and even so, we are now facing higher costs compared to last year, we still managed to maintain the same 27% EBITDA margin. On a sequential basis, comparing to Q1 of this year, revenue was up 8%, and adjusted EBITDA was up 25%. The continued focus on our core customer and a streamlined cost structure contributed to the strong results and margins, and allowed us to continue our operating momentum from previous quarters. The promotional environment across all our markets remains relatively stable; I'd call it disciplined and rational, for the most part. Not much has changed in the last several quarters. Marketing spend continues to remain below pre-COVID levels, and is expected to continue at its current run rate moving forwards. Reductions in advertising and promotional expenses appear to be sustainable and have not had any negative impact on gaming volumes. In spite of some macroeconomic challenges, we've not noticed any meaningful shift in customer behavior as we look at July and into August. The customer trends we experienced in the first half of the year seem to be continuing. The geographic diversity of our portfolio, with locations in hyperlocal drive-through markets with a loyal customer base, has proven extremely resilient, not only considering the pandemic, but also considering changes in oil prices and the CPI. We have high confidence in the underlying trends of our customers' behavior; it has not changed since we reopened two years ago. Our U.S. operations in Colorado, West Virginia, and Missouri saw an 8% revenue decline over Q2 of last year. The main reason for this is the stimulus payments our customers received last year, which greatly supported last year's results, particularly in Missouri. While other Missouri casinos fared better when comparing with last year, a closer look at the Missouri results reveals that our properties have done better than most if we compare current results to pre-COVID times. Our Missouri locations were less impacted by COVID restrictions in 2021 because the restrictions ended, or were limited, in late 2020 or early '21. And with the government stimulus money released also at that time, our casinos saw extraordinary growth last year. Therefore, as stimulus money was exhausted, our casinos did not carry that record-breaking volume of last year into this year. Most of the other casinos in Missouri and Illinois continued significant COVID restrictions throughout the entire 2021. Those casinos were unable to generate the maximum benefit from the stimulus payments and continued with little revenue growth last year. Through these properties, operations normalized this year and therefore revenue numbers increased over '21. So, all in all, regional casinos performed differently last year. While we experienced a decline this year from last year, and some others experienced an increase, we see that the overall growth from 2019 is still larger with our casinos compared to most others in Missouri. What's also very interesting is that winter visits from our regulars have actually increased by 1% compared to last year, but we were not able to keep all the new patrons who came to the properties last year to spend their stimulus checks. We did retain about 20% of the headcount and about half of the revenue they generated last year. So, it seems that there is some upside in these numbers. Other than gaming revenue, everything else was up, including revenue from sports betting, parimutuel, and iGaming, as well as hotel and food and beverage revenue. The outlook for the second half of the year is quite positive. Our operations continue to normalize to prior year as the stimulus impact tapered off during Q3 of last year. Revenue per patron continues to remain strong so far in July and the beginning of August, so we do project it to be higher for the third quarter compared to last year. In Canada, all four operations had a good quarter and came back strongly after the heavy COVID restrictions had been lifted. Adjusted EBITDA almost reached 2019 levels. We have not seen the full potential yet because after a couple of years of staying home, many people are keen to travel out of town while attending outdoor festivals and events, which were shut down in the last couple of years. Our casinos in Poland continue to show great performance with revenue up 24% and EBITDA 57% over 2019. While the results in Poland are consistently strong, it’s difficult to find a buyer right now offering an attractive price because of the war in Ukraine. Anyway, timing as I said is not really the most important issue for us as we have an excellent management team in place at Casinos Poland. And further, there is no need for any CapEx or investment from us, quite the opposite; cash is flowing from Poland to us. Let’s now look at our balance sheet and liquidity. We have $96 million in cash and cash equivalents plus $100 million which we keep in escrow for the closing of the Nugget OpCo transaction once Nevada licensing is complete. Outstanding debt totals $370 million which includes $349 million under the Goldman Credit agreement, of which $100 million is in escrow for Nugget and $50 million related to a long-term land lease for Century Downs Racetrack and Casino in Canada. And now some commentary on our growth projects: we are working on expanding both our Missouri operations as already reported. During the quarter on June 8, the Missouri governor passed and signed Senate Bill 987 into law, effectively allowing us to bring the Toronto riverboat casino on land utilizing a non-floating structure. Toronto city is the last remaining riverboat casino on open water in Missouri. The new development will include a newly designed casino with 20% more gaming positions as well as a hotel. It will provide significant operational efficiencies, would be much more convenient for our customers, and it will increase our catchment area. While preparations for the project are substantially complete with a budget of $47 million, we are considering optimizing the construction timeline in order to minimize supply chain challenges. Our key intent is to deliver this project based on a high return on investment. It is the same with the hotel project at our casino in Cape Girardeau. Planning, design, and preparations are substantially finished. A budget discipline and a high return on investment are the guiding principles of the final decision on when to actually commence construction. In Nevada, we already invested $95 million and now own half of the Nugget Casino’s real estate. We will close on 100% of the operating company as soon as licensing is complete, which will be another $100 million that we have in escrow already. We are very excited about the Nugget transaction, and we see considerable upside once we can operate it. With the Nugget repurchase and existing operations, there is a long operating history, which means there is no development risk, no risk of construction delays or anything like that, and no risk of cost overruns. We do not expect any extraordinary replacement CapEx in the next years other than upgrading parts of the infrastructure and some improvements to the facade. The acquisition also offers good potential to generate synergy effects as we integrate that standalone property into our portfolio of 17 casinos. With these opportunities for growth throughout next year and beyond, we are confident that our company is very well positioned for continued long-term success. The second quarter was another great performance for our company and the entire team. Our diversified portfolio continues to generate robust EBITDA growth. Our operating strategy and tight focus on the right customer are producing strong and sustainable margins. We recognize we have a period of economic uncertainty with some headwinds facing our business. But there are positive signals as well. Unemployment is near record lows across the country, and our customers continue to benefit from strong wage growth. Consumers are showing a continued willingness to spend on entertainment. Our customer trends in the second quarter and so far in July and into August remain consistent with what we have seen over the last three quarters. Especially at the high end of the database, the truly gaming-centric customer continues to perform very well. Our signs are encouraging; there is a flipside to it: a strong job market and growing wages are good for our customers, but they also mean increased labor expenses, supply chain issues, higher gas prices and utility costs, and increases in the cost of goods and services are all impacting both us and our customers. Having said that, our local management teams have done an excellent job managing through these challenges; they continue to deliver strong results. Our company-wide margins during the second quarter stayed the same as last year and even increased from Q1 of this year despite the higher costs we are experiencing across the business. We will continue to execute our business plan by growing organically and by identifying and acquiring promising assets and stable drive-through markets in the U.S. In our M&A strategy, we will remain prudent with pricing and regulation. We will continue to dedicate resources to capture synergies and provide time to digest the acquisitions and recognize value. With our discipline and our strong balance sheet, we are confident we can find further opportunities to deploy capital in a manner that consistently builds shareholder value. On behalf of the company’s management and Board, I would like to thank our team members, our guests, and our stockholders for their continued loyalty and enthusiasm. I thank you for your attention, and we can now start the Q&A session. Operator, go ahead please.

Thank you. Ladies and gentlemen, at this time, we will conduct the question-and-answer session. Our first question is from Jeff Stantial with Stifel. Please go ahead, your line is now open.

Hey, good morning, everyone. Congrats on a nice set of results here. I was just hoping to drill in a bit more into the month-by-month cadence of the quarter. Any notable sequential changes in either direction as you progressed through April through June, either on the top line or with respect to margins, and any color on market conditions helping as well, breaking out U.S. versus Canada versus Poland? Thanks.

Erwin, do we have any data on that, how the quarter progressed? Erwin?

High-level qualitative is fine as well if you don't have the numbers on hand.

I have all the numbers, but the question is how many numbers shall I go through? Why don't I group them by states, to begin with, and if you would like to know more then we can go into property by property, if that's fine for you?

Yes, by region is fine, and I was more wondering qualitatively, did the consumer feel like it picked up, did it drop off, did the cost pressures get better or get worse, just more kind of qualitatively how things progressed through the quarter, if that makes sense.

In April, we generated $4.1 million in net operating revenue; in May, it was $3.8 million; in June, $3.7 million; and in July, over $4 million. In Missouri, we recorded $10.4 million in 2022; this year, in April, it was $10.4 million, $9.6 million in May, $9 million in June, and again in July, over $9 million, significantly more than $9 million. In West Virginia, we reported $9.9 million, $10.5 million, $9.3 million, and around $11 million in July. In Canada, we made $6.6 million, $6.3 million, $6.2 million, with July around $6.4 million. In Poland, we increased from $7.1 million in April to $8 million in May, $6.6 million in June, and more than $7 million in July. That summarizes our net operating revenue. Is that sufficient for you so far?

Yes, we could focus on the positive trends we are seeing in July. Moving on to my follow-up question, Peter, I would like you to elaborate on your comments about maintaining flexibility with your two projects, the Mississippi and Caruthersville, as well as the hotel in Cape Girardeau. Can you discuss the current supply chain challenges? Are they related to labor, specific raw materials, or other factors? Additionally, once you begin these projects, what strategies are you considering to mitigate potential inflationary pressures if circumstances change during the project timeline?

Right. The pressure point clearly is the material, both the availability and the price. Maybe one, but not necessarily something is not available; it's not available not even for a higher price. But we think that we may have seen the peak of supply chain challenges with regard to price already. And then we see the prices come down already, so we are really going, so to speak, from week-to-week and making an assessment and then sort of look at the time, when is the right time to start. Labor is not the problem; our suppliers would all be ready to go, but the high-cost pressure of the material is where we think waiting a little bit and going on a week-to-week assessment is a more diligent approach here.

Perfect, that's very helpful, thank you. And then, if I could just squeeze in one more. On the M&A environment at present, does it feel like there's appetite from sellers in the U.S., and if you go back to early COVID, clearly there was a number of assets that came on sales as a direct consequence of some of the pressures going on in the market? Would you say that the collapse that we've seen in the public markets year-to-date has flowed through to the M&A markets, whether in terms of expectations or the number of sellers at the table, or do things feel fairly stable? Thanks.

It's fairly stable. I mean all the regional operators do see the same thing, namely that the customer trends are still holding up very nicely. So, there are no prior sales out there. Multiples also have not come down significantly because the underlying trends are very solid. So, it's a pretty stable environment. There's not too much out there. It's a bit quieter compared to two, three years ago. But we do see two or three very interesting properties out there for us.

Perfect, helpful and encouraging. Thank you both.

Thanks, Jeff.

Thank you. Next question is from the line of Edward Engel with ROTH Capital. Please go ahead. Your line is open.

Hi, thank you for taking my question. You mentioned that Canada has been completely normalized as quickly as some of your other markets did. I guess what kind of timeline are you expecting for that to get to full strength? Because it happened as early as the fall when maybe people get back from vacation or would you kind of expect a slow progression?

I may start. Sorry, Erwin, please continue.

No, no. Okay, yes, it's difficult to predict, Peter, I absolutely agree. But our assessment of the situation is that we think there is a very high chance that these markets come back in Q3 and delays of Q4.

Yes, I wanted to ask that typically in the summer months, people in Alberta either tend to go on vacation or stay outdoors as long as they can because the weather is nice. And then, getting into September or October onwards, so then it is, so to say high seasons for indoor entertainment activities.

And if I may add to that, they may well be possible that the development of the oil prices, as you know, Alberta is oil country, that this may in general have a positive effect on the Alberta economy.

Helpful, thank you. And then, on your reporting, I noticed the corporate expense was down a good chunk during the quarter. Just to confirm, are you netting your share of rental equity income in that line item?

Yes, right.

Yes, we are. It is an equity investment.

And that is just your share of the income. It wouldn't be the cash, the cash proceeds.

That is right, the difference between the cash.

Thank you. Our next question is from the line of Jordan Bender with JMP Securities. Please go ahead, your line is open.

Good morning, thanks for taking my question. I was wondering if you're seeing any impact on your Missouri properties from the new expansion down in Arkansas?

We think that we see a little bit of an impact with the customers that are in the overlapping catchment area for both casinos.

Okay, and then it looks like your license for the Hilton in Warsaw comes out next month. Is there any update on the relicensing bid for that Casino?

Not yet, but we expect to hear pretty soon.

Okay, and then sneak one more in here. FX in the quarter seems to have maybe impacted financials, is there anything to call out in either Canada or Poland just based on the FX move?

Can you comment on that?

No, I don't think there's anything to call out at this point.

Okay, thank you.

Thanks, Jordan.

Thank you. Next question is from the line of Chad Beynon with Macquarie. Please go ahead, your line is open.

Hi, this is Aaron on for Chad. Thanks for taking the question. I wanted to touch on the return of the older demographic. Last quarter, you talked about how they were coming back. Did that trend continue and how close is that demographic to getting back to the pre-pandemic levels? Thanks.

So answering that across the board, it continues and it's pretty much back to normal, in some areas even like 1% or 2% above.

Okay, got it. In your prepared remarks, you also noted that you were able to maintain margins despite facing higher costs, and it looks like volumes remain strong heading into Q3. So, is it fair to think that margins can be maintained at this 27% range?

Would be our assessment.

Okay, thanks.

Thanks, Aaron.

Thank you. Our next question is from the line of Kenneth Rovonowitz, a Private Investor. Please go ahead.

Hi, good morning, guys. I've been watching your companies for I guess, seven or eight years. And I see it's growing steadily. And I see your book value going back up. And the price of the stock really does not reflect as much I think it should be worth. However, I do have one observation and I would like to ask you what you're doing about it. I noticed that on corporate and other, you consistently show some sort of loss. Can you define what corporate and other is and where those losses come from because if they weren't there, they would really bump up your earnings quite a bit. Is there something you can do about that? Can you explain what that is?

Margaret, please.

Hi, Kenneth. So, corporate and other doesn't really have revenue streams flowing into it, for the most part. It's your corporate overhead expense; you have to have accounting, you have to have human resources, compliance, executive management, and we do run an extremely lean organization at the top. So, there's not a whole lot that flows through there. You do see interest expense coming out of there as well for our large Macquarie loan.

And does it also include all the costs for the stock exchange reporting and auditors and everything?

Auditors, stock exchange, all of those expenses.

I see. Does the running of the ship casinos come from that zone, too?

It is, but that's a very minimal number. We're down to just one casino on a ship.

Okay. So, I would expect that one had been kind of the dustbin of unnecessary expenses that go in there. It's just one of those things that you have your accounting, I suppose, right?

That's correct.

Okay. I was happy to see your company doing better. And I'll still be holding your stock, so thank you very much.

Thank you.

Thank you.

Thank you, Kenneth.

Thank you. And there are no further questions. At this moment, I'll turn it back to Mr. Hoetzinger for any closing remarks. Thank you.

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. And if you have any follow-up questions, please feel free to reach out to us. Stay well and goodbye.

Thank you, ladies and gentlemen. That does conclude today's call. We thank you for your participation and ask that you please disconnect your lines. Have a good day.