Good day, everyone and welcome to today's Century Casinos' Third Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. Later you'll have the opportunity to ask questions during the question-and-answer session. Please note, today's call will be recorded. And it is now my pleasure to turn the call over to Peter Hoetzinger. Please go ahead.

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 will now provide an overview of the results of the third quarter, and after that, there will be a Q&A session. Our third quarter results were up against the record performance of last year, which was aided by listed COVID restrictions and lots of pent-up demand. Thus, while on a sequential basis, revenues were up. Compared to last year, revenue and adjusted EBITDA were down 4% and 15% respectively. A large part of the decline is due to the extremely dry weather conditions affecting the water level of the Mississippi River. Low water level issues at our Colorado and Missouri operation started in August and triggered additional expenses for maintenance and caused serious issues for accessing the steepness of the access bridges and transitioning from the barge to the old riverboat. In addition, the dry weather kept farmers, who are a large part of our customer base, busy on the farms and farmland for much longer than usual. As a result, the Casino revenues declined 14% compared to Q3 of last year, and that also was responsible for around half of the company-wide revenue decline during the quarter. In addition, we incurred considerable costs in connection with preparing to integrate the soon-to-be-acquired Nevada and Maryland operations. With the headwinds in the economy, we also saw some evidence of slight changes in our customer behavior as the lower segment has cut down on the number of visits across all North American properties, but importantly spending portrayed from our mid and higher segments held steady. That play from our core customers is the foundation of our success, and this segment in particular continues to grow, which also helps to offset year-over-year decline in spending from retail customers, which was at elevated levels last year due to the stimulus payments. On the expense side of the business, our teams are effective in managing the overall cost structure while dealing with the inflationary pressures that exist today. The promotional environment across all our markets remains relatively stable. It's disciplined and rational for the most part. Not much has changed in the last several quarters. Total marketing spend continues to remain below pre-COVID levels. Of our US operations, Colorado was leading the way with revenue growth of 8% and EBITDA growth of 6% compared to last year. We've not seen any effect on revenues due to inflation. However, we are affected on the expense side with higher costs for utilities, repair and maintenance, as well as operating supplies. Cripple Creek increased in all card play analytics with the exception of the average number of visits decreasing slightly. This may be due to higher gas prices; however, spending per trip has increased. The Cripple Creek market continues to remain flat year-over-year, but due to our consistency in marketing and continued emphasis on customer service, we continue to gain market share. Central City, average spending per trip remained flat and we are not seeing any inflationary effects on patron spending. In West Virginia, our Mountaineer Casino, Racetrack & Resort saw a slight revenue decline compared to Q3 of last year. The number of visits to the casino was down, especially for younger customers in the lower segment. However, looking at the last three quarters, the trend is up; we grew from Q2 over Q1 and again Q3 over Q2 in both revenue and EBITDA. We experienced some staffing challenges at Mountaineer, resulting in some limitations to our hours of operation and availability of services. Moving to Missouri, where volumes remained strong during July and early August, but began dropping off during the second half of the quarter. It was especially noted among older demographics aged 70-plus and the lower segment, which cut down on visits. Economic inflationary factors may play a role here. Dangerous water level issues at the Caruthersville and the dry weather around the farmland this year didn't help either. So we saw revenue decline compared to the record quarter we had last year. Just last month in early October, we actually had to close part of the casino that sits on the riverboat, and we operate with a limited number of slots and tables on the barge only. The good news for Caruthersville is the fact that we did receive approval from the Missouri Gaming Commission a couple of weeks ago to relocate the casino operation from the barge to an existing land-based pavilion, which is not affected by water levels and is protected by a flood wall. We are allowed to operate the casino in that pavilion and build a new land-based hotel and casino development which we expect to complete in the second half of 2024. The pavilion provides much easier access to the casino for customers, and we anticipate it will also bring operating efficiencies and cost savings. We expect to move the operations from the barge to the pavilion next month. Last week, we also opened a small 36-room hotel, which we call the Farmstead Hotel, which we bought last year and completely refurbished. It is conveniently located close to the pavilion and to parking. In our global presentation of the results, you'll find a description as well as a site plan and pictures for better understanding, but the new land-based hotel and casino development in Caruthersville construction began two weeks ago on the new 27,000 square feet casino and 30-room hotel. The total budget increased by 10% from $47 million to $52 million. Once the new casino hotel is completed, the temporary casino in the pavilion will move to the new Century Casino Caruthersville, which will then have a total of 74 hotel rooms in two hotels, one directly connected to a casino, and the other one the standalone opposite the pavilion. The new casino will have 20% more gaming positions and provide significant operational efficiencies to be much more convenient for our customers and it will also increase our catchment area. At Century Casinos' Cape Girardeau, a large of our two Missouri casinos, we have started construction of a 69-room six-story hotel building. The project is expected to cost $31 million and be completed in the first half of 2024. This development will transform the property into a full destination, providing attractions for individual and group multi-day visits for many different purposes, such as gaming, dining, conferences, concerts and more. Moving north to Canada, the Central Casino Hotel in Edmonton had revenues decline by 7% due to construction works on the main road in front of the casino and due to lower slot hold. Both of our racetrack casinos in Alberta, Century Mile and Century Downs saw solid revenue growth of 9% and 4% respectively. Utility costs are up 17%. The cost of goods increases could only be partially mitigated by price increases. Q4 has started really strong for Century Mile and Century Downs with both properties posting all-time record results for the month of October. Our casinos in Poland continued their great performance with revenue up 25% and EBITDA up 34%. Results in Poland are consistently strong, which also helps the overall process and has led to renewed interests from smaller European casino groups and private equity investors. There is no time pressure on our side as we have an excellent management team in place at Casinos Poland, and there's no need for any CapEx or investment from us. Quite the opposite, cash is flowing from Poland to us. A quick look at our balance sheet and liquidity shows that we have $100 million in cash and cash equivalent, plus the $100 million which we keep in escrow for the closing of the Nugget OpCo transaction once their license is complete. Outstanding debt totalled $367 million, which includes $348 million under the Goldman Sachs Credit Agreement, of which a $100 million is escrow for the Nugget and $14 million related to a long-term land lease for Century Downs in Canada. During the quarter, we were also very busy on the M&A front. In August, we announced the acquisition of the operations of Rocky Gap Casino Resort in Maryland for $56 million. Simultaneously, with the closing of that transaction, VICI Properties will acquire the real estate assets and will amend our master lease with VICI to add the Rocky Gap property. The initial entered rent for the Rocky Gap casino will be $2.5 million. The purchase price for the casino operation represents an implied 2021 EBITDA margin of 4.9 times. This multiple excludes any potential cost synergies and operational improvements. This acquisition is expected to be immediately accretive for our earnings. Rocky Gap is a full-service resort, less than a two-hour drive from the Washington DC metro area, and includes an 18-hole golf course designed by Jack Nicklaus, a 5,000 square foot event center, several meeting spaces, a spa, and several outdoor activities. The property consists of about 25,000 square feet of gaming floor, 630 slot machines, 16 table games, 198 hotel rooms, and five food and beverage venues. The transaction is expected to close mid-2023, subject to regulatory and governmental approvals and customary closing conditions. In Nevada, we already invested $95 million and now own half of the market casino's real estate. We will close on the purchase of 100% of the operating company as soon as licensing is complete, but that'll cost another $100 million. We continue to be very excited about the Nugget transaction, and we see considerable upside once we operate it. With the Nugget we are repurchasing an existing operation with a long operating history; we do not expect any extraordinary replacement CapEx for the first year. Some upgrading parts of the slot floor and improvements to the place can be expected. This acquisition also offers good potential to generate synergy effects as we integrate a stand-alone property into our portfolio of 17 casinos. With the pending Rocky Gap and market acquisitions, we will oversee a portfolio that stretches from East to West in North America and on a pro forma basis, after giving effect to the two acquisitions, we expect to generate approximately 95% of our EBITDA from our North American casinos. With these opportunities for growth throughout next year and beyond, we are confident our company is very well positioned for continued long-term success. We will continue to execute our business plan by growing organically, by identifying and acquiring promising assets in stable, drive-to markets in the US. Now, on our M&A strategy, we will remain prudent with pricing and valuation, continue to dedicate resources to capture synergies, and provide time to digest the acquisitions and recognize their 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. I thank you for your attention, and we can now start the Q&A session. Operator, go ahead please.

And we will take our first question from Jeff Stantial. Please go ahead. Your line is open.

Great, thanks. Good morning, Peter, Irwin, thanks for taking our questions. I wanted to start with some of the commentary in the prepared remarks on the lower demographic that it sounds like softened a bit more recently in the quarter. You talked about the impact across the broader North American portfolio. Is there differences in terms of how much you're noticing that asset by asset? And then can you just talk about the timing there? When did you start to notice some softening there and has anything changed with the October trends?

Erwin, can you give some color?

Yeah, we do see some differences; it's not exactly the same everywhere. That softening started in the third quarter and in the meantime for the fourth quarter, we are already doing things to try to mitigate. To give you an example, in Mountaineer we increased the number of hotel room giveaways for the weekend. We count more. We have customers, but we clearly see that their worth comps are also in the upper range of the lower bracket. And also, we are doing a car giveaway, something that we haven't done before, and indications are that this is very well received from what we see from the October numbers.

Okay, great. That's helpful, thank you. Then moving to Missouri, so the budgets for both projects came up a decent bit. Can you just frame where you're seeing the most cost pressures and if you think the revised budget should prove ultimately to be the right number, and then just how are you thinking about the return profile now with the total budgets picking up a bit?

They went up about 10% and 11%, and it came from pretty much all sides. But we are extremely confident now this whole, and we have that in writing. We have agreements with our contractors and developers that in terms of return, Cape Girardeau hotel return between the low teams and Girardeau around 15, that's where we are, where we see it coming.

Great. That's helpful, thank you, Peter. And then if I could just squeeze in one more on the disruption with the low water levels in Caruthersville. Peter, you gave some context for how to think about the impact on revenues at the property. Could you provide a similar way to think about the cost impacts? You talked about some higher operating costs, but just any way for us to quantify and think about how impactful that was during the quarter and maybe any thoughts on how impactful it should improve in Q4 as well? Thanks.

We don't have an exact number on the plus side. Do we have, it's like more than half, is that what we believe? Right?

Yeah, yeah. In that range. Yeah.

Great. Understood. Very helpful. Thank you both. I'll pass it on.

And we'll move next with Chad Beynon. Please go ahead. Your line is open.

Hi, good morning. Thanks for taking my question. Wanted to ask, I guess, kind of a medium or long-term question. You guys have been successful in your currently in process of building the portfolio. Where do you think the portfolio can get to in the next couple of years? Or I guess asked another way, are there still opportunities out there and given your arrangements with your REIT partners, should we continue to expect maybe one acquisition per year to kind of build the free cash flow levels where you start to get even greater scale? Thanks.

We do see quite a number of interesting properties out there that would fit very well into our portfolio assets. In that range of say $15 million to $50 million in EBITDA. There are not many buyers out there because it's way too small for the larger groups, and we believe we are in a very good niche. Yes, we do have a very good part in VICI, but let me also say that other property or real estate investors are also knocking on our doors. So there is we believe for the next two, three, four years a great deal of M&A activity ahead of us. Whether it be once a year or two every year, we look at it a little bit on an opportunity basis, but that's plenty of opportunity out there.

Great. Thanks Peter. And related to that, how are you thinking about the optimal debt leverage or lease adjusted leverage, particularly during times like this when interest rates have risen?

At the moment, I think we are at the leverage level that is okay. But as we said, we are in the process of selling our Poland assets. We can use that to pay down, if you believe that's the right move. We also do own Colorado assets. We own the Canadian assets. Not to say that there's any need to do anything with those, but we could if we wanted to. Currently, our net debt to adjusted EBITDA is 3.4 and lease adjusted net leverage if you use an eight multiplier is 5.5. And we believe with the projects that we have on hand in Missouri and also market and graphic cap we will be able to bring that ratio down and we feel quite confident with that.

Sounds great. Thank you very much, Peter. Best of luck.

Thank you. We will move next with Jordan Bender. Please go ahead. Your line is open.

Great, thanks. Thanks for taking my question. So in Poland, in local currency, it actually looked like your margin was one of the best in maybe the last six or so years. I was just kind of wondering, what's driving that strength and looking forward should we expect, I guess, a low double-digit margin within that segment?

I believe we see no signs that these numbers won't be sustainable. We believe they are sustainable, and everything suggests that we will be able to maintain those numbers, with potential for further increases. It's challenging to identify a single reason; it's a combination of factors. Overall, I can say that the strong local management we have and their efforts have yielded better performance than before. This year, we have been able to compete even better against local competitors. We are very pleased with the team, and as we mentioned, we believe this can continue to improve.

Great. And then turning to Canada, kind of a similar question, coming out of COVID, I guess margins were choppy, just kind of given COVID reopening and then re-closing and reopening again. As we think about, I guess, the business in '23, where should we think about margin levels being sustainable or where should they be trending as we think out into next year?

Some color, I would say in very general terms, we should be able to sustain the current margins, and in various properties for good reason, be able to increase them. For example, in Missouri as we talked about, the changes there and the improvements to the properties should improve and increase our margins relative to '22 back to old levels. In Colorado, probably, it's we'll so to speak, margined out. We are doing very well already there, but I think again, we consider this to be very sustainable again. Excellent management there. And in Mountaineer, we're working hard on crawling up step by step. It's harder in Mountaineer because the gaming tax is very high, so this cannot be compared to a low tax environment. But again, we feel solid with a very solid base, and we should be able to increase there as well.

Okay, and just to follow up on that, just to confirm, you historically have done low 30% EBITDA margin. You think getting back to that level is achievable over the next couple of years in Canada?

Yeah, I think that's not unrealistic to assume.

Okay, great. Thank you.

In Canada, one thing that works for us is that energy worker oil prices are high, and with a certain time delay, that always is then reflected in this economy.

Okay. Thank you.

We will move next with Edward Engel. Please go ahead. Your line is open.

Hi. Thanks for taking my question. Just wanted to follow up on that last one, just regarding margins and I guess cost inflation just on the overall cost inflation side, whether it's utilities or labor, I guess what have you kind of seen over the past couple of months? It looks like generally OpEx across your properties with flattish quarter-on-quarter minus maybe Canada just kind of want to wonder what you're seeing in terms of increases in OpEx?

OpEx did increase definitely. So far also across the board, I think our management has been very skillful in finding ways through this by trying to find even further ways to save in other areas. With regard to staffing, I mentioned it can be challenging, not here for example. But again, this can't go on forever, and we were able to operate well even on say higher sales rate, but slightly lower staffing levels.

Thank you. We will move next with Daniel Honk. Please go ahead.

Hi, Thanks for taking the question. Just a quick one on the Caruthersville and Cape Girardeau projects, is that intended to be funded entirely out of cash on hand or do you have financing lined up for those projects?

The hotel project in Cape Girardeau, we finance with cash on hand. And for the one in Caruthersville, we have not made the final decision, but it'll be several like cash on hand and financing sources.

Thank you. We will move next with Chris. Please go ahead. Your line is open.

Yes. Hi. Could you please focus and simplify? I'd like you to identify the one, two, or three critical variables that we should monitor for corporate earnings modeling in the fourth quarter and then going into next year. Thank you for answering my question.

Yeah, I would say that the progress in Missouri is an important one to watch, as you've seen in Q3 or kind of an impact that has. Then continued success in Colorado is very important, and we're watching. There is secondly on a great path as we said, and we would like to see that continue. So we are watching those three markets with high interest because they're critical to our success.

Are you providing any guidance with regards to sales or really any of the key parameters of the corporate results?

Oh, no, historically the company has not provided guidance. We have a handful of excellent research reports that are out there on Century Casinos, and I would encourage you to get a hold of one or more and read through.

And it appears that we have no further questions at this time. I would like to turn the call back over to Peter Hoetzinger for any closing remarks.

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.

This does conclude today's program. Thank you for your participation. You may disconnect at any time.