Welcome to Century Casino's Q3 2019 Earnings Conference Call. This call will be recorded. At this time all participants are in a listen-only mode. [Operator Instructions] 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 Chairman of Century Casinos, Erwin Haitzmann, as well as our Chief Financial Officer, Margaret Stapleton. Before we begin, we'd like to remind you that we will be discussing forward-looking information, which involves a number of risks and uncertainties that may cause actual results to differ materially from our forward-looking statements. The company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise. We provide a detailed discussion of the various risk factors in our SEC filings and encourage you to review these filings. In addition, throughout our call, we refer to several non-GAAP financial measures, including, but not limited to, adjusted EBITDA. Reconciliations of our non-GAAP performance and liquidity measures to the appropriate GAAP measures can be found in our news release and SEC filings, available in the investor section of our website at cnty.com. I'll now provide a brief review of the company's financial results for the third quarter 2019. Following the prepared remarks, there will be a Q&A session. Results of the existing properties were mixed. The Canadian segment was up. Thanks to the newly opened Century Mile Racetrack and Casino, the U.S. Colorado was down slightly, while Poland was up significantly. Overall, net operating revenue was up 22%. Adjusted EBITDA was up 12%. In Canada, all our three Casinos in the Edmonton market show good growth. Century Casino & Hotel, Edmonton and Century Casino, St. Albert grew revenues by 1% and 3%, and adjusted EBITDA by 1% and [12%], respectively. Century Mile Racetrack and Casino in South Edmonton generated solid revenue, but the expense side of the business, the bottom line is still work in progress.…

[Operator Instructions] Your first question comes from David Bain with ROTH Capital. Your line is open.

Great, thank you and congratulations on the acquisitions again specific to the way they are trending. I know you mentioned there was some short-term low-cost measures with the acquisitions, could you elaborate on what those are and give us any sort of financial impact or return? Hello, do you hear me?

I hear you. This is Erwin.

Oh! Okay, I’m sorry. I – okay, I was just speaking to the or maybe, Erwin, if you could help possibly on basically synergies as it relates to the Eldorado acquisition and if you can elaborate on any of these sort of short-term low-cost measures that you mentioned in the press release and on the call to impact the properties?

Alright. So, the – one of the things we’ve been doing that in Caruthersville and in Mountaineer, we intend to get some new slot machines, so, we identified the lowest performing machines and we intend to replace them with new ones. In that context, it is important to mention that in West Virginia the Lottery Commission pays for 60% of the slot machine purchase. We haven’t identified the exact numbers yet, but that will be one the very obvious things to do. Then in addition to that, we see already some [changes] in marketing tweaks. As you know, Eldorado has been pretty – more aggressive I should say in reducing marketing spend and we would like to probably to loosen up slightly, not much, but slightly and fine tune in one of the other areas.

Okay. And then, looking forward, North America acquisitions, you know, obviously the field – the opportunity field is growing and you have a lot of dry powder, I would call it, particular in tandem with our REIT partner. I guess two questions kind of your basic overall thoughts on today's market opportunities, and then, the other one being what's the optimal mix for Century in terms of being asset light and so to speak in terms of EBITDA generation or mix of properties that you own versus others that you, you know, have a landlord essentially and if that's really just deal specific or, you know, any sort of thoughts there? And then, do you look at real estate monetization of existing properties? So, those kind of multi-tuned question.

Okay. In the – let’s reverse it, I’ll respond in the reverse order if that's fine. And Peter, when you take on again, please let us know. We do not intend to monetize any of the existing real estate we have, but have no plans with regard to that. Second question was regard to the optimal mix. As of today, we think that we should – we should do it, so let’s say opportunity based. So, it’s not our intention to become – to have everything financed with as a combination of REIT and operating company. It may well be that we continue to outright purchase, but it will depend on where we are, if and when an opportunity comes out that we think is effective. And third question, today’s opportunity, we are monitoring and what’s out in the market there, but at this very moment, first of all, Number 1 priority is to focus on the smooth transition to being with, and once we have that under the belt and look more proactively again, but at the moment there was nothing that was so appealing that we couldn’t say no.

Got it. Okay, thanks everyone and, Peter, if you are there, thank you as well.

Thank you.

Thank you. Okay, that’s great, thanks Peter.

That’s why we are [indiscernible].

Yes, sure.

Your next question comes from Brad Boyer with Stifel. Your line is open.

Yes, thanks for taking the questions guys. First question is just kind of a three-part question around Century Mile, obviously you know we’re another quarter into the ramp there, revenue is looking, you know, to be heading in the right direction. I guess could you give us a sense of, you know, how the revenues are ramping there and sort of how you’re seeing that market evolve given that you guys have additional assets in the market? You know are you shifting play around? Are you growing the market? Are you taking shifts from competitors, just some flavor around the revenue environment there? And then secondarily, obviously the margins were a bit weaker than what everyone was expecting, I guess the question now, you know, is, you know, how should we think about the margins ramping from here? And along those lines, are you guys still confident in sort of that, you know, I think on the low-end we were talking about $10 million for a while there, sort of the run rate EBITDA number, but are you still comfortable with that number? And what gets you – you know, gives you comfort in that numbers? Thanks.

Erwin?

Peter, would you like – okay, we are – as Peter said earlier, the revenue side is already very good and with the way how it developed. On the cost side, we’re intensely working on getting the cost down and it is pretty clear why we have to get cost down and we implemented as fast as we thought possible, which should show an impact, if I say that cautiously at the very latest in Q1 of 2020. It’s not in Q4 already. With regard to the competitive – overall market, we have, generally speaking, been able to perform better than the market for – actually I would say definitely for the – definitely for the tool, Edmonton other Edmonton Casinos that we have. So, we think we have a good grip on the market and a strong relationship to our core and repetitive players. Specifically, with regard to Century Mile, we see our main competitor is River Cree. They’ve been hit a little by our – by the opening of our casino and now they are fighting back, as well as they can and we think that going forward this will continue to be our main competitor. But there's no reason not to be confident. Then what gives us confidence is, if you look at how we handle Century Downs, we’re initially – the first deal was a little bit choppy, but now, four years later, the numbers are so good that, as you know, we are expanding. So, we have – through confidence and trust in our operating and marketing capabilities.

Okay, that’s helpful. And then, just around the deals with Eldorado, I know in the past, when you guys announced the deals, you were talking about the potential for some sort of minor CapEx items. Potentially, I know there's a hotel adjacent to Caruthersville, I think we’re talking about, just curious if you have any updated thoughts there? And then, I don’t know, Peter, if you could sort of give us just a flavor for modeling, you know, sort of what you anticipate sort of CapEx looking like on the other side of the deals closing?

Shall I start, and you come in with the second question. It seems that Peter maybe gone again.

Okay.

Yes, let me get started. First of all, initially there is no deferred CapEx, so when we think of the properties, everything is in good order, except as I said on the low, low enter [indiscernible] opportunity. [Technical Difficulty] Sorry, for that. I don’t know why that came in. Can you still hear me Brad?

Yes, I can hear you, thanks.

Yes, okay. Very good. Now, with regard to the first – more substantial CapEx measure like as we mentioned, the hotel across the road in Caruthersville we'll evaluate it a little more. In our conversations with management, we certainly got there and we came to the conclusion that this is not the Number 1 priority we need to focus on. There are other things that are more important than – I think that probably it will be a year or two into us having taken over before we make any CapEx decisions of a larger kind. A little bit of replacement CapEx here and there, small measures maybe putting a second line kitchen here or there, some operational and efficiency improvements, but nothing [large]. Does that answer your question?

Yes, it does. That's very helpful. And then, I guess lastly just around Bath, could you just give us a little bit better sense of sort of what this, you know, strategic review entails? I would imagine given some of the headwinds in the market, you know, potentially finding a buyer could be difficult, you know, pretty difficult in this environment, so I mean is there a scenario that you envision where you could, you know, potentially just kind of shut this down and walk away from it? Or how are you thinking about sort of the path forward there, you know, to the extent that the operations don’t improve here? Thanks.

Alright. Yes, maybe the answer is a clear yes. So, we can imagine everything also just closing it down. Obviously, we cannot just close the door, so we are now looking at the various avenues that we can go because clearly, we tend to keep all our contractual obligations. But we are in the middle of taking the advice, at the same time, we still try to – have the full effort to try to see whether there is any kind of turnaround possible, but at the moment everything – and I think I should say this, we anticipate that we will not have that pain in our income statement and balance sheet for a – for an extended period of time.

Okay, very helpful. Thanks for all the color, Erwin.

By all means. Thank you, Brad.

Your next question comes from Mike Malouf with Craig-Hallum. Your line is open.

Great. Thanks, guys for taking my question. Just want to drill down a little bit on the Century Mile, you know, obviously on the cost side running ahead of where we were expecting and you sort of think that we can get some good traction perhaps maybe even as early as this quarter, but certainly in March quarter. Where are you thinking as far as traction? I mean are we still trying to get to that sort of mid-20s EBITDA or 20% to 25% EBITDA in 2020? Or are you talking to try to get to that point at some time during the year or next year, and then, it will be a slow ramp from here? Can you just give us a little bit of sense on timing, that would be helpful?

Yes, yes. I’d love to, but let be cautious, our ambition is certainly 2020, but at this point in time, I wouldn’t want to promise it. You know we just have to dig into very heavily and work hard on getting the cost head rise, while at the same time, also, you know, ramping – further ramping up our marketing approach. So, I’d love to be able to say it, but let me just be cautious.

Yes, yes. Okay, and how about on seasonality? Can you give us a little – some help on the seasonality? It was down sequentially in September quarter, you know, how does the fourth quarter typically look for that? You think – what are expecting for that property seasonally and as we go from throughout the year?

Very generally speaking, the – all our properties are less seasonal than they might appear and it is even true for Colorado in spite of the strong differences between winter and summer. But what has to be said is, in our properties in Canada as supposed to Colorado, nobody has to drive up a mountain and clearly people in Canada are used to drive in inclement weather as well. So, they’d always turned out to be less of a problem. We – I don’t – and we don’t really set seasonality a whole lot. We rather look at these swings that may depend on how heavily our competitors are working on the marketing side. As Peter mentioned earlier, there are quarter times one or two of the competitors run there – a very big market and campaign that may have an influence here and there, but we always look at the long-term there.

Okay, got it. Okay, great. Thanks for the help.

Certainly.

Your next question comes from John DeCree with Union Gaming. Your line is open.

Hi, Erwin. Thanks for all the additional color so far.

Hi, John.

Just wanted to touch on Poland, I think we’ve covered U.S. and Canada, and now that more sales are ramping and the licensing process has been behind us for a while, I think before all that started, the margins in Poland were 14%, almost 15% and rebuilding nicely here. I was wondering if you could give us a little bit of color on if that’s attainable again, and what the time line might be to kind of get back to normal operating margins in Poland?

Alright. As you said, the operations are – it’s wonderful to see how well they are coming back and even the smaller ones. I mean let me remind all of us, we always get the questions why to keep the small casinos? That has to do within our licensing arithmetic. It is just contagious to have the smaller casinos as well when you go into relicensing, if you need to say very generally. But I think we continue that both the revenue and the EBITDA side very well. There is only one thing that we expect in 2020 that we have to raise the salaries a little bit across the board and that may slow us down in the ramping up again. But again, in general terms we think we can come back to the EBITDA margins that we used to have.

That’s helpful. I appreciate the additional color. Thanks Erwin.

By all means, thank you.

Your next question comes from [indiscernible] Investor. Your line is open.

Thank you. My question has to do with the losses at corporate and other and I know you discussed that some of that was with Bath England. Are there any other losses that are attributable to corporate and other because I notice on the earnings statements that corporate and other has been a bit of a drag on the overall picture for Century? And is there anything that can be done to eliminate – further eliminate losses coming from that sector?

Yes, thanks for the question. I – some of it has to do with the cost that we have in connection with the Eldorado acquisition. Peggy, would you like to going into more detail?

So – sure. So, most of the cost running through corporate and other or the losses running through corporate and other are related to the Bath – to Bath. That is rolled up into that segment. And then, yes, of course we have some additional expenses running through right now related to the acquisitions.

Okay. And do you anticipate the first full-year of operation of the acquisitions from Eldorado giving all things being equal assuming that results are the same as they were in 2019 for 2020? Do you anticipate a positive earnings picture?

Just [indiscernible] of the newly acquired properties, you're asking?

Yes.

And are you asking whether we think we do the same or more?

Yes, I’m saying and that all things being equal, if things were no different in 2020 versus how they were for these casinos in 2019, would you anticipate a profitable operation for all three?

Yes, definitely, definitely.

Yes, absolutely. [Kenneth], this is Peter. I’m back in and what we say is that on a pro forma basis, we would expect – for a full year, with the new acquired operations, we expect to generate about $450 million in revenue and $58 million in EBITDA.

Okay, thank you very much.

Thanks.

Your next question comes from Andrew Gordon with EF Gordon Capital. Your line is open.

Hi, good morning, gentlemen. Just – I apologize if I missed this, I mean transit, I may not have heard you touch on this, but the $58 million trailing 12 months adjusted EBITDA on consolidated basis, does that attribute – how much does that attribute to the Eldorado acquired properties?

That’s the full-year. We sold two properties and it is approximately half-half. Is that right, Peggy?

That’s the number.

That would be roughly $29 million then?

$29 million or $30 million I believe, alright.

Got it. So, next question, I’ll make it quick, just trying to get a little clarity on what the realistic net leverage number should be on a pro forma basis? Consensus numbers for 2020 EBITDA were, I think around $41 million for 2020, and coming into this call, and you're now attributing around $30 million to the newly acquired properties, so let’s say its roughly $70 million on the slightly outdated estimates. The net leverage I believe is supposed to be around – maybe a little over $100 million. So, on a looking forward basis, your pro forma net leverage should be, maybe 1.5 or better, and I just wanted to clarify and make sure that you guys agree with that because at least one of you analyst, I believe has been looking on a trailing basis and attributing 3x net leverage and I just thought though that – if we could all benefit from a low clarity?

Net debt on a proforma basis will be closer to 130, and EBITDA number that you mentioned could perhaps be a little bit aggressive because as they now know Century Mile is ramping up a bit slower than expected. Those would be my two comments to your calculation.

Okay. I’ll follow-up offline. Thank you.

Okay, thanks Andrew.

[Operator Instructions] Your next question comes from Patrick Arnold with Energy Management. Your line is open.

Hi. First, I’d like to say congratulations on your acquisitions. Our question was more along the lines with the participation with the reach and what you might win or what might be the disposition of the excess acreage in West Virginia?

Yes. Erwin, do you have any color on that. We – as you know Patrick, we do not own demand, but [indiscernible] and so maybe that is question that’s – so we have no plans in regards to that.

Alright. The follow-up to that was, obviously you guys are coming in to the emergence of the Marcellas and the energy gas sector here, did you have any kind of unique marketing plans or thoughts that are trying to encourage them to come to your facility at Mountaineer? What I’m looking at here is Austin Town, north of U.S. created kind of a niche for those guys as well based off of the large cracker plant that’s going into [Manako] about 24 miles north, have you guys looked at that at all, or thought of it?

Yes, definitely and – go ahead, Peter, sorry.

No, I was just saying that, yes, that [indiscernible] part of our market [indiscernible] we are formulating those plans, but Erwin, please go ahead.

No, just wanted to say the same. We are excited that this is happening and most definitely will we target those new customers.

Yes, it’s an influx here. Well, congratulations again, and thank you for your time on the call.

Thank you.

There are no further questions at this time. I will now turn the call back over to the presenters.

Thanks everyone for your interest in Century Casinos and your participation in the call. For a recording of the call, please visit the financial section of our website at cnty.com. Thank you and good bye.

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.