Century Casinos, Inc. (NASDAQ:CNTY) is a casino entertainment company with a diverse portfolio of gaming, hospitality, and entertainment operations across North America. The company has demonstrated resilience in the face of recent challenges and maintains a commitment to strategic growth that positions it for potential long-term success.
Business Overview
Century Casinos operates a total of 17 casinos, with properties in the United States, Canada, and Poland. The company's portfolio includes gaming, hotel, food and beverage, pari-mutuel, sports betting, and iGaming offerings, catering to a wide range of customer preferences.
In the United States, the company operates casinos in Colorado, Missouri, West Virginia, and Nevada, including the recently acquired Nugget Casino Resort in Reno-Sparks. In Canada, Century Casinos owns and operates four properties in the Edmonton and Calgary areas. The company also has a controlling interest in Casinos Poland, which operates seven casinos throughout the country.
Financials
For the full year 2023, Century Casinos reported annual revenue of $550.2 million and a net loss of $28.2 million. The company's annual operating cash flow was $26.3 million, while free cash flow was negative $33.8 million, reflecting ongoing investments in capital projects and acquisitions.
In the first quarter of 2024, the company reported net revenue of $136.0 million, a 25.4% increase compared to the same period in 2023. However, net loss attributable to Century Casinos, Inc. shareholders was $13.5 million, compared to a net loss of $1.2 million in the prior-year quarter. The increase in net loss was primarily due to higher interest expense and acquisition-related costs.
Segmental Performance
The company's reportable segments include the United States, Canada, and Poland. In the first quarter of 2024:
United States: Net operating revenue increased by 44.7% to $96.0 million, driven by the acquisitions of Nugget Casino Resort and Rocky Gap Casino Resort. Earnings from operations decreased by 40.7% to $8.5 million, impacted by higher interest expense and acquisition-related costs.
Canada: Net operating revenue increased by 11.0% to $18.3 million, reflecting strong performance across the company's properties in the region. Earnings from operations remained relatively flat at $4.0 million.
Poland: Net operating revenue decreased by 15.4% to $21.6 million, primarily due to the temporary closures of three casinos during the quarter. Earnings from operations decreased by 100.8% to a loss of $0.02 million.
Acquisitions and Expansions
Century Casinos has been actively pursuing strategic acquisitions and expansions to drive growth and diversify its operations. In 2023, the company completed the acquisitions of Nugget Casino Resort in Reno-Sparks, Nevada, and Rocky Gap Casino Resort in Flintstone, Maryland.
The Nugget Acquisition, which closed in April 2023, added a significant gaming and hospitality asset to the company's portfolio, strengthening its presence in the Nevada market. The Rocky Gap Acquisition, completed in July 2023, further expanded the company's footprint in the eastern United States.
Additionally, the company is in the process of constructing a new land-based casino with a hotel in Caruthersville, Missouri, which is expected to be completed in the fourth quarter of 2024. This project, fully funded by VICI Properties, will enhance the company's offerings in the region and improve operational efficiencies.
Liquidity
As of March 31, 2024, Century Casinos had $136.5 million in cash and cash equivalents and $342.0 million in outstanding debt, resulting in net debt of $205.5 million. The company's traditional net leverage ratio was 3.5x, while the adjusted net leverage ratio was 4.3x.
The company's lease obligations to VICI Properties, Inc. totaled approximately $15 million per quarter as of the first quarter of 2024. Once the Caruthersville project is completed, the total lease payments to VICI are expected to increase by $1 million per quarter, resulting in a run rate of approximately $16 million per quarter for 2025.
Outlook
Century Casinos remains optimistic about its future prospects, despite the challenges faced in the first quarter of 2024. The company expects its performance to improve significantly in the second half of 2024 and into 2025 for several reasons:
1. The completion of the company's elevated capital expenditure cycle, which has caused disruption at some properties. 2. The full integration of the Nugget and Rocky Gap acquisitions. 3. The reopening of all casinos in Poland. 4. The completion of the new land-based casino in Caruthersville, Missouri. 5. The absence of further construction-related disruptions.
The company is targeting revenue of approximately $700 million and an EBITDA margin of 24% in 2025, with capital expenditures expected to be in the range of $20 million to $25 million, primarily for regular maintenance.
Risks and Challenges
While Century Casinos remains optimistic about its future, the company faces several risks and challenges that investors should be aware of:
1. Macroeconomic conditions: The company's operations are susceptible to changes in consumer spending patterns, which could be impacted by factors such as inflation, interest rate hikes, and broader economic uncertainty. 2. Regulatory environment: The gaming industry is heavily regulated, and changes in laws or regulations could impact the company's operations and profitability. 3. Competition: The company faces competition from other gaming and entertainment providers, both in its existing markets and in new markets it may enter. 4. Integration challenges: The successful integration of acquired properties, such as Nugget and Rocky Gap, is crucial to realizing the expected benefits of these transactions. 5. Staffing challenges: The company has faced difficulties in attracting and retaining staff at some of its properties, which could impact its ability to operate at full capacity.
Conclusion
Century Casinos is a diversified gaming and entertainment company with a strong presence across North America. Despite the challenges faced in the first quarter of 2024, the company remains well-positioned for potential long-term growth, driven by strategic acquisitions, ongoing capital investments, and a focus on operational excellence. As the company navigates the current macroeconomic environment and completes its integration and expansion initiatives, investors should closely monitor its progress and the company's ability to deliver on its ambitious growth targets.