CENTURY CASINOS, INC. Forward-Looking Statements, Business Environment and Risk Factors
This quarterly report on Form 10-Q contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the Private Securities Litigation Reform Act of 1995. In addition,Century Casinos, Inc. (together with its subsidiaries, the "Company") may make other written and oral communications from time to time that contain such statements. Forward-looking statements include statements as to industry trends and future expectations of the Company and other matters that do not relate strictly to historical facts and are based on certain assumptions by management at the time such statements are made. These statements are often identified by the use of words such as "may," "will," "expect," "believe," "anticipate," "intend," "could," "estimate," or "continue," and similar expressions or variations. These statements are based on the beliefs and assumptions of the management of the Company based on information currently available to management. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. Important factors that could cause actual results to differ materially from the forward-looking statements include, among others, the risks described in the section entitled "Risk Factors" under Item 1A in our Annual Report on Form 10-K for the year endedDecember 31, 2019 as well as under Part II, Item 1A of this quarterly report on Form 10-Q. We caution the reader to carefully consider such factors. Furthermore, such forward-looking statements speak only as of the date on which such statements are made. We undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. References in this item to "we," "our," or "us" are to the Company and its subsidiaries on a consolidated basis unless the context otherwise requires. The term "USD" refers to US dollars, the term "CAD" refers to Canadian dollars, the term "PLN" refers to Polish zloty and the term "GBP" refers to British pounds. Certain terms used in this Item 2 without definition are defined in Item 1.
Amounts presented in this Item 2 are rounded. As such, rounding differences could occur in period over period changes and percentages reported throughout this Item 2.
EXECUTIVE OVERVIEW Overview Since our inception in 1992, we have been primarily engaged in developing and operating gaming establishments and related lodging, restaurant and entertainment facilities. Our primary source of revenue is from the net proceeds of our gaming machines and tables, with ancillary revenue generated from hotel, restaurant, horse racing (including off-track betting), bowling and entertainment facilities that are in most instances a part of the casinos. We view each market in which we operate as a separate operating segment and each casino within those markets as a reporting unit. We aggregate all operating segments into three reportable segments based on the geographical locations in which our casinos operate:United States ,Canada andPoland . We have additional business activities including concession agreements, management agreements, consulting agreements and certain other corporate and management operations that we report as Corporate and Other. ? 36
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The table below provides information about the aggregation of our reporting
units and operating segments into reportable segments. The reporting units,
except for Century Downs Racetrack and Casino and Casinos Poland, are owned,
operated and managed through wholly-owned subsidiaries. Our ownership and
operation of Century Downs Racetrack and Casino and Casinos Poland are discussed
below.
Reportable Segment Operating Segment Reporting Unit
United States Colorado Century Casino & Hotel - Central City
Century Casino & Hotel - Cripple Creek
West Virginia Mountaineer Casino, Racetrack & Resort
Missouri Century Casino Cape Girardeau
Century Casino Caruthersville
Canada Edmonton Century Casino & Hotel - Edmonton
Century Casino St. Albert
Century Mile Racetrack and Casino
Calgary Century Casino Calgary
Century Downs Racetrack and Casino
Century Bets! Inc.
Poland Poland Casinos PolandCorporate and Other Corporate and Other Cruise Ships & Other
Century Casino Bath Corporate OtherCBS operates the pari-mutuel off-track betting network inSouthern Alberta, Canada . Prior toAugust 2019 , we had a 75% controlling financial interest inCBS through our wholly-owned subsidiary CRM. InAugust 2019 , we purchased the 25% non-controlling financial interest fromRocky Mountain Turf Club forCAD 0.2 million ($0.2 million based on the exchange rate in effect onAugust 5, 2019 ), resulting inCBS becoming a wholly-owned subsidiary. OnMarch 17, 2020 , we announced that we had permanently closed CCB. OnMay 6, 2020 , CCB entered into a CVL. Prior to entering into the CVL, CCB voluntarily surrendered its casino gaming license onApril 28, 2020 .
We have controlling financial interests through our subsidiary CRM in the following reporting units:
?We have a 66.6% ownership interest in CPL and we consolidate CPL as a majority-owned subsidiary for which we have a controlling financial interest. Polish Airports owns the remaining 33.3% of CPL. We account for and report the 33.3% Polish Airports ownership interest as a non-controlling financial interest. CPL has been in operation since 1989. As ofMarch 31, 2020 , CPL owned eight casinos throughoutPoland with a total of 526 slot machines and 119 tables. The following table summarizes the Polish cities in which CPL's casinos were located as ofMarch 31, 2020 . City Location License Expiration Number of Slots Number of Tables Warsaw Marriott Hotel July 2024 70 37 Warsaw Hilton Hotel September 2022 70 26 Warsaw LIM Center June 2025 63 4 Bielsko-Biala Hotel President October 2023 48 5 Katowice Park Inn by Radisson October 2023 70 14 Wroclaw Double Tree Hilton Hotel November 2023 70 18 Krakow Dwor Kosciuszko Hotel May 2024 70 5 Lodz Manufaktura Entertainment June 2024 65 10 Complex Casino licenses are granted for six years. When a casino license expires, the Polish Minister of Finance notifies the public of its availability, and interested parties can submit an application for the casino license. Following approval of a casino license by the Minister of Finance, there is a period in which applicants can appeal the decision. ?We have a 75% ownership interest in CDR, and we consolidate CDR as a majority-owned subsidiary for which we have a controlling financial interest. We account for and report the remaining 25% ownership interest in CDR as a non-controlling financial interest. CDR operates Century Downs Racetrack and Casino, a REC inBalzac , a north metropolitan area ofCalgary, Alberta, Canada . CDR is the only horse race track in theCalgary area and is located less than one-mile north of the city limits ofCalgary and 4.5 miles from theCalgary International Airport . ? 37
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The following agreements make up the reporting unit Cruise Ships & Other in the Corporate and Other reportable segment:
?As ofMarch 31, 2020 , we had concession agreements withTUI Cruises for five ship-based casinos. The following table summarizes the cruise lines and the associated ships for which we had agreements to operate ship-based casinos as ofMarch 31, 2020 . ?Cruise Line Ship Number of Slots Number of Tables TUI Cruises Mein Schiff Herz 17 1 TUI Cruises Mein Schiff 3 20 1 TUI Cruises Mein Schiff 4 17 1 TUI Cruises Mein Schiff 5 17 1 TUI Cruises Mein Schiff 6 17 1
Our concession agreement for four of the
?Through our subsidiary CRM, we have a 7.5% ownership interest in MCE. In addition, CRM provides advice to MCE on casino matters pursuant to a consulting agreement for a service fee consisting of a fixed fee plus a percentage of MCE's EBITDA. InMarch 2020 , due to the impact of COVID-19 on MCE, we impaired the$1.0 million MCE investment and wrote-down a$0.3 million receivable related to MCE. For additional information related to MCE, see Note 4, "Investments," to our condensed consolidated financial statements included in Part I, Item 1 of this report. ?Through our subsidiary CRM, we had a 51% ownership interest in GHL. We sold our interest in GHL to the unaffiliated shareholders of GHL inMay 2019 for a$0.7 million non-interest bearing promissory note. We recognized a loss on the sale of this investment of less than($0.1) million in general and administrative expenses on our condensed consolidated statement of earnings for the nine months endedSeptember 30, 2019 . The sale of our equity interest in GHL also ended our equity interest in MCL. For additional information related to GHL and MCL, see Note 1, "Description of Business and Basis of Presentation," and Note 4, "Investments," to our condensed consolidated financial statements in Part I, Item 1 of this report.
Recent Developments Related to COVID-19
In late 2019, an outbreak of COVID-19 was identified inChina and has since spread throughout much of the world. The COVID-19 pandemic has had an adverse effect on our first quarter 2020 results of operations and financial condition, and we expect the situation will have an adverse impact on our second quarter 2020 results. BetweenMarch 14, 2020 andMarch 17, 2020 , we closed all of our casinos, hotels and other facilities to comply with quarantines issued by governments to contain the spread of COVID-19. We anticipate a phased approach to reopening will be recommended by the government officials in the jurisdictions where we operate, which could include reduced levels of gaming space, social distancing at slot machines and table games or reduced capacity within the casino, limited restaurant operating hours or continued closure of restaurants, requirements to wear face masks, including the potential to require guests to wear face masks, increased frequency of disinfecting surfaces and other measures to account for varying levels of demand. Our casinos rely on a local customer base and, as such, we anticipate that our operations could resume at a quicker rate than those of casinos at destination resorts. The timing for reopening our locations will depend on determinations by governments in each jurisdiction. Our Polish locations reopened onMay 18, 2020 . Based on information currently available, we anticipate reopening most other locations beginning inJune 2020 and no later thanAugust 2020 . However, we cannot predict how quickly customers will return to our casinos. We permanently closedCentury Casino Bath , and our concession agreement for four of the ship-based casinos that we operated prior to their closures inMarch 2020 ended onMay 12, 2020 . Closures of all our facilities inMarch 2020 due to COVID-19 negatively impacted results for the three months endedMarch 31, 2020 . We estimate that net operating revenue and Adjusted EBITDA for the three months endedMarch 31, 2020 were adversely impacted by approximately$18.2 million and$11.4 million , respectively, due to these closures. We currently are not generating any revenue from our properties, and estimate that the net cash outflow during the time the operations continue to be fully suspended will be, on average, approximately$8.0 million per month. Management estimates that we will need approximately$19.8 million to reopen operations and cover short-term cash needs at the casinos. InMarch 2020 , as a proactive measure to increase our cash position and preserve financial flexibility in light of current uncertainty resulting from the COVID-19 pandemic, we borrowed an additional$17.4 million on our revolving credit facilities withMacquarie Capital ("Macquarie") andUniCredit Bank Austria AG ("UniCredit"). As ofApril 30, 2020 , we had$50.0 million in cash on hand. ? 38
-------------------------------------------------------------------------------- Due to the temporary closures of our casinos, hotels and other facilities, we took action to reduce operating costs, including furloughing most of our personnel and implementing reduced work weeks for other personnel. During the closures, we will continue to pay benefits to ourUnited States and Canadian employees, inclusive of part time employees, throughMay 2020 . InPoland , all employees were paid reduced salaries based on local employment laws. We have suspended most advertising and marketing costs and intend to eliminate approximately$13.7 million of non-labor operating costs in 2020. We intend to defer or eliminate discretionary capital projects for the remainder of 2020 in order to proactively address our capital spending and operating costs for 2020, and the landlord under ourMaster Lease for theAcquired Casinos has waived our capital improvement expenditure requirements for 2020 and agreed to defer to not later thanDecember 31, 2021 our obligation to complete certain other expenditures contemplated in the underwriting of theAcquired Casino properties. Additionally, we have contacted some of our contractual counterparties, such as vendors and other lessors, to discuss possible modifications to the timing of certain contractual payments. There are no comparable recent events that provide guidance as to the effect the spread of COVID-19 as a global pandemic may have, and, as a result, the ultimate impact of the outbreak is highly uncertain and subject to change. We will continue to closely monitor the evolving global health crisis and follow the most current guidance from government officials as we assess when we can reopen some or all of our properties.
Acquisition
OnDecember 6, 2019 , we completed the Acquisition of the operations ofCape Girardeau ,Caruthersville and Mountaineer from Eldorado Resorts, Inc. for an aggregate purchase price of approximately$110.6 million (subject to an adjustment based on theAcquired Casinos' working capital and cash at closing). Immediately prior to the Acquisition, the real estate assets underlying theAcquired Casinos were sold to VICI PropCo, and we and VICI PropCo subsidiaries entered into a triple netMaster Lease for the threeAcquired Casino properties. The Master Lease has an initial annual rent of approximately$25.0 million and an initial term of 15 years, with four five year renewal options.
InAugust 2017 , we announced that, together with the owner of theHamilton Princess Hotel & Beach Club inHamilton, Bermuda , we had submitted a license application to the Bermudan government for a casino at theHamilton Princess Hotel & Beach Club . The casino would feature approximately 200 slot machines, 17 live table games, one or more electronic table games and a high limit area and salon privé. CRM entered into a long-term management agreement with the owner of the hotel to manage the operations of the casino and receive a management fee if the license is awarded. CRM will also provide a$5.0 million loan for the purchase of casino equipment if the license is awarded. InSeptember 2017 , theBermuda Casino Gaming Commission granted a provisional casino gaming license, which is subject to certain conditions and approvals including the adoption of certain rules and regulations by theParliament ofBermuda . TheParliament ofBermuda has not taken action on this project, and we do not currently expect this project to go forward. Presentation of Foreign Currency Amounts - The average exchange rates to the US dollar used to translate balances during each reported period are as follows: For the three months ended March 31, Average Rates 2020 2019 % Change Canadian dollar (CAD) 1.3429 1.3294 (1.0%) Euros (EUR) 0.9074 0.8808 (3.0%) Polish zloty (PLN) 3.9221 3.7869 (3.6%) British pound (GBP) 0.7816 0.7683 (1.7%)
Source: Pacific Exchange Rate Service
We recognize in our statement of earnings foreign currency transaction gains or losses resulting from the translation of casino operations and other transactions that are denominated in a currency other than US dollars. Our casinos inCanada andPoland represent a significant portion of our business, and the revenue generated and expenses incurred by these operations are generally denominated in Canadian dollars and Polish zloty. A decrease in the value of these currencies in relation to the value of the US dollar would decrease the earnings from our foreign operations when translated into US dollars. An increase in the value of these currencies in relation to the value of the US dollar would increase the earnings from our foreign operations when translated into US dollars. ? 39
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DISCUSSION OF RESULTS
For the three months
ended March 31, %
Amounts in thousands 2020 2019 Change Change
Gaming Revenue $ 74,292 $ 37,340 $ 36,952 99.0%
Hotel Revenue 1,816 446 1,370 307.2%
Food and Beverage Revenue 6,552 3,752 2,800 74.6%
Other Revenue 4,996 4,075 921 22.6%
Net Operating Revenue 87,656 45,613 42,043 92.2%
Gaming Expenses (42,043) (19,566) 22,477 114.9%
Hotel Expenses (724) (178) 546 306.7%
Food and Beverage Expenses (6,670) (3,929) 2,741 69.8%
General and Administrative Expenses (29,532) (16,055) 13,477 83.9%
Impairment - Goodwill and
Intangible Assets (33,964) - 33,964 100.0%
Total Operating Costs and Expenses (119,428) (42,153) 77,275 183.3%
Loss from Equity Investment - (14) 14 100.0%
(Loss) earnings from Operations (31,772) 3,446 (35,218) (1022.0%)
Non-Controlling Interest (195) (655) (460) (70.2%)
Net (Loss) Earnings Attributable to
Century Casinos, Inc. Shareholders (45,856) 1,068 (46,924) (4393.6%)
Adjusted EBITDA (1) $ 9,644 $ 6,703 $ 2,941 43.9%
(Loss) Earnings Per Share
Attributable to Century Casinos ,
Inc. Shareholders
Basic (Loss) Earnings Per Share $ (1.55) $ 0.04 $ (1.59) (3975.0%)
Diluted (Loss) Earnings Per Share $ (1.55) $ 0.04 $ (1.59) (3975.0%)
(1)For a discussion of Adjusted EBITDA and reconciliation of Adjusted EBITDA to
net earnings attributable to Century Casinos, Inc. shareholders, see "Non-US
GAAP Measures - Adjusted EBITDA" below.
Items impacting comparability of the results include the following:
?Closures of all our facilities inMarch 2020 due to COVID-19 negatively impacted results for the three months endedMarch 31, 2020 . We estimate that net operating revenue and Adjusted EBITDA were adversely impacted by approximately$18.2 million and$11.4 million , respectively, due to these closures.
?We acquired the operations at MTR, CCG and CCV in the Acquisition inDecember 2019 . MTR is reported in theWest Virginia operating segment, and CCG and CCV are reported in theMissouri operating segment.
?
?
?We impaired$29.6 million related to goodwill and intangible assets at theAcquired Casinos in the three months endedMarch 31, 2020 due to quantitative and qualitative impairment analysis performed related to the triggering events caused by COVID-19. ?We recorded a valuation allowance on our net deferred tax assets related tothe United States segment resulting in$1.0 million of tax expense for the three months endedMarch 31, 2020 . ? 40
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?CMR began operating theNorthern Alberta off-track betting network inJanuary 2019 . The casino opened and horse racing began inApril 2019 . CMR is reported in theEdmonton operating segment within theCanada reportable segment. CMR contributed$3.6 million in net operating revenue and($2.6) million in net losses for the three months endedMarch 31, 2020 and$1.6 million in net operating revenue and($0.7) million in net losses for the three months endedMarch 31, 2019 . ?We impaired$3.4 million related to goodwill at CSA in the three months endedMarch 31, 2020 due to quantitative and qualitative impairment analysis performed related to the triggering events caused by COVID-19. ?We recorded a valuation allowance on our net deferred tax assets related to CMR resulting in$1.5 million of tax expense for the three months endedMarch 31, 2020 . Corporate and Other
?We impaired the
?We wrote-down
?We operated casinos on a total of nine cruise ships during the three months endedMarch 31, 2019 , compared to five cruise ships during the three months endedMarch 31, 2020 , and all cruise ships suspended operations inMarch 2020 due to COVID-19. Net operating revenue increased by$42.0 million , or 92.2%, for the three months endedMarch 31, 2020 compared to the three months endedMarch 31, 2019 . Following is a breakout of net operating revenue by segment for the three months endedMarch 31, 2020 compared to the three months endedMarch 31, 2019 :
?
?
?
?Corporate and Other decreased by
Operating costs and expenses increased by$77.3 million , or 183.3%, for the three months endedMarch 31, 2020 compared to the three months endedMarch 31, 2019 . Following is a breakout of operating costs and expenses by segment for the three months endedMarch 31, 2020 compared to the three months endedMarch 31, 2019 :
?
?
?
?Corporate and Other increased by
Earnings from operations decreased by($35.2) million , or (1022.0%), for the three months endedMarch 31, 2020 compared to the three months endedMarch 31, 2019 . Following is a breakout of earnings from operations by segment for the three months endedMarch 31, 2020 compared to the three months endedMarch 31, 2019 :
?
?
?
?Corporate and Other decreased by
Net earnings decreased by($46.9) million , or (4393.6%), for the three months endedMarch 31, 2020 compared to the three months endedMarch 31, 2019 . Items deducted from or added to earnings from operations to arrive at net earnings include interest income, interest expense, gains (losses) on foreign currency transactions and other, income tax expense and non-controlling interest. ? 41
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Non-US GAAP Measures - Adjusted EBITDA
We define Adjusted EBITDA as net earnings (loss) attributable toCentury Casinos, Inc. shareholders before interest expense (income), net, income taxes (benefit), depreciation and amortization, non-controlling interests net earnings (loss) and transactions, pre-opening expenses, acquisition costs, non-cash stock-based compensation charges, asset impairment costs, (gain) loss on disposition of fixed assets, discontinued operations, (gain) loss on foreign currency transactions, cost recovery income and other, gain on business combination and certain other one-time transactions. Expense related to the Master Lease is included in the interest expense (income), net line item. Intercompany transactions consisting primarily of management and royalty fees and interest, along with their related tax effects, are excluded from the presentation of net earnings (loss) attributable toCentury Casinos, Inc. shareholders and Adjusted EBITDA reported for each segment. Not all of the aforementioned items occur in each reporting period, but have been included in the definition based on historical activity. These adjustments have no effect on the consolidated results as reported under US generally accepted accounting principles ("US GAAP"). Adjusted EBITDA is not considered a measure of performance recognized under US GAAP. Management believes that Adjusted EBITDA is a valuable measure of the relative performance of the Company and its properties. The gaming industry commonly uses Adjusted EBITDA as a method of arriving at the economic value of a casino operation. Management uses Adjusted EBITDA to evaluate and forecast the operating performance of the Company and its properties as well as to compare results of current periods to prior periods. Management believes that presenting Adjusted EBITDA to investors provides them with information used by management for financial and operational decision-making in order to understand the Company's operating performance and evaluate the methodology used by management to evaluate and measure such performance. Management believes that using Adjusted EBITDA is a useful way to compare the relative operating performance of separate reportable segments by eliminating the above-mentioned items associated with the varying levels of capital expenditures for infrastructure required to generate revenue, and the often high cost of acquiring existing operations. Our computation of Adjusted EBITDA may be different from, and therefore may not be comparable to, similar measures used by other companies within the gaming industry.
The reconciliation of Adjusted EBITDA to net earnings (loss) attributable to
For the three months ended March 31, 2020
Corporate
Amounts in thousands United States Canada Poland and Other Total
Net (loss) earnings
attributable to Century
Casinos, Inc. shareholders $ (34,219) $ (4,408) $ 31 $ (7,260) $ (45,856)
Interest expense (income),
net (1) 7,281 543 31 3,511 11,366
Income taxes (benefit) 1,847 2,071 45 (1,439) 2,524
Depreciation and
amortization 4,259 1,337 763 136 6,495
Net earnings attributable to
non-controlling interests - 180 15 - 195
Non-cash stock-based
compensation - - - (14) (14)
Loss on foreign currency
transactions, cost recovery
income and other 29,589 3,311 172 1,645 34,717
Loss on disposition of fixed
assets - - 2 2 4
Acquisition costs - - - 213 213
Adjusted EBITDA $ 8,757 $ 3,034 $ 1,059 $ (3,206) $ 9,644
(1)Expense of $7.3 million related to the Master Lease is included in interest
expense (income), net in the United States segment. Expense of $0.5 million
related to the CDR land lease is included in interest expense (income), net in
the Canada segment. Cash payments related to the Master Lease and CDR land lease
were $6.2 million and $0.5 million , respectively, for the period presented.
?
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For the three months ended March 31, 2019
Corporate
Amounts in thousands United States Canada Poland and Other Total
Net earnings (loss)
attributable to Century
Casinos, Inc. shareholders $ 983 $ 1,547 $ 913 $ (2,375) $ 1,068
Interest expense (income),
net (1) - 1,192 46 16 1,254
Income taxes (benefit) 356 766 461 (867) 716
Depreciation and
amortization 560 797 770 298 2,425
Net earnings (loss)
attributable to
non-controlling interests - 240 457 (42) 655
Non-cash stock-based
compensation - - - 261 261
Gain on foreign currency
transactions and cost
recovery income - (45) (202) (11) (258)
Loss (gain) on disposition
of fixed assets 16 (5) 5 28 44
Pre-opening expenses - 538 - - 538
Adjusted EBITDA $ 1,915 $ 5,030 $ 2,450 $ (2,692) $ 6,703
(1)Expense of $0.5 million related to the CDR land lease is included in interest
expense (income), net in the Canada segment. Cash payments related to the CDR
land lease were $0.5 million for the period presented.
Non-US GAAP Measures - Constant Currency
The impact of foreign exchange rates is highly variable and difficult to predict. We use a Constant Currency basis to show the impact from foreign exchange rates on the current period results compared to the prior period results using the prior period's foreign exchange rates. In order to properly understand the underlying business trends and performance of the Company's ongoing operations, management believes that investors may find it useful to consider the impact of excluding changes in foreign exchange rates from our operating revenue, earnings from operations, net earnings (loss) attributable toCentury Casinos, Inc. shareholders and Adjusted EBITDA. Constant Currency results are calculated by dividing the current quarter or year to date local currency segment results, excluding the local currency impact of foreign currency gains and losses, by the prior year's average exchange rate for the quarter or year to date and comparing them to actual US dollar results for the prior quarter or year to date. The current and prior year's average exchange rates for the three-month periods are presented above. Constant Currency results are not considered a measure of performance recognized under US GAAP. The Constant Currency results are presented below. For the three months ended March 31, Amounts in thousands 2020 2019 % Change Net operating revenue as reported (US GAAP)$ 87,656 $ 45,613
92%
Foreign currency impact vs. 2019 579 Net operating revenue constant currency (non-US GAAP)$ 88,235 $ 45,613
93%
(Loss) earnings from operations (US GAAP)
(1022%)
Foreign currency impact vs. 2019 (264) (Loss) earnings from operations constant currency (non-US GAAP)$ (32,036) $ 3,446
(1030%)
Net (loss) earnings attributable toCentury Casinos, Inc. shareholders as reported (US GAAP)$ (45,856) $ 1,068
(4394%)
Foreign currency impact vs. 2019 (473) Net (loss) earnings attributable toCentury Casinos, Inc. shareholders constant currency (non-US GAAP)$ (46,329) $ 1,068
(4438%)
Gains and losses on foreign currency transactions are added back to net earnings in our Adjusted EBITDA calculations. As such, there is no foreign currency impact to Adjusted EBITDA when calculating Constant Currency results.
?
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Non-US GAAP Measures - Net Debt
We define Net Debt as total long-term debt (including current portion) plus deferred financing costs minus cash and cash equivalents. Net Debt is not considered a liquidity measure recognized under US GAAP. Management believes that Net Debt is a valuable measure of our overall financial situation. Net Debt provides investors with an indication of our ability to pay off all of our long-term debt if it became due simultaneously. The reconciliation of Net Debt is presented below. Amounts in thousands March 31, 2020 March 31, 2019 Total long-term debt, including current portion$ 194,029 $ 67,772 Deferred financing costs 10,090 477 Total principal$ 204,119 $ 68,249 Less: Cash and cash equivalents $ 63,676$ 49,533 Net Debt$ 140,443 $ 18,716 Reportable Segments The following discussion provides further detail of consolidated results by reportable segment. United States For the three months ended March 31, % Amounts in thousands 2020 2019 Change Change Gaming$ 46,535 $ 6,799 $ 39,736 584.4% Hotel 1,733 321 1,412 439.9% Food and Beverage 3,753 863 2,890 334.9% Other 1,406 85 1,321 1554.1% Net Operating Revenue 53,427 8,068 45,359 562.2% Gaming Expenses (27,815) (3,239) 24,576 758.8% Hotel Expenses (675) (128) 547 427.3% Food and Beverage Expenses (3,486) (913) 2,573 281.8% General and Administrative Expenses (12,694) (1,889) 10,805 572.0% Impairment -Goodwill and Intangible Assets (29,589) - 29,589 100.0% Total Operating Costs and Expenses (78,518) (6,729) 71,789 1066.9% (Loss) Earnings from Operations (25,091) 1,339 (26,430) (1973.9%) Net (Loss) Earnings Attributable to Century Casinos, Inc. Shareholders (34,219) 983 (35,202) (3581.1%) Adjusted EBITDA$ 8,757 $ 1,915 $ 6,842 357.3%
We acquired MTR in
The
Three Months Ended
The following discussion highlights results for the three months ended
Revenue Highlights
?In
?In
?In
?
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Operating Expense Highlights
?InColorado , operating expenses decreased by($0.4) million , or (5.2%), due to decreased cost of goods sold, marketing and gaming-related expenses due to the closure of the casinos inMarch 2020 .
?In
?In
A reconciliation of net earnings attributable to
Canada For the three months ended March 31, % Amounts in thousands 2020 2019 Change Change Gaming$ 10,210 $ 9,931 $ 279 2.8% Hotel 83 125 (42) (33.6%) Food and Beverage 2,501 2,441 60 2.5% Other 3,393 3,800 (407) (10.7%) Net Operating Revenue 16,187 16,297 (110) (0.7%) Gaming Expenses (2,975) (2,944) 31 1.1% Hotel Expenses (49) (50) (1) (2.0%) Food and Beverage Expenses (2,385) (2,102) 283 13.5% General and Administrative Expenses (7,744) (6,704) 1,040 15.5% Impairment -Goodwill and Intangible Assets (3,375) - 3,375 100.0% Total Operating Costs and Expenses (17,865) (12,597) 5,268 41.8% (Loss) Earnings from Operations (1,678) 3,700 (5,378) (145.4%) Non-Controlling Interest (180) (240) (60) (25.0%) Net (Loss) Earnings Attributable to Century Casinos, Inc. Shareholders (4,408) 1,547 (5,955) (384.9%) Adjusted EBITDA$ 3,034 $ 5,030 $ (1,996) (39.7%)
In
The
Three Months Ended
The following discussion highlights results for the three months ended
Results in US dollars were impacted by a 1.0% exchange rate decrease in the
average rate between the US dollar and the Canadian dollar for the three months
ended
Revenue Highlights
In CAD In US dollars
? In
increased byCAD 1.3 million , or increased by$0.9 million ,
or
10.9%. The increase was primarily due 10.5%.
to the CMR casino operating for the
majority of the quarter in 2020; the
casino was not operating in the 2019
period. This increase was offset by
decreased net operating revenue due
to the closure of the casinos.
? In
decreased by
(13.9%), due to the closure of the (14.1%).
casinos.
?
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Operating Expense Highlights
In CAD In US dollars
? In
increased byCAD 7.4 million , or increased by$5.3 million ,
or
73.5%, including
to the impairment of goodwill at CSA.
The increase was primarily due to the
additional expenses at CMR related to
operating the casino for the majority
of the quarter in 2020; the casino
was not operating in 2019. ? InCalgary , operating expenses ? InCalgary , operating expenses remained constant. decreased by($0.1) million , or (1.2%).
A reconciliation of net earnings attributable to
Poland For the three months ended March 31, % Amounts in thousands 2020 2019 Change Change Gaming$ 16,754 $ 19,460 $ (2,706) (13.9%) Food and Beverage 193 227 (34) (15.0%) Other 115 65 50 76.9% Net Operating Revenue 17,062 19,752 (2,690) (13.6%) Gaming Expenses (10,583) (12,463) (1,880) (15.1%) Food and Beverage Expenses (666) (714) (48) (6.7%) General and Administrative Expenses (4,756) (4,130) 626 15.2% Total Operating Costs and Expenses (16,768) (18,077) (1,309) (7.2%) Earnings from Operations 294 1,675 (1,381) (82.4%) Non-Controlling Interest (15) (457) (442) (96.7%) Net Earnings Attributable to Century Casinos, Inc. Shareholders 31 913 (882) (96.6%) Adjusted EBITDA$ 1,059 $ 2,450 $ (1,391) (56.8%) InPoland , casino gaming licenses are granted for a term of six years. These licenses are not renewable. When a gaming license expires, any gaming company can apply for a new license for that city. The casino at the LIM Center inWarsaw reopened inAugust 2019 . We expanded the gaming floor at theMarriott Hotel and added an additional six table games inMay 2019 .
The casinos in
Three Months Ended
Results in US dollars were impacted by a 3.6% decrease in the average exchange rate between the US dollar and Polish zloty for the three months endedMarch 31, 2020 compared to the three months endedMarch 31, 2019 .
Revenue Highlights
In PLN In US dollars
? Net operating revenue decreased by ? Net operating revenue decreased by
(PLN 8.3) million, or (11.0%), due to($2.7) million , or (13.6%). the closure of the casinos inMarch 2020 .
Operating Expense Highlights
In PLN In US dollars
? Operating expenses decreased by (PLN ? Operating expenses decreased by
3.0) million, or (4.4%), primarily
due to reduced gaming-related
expenses resulting from the casino
closures in
A reconciliation of net earnings (loss) attributable to
?
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Corporate and Other
For the three months
ended March 31, %
Amounts in thousands 2020 2019 Change Change
Gaming $ 793 $ 1,150 $ (357) (31.0%)
Food and Beverage 105 221 (116) (52.5%)
Other 82 125 (43) (34.4%)
Net Operating Revenue 980 1,496 (516) (34.5%)
Gaming Expenses (670) (920) (250) (27.2%)
Food and Beverage Expenses (133) (200) (67) (33.5%)
General and Administrative Expenses (4,338) (3,332) 1,006 30.2%
Impairment - Goodwill and
Intangible Assets (1,000) - 1,000 100.0%
Total Operating Costs and Expenses (6,277) (4,750) 1,527 32.1%
Loss from Equity Investment - (14) 14 100.0%
Losses from Operations (5,297) (3,268) (2,029) (62.1%)
Non-Controlling Interest - 42 (42) (100.0%)
Net Loss Attributable to Century
Casinos, Inc. Shareholders (7,260) (2,375) (4,885) (205.7%)
Adjusted EBITDA $ (3,206) $ (2,692) $ (514) (19.1%)
We permanently closed the casino at CCB on
The cruise ships on which our ship-based casinos are located stopped sailing aroundMarch 10, 2020 due to COVID-19. The concession agreement for four of the fiveTUI Cruises ships on which we operated casinos ended onMay 12, 2020 and was not extended.
We have mutually agreed with the cruise lines through which we have concession agreements not to extend certain agreements at their termination dates. The following is a summary of concession agreements that ended in 2019.
Cruise Ship Month of Contract Expiration
Wind Spirit January 2019
Star Pride March 2019
Wind Surf April 2019
Star Breeze April 2019
Star Legend May 2019
In April 2018 , CRM purchased a 51% ownership interest in GHL. GHL entered into
agreements with MCL, the owner of a hotel and international entertainment and
gaming club in the Cao Bang province of Vietnam , under which GHL manages MCL and
owns 9.21% of its outstanding shares. We sold our interest in GHL to the
unaffiliated shareholders of GHL in May 2019 for a $0.7 million non-interest
bearing promissory note. We recognized a loss on sale of less than ($0.1)
million in general and administrative expenses on our condensed consolidated
statement of (loss) earnings for the year ended December 31, 2019 . We
consolidated GHL as a majority-owned subsidiary for which we have a controlling
financial interest and accounted for GHL's interest in MCL as an equity
investment through May 2019 . The sale of our equity interest in GHL also ended
our equity interest in MCL.
Three Months Ended
The following discussion highlights results for the three months endedMarch 31, 2020 compared to the three months endedMarch 31, 2019 . Results at CCB were impacted by a 1.7% exchange rate decrease for the three months endedMarch 31, 2020 compared to the three months endedMarch 31, 2019 .
Revenue Highlights
Non-Corporate Reporting Units
?Net operating revenue decreased by($0.5) million , or (34.5%). The decrease was due to decreased revenue from Cruise Ships & Other as we operated five ship-based casinos during the three months endedMarch 31, 2020 compared to nine ship-based casinos during the three months endedMarch 31, 2019 as well as the closure of CCB and the ship-based casinos inMarch 2020 due to COVID-19, as detailed above. ? 47
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Operating Expense Highlights
Non-Corporate Reporting Units
?Total operating costs and expenses decreased by($0.4) million , or (18.2%). InMarch 2020 , we wrote-down a$0.3 million receivable related to MCE due to the assessment of MCE's operating and cash position and the impact of COVID-19 on MCE's ability to repay the receivable.
Corporate Reporting Units
?Our corporate reporting units include certain other corporate and management operations. Total operating costs and expenses increased by$1.9 million , or 79.0%. InMarch 2020 , we impaired the MCE investment due to an assessment of their operations resulting from COVID-19. As a result of the impairment, we recorded$1.0 million to impairment - goodwill and intangible assets during the three months endedMarch 31, 2020 . In addition, we assessed the collectability of a receivable from LOT related to thePoland contingent liability and determined that, due to COVID-19, it was more likely than not that LOT will be unable to repay us for its portion of taxes paid by CPL to thePolish IRS . As a result, we wrote-down the$0.7 million receivable to general and administrative expenses for the three months endedMarch 31, 2020 . A reconciliation of net loss attributable toCentury Casinos, Inc. shareholders to Adjusted EBITDA can be found in the "Non-US GAAP Measures - Adjusted EBITDA" discussion above.
Non-Operating Income (Expense)
Non-operating income (expense) was as follows:
For the three months
ended March 31, %
Amounts in thousands 2020 2019 Change Change
Interest Income $ 1 $ 4 $ (3) (75.0%)
Interest Expense (11,367) (1,258) 10,109 803.6%
Gain on Foreign Currency
Transactions and Other 1 247 (246) (99.6%)
Non-Operating (Expense) Income
1028.6% Interest income
Interest income is directly related to interest earned on our cash reserves.
Interest expense
Interest expense is directly related to interest owed on our borrowings under our Macquarie Credit Agreement, our financing obligation with VICI PropCo, the BMO Credit Agreement, the fair value adjustments for our interest rate swap agreements, our CPL and CRM borrowings, our capital lease agreements and interest expense related to the CDR land lease.
Taxes
Income tax expense is recorded relative to the jurisdictions that recognize book earnings. During the three months endedMarch 31, 2020 , we recognized an income tax expense of$2.5 million on pre-tax loss of($43.1) million , representing an effective income tax rate of (5.9%), compared to an income tax expense of$0.7 million on pre-tax income of$2.4 million , representing an effective income tax rate of 29.5% for the same period in 2019. For an analysis of our effective income tax rate compared to the US federal statutory income tax rate, see Note 9, "Income Taxes," to our condensed consolidated financial statements included in Part I, Item 1 of this report. ? 48
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LIQUIDITY AND CAPITAL RESOURCES
Our business is capital intensive, and we rely heavily on the ability of our casinos to generate operating cash flow. We use the cash flows that we generate to maintain operations, fund reinvestment in existing properties for both refurbishment and expansion projects, repay third party debt, and pursue additional growth via new development and acquisition opportunities. When necessary and available, we supplement the cash flows generated by our operations with either cash on hand or funds provided by bank borrowings or other debt or equity financing activities. In 2020, our liquidity has been adversely affected by closure of all of our casinos, hotels and other facilities to comply with quarantines issued by governments to contain the spread of COVID-19, as discussed below. As ofMarch 31, 2020 , our total debt under bank borrowings and other agreements net of$10.1 million related to deferred financing costs was$194.0 million , of which$183.5 million was long-term debt and$10.6 million was the current portion of long-term debt. The current portion relates to payments due within one year under our Macquarie Credit Agreement, the CPL credit facilities, the UniCredit Loan and the CRM credit facility. For a description of our debt agreements, see Note 6, "Long-Term Debt," to our condensed consolidated financial statements included in Part I, Item 1 of this report. Net Debt was$140.4 million as ofMarch 31, 2020 compared to$18.7 million as ofMarch 31, 2019 , due to additional borrowings related to the Acquisition. For the definition and reconciliation of Net Debt to the most directly comparable US GAAP measure, see "Non-US GAAP Measures - Net Debt" above. The following table lists the amount of remaining 2020 maturities of our debt: Amounts in thousands Macquarie Credit Casinos Poland Century Downs Agreement ?Credit Agreements UniCredit Loan ?Land Lease UniCredit Agreement Total $ 1,275 $ 638 $ 496 $ - $ -$ 2,409
There is no set repayment schedule for the CPL credit facilities, and we classify them as short-term debt due to the nature of the agreements.
The following table lists the amount of remaining 2020 payments due under our
lease agreements:
Amounts in thousands
Operating leases Finance leases Total
$ 4,394 $ 118 $ 4,512
Cash Flows
At March 31, 2020 , cash, cash equivalents and restricted cash totaled $64.5
million , and we had working capital (current assets minus current liabilities)
of $25.2 million compared to cash, cash equivalents and restricted cash of $55.6
million and working capital of $22.8 million at December 31, 2019 . The increase
in cash, cash equivalents and restricted cash from December 31, 2019 is due to
$4.7 million of net cash provided by operating activities and $10.4 million in
proceeds from borrowings net of principal payments, offset by $4.4 million used
to purchase property and equipment, $0.5 million in deferred financing costs and
$1.3 million in exchange rate changes.
Net cash provided by operating activities was $4.7 million for the three months
ended March 31, 2020 and $4.2 million for the three months ended March 31, 2019 .
Our cash flows from operations have historically been positive and sufficient to
fund ordinary operations. Trends in our operating cash flows tend to follow
trends in earnings from operations, excluding non-cash charges. Please refer to
the condensed consolidated statements of cash flows in Part I, Item 1 of this
Form 10-Q and to management's discussion of the results of operations above in
this Item 2 for a discussion of earnings from operations.
Net cash used in investing activities of $4.4 million for the three months ended
March 31, 2020 consisted of $0.3 million for slot machine purchases at our
Colorado properties; $0.4 million for slot machine purchases and $1.3 million
for player tracking systems at our Missouri properties; $0.4 million for table
game equipment at our Edmonton properties; $0.2 million for table game equipment
at our Calgary properties; and $1.8 million in other fixed asset additions at
our properties.
Net cash provided by financing activities of $9.9 million for the three months
ended March 31, 2020 consisted of $10.4 million in proceeds from borrowings on
our long-term debt net of principal repayments, offset by $0.5 million in
deferred financing costs.
?
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Common Stock Repurchase Program
Since 2000, we have had a discretionary program to repurchase our outstanding common stock. InNovember 2009 , we increased the amount available to be repurchased to$15.0 million . We did not repurchase any common stock during the three months endedMarch 31, 2020 . The total amount remaining under the repurchase program was$14.7 million as ofMarch 31, 2020 . The repurchase program has no set expiration or termination date.
Potential Sources of Liquidity, Short-Term Liquidity, and Going Concern
Historically, our primary source of liquidity and capital resources has been cash flow from operations. When necessary and available, we supplement the cash flows generated by our operations with funds provided by bank borrowings or other debt or equity financing activities. In addition, we have generated cash from sales of existing casino operations and proceeds from the issuance of equity securities upon the exercise of stock options. The COVID-19 pandemic has had an adverse effect on our first quarter 2020 results of operations, financial condition and liquidity, and we expect the situation will have an adverse effect on our second quarter 2020 results of operations, financial condition and liquidity. BetweenMarch 14, 2020 andMarch 17, 2020 , we closed all of our casinos, hotels and other facilities to comply with quarantines issued by governments to contain the spread of COVID-19. We anticipate a phased approach to reopening will be recommended by government officials in the jurisdictions where we operate. Our casinos rely on a local customer base and, as such, we anticipate that our operations could resume at a quicker rate than those of casinos at destination resorts. The timing for reopening our locations will depend on determinations by governments in each jurisdiction. Our Polish locations reopened onMay 18, 2020 . Based on information currently available, we are anticipating reopening most other locations beginning inJune 2020 and no later thanAugust 2020 . However, we cannot predict how quickly customers will return to our casinos. Due to the temporary closures of our casinos, hotels and other facilities, we have taken actions to reduce operating costs, including furloughing most of our personnel and implementing reduced work weeks for other personnel. During the closures, we will continue to pay benefits to ourUnited States and Canadian employees, inclusive of part time employees, throughMay 2020 . InPoland , all employees were paid reduced salaries based on local employment laws. We have suspended most advertising and marketing costs and intend to eliminate approximately$13.7 million of non-labor operating costs in 2020. We intend to defer or eliminate discretionary capital projects for the remainder of 2020 in order to proactively address our capital spending and operating costs for 2020, and the landlord under ourMaster Lease for theAcquired Casinos has waived our capital improvement expenditure requirements for 2020 and agreed to defer to not later thanDecember 31, 2021 our obligation to complete certain other expenditures contemplated in the underwriting of theAcquired Casino properties. Additionally, we have contacted some of our contractual counterparties, such as vendors and other lessors, to discuss possible modifications to the timing of certain contractual payments. InMarch 2020 , as a proactive measure to increase our cash position and preserve financial flexibility in light of the current uncertainty resulting from the COVID-19 pandemic, we drew an additional$17.4 million on our revolving credit facility with Macquarie and credit agreement with UniCredit. We have no remaining availability under these credit facilities. As ofApril 30, 2020 , we had$50.0 million in cash on hand. We currently are not generating any revenue or cash flow from our properties, and we estimate that the net cash outflow during the time our operations continue to be fully suspended will be, on average, approximately$8.0 million per month. Management estimates that we will need approximately$19.8 million to reopen operations and cover short-term cash needs at the casinos. Based on our current cash on hand, the anticipated timing of reopening our casinos, hotels and other facilities, estimates of customer visits to our casinos, and the cost reduction measures taken to date, we are projecting that we will have sufficient liquidity to fund our operations and meet our scheduled debt service obligations for at least one year following the date that the condensed consolidated financial statements are issued. As ofMarch 31, 2020 , we were in compliance with all financial covenants under our credit agreements. However, based on the anticipated timing of reopening our casinos, hotels and other operations, management is projecting a potential violation of a financial covenant related to the Macquarie revolving credit facility. If the financial covenant is not met and the amount outstanding under the revolving credit facility (currently$10.0 million ) exceeds$3.5 million , Macquarie could demand repayment of the outstanding balance under the revolving credit facility, and there is uncertainty whether we would have sufficient liquidity to finance our operations and repay the revolving credit facility within one year after the condensed consolidated financial statements are issued. These conditions and events raise substantial doubt about our ability to continue as a going concern. In response to these conditions and events, management has obtained from Macquarie a proposal for a covenant waiver and terms for additional financing under the revolving credit facility which would be sufficient to mitigate conditions and events that raise substantial doubt. Management plans to execute one or both of these proposals only if there is an actual covenant violation or need for additional liquidity. As a result, we have concluded that management's plans are probable of being achieved to alleviate substantial doubt about our ability to continue as a going concern. 50
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We may be required to raise additional capital to address our liquidity and capital needs. We have a shelf registration statement with theSEC that became effective inJuly 2017 under which we may issue, from time to time, up to$100 million of common stock, preferred stock, debt securities and other securities and under which we undertook the common stock offering inNovember 2017 . If necessary, we may seek to obtain further term loans, mortgages or lines of credit with commercial banks or other debt or equity financings to supplement our working capital and investing requirements. Our access to and cost of financing will depend on, among other things, global economic conditions, conditions in the financing markets, the availability of sufficient amounts of financing, our prospects and our credit ratings. A financing transaction may not be available on terms acceptable to us, or at all, and a financing transaction may be dilutive to our current stockholders. The failure to raise the funds necessary to fund our debt service and rent obligations and finance our operations and other capital requirements could have a material and adverse effect on our business, financial condition and liquidity. In addition, we expect our US domestic cash resources will be sufficient to fund our US operating activities and cash commitments for investing and financing activities. While we currently do not have an intent nor foresee a need to repatriate funds, we could require more capital in the US than is generated by our US operations for operations, capital expenditures or significant discretionary activities such as acquisitions of businesses and share repurchases. If so, we could elect to repatriate earnings from foreign jurisdictions in the form of a cash dividend, which would generally be exempt from taxation with the exception of the adverse impact of withholding taxes. We also could elect to raise capital in the US through debt or equity issuances. We estimate that approximately$27.2 million of our total$63.7 million in cash and cash equivalents atMarch 31, 2020 is held by our foreign subsidiaries and is not available to fund US operations unless repatriated.
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