Welcome to Century Casinos Q3 2021 earnings conference call. This call will be recorded. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. I would like to introduce our host for today, Mr. Peter Hoetzinger. Please begin, sir.
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 a number of risks and uncertainties that may cause actual results to differ materially from our forward-looking statements. We undertake 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 risks, 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 filing, available in the investor section of our website at cnty.com. I will now provide an overview of the third quarter results. After that, there will be a question-and-answer session. Our results for the third quarter have been truly outstanding. Revenues exceeded the third quarter of last year by 22%, and they doubled compared to 2019. At $117 million, we set the new all-time revenue record for the second consecutive quarter. Very strong flow-through and a consolidated margin of 28%, resulting in adjusted EBITDA of $33.1 million for the quarter, also a new all-time record for our company. That is 49% higher than the EBITDA of Q3 of last year.
Sequentially, it is 31% higher than the EBITDA of the second quarter of this year. Considering yesterday's reaction in the stock market, let me point out that our sequential revenue and EBITDA growth of 27% and 31% respectively, are some of the largest, if not the largest, improvements of Q3 over Q2 numbers of any listed gaming company. On top of that, we also generated sequential margin improvement. Our EBITDA margin in Q3 was 95 percentage points higher than our margin was in Q2. One more thing, sports betting and iGaming is profitable for us, and it has been profitable for us since day one. All right, now let's move on. Our great Q3 performance is the result of a disciplined, cost-focused operating philosophy and effective targeted marketing to our high-value customers.
The quarter showed continued strength and momentum across all our local and regional properties and businesses. We saw impressive growth with increased visitation, more time on device, and higher spend per visit across our database and across our markets. We continued to benefit from strong regional demand and the preference for close-to-home entertainment. All of that has improved visitation as well as spending levels in our casinos, and together with our disciplined and efficient operating strategy, contributed to these great results across our portfolio. Our cost structure is more streamlined and our marketing and promotional investments are more targeted, which translates into increased spend per visit, especially from our most valuable players. We achieved the record operating results and margins despite some pressure from a challenging labor market and other cost inflation resulting from supply chain disruptions.
Our local management teams are doing a great job dealing with inflationary pressures, whether it be on cost of goods or wage inflation, and we're not seeing it having a meaningful impact on margins. On our busy weekends, we have been able to manage the labor shortages and operate the hotels and F&B outlets at full capacity. During the week, however, due to labor shortages, we had to operate some of our hotels below the available room capacity. As a result, we have not always been able to accommodate all rated customers. As the labor market normalizes, we will be able to bring more hotel rooms online, driving even more gaming revenue growth from these customer segments. Our business is largely gaming-centric. Only a minority of our revenue is coming from non-gaming amenities, resulting in an overall lower cost structure.
We will only open more non-gaming amenities or expand their opening hours as demand picks up further, so that should grow in a profitable way. With regard to the sustainability of our high operating margins, at this point, we haven't seen any significant impact of more aggressive marketing from our competitors, even as other entertainment options, Las Vegas, for example, have started to come back quite strongly. That environment hasn't really changed over the last quarter or two. Most of our competitors are being disciplined and maintain their attention to cost control. We will continue focusing on the right customer, enhancing customer convenience, building loyalty, streamlining processes, and reinforcing our operating efficiency through new initiatives and technology. A great example of that is our mobile application, the Winners' Zone app.
With that app, we can send exclusive offers that are targeted by tier, location, date of the last visit, et cetera, et cetera, to our customers. It displays direct messages, up-to-date promotional information, current tier level and benefits, current point balance, as well as the value of those points, the amenities at the property, the number of entries for drawings, and current offers. The app is already live in Missouri and West Virginia with great success, and will be rolled out in Colorado shortly. It provides great convenience for our customers, and for us, it brings lots of opportunities to further increase customer loyalty, and it also saves significantly on direct mail and related expenses. Revenue from iGaming and sports betting and pari-mutuel betting continues at a strong pace.
As you know, we have partnered with experienced companies to run these operations without any significant investment from our side whatsoever. That may limit the upside potential in a very optimistic scenario, but we believe this approach is the prudent one for us, at least currently, proving an efficient use of our capital. Beyond these digital initiatives, we are also excited about additional growth opportunities available throughout our operations, most notably in Missouri. More about that in the Missouri segment shortly. Let's now cover our balance sheet and liquidity. Today, we are financially a much stronger company than at any point in our history. Net leverage at the end of the quarter was 1.4 x, and it's expected to further decline by year-end. The strength of our operating performance increased our current cash position to over $100 million.
With outstanding debt of just $182 million, our net debt sits at $81 million as of September 30. We have a well-maintained asset base that requires minimal levels of maintenance CapEx to sustain the current levels of profitability, and we have no substantial debt maturities before 2026. Next, a brief summary of the performance of each operating segment, starting with Colorado. It was an excellent quarter for our properties in Cripple Creek and Central City, with both casinos clearly surpassing 2019 and 2020 levels. Net operating revenue was up 36% over 2019, and it was up 20% over last year. Adjusted EBITDA more than doubled compared to 2019, and was up 4% over last year. The EBITDA margin remained very strong at 40%.
The combined market share of our Central City and Cripple Creek properties increased by 350 points. To further solidify and strengthen our competitive position in Cripple Creek, we have decided to provide high-quality employee housing. We will build housing for up to 30 of our current and future employees and expect to have the apartments ready by September of next year. Moving on to Missouri, our most important market in terms of EBITDA and cash flow generation. Again, great results for the quarter. July had one of the highest monthly table drops in property history, led by strong mini baccarat volumes. July and September set monthly coin-in records for those months. Net operating revenue was up 24% over Q3 of last year, and adjusted EBITDA increased by 38%.
The EBITDA margin was 45%, even though we increased wages on top of the hourly minimum in order to stay competitive in the Southeast Missouri area and help attract and retain high-quality team members. Marketing spend continues to remain significantly below pre-COVID levels and is expected to continue at its current run rate. Reductions in advertising, direct mail, and promotion expenses appear to be sustainable and have not had any negative impact on gaming volumes. We have announced two important developments at our Missouri properties. We plan to bring the Caruthersville casino, which is the last remaining riverboat casino on open water in Missouri, on land to a non-floating facility, and we plan to build a hotel at our property in Cape Girardeau. In Caruthersville, the new facility will include a newly designed casino with approximately 20% more gaming positions and 75 hotel rooms in total.
The new development will provide significant operational efficiencies as well as significantly more convenience for our customers. It will increase the catchment area and also give us a chance to win back customers who didn't like the old riverboat style when they paid us a first visit. In Cape Girardeau, we will develop a 9-story 75-room hotel building that will be single-loaded so that all hotel rooms will have scenic views of beautiful Cape Girardeau and the Mississippi River, including the iconic Bill Emerson Memorial Bridge. With that hotel development, Century Casino Cape Girardeau will transform to a full resort destination, providing ample reasons for individual and group multi-day visits for gaming, dining, conferences, concerts, events, and more. Total CapEx will run at about $68 million for both projects.
In terms of timing, we don't have clear visibility yet, but we aim for openings in late 2023 or early 2024. Next is West Virginia, where we operate the Mountaineer Casino, Racetrack and Resort. Net operating revenue was up 12%, and adjusted EBITDA was up 23% over the third quarter of last year. These are really great results, especially because of Mountaineer's resort destination character. It usually draws quite a lot of its business from hotel stays, which were somewhat limited due to staffing challenges and other restrictions. The same with F&B outlets. They are open, but with limited hours of operation. The convention space remains closed. On top of all that, we increased wages in July. Considering all these factors, a 23% uptick in EBITDA is really exciting, and we have high hopes for a strong finish to the year.
Internationally, our operations in Poland generated solid numbers. Adjusted EBITDA was just under $3 million for the quarter, fueled by a strong performance of the casinos outside the capital city of Warsaw. We do, however, expect the Warsaw casinos to come back quite strongly in Q4 with international tourist business and convention business just starting. In Canada, we operate with restrictions. All guests need to provide proof of vaccination or a negative COVID test taken a maximum of 72 hours before entry. Also, everybody is required to wear a face mask. Despite those challenges, net operating revenue almost reached 2019 levels, and adjusted EBITDA surpassed 2019 results by 56%. All properties contributed to that EBITDA growth, and I'm happy to report that the increase was highest at Century Mile Racetrack and Casino. That finishes the roundup of operations.
We are very optimistic going forward as the recent trends have continued relatively consistently into the fourth quarter, and we expect a significant portion of the cost savings to prove permanent. We have multiple avenues for continued growth, as well as confidence that this level of performance is sustainable and that we will maintain much of the margin improvements we have achieved over the last 12-18 months. As the pandemic continues to fade, additional visitors will return to our properties. As the labor market normalizes, we will be able to bring more hotel rooms and other amenities online, increasing our capacity to host profitable customers, thus increasing our revenue opportunities. In conclusion, the third quarter was another remarkable performance of our company and our entire team.
Our entire portfolio continues to generate robust EBITDA growth, and our operating strategy and tight focus on the right customer are producing the highest margins in our history. On the M&A front, we are looking at a handful of possible acquisition opportunities, all in the U.S., to further broaden our footprint and leverage our successful operating model. We've always been strategic and value-oriented when pursuing acquisitions, and that will not change. With that discipline and our strong balance sheet, we are confident to find opportunities to deploy capital in a manner that consistently builds shareholder 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 as we manage our businesses during these challenging times. I thank you for your attention, and we can now start the Q&A session. Operator, go ahead, please.
If you have a question, press star one on your telephone keypad. Again, star one for a question. Your first question is from Jeff Stantial.
Hey, good morning, Peter, Erwin. Thanks for taking our questions, and congrats on a nice set of results here. For my first question, you know, we talked a lot this earnings cycle about trends here in the U.S., so I wanted to focus on the international ops for a second. Can you talk a bit about the month-by-month cadence of performance for Canada and Poland? Has it been fairly stable since their respective reopenings? Have you witnessed any acceleration or deceleration? Just curious to hear your thoughts there.
Pretty stable, right, Erwin?
Yes. Yeah, pretty stable and very much in line with the various measures. As Peter mentioned before, in Canada, we still have had for a long time, still have restrictions. People have to wear a mask or produce a test or vaccination. That, of course, limits the speed of growth and the acceleration a little bit. However, we have also seen that across, when, say, internationally, both in Poland and in Canada, people are getting used to wearing, to being vaccinated, to wearing a mask, also have to do a test.
More and more people have been vaccinated in the various jurisdictions, which also means that customers that may have been hesitant to visit us now feel safe and then visit us more frequently and stay longer. All in all, we can say that we see growth everywhere with the only exception that the one or the other COVID restriction limits that growth, the speed of the growth a little bit.
Okay, perfect. For my follow-up, Peter, any update you can provide on the Poland sale, and then on the M&A environment you talked about in the U.S., you know, how does seller expectations feel relative to kind of when the last earnings and then talk to me. Thanks.
That in Poland, the sales process continues. It runs, but it runs quite slowly. Several parties are showing interest on an on-and-off basis. But, you know, we are finding that these operations are pretty valuable. They produce nice results. Overall they're getting like smaller and smaller relatively because they are now about 9% or less than 9% of our consolidated EBITDA. That's the situation there. On the M&A front in the U.S., I think it's slowly starting. I mean, you've heard Tom Reeg saying that they are interested to sell. It's starting always in Vegas. I mean, MGM is selling The Mirage, so it's starting. In terms of valuation, you can talk about multiples all day long.
You know, it always depends on which EBITDA you apply to. It's a combination of finding the right multiple and agreeing on an EBITDA to apply to. We see slowly but surely, more and more properties becoming available.
Okay, perfect. Very helpful. Thank you both. I'll pass it on.
The next question is from David Bain.
Great. Thank you. Very nice quarter. A lot of the big questions were addressed, but maybe we can drill down a little bit on the M&A environment that Peter, you were just speaking to. You know, understanding valuations tightened a little bit, and you've always been sensitive on that front. It seems like, you know, through earnings season, the larger companies, and you mentioned one of them, have been increasingly focused on sort of the virtual gaming world and spending larger amounts there. I mean, could that open up baskets of sellers more? Are you hearing of new product potential? It sounds like you were to that end. Could we see property baskets?
I know you were looking at, I believe, $15 million up to maybe $60 million of EBITDA, but, given your cash accumulation and some of the larger ones potentially looking to loosen their portfolios a little bit, could we punch through that at the right price, or are you not seeing that type of product at this point? That would be it.
Yeah, we're starting to see that, absolutely. Yeah, the online business does play a role because surely most of the larger companies with a large footprint throughout the U.S. want to have at least one property in a state to secure an online license in that state. Should they have more than one in a state, then yeah, more likely some of those will become available. Yeah, this is what we are seeing from pretty much all of the larger companies.
Okay, great. I know this was somewhat addressed as well, but maybe just kind of reiterating or drilling down on Canada because that was a nice outperformance versus what we were anticipating. Maybe, you know, looking at the U.S. reopening, is this sort of that reincarnated? You know, are you seeing anything that would give you the sense that we wouldn't expect those same sort of tailwinds to be sustained like they have here? And maybe just a tad on energy prices for the portfolio in general, both domestic and in Canada. If that is something that's on the radar, is that typically not something that historically has caused too much volatility?
Erwin?
Yeah. I think, like I said, I tried to say earlier, further growth will be fueled by easing the COVID restrictions, which obviously is in our hands and is a function of the development of the numbers there. That means upside potentially, because we would really think that these restrictions should be there forever. We feel very good about Canada and the growth potential that it has and that we will be able to realize as soon as restrictions are gone.
Mm-hmm. Anything on energy prices there or in the U.S.?
In Canada, that doesn't affect us significantly.
Okay. All right. Well, great quarter again. Thank you very much.
Thank you.
The next question is from Kenneth Evanovic.
Great quarter. I think most of the question was answered, but I was wondering if you could put a percentage basis on the amount that social distancing still can restrict your ability to earn full amounts of money on all your casinos. Do you have a possible percentage that the business would increase if this was all gone?
What's one, Erwin? Do you have any thoughts?
Yeah. I have numbers in mind, but I think it's problematic to speculate on that. It's really hard to say. I mean, one way to look at it is looking at our pre-COVID levels and we look at it. The first goal is, kind of, revenue-wise, to come back to the pre-COVID levels and then gradually surpass them, and at the same time, with the cost control that is already in place to keep EBITDA and EBITDA margins.
Also at some of our casinos, we do not have all table game positions open, which on a peak weekend has a negative effect. Yeah, but we do not have a detailed answer in terms of percentages yet.
Okay, thank you very much, sir.
Again, if you have a question, press star one on your telephone keypad. The next question is from Colin O'Donnell.
Hi, guys. Thank you for taking my questions. A few weeks ago, one of your competitors, Boyd, provided an interesting statistic, and I don't know if you guys could do the same thing, but they said their labor force had been about 24,000 before COVID, and it was now about 14,000. They expected that only 1,000 or 2,000 people would have to come back to run the casinos at a full pace. Could you provide any similar type of information just so we can think about the fixed cost structure of the casinos into next year?
Erwin?
No, we don't have that offhand. We could try to get that to you later.
Yeah. Okay. I think that would be very helpful. Just, you know, the other thing, just looking at, I know you guys don't have very many sell-side analysts, but, you know, the Street estimate on FactSet for this year is $66 million, and for next year it's $88 million. I'm looking at your numbers here. You guys have done $91 million of EBITDA in the last 12 months. What is there something missing on the Street or the communication or. It seems like you guys are gonna blow the numbers out of the water, and I'm just trying to figure out if I'm missing something.
Yeah. No, I think they wanted to be conservative. I'm sure they will update their numbers after this quarter. Other than that, Colin, we don't give guidance, so it's
Yeah. Understood.
Obviously, we don't provide guidance on that.
Is there any significant reason that Colorado or Missouri or West Virginia would have a worse year next year than this year?
No. We don't see any significant reason, no.
Okay. Well, that's very helpful.
The other thing.
Okay.
We think there's still upside.
Yeah. Yeah. Great. Okay, well, thank you for taking my question.
Thank you, Colin.
Thank you.
The next question is from Chad Beynon.
Morning. This is Jordan Bender for Chad today. As you look at M&A, would you look to use or continue to use a REIT to possibly go bigger? I guess what would your optimal opco-propco structure look like, and where would you wanna bring leverage?
Yeah. You know, our goal is to grow not only in absolute revenue and EBITDA numbers, but also in property size. Yes. With regard to PropCo OpCo, currently we have three in the U.S. that we acquired from Eldorado/Caesars on an OpCo. Two in Colorado is PropCo. Most in Canada is also owned by us. So that's a good mix, and we don't have like a clear goal that we don't go below a certain percentage. So I think we could easily add another OpCo or also a holdco. We are fine either way. We do not need to own the asset, but feel comfortable owning some.
It's really more on an opportunistic basis. For us, it's more important how we like the asset, how we like the market, the competitive environment, the regulatory environment, the specific location asset. Those are the things that are far more important to us than whether we can buy the holdco or the opco.
Okay. Perfect. Obviously Poland outperformed, I guess at least our expectations in the quarter. Revenues were actually over 2019 levels. You talked about that, your casinos outside of Warsaw were the ones that kinda outperformed in the quarter. Can you kinda talk about where the casinos within Warsaw sit? Just kind of thinking about how to model this segment looking into 2022.
With, with, um-
Yes.
Please, Erwin.
No, no. Go ahead. It is totally fine.
We have two in Warsaw at the Marriott and Hilton Hotel, and the others are outside of the country. Historically, the Warsaw market is in absolute numbers much stronger than the six outside of Warsaw combined. Any uptick of the Warsaw properties has a meaningful impact on the overall Poland numbers. Erwin?
Right. If I may add to that, we're looking at what is happening in the first quarter. We are very optimistic in that direction. We see that the business customers are coming back, the Marriott and the Hilton are both getting much higher occupancy and also guests that want to come to our casinos. We're confident that in the next phase, so to speak, the Warsaw casinos will follow the same trend as the casinos on the countryside.
Awesome. Next quarter. Thank you.
The next question is from Daniel Wayne.
Hi, guys. Nice quarter. I was just wondering if there's any update on the Poland strategic review process. Is the company sort of committing to the region at this point or any discussions there?
We have said that Poland has become a non-core operation for us. It is, as I've mentioned, about 9% or less than 9% of our consolidated EBITDA. It consists of eight small operations. While it is generating very solid EBITDA and cash flow for us and very high returns on our investment, we strategically do not have Poland in our long-term plans if we get a good offer. In other words, it has great value for us. If we get that value, yes, we decide to dispose of it. If not, we are happy keeping it.
At this time, there are no further questions.
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. Stay well and goodbye.
That concludes today's conference. You may now disconnect.