Good day, everyone. Welcome to the Century Casinos Q4 2022 Earnings Call. During today's conference, you may submit questions to the presenters by pressing star one on your touchtone phone at any time during the broadcast. If you require technical assistance during today's event, you can reference the help link at the top of your screen. Please note, today's call will be recorded, and I will be standing by should you need any assistance. It is now my pleasure to turn today's call over to Peter Hoetzinger. Please go ahead.
Good morning, everyone. 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, we would like to remind you that we will be discussing forward-looking information, which involves several risks and uncertainties that may cause actual results to differ materially from our forward-looking statements. The company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events, or otherwise. We provide a detailed discussion of the various risk factors in our SEC filings and encourage you to review these filings. 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 releases and SEC filings available in the investor section of our website at cnty.com. I'll now provide an overview of the results of the fourth quarter and full year 2022. After that, there will be a Q&A session. For the year 2022, we had an all-time record with net operating revenues up 11% and Adjusted EBITDA up 6% over 2021. We achieved these record results even though our Caruthersville riverboat casino in Missouri was severely impacted by weather throughout the fourth quarter. It had to close in November and then could reopen with re-restricted capacity only. That it cost us about $2 million in EBITDA compared to Q4 of 2021.
The dangerously low water levels required us to become creative and act quickly. We did. With the approval of the Missouri Gaming Commission just before the Christmas holidays, we moved all operations to a temporary land-based building. We typically do not like to call out weather. In addition to the issues we had in Caruthersville, severe storms and freezing temperatures in mid-December, it has quite an impact out at our other properties as well.
It negatively impacted Q4 results. As the weather broke, demand returned. We ended the quarter on a high note with strong performances, not only at Caruthersville, but across the entire portfolio between Christmas and New Year's. That has continued into January and February. The regional gaming customer is showing little signs of slowing down. Many macro indicators, such as unemployment and wage growth, point to a rather healthy environment.
Outside of weather, we see underlying demand trends remaining solid heading into Q2 and Q3 of this year. On the expense side of the business, our teams are managing the overall cost structure while dealing with inflationary pressures that still exist. Wage inflation has largely normalized, but utilities inflation remains elevated. The promotional environment across all our markets remains relatively stable. It is pretty disciplined. We continue to envision a very rational marketing approach for all of us. I'll review each segment in a little bit more detail. In Colorado, we finished the year with flat revenues in the fourth quarter. EBITDA was impacted by higher labor and utility costs compared to last year. We held our market share steady.
The overall number of visits was down in October and November, but it turned around in December, and that positive trend continues into Q1 of this year, especially from the higher ADT segments. It was a similar picture in West Virginia. Our Mountaineer Casino, Racetrack & Resort had a difficult start to the quarter. The number of trips to the casino was down, especially midweek. Business came back over the holidays and currently is flat year-over-year. We are still experiencing staffing challenges at Mountaineer, resulting in limitations to hours of operation and availability of hotel rooms. In Missouri, we saw our trips and revenue from all age groups, distance ranges, and ADT segments across the database. Spend per trip was even to prior year.
I mentioned the dangerously low water level situation at Caruthersville already, but we also had a significant winter weather impact in December during what is typically one of the busiest times of the year. Right after that, business rebounded strongly with an all-time record for daily coin-in at our Cape Girardeau property on New Year's Eve. That trend has continued into the current quarter. Currently, we are up around 3% compared to Q1 of last year at both of our Missouri properties. Now let me add more color to our growth projects there. Construction of the new land-based hotel and casino development in Caruthersville is progressing according to schedule. We plan to open in Q4 of next year.
The new property will have a total of 74 hotel rooms, 12 gaming tables with over 600 slot machines, which is a 20% increase in gaming positions compared to the old riverboat. Most importantly, it will provide significant operational efficiencies. It will be much more convenient for our customers. It will increase our catchment area. At Century Casino Cape Girardeau, the larger of our two Missouri casinos, construction of the 69-room, six-story hotel building is well on track for an opening around this time of next year. That development will transform the property to a full resort destination offering gaming, dining, conferences, concerts, events, and more. Moving north to Canada, all four properties showed nice gains in the quarter. That continued into January and February. On top of that, we got very good news from the regulatory front last week.
Effective April 1 of this year, the Alberta Gaming Commission is increasing the operator's portion from slot revenues by 2% to help promote overall growth in gaing proceeds by enabling operators to reinvest in their facilities. While this is a temporary measure valid for two years for now, we do expect a significant increase in our results from next quarter on. Our casinos in Poland continued their solid performance. Revenue was up 11%. As our results in Poland are consistently strong, we may as well wait for another licensing cycle to kickstart the sales process. We don't have any time pressure. That timing is not an issue for us. As you know, we have an excellent management team there in place, and there's no need for any investment or CapEx from our side. It's quite the opposite. Cash is flowing from Poland to us.
A quick look at our balance sheet and liquidity shows that we have $102 million in cash and cash equivalents, plus the $100 million, which we keep in escrow for the closing of the Nugget OpCo transaction once Nevada licensing is complete. Outstanding debt totals $350 million, which includes $347 million under the Goldman Sachs credit agreement, of which $100 million is in escrow for the Nugget. Our two pending acquisitions are progressing as planned. We had our hearing at the Nevada Gaming Control Board the day before yesterday. Happy to report that all went well. The board unanimously recommended approval to the Nevada Gaming Commission of our application to acquire the Nugget Casino Resort operations. Our application must still be approved by the Gaming Commission in Nevada at its meeting on March 23.
If approved, we plan to close the Nugget acquisition in the first week of April, less than four weeks from today. We are finalizing our plans for initial investments and upgrades, and I'm more excited than ever about the potential for improvements. The immediate focus will be on the gaming floor, as well as on raising the potential for synergy effects across all operation departments. Nugget is a full-service resort destination with over 1,300 hotel rooms and suites, a casino with 850 slots and 29 tables, six restaurants, several indoor and outdoor entertainment venues, as well as one of the largest convention areas in the market. Its location on I-80 provides unmatched exposure in the Reno-Sparks area, and we plan on taking full advantage of that with a new attractive facade and signage.
In Maryland, we expect to close the Rocky Gap acquisition a couple of months after the Nugget transaction, probably in June or July. Simultaneously, with the closing of that transaction, VICI Properties will take over the real estate assets, and we will amend our existing Master Lease with VICI to add the Rocky Gap property. Rocky Gap is a full-service resort less than two hours from the Baltimore and Washington, D.C. metro areas and includes an 18-hole golf course designed by Jack Nicklaus, 5,000 sq ft event center, several meeting spaces, a spa, and several outdoor activities. Property consists of over 25,000 sq ft of gaming floor, 630 slot machines, 16 table games, 198 hotel rooms, and five F&B venues. With the Nugget and Rocky Gap acquisitions, we will oversee a U.S. portfolio that reaches from east to west.
On a pro forma basis, after taking effect to the two acquisitions, we expect to generate over 80% of our EBITDA in the US. What is also important to note is the fact that these two acquisitions will improve our leverage ratios. Our current total debt to EBITDA ratio is 4.8x, and that will reduce to 3.5x. Our current net debt to EBITDA goes from 3.5 down to 3.1. The lease-adjusted net leverage remains flat at 4.7x. As for the discussion about the most advantageous mix of HoldCos and OpCos, and with some operators being very aggressive with rent coverage, we will be at a quite healthy and conservative rent coverage of 3.1x across our portfolio, and that's already pro forma for the two pending acquisitions.
With that, we feel very comfortable, and we'll continue working with real estate investors on a case-by-case basis to support our growth. As we move further into 2023, the economic uncertainty that persists today makes it difficult to predict where consumer trends are headed. We are mainly watching two economic factors that we believe are tightly correlated to the behavior of our core customers and that has the biggest impact on our business volumes, which are the labor market and housing. Slight shifts in gas prices or interest rates don't seem to affect our customers that much. We are cautiously optimistic about the positive trends we saw in January and February across all our markets. In closing, as we look back on 2022, it was another transformative year for Century.
We posted record results and signed agreements to acquire another $180 million of revenues at over $50 million of EBITDA. Looking ahead, we are excited about the Nugget and Rocky Gap acquisitions, as well as the regulatory positive change in Alberta this year, about our two Missouri growth projects coming online next year. Further, we believe there are additional opportunities to drive organic growth in our land-based operation. While there is clearly some macro risk still, these growth drivers should help to more than offset potential consumer pressure. On behalf of the company's management and board, I'd like to thank our team members, our guests, and our stockholders for their continued loyalty and enthusiasm. I thank you for your attention. We can now start the Q&A session. Operator, go ahead, please.
Absolutely. At this time, we will open the floor for questions. If you would like to ask a question, please press the star key followed by the one key on your touch tone phone. Questions will be taken in the order in which they are received. If at any time you would like to remove yourself from the questioning queue, please press star two. Again, to ask a question, please press star one. We will take our first question from Jeff Stantial. Your line is open.
Hi there. This is Jackson Gibb on for Jeff Stantial. I noticed that you quantified the Caruthersville disruption as a $2 million hit to EBITDA. I was wondering if you could, in a similar way, quantify the impact of weather in the fourth quarter to your results.
Erwin, we don't have a number for that, do we?
That's a bit harder, yeah. It's hard to say. I mean, I hesitate to say something. It would be too speculative.
Okay. That's fair. Thinking about margins, those two impacts, weather and the disruption at Caruthersville clearly affected margins, throughout the portfolio, it looks like they came in a little bit. I was wondering if, you know, once these temporary pressures roll off, how are you thinking about margins into 2023, and you know, what kind of represents a reasonable run rate for the business moving forward?
Erwin?
If I may take, yeah. If we look at the expense side, the main factors on the that we had as additional expense were high utility costs, higher the property insurance, and here there are also higher salary, so salary increases. Coupled with that, higher maintenance, higher cost of operating supplies. We would think that these costs will not go up and maybe ideally a little bit down, but nobody can predict the future.
Our assessment would be that we've, we're beyond the peak of these price increases. We don't think that there we need any more salary increases of any significance, and hopefully insurance and utilities prices will also not go up any higher. With regard to the margins, it really also then depends on how well we're able to further increase the net operating revenues.
Thank you very much.
Our next question comes from Chad Beynon. Your line is open.
Hi. Good morning. Thanks for taking my question. Peter, Erwin, wanted to ask about the Missouri growth projects. Has anything changed in terms of kind of the cost or the scope of these projects, and then also kind of how you view the return profile once fully ramped? Thank you.
Nothing has changed with regard to with regard to the cost. We're on budget, within the budget, so that looks good. Becky, do you have the latest we did on the, on the return percentage, on return and additional invested capital? For the Cape Gi hotel on the one hand.
I don't have-
For the rebuild on Caruthersville on the other hand.
I don't have those right in front of me, no.
We have said that we expect 10%-15% return at Cape Girardeau, and 15%-20% at Caruthersville in Missouri. Chad, that has not changed. These are significant upgrades and improvements to, especially in Caruthersville. It's really a game changer because we'll have number of hotel rooms, we'll have all these boat and barge issues gone, and the property will also first time visitors which have not come back, and this is the Caruthersville boat for the first time, will then come back. It will have a big impact, really.
Thank you. Appreciate it. With respect to the Nugget, I guess a couple questions on that. Congrats on all the progress in terms of closing that. Obviously, we're all well aware of the weather impact there. You know, that's not affecting your numbers at this point. When you take control of the property, you talked about some upgrades, the gaming floor and synergies and the like. Should there be some disruption? Meaning should we assume kind of a low positive impact for that second quarter, kind of when you take control and then we'll start to see the benefits? Or will there be less disruption as you look to make some of these changes once you control the property? Thanks.
Erwin?
I don't think we don't see any disruption, certainly not in Q2. I mean, changes to the gaming floor with regard to the slot mix, we wouldn't call that disruption. That doesn't disrupt putting in new slots is not really disrupting the operations. The only thing that we would, Well, what disruption is a topic to manage is if and when we change the floor layout and expand the floor and make changes to the floor layout.
If and when we're in the middle of planning that, if and when we do that, obviously, most important and integral part of the planning would be to do it in such a fashion that the disruptions are either minimal or not even any disruption at all. I think that's very doable. The good thing is, one of the good aspects of the Nugget is that there is a lot of square footage, and we have a lot to a lot of room to play with.
Okay, just one last one on the Nugget. When we think about the TTM multiple, even with some of this maybe weather disruption, are we still kinda sub six from an OpCo standpoint in terms of what you guys will be paying for the asset?
Well, if we're taking the 2022 numbers, then we are a bit higher than six. But the 2022 numbers were not only negatively impacted by weather in Q4. They were also on the on the events front. Erwin, you know that in more detail, quite a few like one-time impacts with the canceled shows and so on.
Yeah. That had a material impact to the 2022 numbers, right? Yeah. Four shows, four acts have canceled. Jay Leno had an accident at home. John Fogerty got some sickness in the eye. The other two gentlemen also, or groups, they were postponing into next year. One was afraid of COVID, and the other one, we don't know why they. I mean, that was really unfortunate. All of these cancellations came just too short to be able for the Nugget management to get a replacement. So that should be really hopefully what has been one very unlucky year, and we don't think that this will repeat itself.
Appreciate it. Thanks for all the additional color.
All right. Thanks, Chad.
Our next question comes from Jordan Bender. Your line is open.
Great. Thanks. Erwin, you called out a pretty positive outlook into the second and third quarter this year. Can you maybe break that down between the drivers of that? Are they the macro factors you called out? Is it fair to assume that, you know, the second and third quarter, you should be up year-over-year on a same-store basis?
Yes, Jordan. That's what we expected. That's what it looks like right now. It's pretty much across the board, yeah. Flat-ish in West Virginia, up in Missouri, up in Colorado.
Up in Poland, up in Canada.
Poland, yeah. Up in Canada. That's right, yeah.
Okay. That's good to hear. Just following up, in Caruthersville, looks like gaming position has increased pretty meaningfully with the move to land. Can we maybe get an update on the performance of the temporary facility and how consumers are viewing that? Maybe what should we expect this year from that?
Maybe to give you some flavor, last talking to our general manager there after we moved from the boat to the temporary facility in what we call Pavilion, he said he has not seen one single customer who has been unhappy about the boat not being there anymore. People are really happy about it. I mean, it's a wonderful interim facility. It's not what we are going to build, of course.
That will be brand new. It fits much better. For what was possible, it has a very good feel, you know, both the table games and the slot machine side, very well accepted. We're really happy that, I mean, under all the circumstances, how difficult it was, that we, together with, a lot of support from the local authorities, were able to get the approval for that, move into this, interim facility.
Great. Thanks. I'll pass it off.
Thanks, Jordan.
Once again, if you would like to ask a question, please press star one on your touch tone phone. We will take our next question from Edward Engel. Your line is open.
Hi. Thanks for taking my question. As some of these acquisitions kinda close throughout the year, you just start generating substantial free cash flow, where does this kind of free cash flow get focused to? Are you still open on the M&A front? Does it just go completely to deleveraging? Are there other kind of CapEx projects you see across the portfolio? Just kind of wondering, how that cap allocation shifts as these acquisitions close.
Hi. Yeah, thanks for the question. We see a mix of certain things. Deleveraging is one, and yes, we wanna become active again on the M&A front, probably Once we close the Rocky Gap acquisition in the summertime, we may also want to give a little bit back to our shareholders. It will be a combination of all those things, a little bit dependent on how busy the M&A situation will get, come Q3 and Q4.
Great, helpful. You're helpful in giving the pro forma net leverage once these things close. Just wondering, do you have a target net leverage you have in mind in a steady state environment, I guess, non-M&A environment?
Lease-adjusted, around four and a half times, is where we feel very comfortable.
Great. Thank you.
Thanks, Ed.
Once again, if you would like to ask a question, please press star one. We will pause another moment to allow questions to queue.
Okay.
It appears we have no questions at this time.
Well, we appreciate everybody joining our call today. For a recording of the call, please visit the financial results section of our website at cnty.com. If you have any follow-up questions, please feel free to reach out to us. Thank you. Operator, that concludes our call.
Thank you, ladies and gentlemen. This concludes today's program. You may now disconnect.