10-K/A: Century Casinos Restates FY24, Cites Material Control Weakness

Century Casinos, Inc. has restated its 2024 financial statements due to a material error in goodwill impairment calculation and reported ineffective internal controls.

Summary

• Century Casinos, Inc. (CNTY) filed an amendment to its 2024 Annual Report (10-K/A) to restate previously issued audited consolidated financial statements.
• The restatement corrects a material error in the calculation of the carrying value of invested capital for the Rocky Gap reporting unit, resulting in a $26.5 million goodwill impairment.
• Management concluded that disclosure controls and procedures were not effective as of December 31, 2024, due to a material weakness.
• Internal control over financial reporting was also deemed not effective as of December 31, 2024, specifically due to inadequate design, implementation, and maintenance of controls for reviewing key inputs and assumptions in impairment testing and related disclosures.
• The company recorded a total goodwill impairment of $70.2 million for the year ended December 31, 2024, including $43.7 million for the Nugget Casino Resort and $26.5 million for Rocky Gap.
• Net loss attributable to Century Casinos, Inc. shareholders significantly increased to $153.6 million in 2024, compared to a $28.2 million net loss in 2023 and $8.0 million net earnings in 2022.
• Adjusted EBITDAR decreased by 10.0% to $102.7 million in 2024 from $114.0 million in 2023.
• Cash flows from operations decreased to a net use of $3.3 million in 2024, down from a $24.1 million net provision in 2023.
• Total long-term debt (including current portion) was approximately $339.6 million as of December 31, 2024, with a majority being variable-rate debt.
• The long-term financing obligation to VICI Properties Inc. subsidiaries under the Master Lease was $701.0 million as of December 31, 2024, with scheduled 2025 rent payments of approximately $58.4 million.
• The company opened a new land-based casino and 38-room hotel in Caruthersville, Missouri, on November 1, 2024, costing approximately $51.9 million.
• A 69-room hotel, The Riverview, opened at the Cape Girardeau location on April 4, 2024, costing approximately $30.5 million.
• Two Colorado sports betting agreements (Circa Sports and Tipico) were terminated in 2024, generating $1.7 million in breakage fees.
• Several casinos in Poland experienced closures or were not awarded licenses due to licensing delays, impacting Poland's net operating revenue, which decreased by 15.1% in 2024.
• The Cripple Creek and Central City casinos in Colorado stopped offering table games in January 2025, expecting a positive impact on earnings from operations.
• The AGLC's temporary increase in slot machine net sales retained by Canadian casinos (from 15% to 17%) was extended through March 31, 2026, contributing an estimated $2.9 million to 2024 gaming revenue.
• Missouri voters approved sports betting in November 2024, with operations anticipated to begin in late 2025.

Sentiment

Score: 2

Explanation: The sentiment is highly negative due to the restatement of financial statements, the identification of a material weakness in internal controls, an adverse audit opinion, and a significant net loss. While there are some positive operational developments, the fundamental financial and control issues overshadow them, indicating substantial challenges and uncertainty.

Positives

• New land-based casino and hotel in Caruthersville, Missouri, opened in November 2024, increasing gaming positions by almost 50% and doubling hotel rooms to 74.
• The Riverview hotel in Cape Girardeau, Missouri, opened in April 2024, adding 69 rooms and contributing to increased hotel and food and beverage revenue in the Midwest segment.
• Cost-saving measures implemented at the Nugget Casino Resort from mid-April 2024 resulted in approximately $1.5 million in savings in both the third and fourth quarters of 2024.
• The temporary increase in slot machine net sales retained by Canadian casinos (from 15% to 17%) was extended through March 31, 2026, estimated to have increased 2024 gaming revenue by $2.9 million.
• Missouri voters approved sports betting in November 2024, with the company planning to partner with operators for its Missouri facilities.
• The decision to stop offering table games at Cripple Creek and Central City casinos in Colorado from January 2025 is projected to positively impact earnings from operations due to expense savings offsetting decreased revenue.

Negatives

• The company restated its 2024 consolidated financial statements due to a material error in the goodwill impairment calculation for the Rocky Gap reporting unit.
• Management concluded that disclosure controls and procedures were not effective as of December 31, 2024, due to a material weakness.
• Internal control over financial reporting was not effective as of December 31, 2024, specifically due to inadequate controls for reviewing key inputs and assumptions in impairment testing.
• The independent registered public accounting firm issued an adverse opinion on the effectiveness of internal control over financial reporting as of December 31, 2024.
• Net loss attributable to Century Casinos, Inc. shareholders significantly widened to $153.6 million in 2024, from a $28.2 million net loss in 2023.
• Total goodwill impairment charges of $70.2 million were recorded in 2024, including $43.7 million for the Nugget and $26.5 million for Rocky Gap.
• Adjusted EBITDAR decreased by 10.0% to $102.7 million in 2024 compared to $114.0 million in 2023.
• Net cash used in operating activities was $3.3 million in 2024, a significant decline from $24.1 million provided in 2023, primarily due to tax payments and increased interest expense.
• Cash and cash equivalents decreased from $171.3 million at December 31, 2023, to $98.8 million at December 31, 2024.
• Poland's net operating revenue decreased by 15.1% in 2024, and earnings from operations decreased by 167.1%, primarily due to casino closures and license denials.
• Increased interest expense of $9.4 million in 2024 was primarily due to additional properties under the Master Lease.
• The Consolidated First Lien Net Leverage Ratio exceeded 5.50 to 1.00 as of December 31, 2024, indicating high leverage, although no revolving loans were outstanding.
• Inclement weather negatively impacted revenue at US properties (Colorado, Maryland, West Virginia) in Q1 2024.
• Revenue in West Virginia has not rebounded to pre-2023 levels due to sports betting legalization in Ohio.

Risks

• General economic conditions, market downturns, inflation, and geopolitical tensions could adversely impact discretionary consumer spending and company profitability.
• Intense competition from larger casinos with greater resources could harm operating results, especially with new or expanded operations by competitors.
• Acquisition and expansion strategies may be unsuccessful, failing to generate expected returns, incurring significant costs, or facing integration difficulties and unknown liabilities.
• Significant obligations under indebtedness ($339.6 million) and the Master Lease ($701.0 million) may limit the ability to fund operations, capital expenditures, or obtain additional financing.
• Variable-rate debt exposes the company to interest rate risk, with a one percentage point change impacting annual cash interest expenses by an estimated $3.4 million.
• Defaulting on leases or inability to secure renewals could lead to loss of leased property and significant special charges.
• The potential I-80 expansion by NDOT could require rebuilding the Nugget Casino, and compensation may not cover full construction costs or align with timing.
• Climate change, severe weather, natural disasters, war (e.g., Russia-Ukraine conflict impacting Poland), terrorism, and disease outbreaks could disrupt operations and reduce customer visits.
• Insurance coverage may be inadequate for all possible losses, and insurance costs may increase, potentially leading to reduced policy limits or self-insurance.
• Challenges in properly managing the use of Artificial Intelligence (AI) could result in reputational harm, competitive harm, legal liability, and cybersecurity incidents.
• Interruptions or cybersecurity breaches of information systems could harm reputation, lead to legal claims, and negatively affect business and results of operations.
• Difficulties in managing worldwide operations across different continents, regulatory regimes, and currencies (e.g., foreign currency exchange rate fluctuations) could adversely impact the business.
• Reliance on technology services and electrical power makes operations vulnerable to damage or service interruptions, potentially leading to immediate and substantial revenue loss.
• The risk of fraud, theft, and cheating by gaming customers or employees could result in financial losses and reputational harm.
• Extensive regulation from gaming and other authorities, including potential changes in laws or non-renewal of licenses (e.g., Poland casino licenses), could adversely impact operations.
• Failure to renew or modify agreements with horsepersons and pari-mutuel clerks on satisfactory terms could materially adversely affect racing and gaming operations.
• Changes in US taxation of international business activities or other tax reform laws could materially affect financial position and results of operations.
• The identified material weakness in internal control over financial reporting could adversely affect the ability to accurately report financial results, prevent fraud, or maintain investor confidence.
• Extensive taxation from gaming and regulatory authorities, including potential increases in gaming taxes, could adversely affect results of operations and cash flows.
• Any violation of the Foreign Corrupt Practices Act (FCPA) or similar anti-corruption laws could have a negative impact.
• Failure to protect trademarks could negatively impact brand value and adversely affect the business.
• The loss of key personnel, particularly the Co-Chief Executive Officers, could have a material adverse effect.
• Staff shortages, work stoppages, and other labor issues (including union negotiations) could harm business, financial condition, and results of operations.
• Stockholders may be required to dispose of shares if found unsuitable by gaming authorities, potentially at a price below market value.

Future Outlook

The company continues to explore additional potential gaming projects and acquisition opportunities. It plans to partner with sports betting operators in Missouri, where sports betting is expected to begin in late 2025. The company anticipates that stopping table games at its Colorado casinos will positively impact earnings. The AGLC's temporary increase in slot machine net sales retained by Canadian casinos has been extended through March 31, 2026. The company intends to renew its shelf registration statement in 2026 and may seek further financing if needed. Management believes its remediation plan will successfully address the material weakness in internal controls, but it will not be considered remediated until controls operate effectively for a sufficient period.

Management Comments

• "Management has concluded that our disclosure controls and procedures were not effective as of December 31, 2024 because of the material weakness described in Internal Control Considerations below."
• "Management has concluded that our internal control over financial reporting was not effective as of December 31, 2024."
• "We did not adequately design, implement and maintain effective controls to timely review certain key inputs and assumptions used in the performance of impairment testing and related disclosures."
• "Notwithstanding the material weakness, and based on the additional analyses and other procedures management performed, we have concluded that our consolidated financial statements included in this Annual Report on Form 10-K/A present fairly, in all material respects, our financial position, results of operations and cash flows for each of the periods presented herein."
• "Management believes that we are in compliance with all applicable gaming and non-gaming regulations."
• "Management believes that our investments in property and equipment are recoverable."
• "Management believes we have used reasonable estimates and assumptions to calculate the fair value of our goodwill and indefinite-lived intangible assets; however, these estimates and assumptions could be materially different from actual results."
• "Management continues to consider historical foreign earnings in Canada, as well as accumulated earnings in other jurisdictions, indefinitely reinvested outside of the US."

Industry Context

The casino entertainment industry faces intense competition, with many larger players having greater financial and marketing resources. The company is navigating evolving regulatory landscapes, including the legalization of sports betting in new markets like Missouri and the impact of existing sports betting in neighboring states (e.g., Ohio affecting West Virginia). Online gaming, such as Play Alberta, also presents increasing competition. The industry is capital-intensive, requiring significant cash flow for operations, reinvestment, and expansion. Macroeconomic conditions, including inflation and consumer discretionary spending, continue to influence customer visits and spending. Licensing delays and denials, as seen in Poland, highlight regulatory challenges in international markets.

Comparison to Industry Standards

• The company faces intense competition from other casinos, many of which are larger and have substantially greater name recognition and financial and marketing resources. For example, in Central City, Colorado, competitors in Black Hawk offer larger hotels, upscale dining, performance centers, and spa facilities, which Century Casinos' properties lack.
• The Reno-Sparks market, where the Nugget operates, is highly competitive with over 20 casinos, requiring the Nugget to compete for conventions and hotel group bookings.
• In West Virginia, gaming revenue, particularly in table games, has decreased since sports betting began in Ohio in early 2023, indicating a competitive disadvantage or market shift compared to neighboring jurisdictions.
• The AGLC's removal of the moratorium on new gaming facilities in Alberta, Canada, and a competitor's request to relocate near Century Mile, suggest an increasing competitive threat in the Canadian market, potentially leading to decreased visitor numbers and negative impacts on results.
• The company's reliance on a 17% slot machine net sales retention rate in Alberta, while a temporary increase, is a specific regulatory advantage that may not be standard across all jurisdictions or permanent, contrasting with potentially higher retention rates in other markets.
• The material weakness in internal control over financial reporting and the adverse opinion from the independent auditor indicate a significant deviation from industry best practices and regulatory expectations for financial controls, which could impact investor confidence and operational efficiency compared to peers with robust controls.

Management Changes

Corporate Governance

Legal Proceedings

• The company is subject to various legal proceedings arising from normal business operations, with no expectation of a material effect on financial position or results of operations.
• A contingent liability related to Polish IRS tax audits for personal income tax on tips received by CPL employees (2007-2013) resulted in PLN 14.3 million ($4.2 million) paid to the Polish IRS through December 31, 2024. CPL prevailed in a 2011 tax audit challenge, resulting in a PLN 1.8 million ($0.4 million) reimbursement in September 2022. No additional future tax obligations are expected from these matters.

Related Party Transactions

• Payments of $0.8 million were made in 2024 to Flyfish Management & Consulting AG (controlled by Co-CEO Erwin Haitzmann) and Focus Lifestyle and Entertainment AG (controlled by Co-CEO Peter Hoetzinger's family trust/foundation) for management services.
• A consulting agreement with Marnell Gaming LLC (co-owner of Smooth Bourbon) for transitional services after the Nugget Acquisition incurred fees of $0.4 million in 2023, ending September 30, 2023.
• Additional expenses related to Marnell were less than $0.1 million for the years ended December 31, 2024 and 2023.

Stakeholder Impact

• Shareholders: Significant negative impact due to restatement, material weakness in internal controls, adverse audit opinion, and substantial net loss, likely leading to decreased investor confidence and potential stock price volatility.
• Employees: Potential impact from casino closures in Poland (e.g., termination costs for Krakow employees) and staffing changes at the Nugget. Unionized employees at Mountaineer and Rocky Gap have collective bargaining agreements, with Mountaineer's due for renewal in 2025.
• Customers: New casino and hotel openings in Missouri offer enhanced amenities and gaming options. However, casino closures in Poland and potential competitive shifts in other markets could affect customer experience and loyalty.
• Creditors/Lenders: High leverage and variable-rate debt expose the company to interest rate risk. The Consolidated First Lien Net Leverage Ratio exceeding 5.50 to 1.00 indicates increased risk, though no revolving loans were outstanding at year-end.
• Regulatory Authorities: The material weakness in internal controls and restatement highlight compliance issues, which will be under scrutiny by the SEC and other gaming regulatory bodies.

Next Steps

• Management is developing and implementing a detailed remediation plan to address the material weakness in internal control over financial reporting, focusing on review attributes for invested capital carrying value and impairment testing assumptions.
• The material weakness will not be considered remediated until the applicable controls operate for a sufficient period and management concludes, through testing, that they are effective.
• The company plans to partner with sports betting operators to conduct sports betting at its Missouri facilities or through online apps, with sports betting expected to begin in late 2025.
• The company will continue to explore additional potential gaming projects and acquisition opportunities.
• The casino license for the Hilton Hotel in Warsaw, Poland, expires in June 2025, and CPL has applied for a new license.
• The union agreement at Mountaineer Casino, Resort & Races is subject to renewal in 2025.
• The company intends to renew its shelf registration statement in 2026.
• The remaining $0.4 million in transition tax payments are expected to be paid in 2025.

Key Dates

Recommendation

The restatement of financial statements, coupled with the explicit declaration of a material weakness in internal controls and an adverse opinion from the independent auditor, signals severe deficiencies in financial reporting integrity. The substantial net loss of $153.6 million and significant goodwill impairments of $70.2 million further underscore fundamental operational and valuation challenges. While some operational improvements and new openings are noted, these are overshadowed by the critical control failures and poor financial performance. The high leverage and negative cash flow from operations add to the financial instability. A seasoned investor would view these issues as highly concerning, indicating a lack of reliability in financial disclosures and significant underlying business problems, warranting a 'strong sell' recommendation.

Keywords

Casino, Gaming, Restatement, Goodwill Impairment, Internal Controls, SEC Filing, 10-K/A, Financial Reporting, Corporate Governance, Risk Factors, Century Casinos, CNTY, Rocky Gap, Nugget Casino Resort, Master Lease, VICI Properties, Sports Betting, Poland Casinos, Canada Gaming, Liquidity, Debt, Financial Performance