10-Q/A: Century Casinos Restates Q1, Reports Goodwill Impairment

Century Casinos, Inc. filed an amended quarterly report, restating Q1 2025 financials due to a $26.5 million goodwill impairment and disclosing ineffective disclosure controls.

Summary

• The company filed an Amendment No. 1 on Form 10-Q/A to restate its previously issued unaudited condensed consolidated financial statements for the three months ended March 31, 2025.
• 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.
• This impairment was recorded in the fourth quarter of 2024 and did not impact the previously reported results of operations for Q1 2025 or Q1 2024.
• Management concluded that disclosure controls and procedures were not effective as of March 31, 2025, due to a material weakness in reviewing key inputs and assumptions for impairment testing.
• Despite the material weakness, management concluded that the restated financial statements fairly present the financial position, results of operations, and cash flows.
• Net operating revenue decreased by $5.6 million (4.1%) to $130.4 million for Q1 2025 compared to $136.0 million for Q1 2024.
• Net loss attributable to Century Casinos, Inc. shareholders increased by $7.1 million (52.2%) to $(20.6) million for Q1 2025, compared to $(13.5) million for Q1 2024.
• Adjusted EBITDAR decreased by $1.1 million (5.2%) to $20.2 million for Q1 2025, from $21.3 million for Q1 2024.
• Cash and cash equivalents decreased to $84.7 million as of March 31, 2025, from $98.8 million at December 31, 2024.
• Net Debt increased to $254.9 million as of March 31, 2025, from $205.5 million as of March 31, 2024.
• 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 in Cape Girardeau, Missouri, on April 4, 2024, costing approximately $30.5 million.
• Two sports betting agreements in Colorado were cancelled in May and July 2024, which previously generated $1.8 million per year in revenue.
• Cripple Creek and Central City casinos in Colorado stopped offering table games in January 2025, expecting expense savings to offset revenue decrease.
• In Poland, casino closures occurred due to licensing delays, with Katowice and Bielsko-Biala reopening, Wroclaw reopening at a new location, and licenses for Krakow and LIM Center in Warsaw not being awarded.
• A second casino license was awarded in Wroclaw, Poland, in March 2025, with an anticipated opening in Q4 2025.
• The temporary increase in slot machine net sales retention percentage in Alberta, Canada (from 15% to 17%), was extended through March 31, 2026.

Sentiment

Score: 3

Explanation: The sentiment is negative due to the restatement of financial statements, the disclosure of a material weakness in internal controls, a significant increase in net loss, and declines in revenue and Adjusted EBITDAR. While there are some positive operational developments, the overall financial performance and control deficiencies weigh heavily.

Positives

• The new land-based casino and 38-room hotel in Caruthersville, Missouri, opened on November 1, 2024, increasing gaming positions by almost 50% and doubling hotel rooms to 74.
• The Riverview, a 69-room hotel in Cape Girardeau, Missouri, opened on April 4, 2024, expanding lodging offerings.
• The temporary increase in slot machine net sales retention in Alberta, Canada, from 15% to 17% was extended through March 31, 2026, positively impacting Canadian properties' revenue.
• A second casino license was awarded in Wroclaw, Poland, in March 2025, with an expected opening in Q4 2025, indicating future growth potential.
• The decision to stop offering table games at Cripple Creek and Central City casinos in Colorado is projected to have a positive impact on earnings from operations due to expense savings.

Negatives

• Net loss attributable to shareholders significantly increased by 52.2% to $(20.6) million in Q1 2025 from $(13.5) million in Q1 2024.
• Net operating revenue decreased by 4.1% to $130.4 million in Q1 2025 compared to $136.0 million in Q1 2024, with declines across all segments (US, Canada, Poland).
• Adjusted EBITDAR decreased by 5.2% to $20.2 million in Q1 2025 from $21.3 million in Q1 2024.
• Cash and cash equivalents decreased by $14.1 million from December 31, 2024, to March 31, 2025.
• Net Debt increased by $49.4 million from March 31, 2024, to March 31, 2025.
• Income tax expense swung from a $4.0 million benefit in Q1 2024 to a $0.5 million expense in Q1 2025, primarily due to a valuation allowance on US deferred tax assets.
• Gain on foreign currency transactions, cost recovery income and other decreased significantly by 89.8% to $0.1 million in Q1 2025 from $1.2 million in Q1 2024.
• Two sports betting agreements in Colorado were cancelled in 2024, eliminating $1.8 million in annual revenue.
• Winter weather negatively impacted all North American properties' revenue in Q1 2025.
• Casino licenses for Krakow and LIM Center in Warsaw, Poland, were not awarded, leading to closures.

Risks

• Macroeconomic conditions, including volatile stock markets, foreign currency exchange rates, political unrest, armed conflicts, inflation, and economic policies, could materially adversely affect business, financial condition, and results of operations.
• Weaker trends from retail and low-end customers are observed, which is believed to be due to macroeconomic conditions impacting consumer spending.
• The license for the Hilton Hotel in Warsaw, Poland, expires in June 2025, and there is no assurance a new license will be received.
• Increased competition in the Edmonton, Canada, market due to a competitor's potential relocation could lead to decreased visitors and negatively impact Canadian results of operations.
• A material weakness in internal control over financial reporting was identified regarding the timely review of key inputs and assumptions used in impairment testing and related disclosures.
• The company's ability to raise additional capital to fund debt service, rent obligations, operations, and other capital requirements is crucial, and failure to do so could have a material adverse effect.
• Approximately $41.7 million of cash held by foreign subsidiaries is not available to fund US operations unless repatriated, which would incur withholding tax.
• Changes in foreign currency exchange rates can decrease the earnings from foreign operations when translated into US dollars.

Future Outlook

The company anticipates opening a second casino in Wroclaw, Poland, in the fourth quarter of 2025. Sports betting in Missouri is expected to begin in late 2025, with plans to partner with operators. Management expects expense savings from discontinuing table games in Colorado to offset revenue decreases. The temporary increase in slot machine net sales retention in Alberta, Canada, is extended through March 31, 2026. The company intends to renew its shelf registration statement in 2026 for potential future capital raises. However, macroeconomic conditions and increased competition in certain markets pose ongoing challenges.

Management Comments

• Management concluded that disclosure controls and procedures were not effective as of March 31, 2025, due to a material weakness in internal control over financial reporting.
• Management believes that presenting Adjusted EBITDAR to investors provides them with information used for financial and operational decision-making to understand the company's operating performance.
• We are seeing weaker trends from retail and low-end customers, which we believe is due to macroeconomic conditions impacting consumer spending in our markets.
• We believe stopping table games in Cripple Creek and Central City will have a positive impact on earnings from operations as expense savings are projected to offset the decrease in revenue.
• We are increasing our efforts to market group and convention sales for the Nugget hotel and are implementing a new loyalty program in an effort to drive revenue growth.

Industry Context

The casino and gaming industry is currently navigating dynamic macroeconomic conditions, including inflation and volatile foreign currency exchange rates, which are impacting consumer discretionary spending. Century Casinos' experience with weaker trends from retail and low-end customers aligns with broader concerns about consumer spending pressures. The company's strategic moves, such as expanding land-based casinos and hotels in the US and adapting to regulatory changes in Canada (slot machine retention increase) and Poland (licensing challenges), reflect efforts to optimize performance within a competitive and evolving landscape. The entry into new sports betting markets in Missouri, once approved, could provide a growth avenue, while increased competition in established markets like Edmonton highlights ongoing competitive pressures.

Corporate Governance

Legal Proceedings

• The company is subject to various legal proceedings arising from normal business operations, but management does not expect the outcome to have a material effect on its financial position, cash flows, or results of operations.

Related Party Transactions

• The company paid Marnell Gaming, LLC $1.9 million for general contracting and consulting services for each of the three months ended March 31, 2025 and 2024. This includes rent related to the 50% interest in the lease between Smooth Bourbon and the Nugget, and 50% of Smooth Bourbon's operating costs.

Stakeholder Impact

• Shareholders: Negative impact due to increased net loss, decreased revenue, goodwill impairment, and the disclosure of ineffective internal controls, which could lead to decreased investor confidence and potential share price volatility.
• Employees: Impacted by casino closures in Poland due to unawarded licenses, leading to negotiated termination periods and severance pay.
• Creditors: The increase in Net Debt and the material weakness in internal controls could raise concerns about the company's financial health and ability to meet obligations, although the company has a revolving facility available.
• Customers: Impacted by operational changes such as the cessation of table games in Colorado and new casino openings/closures in various locations, affecting their gaming and entertainment options.

Next Steps

• Management is developing a detailed remediation plan to address the material weakness in internal control over financial reporting, including designing and implementing review attributes for carrying value of invested capital and additional reviews for impairment testing assumptions.
• The company expects to open a second casino in Wroclaw, Poland, in the fourth quarter of 2025.
• The company plans to partner with sports betting operators to conduct sports betting at its Missouri casinos when it begins in late 2025.
• The company intends to renew its shelf registration statement in 2026.
• The company will continue efforts to market group and convention sales for the Nugget hotel and implement a new loyalty program.

Key Dates

Recommendation

The restatement of financial statements due to a material error, coupled with the disclosure of a material weakness in internal controls and ineffective disclosure controls, signals significant governance and financial reporting issues. The company reported a substantial increase in net loss, a decrease in revenue and Adjusted EBITDAR, and an increase in net debt. While there are some operational expansions, the overall financial performance is deteriorating, and the control deficiencies create substantial uncertainty and risk for investors. These factors collectively suggest a 'sell' recommendation until the company demonstrates effective remediation of its internal controls and a sustained improvement in financial performance.

Keywords

Casino, Gaming, Restatement, Goodwill Impairment, SEC Filing, 10-Q/A, Financial Reporting, Internal Controls, Disclosure Controls, Rocky Gap, Poland Casinos, Canada Gaming, US Gaming, Hotel Operations, Sports Betting, iGaming, Debt, Liquidity, Capital Expenditures