Century Casinos Inc: Form 10-Q for the period ended Sep 30, 2024

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, ongoing projects and capital investments, cost savings initiatives, casino licensing matters 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 ended December 31, 2023. 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, and the term “PLN” refers to Polish zloty. 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), sports betting, iGaming and entertainment facilities that are in most instances a part of the casinos.

We view each region in which we operate as a separate operating segment and each casino or other operation 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 and Poland. We have additional business activities including certain other corporate and management operations that we report as Corporate and Other.

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.

The table below provides information about the aggregation of our operating segments and reporting units into reportable segments.

(1) The real estate assets, except The Riverview hotel in Cape Girardeau and The Farmstead hotel in Caruthersville, are owned by VICI PropCo.

(2) We operated ship-based casinos through April 16, 2023.

(3) Prior to the Nugget Acquisition, our equity investment in Smooth Bourbon was included in the Corporate Other reporting unit.

We have controlling financial interests through our subsidiary CRM in the following reporting units:

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 in Balzac, a north metropolitan area of Calgary, Alberta, Canada. CDR is the only horse racetrack in the Calgary area and is located less than one-mile north of the city limits of Calgary and 4.5 miles from the Calgary International Airport.

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 of September 30, 2024, CPL had casino licenses for six casinos and operated five casinos throughout Poland. We closed the Krakow casino in May 2024 and the LIM Center casino in Warsaw in July 2024 due to the expiration of the gaming licenses. CPL applied for new casino licenses for these locations but was notified in October 2024 that it was not awarded the licenses at either location. The following table summarizes information about CPL’s casinos as of September 30, 2024.

(1) Previously operated as Marriott Hotel.

(2) We closed the casinos in Katowice and Bielsko-Biala in October 2023 due to the expiration of the gaming licenses. We were awarded both licenses in February 2024. The Bielsko-Biala casino reopened in February 2024, and the Katowice casino reopened in March 2024 with a reduced gaming floor. We are waiting on regulatory approval to reopen the full gaming floor at the Katowice casino.

(3) We closed the Wroclaw casino in November 2023 due to the expiration of the gaming license. We were awarded the license in December 2023. We relocated the casino to a new location and opened the casino on October 24, 2024 with 70 slots and 13 tables.

(4) We were awarded a new license for the Lodz casino in March 2024.

Through our wholly owned subsidiary Century Nevada Acquisition, Inc., we have a 50% equity interest in Smooth Bourbon. Prior to the Nugget Acquisition, we reported this interest as an equity investment in the Corporate Other reportable segment. On April 3, 2023, as a result of closing the Nugget Acquisition, we began consolidating Smooth Bourbon as a subsidiary for which we have a controlling financial interest. The remaining 50% of Smooth Bourbon is owned by Marnell and is reported as a non-controlling financial interest.

The Company previously operated several ship-based casinos. The Company’s last concession agreement to operate a ship-based casino ended on April 16, 2023. See “Corporate and Other” below.

Recent Developments Related to Economic Uncertainty

Current macroeconomic conditions remain very dynamic, including impacts from rising inflation and interest rates, volatile changes in foreign currency exchange rates, political unrest and armed conflicts, and other factors. Any worsening in economic conditions in the regions we operate or globally, or the perception that conditions may worsen, could reduce consumer discretionary spending or increase our costs and erode our net income and cash flows.

Other Projects and Developments

Nugget Casino Resort in Reno-Sparks, Nevada

In February 2022, we entered into a definitive agreement with Marnell, pursuant to which we agreed to purchase from Marnell (i) 50% of the membership interests in Smooth Bourbon, and (ii) 100% of the membership interests in Nugget. Nugget owns and operates the Nugget Casino Resort in Reno-Sparks, Nevada, and Smooth Bourbon owns the real property on which the casino is located. See Part I, Item 1. Note 3, “Acquisition and Equity Interest” for more information on the acquisition of Nugget.

Rocky Gap Casino, Resort & Golf in Flintstone, Maryland

In August 2022, we entered into a definitive agreement with Golden, Lakes Maryland, a subsidiary of Golden, and VICI PropCo, pursuant to which we agreed to acquire the operations of Rocky Gap. Pursuant to a real estate purchase agreement, dated August 24, 2022, by and between Evitts and VICI PropCo Buyer, VICI PropCo Buyer agreed to acquire a related interest in the land and building associated with Rocky Gap. See Part I, Item 1. Note 3, “Acquisition and Equity Interest” for more information on the acquisition of Rocky Gap.

Canada Real Estate Sale

In May 2023, we entered into definitive agreements for subsidiaries of VICI to acquire the real estate assets of the Century Canadian Portfolio. Simultaneous with the closing of the transaction in September 2023, our existing Master Lease was amended. Part I, Item 1. Note 1, “Canada Real Estate Sale” for more information on the Canada Real Estate Sale, and Part I, Item 1. Note 6, “Long-Term Financing Obligation” for a discussion of the Master Lease as amended to date.

Caruthersville Land-Based Casino

We opened our new land-based casino with a 38 room hotel in Caruthersville, Missouri on November 1, 2024. The new land-based casino is adjacent to and connected with the temporary casino pavilion building. The project cost approximately $51.9 million and was funded with financing provided by VICI PropCo in conjunction with the Master Lease. VICI PropCo owns the real estate improvements associated with the Caruthersville project. As of September 30, 2024, we had received $51.9 million from VICI PropCo and have spent approximately $40.9 million of those funds on this project. We previously amended our Master Lease in December 2022 to provide for an increase in initial annualized rent of approximately $4.2 million related to the Caruthersville project. See Part I, Item 1. Note 6, “Long-Term Financing Obligation” for a discussion of the Master Lease as amended to date. The pavilion building that was the temporary casino location will return to being used as event space.

Cape Girardeau Hotel

We opened our 69 room hotel at our Cape Girardeau location called The Riverview on April 4, 2024. The Riverview is a six story building with 68,000 square feet that is adjacent to and connected with the existing casino building. Construction on the project began in September 2022 and was completed in April 2024. The project cost approximately $30.5 million. We financed the project with cash on hand.

Additional Gaming Projects

We periodically explore additional potential gaming projects and acquisition opportunities. Along with the capital needs of potential projects, there are various other risks which, if they materialize, could affect our ability to complete a proposed project or acquisition or could eliminate its feasibility altogether.

Presentation of Foreign Currency Amounts

The average exchange rates to the US dollar used to translate balances during each reported period are as follows:

We recognize in our condensed consolidated statements of loss 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 in Canada and Poland 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.

DISCUSSION OF RESULTS

Century Casinos, Inc. and Subsidiaries

Amounts in thousands

(1) For a discussion of Adjusted EBITDAR and reconciliation of Adjusted EBITDAR to net loss attributable to Century Casinos, Inc. shareholders, see “Non-US GAAP Measures Definitions and Calculations – Adjusted EBITDAR” below.

Comparability Impacts

Items impacting comparability of the results include the following:

Valuation Allowance (US) – We recorded a valuation allowance on our net deferred tax assets related to the United States resulting in $23.8 million of tax expense for the nine months ended September 30, 2024.

United States (Nugget) – We acquired the operations of the Nugget on April 3, 2023. The Nugget is reported in the United States reportable segment. Nugget’s operating results for the three and nine months ended September 30, 2024 and 2023 were as follows:

$29.2 million in net operating revenue and $0.7 million in net earnings attributable to Century Casinos, Inc. shareholders for the three months ended September 30, 2024.

$68.4 million in net operating revenue and ($12.3) million in net loss attributable to Century Casinos, Inc. shareholders for the nine months ended September 30, 2024.

$32.5 million in net operating revenue and $1.3 million in net earnings attributable to Century Casinos, Inc. shareholders for the three months ended September 30, 2023.

$59.6 million in net operating revenue and $3.3 million in net earnings attributable to Century Casinos, Inc. shareholders for the nine months ended September 30, 2023.

United States (Rocky Gap) – We acquired the operations of Rocky Gap on July 25, 2023. Rocky Gap is reported in the United States reportable segment. Interest expense related to the Master Lease of $4.1 million and $12.4 million for the three and nine months ended September 30, 2024, respectively, and $4.5 million for the three and nine months ended September 30, 2023 contributed to the net loss attributable to Century Casinos, Inc. shareholders for the same periods. Rocky Gap’s operating results for the three and nine months ended September 30, 2024 and 2023 were as follows:

$18.7 million in net operating revenue and ($1.8) million in net loss attributable to Century Casinos, Inc. shareholders for the three months ended September 30, 2024.

$51.5 million in net operating revenue and ($10.3) million in net loss attributable to Century Casinos, Inc. shareholders for the nine months ended September 30, 2024.

$14.6 million in net operating revenue and ($1.4) million in net loss attributable to Century Casinos, Inc. shareholders for the three and nine months ended September 30, 2023.

Increased Interest Expense – Excluding a one-time interest expense of $7.3 million related to the purchase of land at our Century Downs property during the third quarter 2023, interest expense increased by $1.7 million and $17.3 million for the three and nine months ended September 30, 2024 compared to the three and nine months ended September 30, 2023, respectively. The increase was due to the addition of Rocky Gap and the Century Canadian Portfolio to the Master Lease as well as increased interest rates under the Goldman Credit Agreement.

Canada Debt Extinguishment (Century Downs) – The CDR land lease ended on September 6, 2023 in conjunction with the Canada Real Estate Sale. In connection with the sale, we purchased Century Downs land that was previously subject to the CDR land lease. We recorded a loss on debt extinguishment related to the CDR land lease of CAD 9.9 million ($7.3 million based on the exchange rate on September 6, 2023) in interest expense in our condensed consolidated statements of loss for the three and nine months ended September 30, 2023.

Canada (Calgary) – We received earn out payments of CAD 0.5 million ($0.3 million based on the exchange rate on September 30, 2023) and CAD 2.1 million ($1.6 million based on the exchange rate of September 30, 2023) for the three and nine months ended September 30, 2023, respectively, related to the 2020 sale of our Calgary casino operations. The earn out period ended in August 2023, and we did not receive any earn out payments during the nine months ended September 30, 2024.

Sports Betting (Colorado) – We mutually agreed to cancel two of our sports betting agreements in Colorado. Circa obtained its own master license in Colorado, and the Circa agreement was terminated in May 2024. As part of the Circa termination agreement, we received a payment of $1.1 million that included sports betting revenue owed from January 2024 to May 2024 and a breakage fee of $0.7 million. Tipico exited the U.S. market, and the Tipico agreement was terminated in July 2024. As part of the Tipico termination agreement, the Company received a payment of $1.6 million that includes sports betting revenue owed from November 2023 to June 2024 and a breakage fee of $1.0 million. The breakage fees were recorded as other revenue on our condensed consolidated statements of loss resulting in $1.0 million and $1.7 million in other revenue for the three and nine months ended September 30, 2024, respectively. Prior to the termination of the agreements, revenue from these agreements was $0.5 million per quarter in our United States segment.

Inflation and Staffing – During 2023, we saw material increases in our operating expenses at our properties, including payroll wages and benefits, insurance and utilities, maintenance costs and food and beverage costs. We also experienced difficulties attracting and retaining staff at some locations in the US and Canada. As a result, during 2023, we adjusted hours of some food and beverage outlets, the number of table games open and the number of rooms available at some of our hotels. We were able to make adjustments during non-peak times to mitigate some of the impact to our operating results. We have not seen material impacts to our operations in 2024 due to inflation and staffing and are not currently adjusting hours at our facilities to mitigate staffing issues.

Weather – Inclement weather in the United States impacted revenue for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 for our Colorado and West Virginia properties.

Summary of Changes by Reportable Segment

Net operating revenue decreased by ($5.5) million, or (3.4%), and increased by $31.7 million, or 7.8%, for the three and nine months ended September 30, 2024 compared to the three and nine months ended September 30, 2023. Following is a breakout of net operating revenue by segment for the three and nine months ended September 30, 2024 compared to the three and nine months ended September 30, 2023:

United States increased by $0.3 million, or 0.2%, and by $42.0 million, or 15.1%.

Canada decreased by ($0.6) million, or (3.1%), and increased by $2.2 million, or 3.8%.

Poland decreased by ($5.1) million, or (21.8%), and by ($12.5) million, or (17.2%).

Corporate and Other remained constant.

Operating costs and expenses decreased by ($8.9) million, or (6.1%), and increased by $41.6 million, or 11.7%, for the three and nine months ended September 30, 2024 compared to the three and nine months ended September 30, 2023. Following is a breakout of operating costs and expenses by segment for the three and nine months ended September 30, 2024 compared to the three and nine months ended September 30, 2023:

United States increased by $1.9 million, or 2.0%, and by $52.9 million, or 23.4%.

Canada decreased by ($2.4) million, or (12.6%), and increased by $0.7 million, or 1.5%.

Poland decreased by ($2.6) million, or (11.9%), and by ($5.9) million, or (8.8%).

Corporate and Other decreased by ($5.8) million, or (67.0%), and by ($6.1) million, or (35.4%).

Earnings from operations increased by $3.5 million, or 23.9%, and decreased by ($11.0) million, or (21.4%), for the three and nine months ended September 30, 2024 compared to the three and nine months ended September 30, 2023. Following is a breakout of earnings from operations by segment for the three and nine months ended September 30, 2024 compared to the three and nine months ended September 30, 2023:

United States decreased by ($1.6) million, or (8.2%), and by ($10.9) million, or (21.0%).

Canada increased by $1.7 million, or 83.2%, and by $1.5 million, or 13.8%.

Poland decreased by ($2.5) million, or (195.5%), and by ($6.6) million, or (127.6%).

Corporate and Other increased by $5.8 million, or 67.0%, and by $4.9 million, or 30.7%.

Net loss decreased by ($6.1) million, or (42.7%), and increased by $45.9 million, or 264.1%, for the three and nine months ended September 30, 2024 compared to the three and nine months ended September 30, 2023. Items deducted from or added to earnings from operations to arrive at net loss attributable to Century Casinos, Inc. shareholders include interest income, interest expense, gains (losses) on foreign currency transactions and other, income tax expense (benefit) and non-controlling interests. Increased interest expense negatively impacted net loss attributable to Century Casinos, Inc. shareholders. Interest expense increased primarily due to additional properties added to the Master Lease. Net loss attributable to Century Casinos, Inc. shareholders also was impacted by the valuation allowance on our net deferred tax assets related to the United States, resulting in $23.8 million of income tax expense during the second quarter of 2024. For a discussion of these items, see “Non-Operating Income (Expense)” and “Taxes” below in this Item 2.

Other

Pari-Mutuel

Pari-mutuel revenue includes live racing, export, advanced deposit wagering and off-track betting. Pari-mutuel expenses relate to pari-mutuel revenue and the operation of our racetracks.

Other

Other revenue and other expenses include gift shops, entertainment, golf and spa. Other revenue also includes revenue from ATM and credit card commissions.

Non-US GAAP Measures Definitions and Calculations

Adjusted EBITDAR

Adjusted EBITDAR is used outside of our financial statements as a valuation metric. We define Adjusted EBITDAR as net (loss) earnings attributable to Century Casinos, Inc. shareholders before interest expense (income), net, including interest expense related to the Master Lease as discussed below, income taxes (benefit), depreciation, amortization, non-controlling interests net earnings (losses) and transactions, pre-opening expenses, acquisition costs, non-cash stock-based compensation charges, asset impairment costs, loss (gain) 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. 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 to Century Casinos, Inc. shareholders and Adjusted EBITDAR reported for each reportable 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 GAAP.

The Master Lease is accounted for as a financing obligation. As such, a portion of the periodic payment under the Master Lease is recognized as interest expense with the remainder of the payment impacting the financing obligation using the effective interest method.

Adjusted EBITDAR information is a non-US GAAP measure that is a valuation metric, should not be used as an operating metric, and is presented solely as a supplemental disclosure to reported US GAAP measures because we believe this measure is widely used by analysts, lenders, financial institutions, and investors as a principal basis for the valuation of gaming companies. Management believes that presenting Adjusted EBITDAR 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.

Adjusted EBITDAR should not be viewed as a measure of overall operating performance, as an indicator of our performance, considered in isolation, or construed as an alternative to operating income or net income, the most directly comparable US GAAP measure, or as an alternative to cash flows from operating activities, as a measure of liquidity, or as an alternative to any other measure determined in accordance with generally accepted accounting principles because this measure is not presented on a US GAAP basis and excludes certain expenses, including the rent expense related to our Master Lease, and is provided for the limited purposes discussed herein. In addition, Adjusted EBITDAR as used by us may not be defined in the same manner as other companies in our industry, and, as a result, may not be comparable to similarly titled non-US GAAP financial measures of other companies. Consolidated Adjusted EBITDAR should not be viewed as a measure of overall operating performance or considered in isolation or as an alternative to net income, because it excludes the rent expense associated with our Master Lease and certain other items.

The reconciliation of Adjusted EBITDAR to net earnings (loss) attributable to Century Casinos, Inc. shareholders is presented below.

Amounts in thousands

(1) See “Non-Operating Income (Expense) – Interest income” and “– Interest expense” below for a breakdown of interest expense (income), net and “Liquidity and Capital Resources” below for more information on the rent payments related to the Master Lease.

Amounts in thousands

(1) See “Non-Operating Income (Expense) – Interest income” and “– Interest expense” below for a breakdown of interest expense (income), net and “Liquidity and Capital Resources” below for more information on the rent payments related to the Master Lease. The CDR land lease ended on September 6, 2023 in conjunction with the Canada Real Estate Sale, and $7.3 million related to the debt extinguishment of the CDR land lease was recorded as interest expense in the Canada segment.

(2) Includes $0.3 million in the Canada segment related to the earn out payment from the sale of casino operations in Calgary in 2020.

Amounts in thousands

(1) See “Non-Operating Income (Expense) – Interest income” and “– Interest expense” below for a breakdown of interest expense (income), net and “Liquidity and Capital Resources” below for more information on the rent payments related to the Master Lease.

(2) Includes $1.1 million in the Canada segment related to cost recovery income for CDR.

Amounts in thousands

(1) See “Non-Operating Income (Expense) – Interest income” and “– Interest expense” below for a breakdown of interest expense (income), net and “Liquidity and Capital Resources” below for more information on the rent payments related to the Master Lease. The CDR land lease ended on September 6, 2023 in conjunction with the Canada Real Estate Sale, and $7.3 million related to the debt extinguishment of the CDR land lease was recorded as interest expense in the Canada segment.

(2) Includes $1.6 million related to the earn out payment from the sale of casino operations in Calgary in 2020 and $3.5 million related to cost recovery income for CDR in the Canada segment.

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

Reportable Segments

The following discussion provides further detail of consolidated results by reportable segment.

Amounts in thousands

We opened the new land-based casino and hotel in Caruthersville on November 1, 2024. The casino has 599 slot machines and nine live table games, a 50% increase in gaming positions compared with the temporary location. The number of hotel rooms doubled to 74.

We opened The Riverview in Cape Girardeau in April 2024. The Riverview is a 69 room, six-story building with 68,000 square feet that is adjacent to and connected with Century Casino Cape Girardeau. The Walker’s Bluff Casino in Illinois, which opened in August 2023, has increased competition for our Missouri casinos, primarily our Cape Girardeau casino. However, we believe that our marketing efforts have been effective in offsetting this competition to date.

We began consolidating Nugget and Smooth Bourbon in the United States segment on April 3, 2023 following the Second Closing of the Nugget Acquisition, and we began consolidating Rocky Gap on July 25, 2023 following the closing of the Rocky Gap Acquisition.

We partner with sports betting operators that conduct sports wagering at our Colorado, West Virginia and Nevada locations. Each agreement with the sports betting operators provides for a share of net gaming revenue, and the Colorado agreement also provides for a minimum revenue guarantee each year. In addition, we operate internet and mobile interactive gaming applications in West Virginia with two iGaming partners. The agreements provide for a share of net iGaming revenue. A petition campaign in Missouri to allow voters to determine whether to amend the state constitution to allow sports wagering in the state has gained sufficient signatures and will appear on the November 2024 ballot. If approved, sports betting could be legalized in Missouri by mid-2025. We have partnered with sports betting operators to conduct sports betting at our Missouri casinos if legalized.

As stated above, our sports betting agreements in Colorado with Circa and Tipico ended in May 2024 and July 2024, respectively.

In Cripple Creek, a competitor across the street from our casino completed an expansion in late December 2023. The increased availability of hotel rooms in Cripple Creek increased the overall Cripple Creek market. We believe that we can benefit from any increases in the overall market from nearby expanded hotels or otherwise; however, future periods also could be negatively impacted by this competitor or others, either through decreased market share or revenue or increased costs of promotional offers by us in order to compete.

In Central City, one potential competing casino may open in 2025. An increase in competitors in that market could lead to a decrease in visitors at our casino and have a negative impact on our results of operations in Central City.

The table below provides results by operating segment within the United States reportable segment.

Amounts in millions

(1) Operating costs and expenses are calculated as total operating costs and expenses less depreciation and amortization.

Three Months Ended September 30, 2024 and 2023

The following discussion highlights results for the three months ended September 30, 2024 compared to the three months ended September 30, 2023.

East – Increased net operating revenue and operating costs and expenses were due to the acquisition of Rocky Gap in July 2023. Net operating revenue from our West Virginia operations decreased due to decreased gaming, hotel and food and beverage revenue, offset by increased pari-mutuel revenue. Revenue in West Virginia has not rebounded to the levels we saw prior to the legalization of sports betting in Ohio in January 2023. Operating expenses in West Virginia decreased primarily due to decreased gaming-related expenses.

Midwest – Net operating revenue increased primarily due to increased hotel and food and beverage revenue at our Cape Girardeau location due to the opening of The Riverview in April 2024. In addition, net operating revenue increased by $1.0 million due to a breakage fee from the termination of our sports betting agreement with Tipico. Revenue from the sports betting agreement was approximately $0.2 million per quarter. The increased revenue was partially offset by decreased gaming revenue at all locations. Operating expenses in the Midwest operating segment increased due to increased payroll, marketing and operating costs, primarily at the Cape Girardeau location due to the opening of The Riverview.

West – Gaming, hotel and other revenue at the Nugget decreased primarily due to decreased hotel group bookings in the third quarter of 2024 compared to the third quarter of 2023, which also impacted food and beverage revenue. Beginning mid-April 2024, we began implementing cost saving measures at the Nugget. These measures include marketing improvements, staffing changes and a change to our housekeeping program in the hotel. The cost saving measures have decreased operating expenses by approximately $1.0 million during the three months ended September 30, 2024 compared to the three months ended September 30, 2023.

Nine Months Ended September 30, 2024 and 2023

The following discussion highlights results for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.

East – Increased net operating revenue and operating costs and expenses were due to the acquisition of Rocky Gap. Net operating revenue from our West Virginia operations decreased due to decreased gaming, hotel and food and beverage revenue, offset by increased pari-mutuel revenue. In Maryland and West Virginia, snow and inclement weather negatively impacted revenue in the first quarter of 2024 over three weekends, which are generally our busier days of the week. Moreover, revenue in West Virginia has not rebounded to the levels we saw prior to the legalization of sports betting in Ohio in January 2023. Operating expenses in West Virginia decreased primarily due to gaming-related expenses.

Midwest – Net operating revenue increased primarily due to increased hotel and food and beverage revenue at our Cape Girardeau location due to the opening of The Riverview in April 2024. In addition, net operating revenue increased by $1.7 million due to breakage fees from the termination of our sports betting agreements with Circa and Tipico. Revenue from these sports betting agreements was approximately $0.5 million per quarter. Revenue at our Central City property was negatively impacted by inclement weather in the first quarter of 2024. Revenue at our Cripple Creek property has been relatively flat year to date compared to 2023. Operating expenses in the Midwest operating segment increased due to increased payroll, marketing and operating costs, primarily at the Cape Girardeau location due to the opening of The Riverview.

West – As a new operating segment, all increases are due to the acquisition of the Nugget in April 2023. Inclement weather over holiday weekends negatively impacted revenue at the Nugget during the first quarter of 2024, and we had three fewer concerts in the second quarter of 2024. In addition, decreased hotel group bookings throughout 2024 negatively impacted hotel and food and beverage revenue compared to 2023. Beginning mid-April 2024, we began implementing cost saving measures at the Nugget. These measures include marketing improvements, staffing changes and a change to our housekeeping program in the hotel. These cost savings will be approximately $1.0 million per quarter.

A reconciliation of net earnings (loss) attributable to Century Casinos, Inc. shareholders to Adjusted EBITDAR can be found in the “Non-US GAAP Measures Definitions and Calculations – Adjusted EBITDAR” discussion above.

Amounts in thousands

We received earn out payments of CAD 0.5 million ($0.3 million based on the exchange rate on September 30, 2023) and CAD 2.1 million ($1.6 million based on the exchange rate on September 30, 2023) for the three and nine months ended September 30, 2023, respectively, from the sale of the Calgary casino operations in 2020 that is recorded to gain on sale of casino operations in our condensed consolidated statements of loss for the three and nine months ended September 30, 2023.

In February 2023, the Alberta Gaming, Liquor and Cannabis Commission (“AGLC”), Alberta’s gaming regulatory agency, approved a temporary increase from 15% of slot machine net sales retained by casinos to 17% effective from April 1, 2023 through March 31, 2025. The increase in the slot machine net sales retention percentage has had a positive impact on net operating revenue and results of operations at our Canadian properties. Effective August 1, 2023, the AGLC extended the operating hours for slot machines by 30 minutes on weekdays and 90 minutes on weekends.

In September 2023, we completed the Canada Real Estate Sale. Interest expense, excluding interest expense related to the debt extinguishment of the CDR land lease, increased $2.1 million and $7.9 million for the three and nine months ended September 30, 2024 compared to the three and nine months ended September 30, 2023, respectively, due to the addition of the Canadian properties to the Master Lease. The CDR land lease ended on September 6, 2023 in conjunction with the Canada Real Estate Sale and we recorded $7.3 million related to the debt extinguishment of the CDR land lease as interest expense in the Canada segment for the three and nine months ended September 30, 2023.

A competitor is requesting to relocate their casino from west Edmonton to south Edmonton, approximately 11 miles from our Century Mile property. Additional approvals are needed before the project begins and we anticipate construction could take approximately one year if the project is approved. An increase in competitors to the Edmonton market and near our Century Mile property could lead to a decrease in visitors at our casinos and have a negative impact on our results of operations in Canada.

Results in US dollars were impacted by a (1.7%) and (1.1%) decrease in the average exchange rate between the US dollar and Canadian dollar for the three and nine months ended September 30, 2024 compared to the three and nine months ended September 30, 2023, respectively.

The tables below provide results for the Canada reportable segment.

Amounts in CAD, in millions

Amounts in USD, in millions

(1) Operating costs and expenses are calculated as total operating costs and expenses less depreciation and amortization and gain on sale of casino operations.

Three Months Ended September 30, 2024 and 2023

The following discussion highlights results for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. Explanations below are provided based on CAD results.

Decreased gaming and food and beverage revenue at our Century Downs location due to a 2023 event that did not recur in 2024 was offset by increased gaming revenue at our Edmonton location. Operating costs and expenses decreased due to one-time costs of CAD 1.9 million ($1.4 million) related to the Canada Real Estate sale in 2023, decreased utility costs and decreased marketing expenses at Century Downs from additional marketing costs in 2023 for the event that did not recur in 2024.

Nine Months Ended September 30, 2024 and 2023

The following discussion highlights results for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. Explanations below are provided based on CAD results.

Gaming and food and beverage revenue increased at all of our Canada locations except Century Downs, which had decreased food and beverage revenue due to a 2023 event that did not recur in 2024. The increase in gaming revenue was partially due to the additional 2% slot machine net sales retained starting April 1, 2023. Operating costs and expenses decreased due to one-time costs of CAD 1.9 million ($1.4 million) related to the Canada Real Estate sale in 2023, decreased utility costs and decreased marketing expenses at Century Downs from additional marketing costs in 2023 for the event that did not recur in 2024 offset by increased payroll costs.

A reconciliation of net earnings (loss) attributable to Century Casinos, Inc. shareholders to Adjusted EBITDAR can be found in the “Non-US GAAP Measures Definitions and Calculations – Adjusted EBITDAR” discussion above.

Amounts in thousands

In Poland, casino gaming licenses are granted for a term of six years. These licenses are not renewable. Before a gaming license expires for a particular city, there is a public notification of the available license and any gaming company can apply for a new license for that city. Although we apply for a new license prior to the expiration of a current license, there is no guarantee that a new license will be awarded prior to the expiration of the current license or at all. We closed our Wroclaw casino in November 2023 due to the expiration of the gaming license. We were awarded a license for the Wroclaw casino in December 2023 and reopened the casino at a new location on October 24, 2024. We closed the casinos in Bielsko-Biala and Katowice in October 2023 due to the expiration of the gaming licenses. New licenses were awarded in February 2024 for each, and the casinos were reopened in February 2024 and March 2024, respectively. We closed the Krakow casino in May 2024 and the LIM Center casino in Warsaw in July 2024 due to the expiration of the gaming licenses. CPL applied for new casino licenses for these locations but was notified in October 2024 that it was not awarded the licenses at either location.

Results in US dollars were impacted by a 5.7% and 6.4% increase in the average exchange rate between the US dollar and Polish zloty for the three and nine months ended September 30, 2024 compared to the three and nine months ended September 30, 2023, respectively.

The tables below provide results for the Poland reportable segment.

Amounts in PLN, in millions

Amounts in USD, in millions

(1) Operating costs and expenses are calculated as total operating costs and expenses less depreciation and amortization.

Three Months Ended September 30, 2024 and 2023

The following discussion highlights results for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. Explanations below are provided based on PLN results.

Net operating revenue decreased primarily due to licensing-related closures at our Wroclaw location and a reduced gaming floor at our Katowice location as well as closures of our Krakow location during the second quarter of 2024 and the LIM Center casino in Warsaw during the third quarter of 2024. Operating costs and expenses decreased due to decreased payroll, marketing and gaming-related expenses primarily related to the casino closures.

Nine Months Ended September 30, 2024 and 2023

The following discussion highlights results for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. Explanations below are provided based on PLN results.

Net operating revenue decreased primarily due to licensing-related closures at our locations in Bielsko-Biala, Katowice, Krakow, and Wroclaw and the LIM Center casino in Warsaw during the first nine months of 2024. Operating costs and expenses decreased due to decreased payroll, marketing and gaming-related expenses primarily related to the casino closures.

A reconciliation of net (loss) earnings attributable to Century Casinos, Inc. shareholders to Adjusted EBITDAR can be found in the “Non-US GAAP Measures Definitions and Calculations – Adjusted EBITDAR” discussion above.

Amounts in thousands

Three and Nine Months Ended September 30, 2024 and 2023

The following discussion highlights results for the three and nine months ended September 30, 2024 compared to the three and nine months ended September 30, 2023.

Net operating revenue decreased because our last remaining ship-based casino contract ended in April 2023. Total operating costs and expenses, including general and administrative expenses, decreased due to decreased acquisition costs, as our material acquisition activity was completed in 2023, as well as decreased payroll expense and decreased stock compensation expense offset by increased professional services expenses. Earnings from equity investment relates to income from our 50% membership interests in Smooth Bourbon prior to its consolidation in the United States reportable segment on April 3, 2023.

A reconciliation of net loss attributable to Century Casinos, Inc. shareholders to Adjusted EBITDAR can be found in the “Non-US GAAP Measures Definitions and Calculations – Adjusted EBITDAR” discussion above.

Non-Operating Income (Expense)

Non-operating income (expense) was as follows:

Amounts in thousands

Interest income

Interest income is primarily related to interest earned on our cash reserves and, for the nine months ended September 30, 2023, interest from the Acquisition Escrow. We earned approximately $0.2 million and $1.0 million in interest income in Canada from the funds from the Canada Real Estate Sale for the three and nine months ended September 30, 2024, respectively. The Acquisition Escrow was used to fund the Nugget Acquisition on April 3, 2023.

Interest expense

Interest expense is directly related to interest owed on our borrowings under our Goldman Credit Agreement, our financing obligation under the Master Lease with VICI PropCo, our CPL and CRM borrowings, our capital lease agreements and, prior to the Canada Real Estate Sale, interest expense related to the CDR land lease. Increases in interest expense were primarily due to increased interest related to the addition of Rocky Gap and the Century Canadian Portfolio to the financing obligation under the Master Lease and increased interest rates under the Goldman Credit Agreement.

A breakdown of interest expense is below.

Amounts in thousands

(1) Interest Expense – Other is $7.3 million related to the debt extinguishment of the CDR land lease in Canada.

Gain on foreign currency transactions, cost recovery income and other

Cost recovery income is related to infrastructure built during the development of CDR. The infrastructure was built by the non-controlling shareholders prior to our acquisition of our controlling ownership interest in CDR. Cost recovery income of $1.1 million was received by CDR for the nine months ended September 30, 2024 related to infrastructure built during the development of the Century Downs REC project. The distribution to CDR’s non-controlling shareholders is part of an agreement between CRM and CDR. Cost recovery income of $3.5 million was received by CDR for the nine months ended September 30, 2023.

Taxes

Income tax expense is recorded relative to the jurisdictions that recognize book earnings. During the nine months ended September 30, 2024, we recognized income tax expense of $25.3 million on pre-tax loss of ($32.1) million, representing an effective income tax rate of (78.7%) compared to an income tax benefit of ($1.3) million on pre-tax loss of ($11.4) million, representing an effective income tax rate of 11.8% for the same period in 2023. For further discussion of our effective income tax rates and an analysis of our effective income tax rate compared to the US federal statutory income tax rate, see Note 8, “Income Taxes,” to our condensed consolidated financial statements included in Part I, Item 1 of this report.

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, other debt or equity financing activities or funding arrangements with third-party partners, such as VICI PropCo.

Cash Flows – Summary

Our cash flows; cash, cash equivalents and restricted cash; and working capital consisted of the following:

Amounts in thousands

Amounts in thousands

(1) Cash, cash equivalents and restricted cash as of September 30, 2024 includes $11.0 million of cash previously funded by VICI PropCo that has not yet been spent on our Caruthersville project.

(2) Working capital is defined as current assets minus current liabilities.

Operating Activities

Cash flows from operations decreased during the nine months ended September 30, 2024, primarily due to $12.2 million in income tax payments related to the Canada Real Estate Sale and increased interest expense. 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.

Investing Activities

Net cash used in investing activities for the nine months ended September 30, 2024 consisted of $1.8 million for casino licenses in Poland, $0.4 million in slot machines, $0.1 million in exterior renovations and $0.1 million for various hotel renovations to the Mountaineer property in West Virginia, $1.1 million in slot machine purchases, $0.1 million for beach access, and $0.2 million in golf equipment for the Rocky Gap property in Maryland, $10.9 million for our hotel project and $0.2 million to add Starbucks in Cape Girardeau, $20.2 million for our casino project in Caruthersville, $0.8 million for slot machine purchases at our Missouri properties, $1.0 million for slot machine purchases, $0.5 million for a high limit room, $0.2 million for sportsbook improvements and $0.5 million in various renovations in Nevada, $0.6 million for slot machine purchases, $0.3 million in gaming-related purchases and $0.3 million in hotel renovations at our Colorado properties, $0.6 million related to racing related updates at Century Downs, $0.2 million in restaurant renovations at St. Albert and $0.1 million related to racing related updates at Century Mile in Canada, $1.9 million in renovations on the new Wroclaw casino location and $0.2 million for improvements at the Krakow casino location in Poland and $4.1 million in other fixed asset additions at our properties, offset by $0.1 million in proceeds from the disposal of assets.

Net cash used in investing activities for the nine months ended September 30, 2023 consisted of $98.8 million to acquire the Nugget, net of cash, $53.0 million to acquire Rocky Gap, net of cash, $0.4 million for slot machine purchases, $0.2 million in gaming related purchases and $1.1 million in various improvements to the Mountaineer property in West Virginia, $0.8 million in gaming related purchases in Maryland, $13.7 million for our hotel project in Cape Girardeau, $14.5 million for our casino project in Caruthersville, $1.3 million in improvement projects for the temporary casino in Caruthersville, $0.2 million for our stand-alone hotel project in Caruthersville, $0.7 million for slot machine purchases and $0.4 million for surveillance equipment at our Missouri properties, $2.7 million for slot machine purchases, and $1.1 million in exterior improvements in Nevada, $0.6 million for slot machine purchases, $0.1 million in gaming-related purchases and $0.1 million in camera upgrades at our Colorado properties, $1.4 million in slot machine purchases in Poland, $0.4 million related to adding sportsbooks at our Canada properties and $2.4 million in other fixed asset additions at our properties, offset by $1.6 million in proceeds from the earn out related to the sale of casino operations in Calgary in 2020, $2.3 million in dividends from Smooth Bourbon, $0.1 million in proceeds from the disposition of assets, and $0.5 million in cash due to consolidating Smooth Bourbon following the Nugget Acquisition.

Financing Activities

Net cash used in financing activities for the nine months ended September 30, 2024 consisted of $6.9 million in distributions to non-controlling interests and $0.2 million to repurchase shares to satisfy tax withholding related to our performance stock unit awards, offset by $4.5 million in proceeds from borrowings net of principal payments.

Net cash provided by financing activities for the nine months ended September 30, 2023 consisted of $162.6 million in proceeds from the Canada Real Estate Sale and $0.1 million in proceeds from the exercise of stock options, offset by $0.6 million in principal payments, net of proceeds from borrowings, $1.3 million to repurchase shares to satisfy tax withholding related to our performance stock unit awards and $12.9 million in distributions to non-controlling interests.

Borrowings and Repayments of Long-Term Debt and Lease Agreements

As of September 30, 2024, our total debt under bank borrowings and other agreements, net of $12.1 million related to deferred financing costs, was $327.5 million, of which $322.5 million was long-term debt and $5.0 million was the current portion of long-term debt. The current portion relates to payments due within one year under our Goldman Credit Agreement and the UniCredit Term Loan. Our Goldman Credit Agreement provides for a $350.0 million Term Loan, drawn in April 2022, and a $30.0 million Revolving Facility. No amounts are currently outstanding under the Revolving Facility. For a description of our debt agreements, see Note 5, “Long-Term Debt” to our condensed consolidated financial statements included in Part I, Item 1 of this report. Net Debt was $220.9 million as of September 30, 2024 compared to $158.9 million as of September 30, 2023. The increase in net debt is due to decreased cash partially offset by decreased debt due to scheduled principal repayments and the repurchase of approximately $3.5 million under our Goldman Term Loan for 97% of its value in February 2024. For the definition and reconciliation of Net Debt to the most directly comparable US GAAP measure, see “Non-US GAAP Measures Definitions and Calculations – Net Debt” above.

The following table lists the amount of 2024 maturities of our debt as of September 30, 2024:

Amounts in thousands

(1) The Goldman Term Loan requires scheduled quarterly payments of $875,000, equal to 0.25% of the original aggregate principal amount of the Goldman Term Loan, with the balance due at maturity.

The following table lists the amount of remaining 2024 payments due under our operating and finance lease agreements:

Amounts in thousands

As of September 30, 2024, estimated cash payments due under the Master Lease for the remainder of 2024 are $14.2 million, which includes a CPI increase. We have elected to defer the cash payments of $4.2 million in annual increased rent related to the Caruthersville project for 12 months. As a result, the deferred rent will be paid over a six month period beginning in the fourth quarter of 2025. Estimated cash payments to the non-controlling partners under the lease between Smooth Bourbon and Nugget (the “Nugget Lease”) for the remainder of 2024 are $1.9 million.

The following table details cash payments under the Master Lease, CDR Land Lease, which ended in September 2023, and 50% of the cash payments under the Nugget Lease for the three and nine months ended September 30, 2024 and three and nine months ended September 30, 2023.

Amounts in thousands

(1) Represents payments with respect to the 50% interest in the Nugget Lease owned by Marnell through Smooth Bourbon. Smooth Bourbon is a 50% owned subsidiary of the Company that owns the real estate assets underlying the Nugget Casino Resort.

Rent expense related to the Master Lease and CDR Land Lease is included in interest expense on our condensed consolidated statements of loss. The Nugget Lease is considered an intercompany lease, and income and expense related to the lease are eliminated in consolidation. The 50% interest in the Nugget Lease owned by Marnell through Smooth Bourbon is recorded as noncontrolling interest on our condensed consolidated statements of loss.

Common Stock Repurchase Program

Since March 2000, we have had a discretionary program to repurchase our outstanding common stock. The total amount remaining under the repurchase program was $14.7 million as of September 30, 2024. We did not repurchase any common stock during the nine months ended September 30, 2024 but may elect to do so in the future. The repurchase program has no set expiration or termination date.

Potential Sources and Uses of Liquidity and Short-Term Liquidity

Historically, our primary source of liquidity and capital resources has been cash flow from operations. As of September 30, 2024, we had $118.8 million in cash and cash equivalents compared to $171.3 million in cash and cash equivalents at December 31, 2023. Cash and cash equivalents decreased primarily due to tax payments related to the Canada Real Estate Sale of $12.2 million and purchases of property and equipment of $44.5 million as discussed in “Investing Activities” above. 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. As of September 30, 2024, we had $30.0 million available on our Revolving Facility.

Completed and Planned Projects

Planned capital expenditures for the remainder of 2024 include approximately $7.6 million in gaming equipment and renovations to various properties. We completed construction on The Riverview, a hotel at our Cape Girardeau location, in March 2024 and opened the hotel on April 4, 2024. The project cost approximately $30.5 million. We funded the project with cash on hand. We opened the new land-based casino and hotel at Century Casino Caruthersville on November 1, 2024. The project cost approximately $51.9 million and was funded with financing provided by VICI PropCo in conjunction with the Master Lease. As of September 30, 2024, we had received $51.9 million from VICI PropCo and had spent approximately $40.9 million on this project. As of September 30, 2024, we had approximately $11.0 million of cash included in our condensed consolidated balance sheet that was previously funded by VICI PropCo that had not yet been spent on the project. We estimate that we will spend the $11.0 million during the remainder of 2024 or early 2025.

We may be required to raise additional capital to address our liquidity and capital needs. We have a shelf registration statement with the SEC that became effective in June 2023 under which we may issue, from time to time, up to $100 million of common stock, preferred stock, debt securities and other securities.

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.

We estimate that approximately $68.2 million of our total $118.8 million in cash and cash equivalents at September 30, 2024 is held by our foreign subsidiaries and is not available to fund US operations unless repatriated. We expect to incur withholding tax on future repatriation of current earnings in certain non-US subsidiaries.

Critical Accounting Estimates

As of the filing date of this report, there were no significant changes in our critical accounting estimates from those discussed in our Annual Report on Form 10-K for the year ended December 31, 2023. See Note 2 to our Unaudited Condensed Consolidated Financial Statements for accounting pronouncements issued but not yet adopted that may impact the Company’s consolidated financial position, earnings, cash flows or disclosures.

We had no material changes in our exposure to market risks from that previously reported in Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2023.

Evaluation of Disclosure Controls and Procedures – Our management, with the participation of our principal executive officers and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, for the period covered by this report. Based on such evaluation, our principal executive officers and principal financial officer have concluded that as of the end of the period covered by this report, our disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting – There were no changes in our internal control over financial reporting that occurred during the three months ended September 30, 2024 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.