Century Casinos: Navigating the Revenue-EPS Divide and the Road to EBITDA-Driven Recovery

The recent earnings performance of Century Casinos (CNTY) presents a paradox: robust revenue growth coexists with persistent negative earnings per share (EPS). This divergence, while not uncommon in capital-intensive industries, raises critical questions about the company's path to profitability and the role of EBITDA-driven valuation models in assessing its long-term potential. For investors, understanding this dynamic is key to evaluating Century Casinos' capital allocation strategy and its implications for shareholder value.

The Revenue-EPS Discrepancy: A Tale of Two Metrics

Century Casinos reported Q1 2025 revenue of $130.4 million, a figure that reflects operational resilience despite headwinds like weather disruptions and declining sports betting income in Colorado. The company's Missouri properties, particularly the new Caruthersville casino, have been standout performers, contributing $5.8 million in incremental net revenue and a 31% EBITDAR boost in their first six months. Similarly, the Nugget Casino Resort in Nevada reversed its fortunes, posting a $700,000 positive EBITDAR in Q1 after years of losses.

Yet, despite these gains, the company's EPS remains negative. The Q1 loss of -$0.67 per share and the Q2 2025 forecast of -$0.37 per share underscore the drag of high debt servicing costs and operational inefficiencies. With a net debt-to-EBITDA ratio of 6.9x at the end of Q1, Century Casinos is burdened by interest expenses that erode profitability. This highlights a critical challenge: while revenue growth signals demand for its services, the path to positive EPS requires addressing structural costs and debt.

EBITDA as the Valuation Compass

For capital-intensive businesses like Century Casinos, EBITDA (and its variant, EBITDAR) often serves as a more reliable proxy for operational health than net income. In Q1 2025, the company generated $20.2 million in EBITDAR, a figure that excludes non-cash expenses like depreciation and amortization. This metric paints a more optimistic picture, particularly when compared to the prior year's performance, which was hampered by a one-off $2 million hit from weather-related disruptions.

The focus on EBITDA-driven valuation models is further reinforced by Century Casinos' strategic emphasis on free cash flow generation. With $85 million in cash reserves and a plan to reduce net debt-to-EBITDA to below 6x by year-end, the company is positioning itself to leverage its EBITDA growth for deleveraging and shareholder returns. Analysts project EBITDA to stabilize in the mid-teens million range by 2025, which could justify a higher multiple if the company sustains its operational improvements.

Capital Allocation: Buybacks, Debt Reduction, and Strategic Patience

Century Casinos' capital allocation strategy is a double-edged sword. On one hand, the company has committed to stock repurchases, with plans to deploy “single-digit million dollar” buybacks before its next earnings report. This signals confidence in its intrinsic value, particularly as the stock trades near its 52-week low of $1.30. On the other hand, the need to reduce debt remains paramount. Goldman Sachs' 35.8% increase in its stake during Q1 suggests institutional confidence in the company's ability to balance these priorities.

The challenge lies in timing. While buybacks can enhance shareholder value in the short term, aggressive debt reduction is essential to unlock long-term upside. Century Casinos' management has acknowledged this, stating that the net debt-to-EBITDA ratio is expected to decline significantly by year-end. Investors must monitor this metric closely, as a reduction to below 5x could attract a broader range of buyers and justify a re-rating of the stock.

Investment Implications and the Road Ahead

The key takeaway for investors is that Century Casinos' valuation hinges on its ability to convert EBITDA growth into sustainable EPS improvements. The company's recent operational wins—particularly in Missouri and Nevada—demonstrate that it can drive revenue and EBITDAR in key markets. However, the path to profitability remains contingent on three factors:
1. Deleveraging: Reducing the net debt-to-EBITDA ratio to a more sustainable level.
2. Operational Efficiency: Maintaining cost discipline to offset rising interest expenses.
3. Strategic Buybacks: Using its cash reserves to enhance shareholder value without compromising liquidity.

For now, Century Casinos appears to be on the right trajectory. The Q2 2025 earnings report, scheduled for August 7, will provide critical data on whether the company can sustain its Q1 momentum. If EBITDA growth outpaces debt servicing costs and the stock repurchase program gains momentum, the stock could see a re-rating toward its $5.00 average price target. However, investors should remain cautious until the net debt-to-EBITDA ratio drops below 5x and EPS turns positive.

In conclusion, Century Casinos exemplifies the complexities of valuing a business in transition. While the revenue-EPS divide persists, the company's EBITDA-driven recovery and disciplined capital allocation strategy offer a roadmap to long-term value creation. For patient investors willing to navigate the near-term volatility, the stock presents an intriguing opportunity in the casino sector.