Q1 2020 Earnings Call
Ladies and gentlemen, today's conference scheduled to begin shortly please continue to standby. Thank you for your patience.
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Ladies and gentlemen, thank you for standing by and welcome to the itself Entertainment Q1 2020 earnings call.
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I'd now like to have the conference over to your speaker today, Matthew Ella SVP of corporate strategy. Thank you. Please go ahead Sir.
Welcome to Excel Entertainment's first quarter 2020, <unk> earnings call.
Depending on the call today, or Andy Rubinstein, Excels, Chief Executive Officer, and Brian Carol Excels Chief Financial Officer.
Please refer to our website for the press release supplementary information that will be discussed on this call.
Today's call is being recorded and will be available on our website under events and presentations within the Investor Relations section of our website.
Oh the common during today's call may constitute forward looking statements within the meaning private securities reform.
He 95.
These forward looking statements are subject to risks uncertainties and the current health concerns.
Actual results may differ materially from those discussed today.
Company undertakes no obligation to update these statements unless required by law.
For a more detailed discussion of these and other risk factors investors should review the forward looking statements section of the earnings press release available on our website as well as other risk factor disclosures in our filings with the FCC.
During the call we may discuss certain non-GAAP financial measures reconciliations of the non-GAAP measures as well as other information regarding these measures. Please refer to our earnings release and other materials in the Investor Relations section of our website.
I will now turn the call over to Mr., Andy Ruby Tuesday.
Thank you Matt good morning, everyone.
Thank you for joining us bookshelves first quarter 2020, <unk> earnings call. During these unprecedented times.
Excel at normal operations for the first 76 days, the first quarter with strong operational and financial performance prior to the shutdown.
Gaming revenue increased 29% compared to the first 76 days of 2019.
As a reminder, March 16th, Illinois Gaming Board shut down all video gaming terminals across the state of Illinois.
And on March 20, Oh, My Governor Pritzker announced they stay at home order that has been subsequently extended two main thirtya.
As soon as.
Were shut down we immediately began collecting all build cash on an expedited basis, we were able to collect secure field cash within 72 hours with the vast majority collected within the first two days.
This was a monumental logistical achievement and I'm extremely proud of our team for their ability to execute on such short notice.
With their video gaming machine shut down and Oh, not a central business in Illinois temporarily suspended we made the decision significantly reduce our monthly cash expenses.
Is included Birla weighing the vast majority of our employees.
In addition, XL senior management, including myself, our CFO Bryan Carol our general counsel direct harmer and others are for going 100% about respective base salaries until video gaming operations resume.
Taking these measures axles projected monthly cash expenses have been reduced to the range of $2 million to $3 million monthly while operations are suspended.
We've also been frequent contact with our location partners to assist them. During these turbulent times, we've been working with our partners to make sure. They are aware and in many cases, hoping to apply for all federal state and local government assistance programs such as the Paycheck protection program.
Contained within the federal cares.
We also conducted a survey of our location partners with 600 responded.
Based on these responded approximately 75% respondents indicated that they have applied for only under the carriers out.
Also what did 80% indicated they expect to be open and operational immediately after the stay at home order is lifted and 90% expect to be opened in operational within three days of the state or order being left.
Last week Governor Pritzker announced a regional and based based reopening plan for Illinois.
We are waiting for more information, how and when each region will progress through the paces and its effect on the relaunch the video gaming.
We already have resumed normal operations as soon as the government states that it's safe to do so.
We continue to install the six machines up until the stay at home or order went into effect of installed more than 480 today.
During the shutdown due software and higher about one that's had been remotely installed and almost half of our machines.
For the first quarter, we recorded a 100 and by millions in revenue and $15 million and adjusted EBITDA.
Our balance sheet remains strong with net debt of approximately $207 million total liquidity of $216 million.
So is extremely well positioned to whether this crisis and we fully expect to reopen as strong as ever.
With that I'm going to turn it over to Brian Carol our CFO to walk you through the first quarter results in more detail and then we'll open it up for questions.
Thank you Andy.
Very busy first quarter parts and the shutdown large scale grow a lot of six PGT beginning in mid January.
At March 31st we operate at 11164 BTG.
In 2353 location.
Year over year increased 41%, 35% respectively.
Our combined whole per day for the first 76 days, we were operating at first quarter, that's why 2100 $24.
Excluding Grand River for Squabbling whole per day was option three two dogs.
At the end of March our average residual contract length is approximately seven years.
On Standalone basis, excluding Grand River.
Digital contract like there's approximately 7.2 years.
We were in the process about green Grandbridge equipment in operations and we'll continue wants operations resell.
Expect these improvements will increase the whole per day of these location.
We had told revenue said first quarter, Roger and 5 million an increase of 8% from 2019.
Gaming room are useful for 76 during the quarter totaled 101 million, which was 29% higher than for some 16th 2009.
Adjusted EBITDA for the core totaled $15 million.
Capex remains limited with approximately 3.79 cap spend in the first quarter compared to 5.69 at first quarter 2019.
The majority of this capex spend associated with purchases of new equipment for the six machine rollout.
At the end of the first quarter, we had approximately $207 million of net debt in 2000 $16 million liquidity.
This thing about 167 mine unrestricted cash and $50 million a revolver availability.
In March we drew down the remaining 65 nine available to us on our delayed draw term loan.
We are in full compliance with all of our bank covenants and given our substantial cash balance and expected cash expenses of two to three $9 per month.
We believe we have multiple years of liquidity without needing to raise any outside capital run the business.
Back to you Andy.
Thank you Brian.
These are challenging times, but I've been extremely proud of how the excel team has responded to the current environment.
I'm confident that excel will continue to provide the same great customer service, we've been known for.
The combination of our strong balance sheet and our asset light business model means that we are well positioned successfully maintain our leadership position in the industry.
We will now take your questions.
As a reminder to ask a question you want me to press Star one on your telephone.
Withdraw your question press, the pound or Heskey. Please standby, while we compile the Q and a roster.
Your first question comes from a line of a participant whose information was unable to be gathered caller. Please state your first and last name and company. Your line is open.
Hello.
Yes caller. Please state your first and last name and your comments is Stephen Grambling.
Hi, This is Stephen Grambling from Goldman Sachs.
Just wanted to get a little bit more color on the location commentary. So you mentioned that.
I think it was 90% will be opened within three days I guess, what's the commentary on the other call it 10%.
Should we be expecting yep.
Further delays in opening or have you had any sense for how many might close permanently and that also is there any color that you're getting from interest.
From other restaurant bars that maybe planning on adding BG cheese to improved cash flow of their business and a recovery scenario, where fewer customers come through the door.
So the first part of question the the 10%.
There will be some locations that will not open we've seen probably about 15 to 20 of our locations that have indicated that they.
Or not opening or will not be continuing with video game and.
That's a that's that numbers a little less than 1%.
And to give you an idea at an annual basis, there's about 120 of our locations that discontinue gaming. So it's not really that disproportionate from the normal operation.
We do believe that though will be.
Additional locations that will not open.
For one reason or another.
You have to remember a lot of these locations are taking advantage of governance government subsidies. During this time period. So so if there they're getting those subsidies are going to continue taking that subsidy until.
The latest possible Tate for them to make a decision. So we really don't have a great glass on how many won't reopened.
There there are lot of locations that are taking this time to do remodeling.
To redo their floors.
And they may not be prepared to open up right out of the gate and then there's other ones that in the habit.
A transition time, where they've got to Britain employees back they need to do if they don't have enough time, they need to reorder supplies and such so.
In our survey, 90%, we're ready to go right out of the gate those others.
Some of that will not open but most of them will be a delayed opening.
To a time needed for preparations.
And by me the second part of your conversation question. It was just on any any incremental thoughts around new business. When potential is as maybe some of these <unk> restaurants, and bars and they plan to add BG teach improve their cash flow into recovery, especially where fewer customers come through the door.
I think you'll see some of that I don't think it will be a significant wave of demand.
Chronically, we we have signed up.
Locations during this time period.
And have a few of them.
Well, we've actually submitted their application to the gaming board. So there is.
That.
Indication that that people still wanting BG tees and there will be that opportunity I think the bigger opportunity that we'll see as.
Where locations that fail or don't reopened.
Whether it's our portfolio or other people's portfolio.
We'll be identified as good opportunities for other entrepreneurs to go open up that place and as Weve indicated a in the past.
We we are able to win a disproportionate amount of new locations or new organic locations. So we think will benefit.
Somewhat from that.
Situation as these new owners take over establishment, especially the ones that are in ours wont will win them over from our competitors.
Make sense and then one other follow up you are there any steps to increase.
Hygiene or the safety studies of the machines once restaurants reopened in and how do you kind of assess those costs, whether it's on your end or that restaurant owners and.
As a company, we've made a significant investment and buying sanitizing.
Products, whether it's the actual like hand, sanitizer or sprays two to help keep our employees clean as well as one hour.
Please go out to the establishment.
We believe that the gaming board is going to give us direction.
And how to what their expectation is for keeping the equipment clean and safe.
Because the establishment.
Have an obligation to provide an an atmosphere.
Of safety for their their customers I think they'll participate and helping us execute.
On that on that program.
Bob.
I, we have also purchased a significant amount of asked for our own employees. Because obviously there are out in the field there in establishment want to make sure there was a safe environment.
For them to work in and but we believe that it's probably the responsibility of each samples from an owner too.
Provide those types of protections for their employees.
As a there they're conscious and there's no more aware of the safety needs in there I guess there given establishment.
Great. Thanks, so much for taking the questions.
Thank you.
Okay. If he would like to ask a question press Star one on your telephone. Your next question comes from the line of Greg give US. Your line is open. Please go ahead.
Morning, guys. Thanks for taking my questions and I hope, you're staying safe and these Oh times.
Our first if we think about the general weakening I guess of state budgets across the nation as a result of the pandemic.
You see this is a potential reason for accelerating legalization of video gaming terminals in new states.
We.
It is that spoken in the past about that the challenges related to.
Passing legislation related to.
Video gaming that we'll continue to exist.
But with that said I think.
The ability to get legislation passed in this environment.
We'll be slightly easier or people will be more willing to consider it a we don't see legislation moving.
In this session.
States that we thought had a good opportunity, we actually had actually hurt us.
In the state of Virginia.
When legislation was moving into right direction.
Yeah, and the governor decided to take a different direction.
Because of Ur Cobot, 19, but I do think.
The opportunity will be there I do think that they will get larger consideration as we move forward I don't think it will happen in the very near future I think we'll have to be down the road and other legislative sessions, because most of the focus today.
It is on the like absolute immediate needs of each state and the amount of collaboration that needs to occur to to get.
Video gaming legislation passed.
The significant and it doesn't happen overnight so.
I don't see it happening right away.
Okay that makes sense.
And now that several of the gaming board meetings have been canceled or is there any concern related to the pace I guess of new license being issued and do you expect beginning board to maybe make up for that lack of new license approval when they start to hold meetings again.
Okay.
So that's a good question. So I think what will occur is the work that was done.
Prior to.
Down.
Well all get.
Kind of pushed through so you'll get a lot of licensing from there the what will happen. It. What unfortunately will happen is obese time lost outside of the obvious time that we haven't Matt.
In that.
In order for them to do licensing they have to do an onsite investigation.
And the the state agents are not visiting the locations because obviously the close so I think you'll see a backlog.
That will occur sometime between.
The next meetings in June we don't know if it's going to be scheduled a.
But until the that's the first actual meeting.
After the rail able to go out to the locations so that.
That will create a lot of locations that will be pushed into the queue that are not an acute today. So.
The short answer is yes.
We're gonna have a delay.
The second answer is I do think.
They'll be a catch up but I think we'll be later than we think it probably wont occur to like September and and then I think there's a there's basically.
Bumps that it will be lost because people that started the up the licensing process or tending to move forward with gaming May have decided you know what 10. This isn't the right environment for <unk> for me the started a new business and I'm going to hold off so you.
We'll see a little fallout from that that as well.
Okay got it that's that's helpful.
In the last one from me was just relating to the installation of the six machines. This year, which began January looks like you're about halfway to your expectation or 1000 installs from this I guess I was just wondering how the shutdown a generally affected the installed it if in any way at all I mean are you still able to make these installations, even if the establishments are shut down.
On it.
I guess, if you could just talk about the pace of those 1000, new installs being roughly on track with your expectations.
So when shut down occurred shut down occurred and it shut down our a built in the game inboard shut down our ability.
To deliver and install machines so.
The last machine that we reported we installed as the last machine that has been installed we would love to get out there and be able to go into locations and put out the six machines until the gaming board allows or that this the governor <unk>.
Deems our business.
Part of preparation for relaunch.
We're not able to install machines and so it will create a delay or for the most part we got.
Oh, no a larger percentage of our best locations getting the six machine, so they'll have higher utilization than the second half.
And I do anticipate us exceeding that thousand machine number by the end of the year I just don't know based on how many locations come back and how many locations got licensing.
That will act than the actual number will be.
Okay got it.
For clearing that up and thanks for taking my question.
Thank you.
Your next question comes from the line of John Decree Your line is open.
Hi, Andy Hi, everyone. Thanks for taking my questions.
Let's go back to an earlier question and I'm sure you're probably still waiting on some additional guidance from the state but wanted to get your thoughts on the reopening process, maybe a little bit more color on on how you envision. It I guess the simple question is when you get the greenlight from the state can you kind of flip the switch.
Sean right away or will it take some time to.
Yes, your teams out and get machines back on I guess how quickly.
Can you get up and running and then a follow up to that is how you envision rather than kind of increased hygiene and cleanliness omena casinos are talking about spacing out of slot machines et cetera, obviously smaller locations that you're in but but curious do you expect any kind of changes take your configurations, social dispensing and.
Anything else that you might think you might be required to Ah to look at.
So.
Ideally a on the preparation needed to fully.
Launch effectively a relaunch effectively we need somewhere around.
Seven to 10 days heads up from from the state.
We have.
Be gone all the preparatory or planning to be ready.
But the biggest thing that we'll have to do is actually go out to all these establishment and.
Make sure the machines aren't good operating order.
Reload cash that we've we've pulled from all of the.
Redemption devices, that's gonna take.
Sometime I mean, there's really.
No way around it.
The absolute shortest amount of time, we could probably move within about call. It four days.
Yeah, but we're going to lead times in the state.
Based on conversations with the Illinois Gaming Board.
They think that will get about a weeks' notice.
We are working actively with them too.
Having to.
Get them to allow us to do some of the work we need in the field.
Prior to even knowing about an exact relaunch day and.
We'll see they were receptive obviously, they need the governors a green light for that to happen.
As far as.
Hi, guys the.
Distancing and spreading of machines, and so and Sanitization.
One of the things that we all need to realize is.
What our presence inside a.
Tavern or a.
Convenience store or restaurant.
There is no different than.
A customer who's eating there and so.
Yeah, Youre going to get the state is going to say that there's.
I'm.
Going to be.
Six people allowed at the table.
That's a smaller distance then the six people who are sitting at our slot machines.
So it had a typical table tables, maybe three feet by six feet or two feet by six feet you could have six people sitting at that table.
They're not the governor is not going to make you.
<unk> prove that you are corn teamed with those six people, they're going to allow six friends from high school to also that same table. They should at the same we want to be treated exactly the same where we actually have greater social destined, saying, where if you put six of our machine.
Yes.
It takes up almost 20 feet in length.
With.
About seven to eight feet depth. So we're taking up 150 square feet, where the people sitting at that table.
Chairs and everything are probably.
That's somewhere around 50 square feet. So we believe that we should be treated.
The same as everything else and establishment if they if the.
This is the governor is willing to say only every other person every other seat at the bar can be out you buy side that will have every other slot machine occupied but it has to be the same.
Treatment for all patrons of that's establishment and we've tried to make that.
Message very clear to the gaming board as well as.
Through our lobbyists that we believe in whatever the governor thinks as appropriate but he has to apply it to every patron and the establishment not selectively say oh.
Okay. This group you guys can be right next to each other and and sit next to strangers, but this group you have to be this distance apart. So that's been our philosophy, we believe that.
That there needs to be appropriate social distancing.
And we're looking for the governor to give us that guidance and we will fall.
That makes sense, Andy I think that's that's helpful and if I could one more on a quick update on the software updates to higher bet limits I think.
You've mentioned some of that can be done remotely.
Not sure if you can kinda give us an update on on progress for that and how many will need physical site visits to get those that software upgrade at once we open back up again and that's all for me. Thank you.
Yeah, Thanks, John So.
Just for everyone's a knowledge.
The.
Equipment. The software that's made by psyche aims at this point. The most current version that will allow us to two or have the higher about limits and better jackpots, all the scientific games software needs to be loaded physically onto the machines. Their software was designed this.
This latest version software was not designed to be able to be sent remotely. So until the next version of Oh.
Oh their software, we're gonna have to go out and do that on every machine.
All the eyes, you T. software can be sent through out remotely. So we've got IGBT. That's yes, we can do it remotely and aside games is isn't no. There about 50 50 of our portfolio, we have a small percentage of our machines from novum attic.
They can do they could be done remotely I think most of them already been done. It's this I gaming software. That's the challenge we haven't been it's not wasn't ready to be loaded onto the machines when.
The stay at home order was put in place. So we haven't done anything with it Oh, we're hoping that they'll be ready.
As soon as route able to go out to the machines I think they've had plenty of time. The question is whether or not the gaming board has given the approval for that software.
No no further questions at this time I will turn the call back over to Mr. Rubenstein.
Thank you everyone for joining us today, we're hoping that Uh huh.
The next time, we're on the phone weaken lets you know about some decent revenue or in the toward the end of the second quarter and we appreciate you taking your time outage that out of your day and hopefully everyone a.
Stays healthy unsafe. Thank you.
Ladies and gentlemen. This concludes today's conference call. Thank you for participation you may now disconnect.
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