Q2 2020 Accel Entertainment Inc Earnings Call

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Ladies and gentlemen, today's conference is scheduled to begin shortly please continue to standby and thank you for your patience.

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Ladies and gentlemen, thank you for standing by and welcome to the XL Entertainment Q2, 2020 earnings call. At this time all participants are no listen only mode. After the speakers presentation. Debbie a question answer session to ask a question. During this session you'll need to press star one on your telephone please be advised that today's comes.

And just being recorded if your acquire any further assistance. Please press star zero.

I'd like to now hand, the conference over.

Do you.

Brian.

Carroll. Please go ahead.

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Welcome to Excel Entertainment second quarter Twentytwenty earnings call participating on the call today, our Andy Rubinstein Excels, Chief Executive Officer, and Brian Peril, Excels Chief Financial Officer.

Please refer to our website for the press release and supplemental 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.

Some of the comments on today's call may constitute forward looking statements within the meaning of the private Securities Reform Act of 1995.

These forward looking statements are subject to risks and uncertainties and the current health conditions.

Actual results may differ materially from those discuss today and the 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 for 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 Rubenstein.

Thanks, Matt Good morning, everyone. Thank you for joining us Brooks sell second quarter 2020 earnings call.

It was a very quiet quarter do the state wide shutdown, but we've seen strong results since video gaming relaunch.

As a reminder, on March 16, the Illinois gave me board shut down all video gaming terminals across the state of Illinois.

In late June the I'd, you'd be announced Greenwood relaunch on July 1st and issued protocols require in one of the following actions.

BG cheese to be spaced 60 depart.

For.

Dividers to be installed between duties.

Or.

If options, one and two cannot be.

Achieved.

The stable the BGT.

Once again.

Yeah, Celgene went above and beyond preparing for relaunch and we were pleased to report that we had a successful first month.

We brought back most of our employees a little more than a week before locations could reopen.

And on day, one more than 80% of locations were alive.

And by days three more than 90% of locations realize.

In addition, less than 3% of RBC cheese were disabled.

Due to the RGB protocols.

More importantly.

Our players were also excited forgive me to resume and Joel I gaming revenue was near our pretty Cobot Nike budget.

During the shutdown our team did an excellent job maintaining close contact with our business partners not just understand how we would work with them implement the new guidelines, but also to help support them in these unprecedented times.

We are encouraged by both the recent performance and a limited number of our locations that have closed due to the pandemic.

Recent policy decisions in Illinois have also giving us confidence that we should be able to avoid a similar statewide shutdown.

On July 15.

Governor Pritzker further devices, Illinois from four regions to 11 regions.

We have analyzed the regions and determine no region has more than 20%.

Vic cells gaming revenue.

It's also important to note Chicago, a municipality that prohibits video gaming and has been more impacted by cobot 19 in the rest of the state is a separate region.

We will continue to work with the Governor's office the IGBT.

Local municipalities and our established when partners to follow the latest cobot 19 ordinances and guidance.

During the second quarter, we also announced that we had agreed to acquire Toms amusements, a south east amusement operator, and master licensee in the state of Georgia led by Emilie done.

The acquisition closed on July 22nd.

And our teams have been busy integrating the companies and working with family to grow her brand.

This is an important milestone to our vision of expanding nationally.

The Georgia market is large and Underpenetrated and we believe that the excel playbook will help us grow the market and allow us to take significant share.

We were encouraged by other discussions that additional state expansion may occur even faster than we had previously anticipated.

Finally.

On June 16, we announced the redemption of all public warrants to purchase shares about a common stock.

For redemption exchange rate of 0.25 shares of common stock for public warrant.

With all this announcement several weeks later with an exchange offer to the private warrant holders with the scene redemption exchange rate.

94% of the private warrant holders, including myself and all members of our board of directors signed an agreement, indicating they would participate in the exchange offer.

Redemption and exchange offers were made to simplify the company's capital structure and reduce the potential dilutive impact of the company's warrants.

Unfortunately with operation suspended we recorded minimal revenue and adjusted EBITDA loss of $9 million for the second quarter.

However, the strengths of our business model are reflected in these results as we were able to quickly adapt and ensure the long term prosperity for excel.

Our balance sheet remains strong with net debt of approximately.

120 million in total liquidity of 199 million.

We emerged from the shut down in a strong position and look to continue executing our growth plans.

With that I'm going to turn it over to Brian Campbell, our CFO to walk you through the second quarter results in more detail and then we'll open it up for questions.

Thank you Andy as of June Thirtyth, we had 11100 ABTS in 2335 locations.

Year over year increases of 33% and 37%, respectively and that is probably the right metric that focus on for our growth potential.

The small decrease in locations and VCTS from prior quarter is primarily due to lower for me locations closing their business do the impact of cobot 19, as well as the IGBT not having to meeting.

Thus delaying the normal addition of locations.

At the end of June our average residual contract length was approximately 6.8 years and on a standalone basis, excluding Grand River I really feel contract length was approximately seven years.

With relaunch, we've been able to resume upgrading grin reverse equipment I expect that these improvements we increased the whole per day of these locations.

We have installed more than 556, VCTS expect install a total of 1000 by yearend.

To date, approximately 8% of our game titles have been update to higher bet limit.

The majority of RBC piece would be receiving additional updates are there many game titles during the second half of this year.

Oh, the updates approximately 50% of RBC Tees, where acquire and I'd say update which we began this week and expect to complete by year end.

We had total revenue for the second quarter of point 4 million due to the state wide sat down and an adjusted EBITDA loss of 9 million.

Capex remain limited with approximately point threemillion cash spend in the second quarter compared to 5 million in the second quarter 2019.

Given the pandemic, we defer purchases and more importantly, we were able to work with major vendors there for payments until operations resumed.

At the end of the second quarter, we had approximately 220 million of net debt and 199 million of liquidity, consisting of 149 million unrestricted cash and 50 million a revolver availability.

We are in full compliance with other bank covenants and earlier. This week, we executed an amendment to our credit facility. We provide covenant relief through Q1 of 2021, good sure we have adequate flexibility in the current environment.

Well this is not necessary needed. This amendment provides us with the flexibility continue operating sensibly without the overhang of the shutdown.

Back to you Andy.

Thank you, Brian with one of the toughest quarters in our company's history behind Us I'm pleased to be focused on continuing our mission to be the leader in route gaming.

I had been extremely proud of how the excel team has responded to the current environment. It continued to provide the same great customer service that we have been known for.

We will now take your questions.

As a reminder to ask a question you need to press star one on your telephone to withdraw your question you press the pound or hash key please standby only compiled acumen a roster.

Your first question comes from the line a then cat some S&P global your line is now open.

Your first question comes on line of Vencat S&P Global your line is now open.

Hi.

Next question comes from the line of John D increase.

From Union. Your line is now open.

Good morning, good afternoon, everyone. Thanks for taking the questions.

Had had a couple a I guess kind of housekeeping items first Andy. So you mentioned by day three about 90% of your locations.

Like most curious if you could talk about the balancing the other 10% what your expectations are that are part of it. It was eventually going to come back online have some closing just broadly speaking what's the outlook for those who many locations.

Thanks, John as far as the remaining balance we have experienced a continual growth.

Board.

Probably nine the mid Ninetys low to mid nineties.

Locations that are now open.

There are some that have closed and everyday were.

One or two our trickling in as not reopening.

Our expectation is some of the locations werent.

Quite ready to open initially wanted to wait to see how the recovery.

In the hospitality industry would occur up kind of postponed or open.

We're seeing the same time a couple open every day so.

Although we don't have a a target number of where we think the ultimate percentage. It will be I think were CLO slowly kind of migrating up into the mid ninetys and our expectation is that there will be some that don't ever open a as we see as well.

See these closures are occurring every day.

At the follow up that the Eddie and it may be a little premature as everyone still just getting reopening and under.

Social business and protocols, but have you had any conversations with locations that have previously not considered adding VT tees too there are two their location as additional source of revenue and what's the outlook for kind of new openings or or new locations in the state that might come on.

Line as they look for maybe new revenue sources, given the into kind of dining business has been so disrupted.

Our sales team had some pretty good traction in July with new opportunities and I think we'll continue to see.

That occur throughout the rest here I would caveat.

By the caveat that.

There are.

The expectation is that there will not be as many new businesses opening up in the next six to nine months until we see some certainty.

Or more certainty.

And how the pandemic as can be controlled and whether there's a vaccine that will be implemented later in the year. So.

I have been a few businesses that have decided to add these you tease that we've seen a couple of situations, where one business closed and a new person takes over the business.

And I think that will continue.

Throughout the third and the fourth quarter and into the first quarter, but I don't expect a significant.

Increasing the rate of new business openings occurring over the next six to nine months due to market uncertainty or for those small business owners.

Okay. That's great and then if I could sneak one last point in on your view for revenue per day, so far whole per day. Its early but we've heard a lot of top spot the benefits of stimulus checks and expanded unemployment I'm wondering if you have a sense on how the trend of kind of going into the machines is going if it's been.

Relatively consistent since you've reopened don't if you've seen some volatility there and that's it for me I'll hop back into the queue. Thanks Andy.

Yep. Thanks, John.

The.

There has been some consistency we haven't seen a lot of volatility and.

The the stimulus and and the unemployment.

Does provide a little bit of the lift I think the greater impact that we're seeing is that worst that people are not using their disposable income for travel and other types of entertainment and.

And therefore were normally July and August our months, where there is a lot of travel and there is more of a kind of a a drop in our business I think that's making up for some of the.

Shortfalls than the fact that.

There are people, they're reluctant to go out into a public.

Lot of our players older and they still are cautious and the other thing. That's that's as we said earlier there is not as many of the establishment in our portfolio that are open as opposed to what would be a normal.

Time period, so I think the balance of the lack of.

Options or alternative entertainment is balancing out some of the negative.

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Thanks for any additional color.

Again, if you would like to ask a question press star one on your telephone.

Our next question comes on line of Stephen Grambling from Goldman Sachs. Your line is now open.

Hi, Thanks for taking the questions maybe looking towards George So what do you learned since the deal closed and.

How do you think about the growth rate potential in that in that region.

Thanks, a question Steven the it's really really early for us to give any.

Kind of real perspective on it.

And I wouldn't anticipate any near term growth as the the current market has some challenges.

That we're trying to understand so Georgia is one that.

We have.

A lot we have little near term expectation and we're in more of a learning phase and.

Yeah, as well as an integration mode.

And then whether it's in Illinois, or otherwise I guess, how are you hearing or seeing any kind of.

Operator distress that that could create opportunities for further consolidation either in Illinois or otherwise.

I would say that we haven't really seen distress, we've seen people interested in partnering with us and that's always a uh huh.

Theme in our business as far as the.

[noise] operators that kind of are looking for.

Kind of a transition there there's definitely interest and I wouldn't put it any greater than normal, but we're continuing conversations with a lot of the different operators and opportunities that we've seen over the last year, So and I think that will continue.

Going forward into the fourth quarter and an early next year and then as far as distress I don't think ER, we've seen that explicitly in the marketplace.

Got it thanks, so much.

Your next question comes to line up Vencat from S&P Global Your line is now open.

[noise] AI magazine as me can you hear me okay.

Yes, Okay. This is Greg Davis from Northland, So must have had the wrong name in there at some point so.

Sorry about that talked about the confusion, but HM was would just hoping to follow up on a few things.

Ah first I guess, a little bit more color on how July has trended from a whole per day perspective, maybe relative to creek Overtimes is there anything you can hear there.

Yeah. Thanks, Greg the July numbers as I mentioned earlier were.

We're pretty well pretty strong considering.

What we were coming out of and the fact that we didn't have as much of our of our inventory of locations operating so the whole per day was.

Was consistent with where we thought.

I.

Our business would be.

In our projections.

Pre covert maybe slightly below because of a lot of the locations not being open but.

I think like as I said, the lack of entertainment alternatives and and people staying closer to home.

We're very advantageous for us in terms of performance.

Sure the that makes sense.

And then I guess could you I think you already provided this on the call, but what percentage had been updated with a new bedding limits and then also the percentage of locations that had their 60 to 80 installed at this point.

So the first the bedding limits our concern we have installed in the ICICI portfolio. These the basic software upgrade that was provided.

Through the system update.

Pretty much throughout the portfolio that was only a few games not the entire portfolio of games on each machine. The rest of that portfolio has not been updated.

As it was just recently released we're in the process of doing that.

So on a given machine only call it.

10% to 15% of the games have the higher about limits and the.

The bigger jackpots, we'll see.

On the the as you see portfolio increased pretty rapidly over the next 68 weeks the decide games.

Software is very different and that needs to be loaded onto the each individual machine.

By visiting location you can't do it through the central system, So very very few Kevin experience that upgrade.

As the expectation is it will take some time probably into the fourth quarter before those machines all guest a upgraded so it's a process I don't think we've we've.

Gotten anywhere close to a a critical mass on that upgrade.

And probably will give you better insight or.

At the end of the third quarter.

What is the second part of your question.

It was the percentage that have had their six BGT installed.

So.

I think were.

Uh huh.

Probably in a [noise].

Somewhere between.

25 to a 35 [noise].

Percent that Ah well, we'll accomplish by the end of or the third quarter Peanuts. It's a very dynamic number that's obviously increases every day and.

You'll see.

You'll see that that left.

As you monitor the amount of machines every month. The monthly report that comes out from the RGB, you'll see our numbers increased.

Okay got it that's helpful and he and I guess the last one from me.

Would you know just to be to follow up on the general health of your establishment partners. I know you already said that and pay for either were 90% open again, which is a pretty good and I guess I would just ask you know how many do you think will maybe permanently go out of business and I imagine you're pretty close with their health, maybe day to day or at least month to month and then maybe with.

With respect to the pace of new licenses being issued from the I'd be I mean, how do you think that will be impacted by the shutdown.

[noise] [noise].

The the total amount of locations that.

That won't come back is obviously a.

I guess, what we saw during the pandemic was a lighter amount of business closures than normal and I think that's attributed to the fact that a lot of the.

Locations were receiving government support so they stayed open while they were.

They refuse they didnt.

Declared a closure.

During that time in order to receive the government support.

So on a normal basis, we lose.

Paul at seven to 10 locations that are closing every month.

In in the course of our normal business that was a light we had we experienced a lighter number.

And.

The Uh huh.

The pandemic period of closure.

We're now starting to see a slightly accelerated as some of those locations.

Making declaration that they're not reopening I think we'll see that impact.

Probably through the first quarter of 2021.

As locations will make the effort of trying to reopen see how that business goes usually.

January.

He is a high closure month is business just wanted to get through the holidays kind of as a last Toronto and so.

I think you'll see a higher than normal closure rate.

Beginning.

Let's say this month through probably the end of February.

Okay got it thank you.

There are no further questions at this time I will turn the call back over to Andy Rubinstein.

Okay, well, thank you everyone for joining the call.

We look forward to continuing to help our small business partners reopened their business.

Just in fact, just survive in this period, because obviously there restrained in the ability to serve indoors and Fortunately this is occurring during a a warmer weather period that a lot of them our expanded their outdoor service and so the gaming is help.

Supplement that revenue and we look forward to updating you after the third quarter with a kind of continual growth hopefully everyone stays healthy unsafe and wears never asked because that is essential to.

The supportive a lot of these small businesses. So thank you for taking the time and we look forward to talking to you in a few months.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

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