Q3 2020 Accel Entertainment Inc Earnings Call

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Thank you at this time I would like to hand, the call over to your speaker today.

Andy Rubin.

Sorry, Matthew Ellis SVP of corporate strategy.

They begin sir.

Welcome to Excel entertainments third quarter Twentytwenty earnings call participating on the call today are 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 in 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 concerns.

Actual results may differ materially from those discussed 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 statement section of the earnings press release available on our website as well as other risk factor disclosures in our filings with the SEC.

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.

Thank you Matt Good morning, everyone. Thank you for joining us for Acceleron third quarter 2020 earnings call.

As everyone is aware after three and a half month shutdown video gaming re launched on July Onest. The excel team rose to the challenge and worked with our location partners to reopen as many locations as possible.

As a result of these efforts I am pleased to report this quarter was the highest revenue and adjusted EBITDA quarter in Axcelis history.

Later in the call I will provide an update with respect to pandemic developments, but I would first like to review some other highlights from the quarter.

In July we redeem the page public warrants and in August we completed an exchange offer of all remaining warrants.

As a result.

Yes, then point, both 3% of the warrants remain outstanding today.

This redemption, an exchange offer simplified our capital structure and reduce the potential dilutive impact of the warrants.

In early September we entered into an exclusive agreement with Draftkings to promote their content and programming across all our marketing channels, including our in locations digital display screens. This first of its kind collaboration further differentiates our offering and deepens our play a role.

Asian ships. This partnership will help us retain and extend the agreements with existing locations attract new organic and competitor locations.

And most importantly drive additional players to our locations, while we are still evaluating the benefits of this partnership.

Initial results have been positive.

Finally in late September we completed an underwritten public offering of 9.1 million shares.

The offering raised approximately $90 million, which we expect to deploy in the next nine months.

Our M&A pipeline remains active.

And we aim to continue executing on our growth strategy.

For the third quarter, we recorded $136 million in revenue and 23 million in adjusted EBITDA.

Our balance sheet remains strong with net debt of approximately $140 million and total liquidity of $274 million Act.

Excel is extremely well positioned to capitalize on any opportunities that may arise in the coming months.

With that I'm going to turn it over to Brian Carroll, our CFO to walk you through the third quarter results in more detail.

Thank you Andy as of September Thirtyth, we had 11597 pgts in 2363 locations year.

Year over year increases of 12% and 3% respectively.

The increase in locations demonstrates that while we are operating in a new and normal environment Excel continues to grow.

The IGBT has resumed their meetings and our sales teams continue to sign new organic and competitor locations.

In addition, our attrition rate on closures remains in line with the pre Corbett historical average.

At the end of September our average residual contract length was approximately 6.9 years on a standalone basis.

And also 6.9 years, including the Grand River acquisition.

As a reminder, the Grand Burger locations originally had an average residual contract length of 5.8 years.

The closing of this gap demonstrates our ability to successfully integrate the locations and extend their agreements.

We have installed more than 806, pgts and expect to install a total of 1000 by year end.

Originally we expected to be able to update 50% of our VCTS remotely to the higher bit limit software at 50% and on site update.

During the remote update process. It was determined approximately 25% that the remotely updatable pgts will now require and on site update its.

It's important to note this issue affected the entire industry not just excel.

Today, approximately 50% of our Pts have been updated to the higher bet limits software. We continue perform onsite updates every day, but based on current suffer availability. We now expect to complete the update by June of next year.

We had total revenue for the third quarter of $136 million, the highest revenue quarter in Axcelis history, our combined third quarter location whole per day was $596.

Year over year increase of 4%.

It's important to remember Grand River was acquired on September 16th 2019, meaning those locations were included for all Q3 2020, but only 15 days of Q3 2019.

Excluding the Grand River acquisition, our location whole per day was $649 a year over year increase of 11%.

Adjusted EBITDA was $23 million another record for itself.

As a reminder, the Illinois BGT tax increase from 33% to 34% on July Onest.

Capex was $13.5 million cash spend in the third quarter compared to $9.3 million in the third quarter of 2019.

The increase was largely attributed to vendors that allowed us to defer payments during the second quarter at the end of the third quarter, we had approximately $140 million in net debt and $274 million of liquidity consisting of $179 million of cash on our balance sheet and $95 million of revolver availability back to you Andy.

Thank you, Brian I'd now like to discuss the COVID-19 situation in Illinois.

As of July Onest in connection with the relaunch BG teaser required to be spaced six feet apart.

Or to be separated by partitions players must wear masks in the gaming area and pp is provided to the players.

These precautions have ensured VGX could be played safely return.

Returning player response has been positive as demonstrated by our revenue.

In July Governor Pritzker divided Illinois into 11 regions as of November 4th all regions were operating with mitigation measures, which include a prohibition on indoor dining.

BGT use our available we're play from eight am to 11 pm.

Despite the reduced hours XL has only seen a minimal impact to net video gaming revenue, but continues to monitor the situation closely alright.

Our October revenue will be published by the IGBT in the coming weeks, which will reveal excel had another positive month.

To wrap things up I am extremely pleased with our record third quarter performance, demonstrating the resiliency of excel and our industry Excel team members continue to overcome the current challenges while delivering industry, leading customer service, we will now take your questions.

Yeah.

At this time, if you'd like to ask a question over the phone lines. Please press Star then one on your telephone keypad, we'll pause for a moment to compile to chew on day roster.

Your first question comes from line of Greg give us your line is open.

Morning, guys. Thanks for taking the questions and congrats on the record results.

Good to see.

Well I was just wondering if you could give a sense of how much of your operating expenses in the quarter were may be one time in nature, just kind of due to getting all your locations up and running again with the new protocol and dividers.

Yes. This is Brian.

The Capex was approximately over $2 million that was spent on the dividers.

With regard to onetime operating expenses. We they are included in our numbers. The only time weve adjusted EBITDA for covered was related to primarily we have.

When we furloughed employees and paying benefits and.

Retention bonuses and so forth like that so but just to give you an idea on a monthly basis right now covitz, probably costing us reload.

We have over 100000 hours a month.

And operating.

Got it okay. Thanks for clearing that up Perjeta.

And then regarding the Vg teams that have been updated with the new software for the higher betting limits have you noticed an incremental uplift I guess in revenues from those machines, even though I think you said it was only 50% or so of an updated so far.

Yes, I mean, it's that's provided.

A lift in our overall revenue.

Per location so.

Whether it's from more selection.

Or more opportunity for people to play.

We can't really discern.

What specific.

Driver, but it does it has helped us raise.

The overall location revenue.

Okay great.

I guess last one from me just considering we saw those three strong months in the quarter.

Across the state I guess I was wondering.

If you could comment on anything or share anything in relation to how how gaming activity has trended in October relative to those previous months and then maybe.

How you expect the IGBT decision to kind of limit hours of display how you think that'll affect key core.