Q4 2020 Accel Entertainment Inc Earnings Call

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Ladies and gentlemen, thank you for standing by and welcome to the Accel Entertainment fourth quarter and full year 2020 earnings call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question during the session you will need to price.

Star one on your telephone if you require any further assistance please press star zero.

I would now like to hand, the conference over to your Speaker today Matthew Ellis. Thank you. Please go ahead.

Welcome to Accel Entertainment's fourth quarter and full year 2020 earnings call.

Participating.

On the call today are Andy Rubenstein, <unk>, Chief Executive Officer, and Brian Carroll, <unk>, 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 <unk>.

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 $19 95.

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

Actual results may differ materially from.

Of 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 statements 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.

Thanks, Matt.

Morning, everyone. Thank you for joining us for <unk> fourth quarter and full year 2020 earnings call.

We had a strong start to the fourth quarter, but as everyone is aware of Illinois Vgc's for shutdown for the second time on November 19, similar to last time, we reduced the cash burn and furloughed idle employee.

But unlike the last shutdown, we were allowed to install swap and upgrade our <unk>.

We took this opportunity to clear most of our backlog and position excel in our location partners for a strong relaunch.

In mid January.

Throughout the state began reopened with limited gaming hours by February 5th all regions returned to normal hours of gaming operations with the limited indoor guidance.

As reported in the IGD data <unk> generated more than $48 million of gaming revenue in February.

We just month in our history, despite extreme temperatures multiple snowstorms and only being 28 days long.

Revenue at locations opened in both February 2020 at February 2021 was up almost 20%, mostly driven by the higher bet limits software.

The bulk of the additional six BTT.

These initial results continue to demonstrate the resilience and strength of our local business model.

Turning to M&A, it was a busy quarter and start to 2021 on.

The December 30, <unk> 2020.

Acquired American video gaming of Northern Illinois, operator for the $30 million the.

The integration went smoothly and we are pleased to welcome the American video gaming 49 locations to the <unk> family as well as Bill Murray and John Filer, whose family has owned and operated American video gaming.

We have more than 70 years. This acquisition further demonstrates our ability to find well run financially attractive opportunities that complement our business.

On March 2nd we announced our expansion into the Western United States with the acquisition of century gaming of route operator in Montana.

The latter as well as a manufacturer of gaming terminals.

<unk> has more than 8500 gaming terminals and over 900 locations, we expect them to generate $220 million of revenue and $20 million of adjusted EBITDA in 2021.

And the $140 million of employing the purchase multiple of seven times adjusted EBITDA.

We of all confidence in Steve <unk> and his management team to continue successfully running the business and look forward the sharing of implementing the best practices of both companies.

While we like the financial economics on the ROE.

I would like to spend some time discussing additional benefits of the acquisition.

Centuries of <unk>, two new states for the XL family further diversifying our geographical footprint outside of Illinois.

Century owns Grand vision gaming, which designs gaming software and assembles gaming terminals.

For.

We will iterate terminal known as power vision is exclusively provided and centuries of Nevada route.

Envision is also licensed to sell gaming terminals in Montana, South Dakota, West, Virginia, and Louisiana, while Grand vision will not be able to sell gaming terminals in the Illinois, because accel cannot hold.

Price for more operators wrote license and the manufacturer and distributors license in its home market. We think this offering will be valuable and a differentiator in other states.

Finally, centrally designs and owns gamblers bonus of popular play of rewards product offered at the Nevada.

Both of US while player rewards has not yet been approved and the Illinois market. We believe this technology combined with our own expertise will provide a powerful and cost effective platform for launch our own product when and if appropriate.

Before turning it over to Brian our CFO to walk.

<unk> through our results in more detail I would like to briefly discuss one final item.

On December 18th received of disciplinary complaints from the ICB alleging violations of the video Gaming Act and the <unk> adopted rules for video gaming.

The complaint seeks the fine excel five.

<unk>.

Reiterating our previous public comments, we intend to vigorously defend the company against the allegations in the complaint and we deny any allegations of wrongdoing.

Filed on the initial answer to the Icb's complaint on January 11, and have begun the administrative hearing process.

This is an open matter, we cannot take questions or comment further on.

Over to you Brian.

Thank you Andy as of December 31, we had 12247 <unk> in 2000 and 435 locations.

Year over year increases of 17% and 5% respectively.

As the increase in locations demonstrates that <unk> continues to grow despite the current COVID-19 challenges.

Our sales teams continue to find new organic and competitor locations and we're particularly pleased that our involuntary attrition rate on closures remains in line with the pre Covid historical averages.

The IGT.

For the eight meetings for 2021, the same number of meeting the 2019, which should allow for a return to pre COVID-19 levels of annual new licensees.

At the end of the December our average residual contract length was approximately six eight years as the.

Minder in February 2018, the ITT limited agreements to no more than eight years.

Schedule as of March 15th we have installed more than 1100.

And expect to install a total of 1300 by June for.

For the full year, we had total revenue of $316 million on adjusted EBITDA of $34 million.

For the fourth quarter, we had total revenue of $74 million on adjusted EBITDA.

Of five nine the.

The declines from prior year was due to the two shutdowns from March 16 to June 30.

And November 19th in mid January of 2021.

I think it is important to note that our asset light business model generated positive adjusted EBITDA, despite being shut down over 40% of the year.

Further we continue to set new revenue and adjusted EBITDA Records. During the months were opened demonstrating the resilience of our business.

Our hyper local and into the gaming experience continues to offer players the safe and comfortable environment to enjoy on machines.

Capex was $26 million cash spend in 2020 compared to 20.

2 million in 2019.

The increase was largely attributed to the purchases of <unk>, which were installed throughout the year.

As a reminder, capex is primarily related to our location and DTC growth.

At the end of 2020, we attract the $176 million of net debt and $231 million of liquidity.

<unk> 21, <unk> of $134 million of cash on our balance sheet and of $100 million of revolver availability with.

For 2020 behind US I would now like to provide guidance for 2021.

We are forecasting to end the year with $13250 to 13400 PTT in 2550 2005.

<unk> 75 locations. The revenue for 2021 is expected to be between $580 million to $600 million with adjusted EBITDA of $95 million to $100 million.

Capex is forecasted for the 2000 $25 million of cash spend keep in mind. These amounts include the January 2021 shutdown.

<unk> assume no M&A and include increased operating expenses for Covid debt.

Randy.

Thank you Brian.

I think everyone Accel is focused on 2021 and glad to put 2020 behind us.

Cannot fully express how thankful and proud of M.

Of all of our employees.

Down in location partners, who met and conquered the challenges we faced in 2020.

The adaptive throughout the year to changing litigations and positioned to excel to emerge stronger than ever.

We will now take your questions.

As a reminder to ask a.

And you will need to press star one on your telephone.

<unk> your question press, the pound or hash key please standby, while we compile the Q&A roster.

Question on <unk> question comes from Jordan Bender with Macquarie. Your line is now open.

Good afternoon, Thanks for taking my question.

In terms of the year 2021 guidance and the costs related to Covid.

I'm coming out to roughly a $1 million a month.

Is that something.

You are for you guys are working on.

Should we expect similar margin levels.

On the Illinois operations at similar pre Covid EBITDA levels.

This is Brian.

We have much lower anticipated expenses for Covid.

And the range of the year.

And it's.

We can discuss later, where you got that from but it's true.

For a fraction of that.

Okay and then.

Similar what you'd be looking at similar margin levels on similar EBITDA levels.

Post COVID-19.

Through a pretty pretty close.

It is still not over yet so we still have to go through the year, but we.

We're pretty comfortable with the guidance, we provided with like I said.

January was the neutral.

For the balance of the year for US we forecasted for guidance is between 95 of one.

Okay, perfect and then.

Might be tough the differentiate because of the closing.

On the stronger hold per day results here seen can you kind of talk about what is coming from maybe a stronger consumer versus what youre seeing versus the increased debt.

On that.

Well, we don't have.

The ability to identify exactly what the.

The cause of the increase of the revenue.

We are seeing.

Kind of year over year increases of in the range of around 20%.

And that.

The increase is a combination of.

The.

Higher.

That limits larger jackpots. The addition of the sixth machine.

And the ability for the large.

Truck shops to go from six machines, the 10 machines.

And obviously there is some pent up demand.

As.

The people that haven't been able to play.

Over the last few months.

So the.

The combination.

Of.

All of those factors clearly has.

The increase the play.

And the other part of it is there is there is a bit of reluctance for players to go to the casinos.

Because of the crowds.

And the.

The nations around.

COVID-19.

We believe that we will see continued.

Continued growth in the player base.

Because of.

Of Covid concerns of lot of the the.

The older players still have not come back.

Consider two our establishment as.

They are used.

Using caution.

And kind of reentering.

The Entertainment Society.

Perfect.

Guys I kind of half law.

Your next question comes from Greg gave us with Northland Securities. Your line is open.

Hey, good morning, Ryan Thanks for taking the question.

First on just kind of wondering if you could talk about maybe the day.

Any differences and similarities between the.

On the gaming markets in months, and Nevada, compared of Illinois, and maybe what attracted you to those markets and how does overall penetration or the saturation compare across the space.

This is Andy.

So I'd say the.

The.

There is a quite of few differentiation.

Between the two markets.

The.

The ability to have up to 15 machines and in the establishment.

For more.

In the.

Those markets.

Definitely.

The real differentiator.

<unk>, obviously, we're limited.

For the six machines of the 10 machines on the large truck stop.

<unk>.

The other.

Big driver.

Of the differences is the fact that the.

The split of revenue between the establishment and.

Later.

Is negotiated.

On the Nevada, and Montana markets and therefore.

More of the Nymex goes.

Two of the establishment.

Owner.

Is how the market has played.

The output and therefore.

It's discouraged investment and innovation.

And both of those markets.

Because there isn't.

As much cash flow.

On a per.

The establishment basis.

We believe that we can bring.

It out.

Innovation to the market.

With out considerable.

<unk> expense.

And.

Help.

The century.

And both of those markets kind of.

Not just.

But to be able to.

Extend their leadership.

In those markets and.

With those two opportunities both in Nevada, and Montana, I think we can assist their business and growing.

On their same store sales.

Innovate well as the customer base.

Okay, great appreciate that.

And then one of the touch on the recent acquisition of American video gaming, what I got the.

It could be either.

Of that operator was it kind of regions in Illinois that werent as entrants from your current portfolio.

Could you share of any valuation metrics on the transaction.

Yes.

Sure.

The route.

Kind of overlaps a lot of our existing business and so we're very familiar with the establishment.

We're very.

<unk> failure with the filer family.

The.

Have been friends of XL for a long time and as we were.

Having conversations there appeared to be good synergies as well as opportunities to share.

Share best practices.

Okay great.

I guess the last one from the.

Was just kind of wondering if you could comment on the size of the new backlog.

I don't think you did in the prepared comments.

Maybe the average time it will take to deploy the contracted backlog.

Yes, all of our backlog continues to be significant.

The deployment of it it is often.

On.

Determined by licensing.

On the Illinois Gaming Board has that's been fairly predictable in how they license and so you can look at.

The historical patterns.

Kind of extrapolate what would happen.

2021.

Okay. Thank you.

Your next question comes from Stephen Kim with Deutsche Bank. Your line is open.

Hey, Thanks for taking my questions just on the American video gaming acquisition are you able to provide the contract execution you baked in for the 2021 guidance.

Okay.

Yes. This is Brian.

<unk> go to the Illinois gaming for website, you can see that the proxy on an annualized basis of about.

The $13 million of revenue gaming revenue.

We do not disclose what their EBITDA.

The contribution is.

Okay. Thank you.

And then can we just get maybe an update on the pipeline you see for additional legalization of.

On <unk>.

Additional states I know you guys are pretty dialed in.

Yes.

I wouldn't call it of pipeline, there's a lot of states that have legislation percolating.

And you can kind of look through the the list of.

The G deflation we've seen.

The miseries, the Pennsylvania with extended legislation in Virginia, having.

Potential transformation legislation.

There are some other states that have have kind of had discussions.

There is no definitive this is what's going to happen.

<unk>.

We are monitoring Alba the different states.

Okay I appreciate it thanks guys.

And your next question comes from.

I agree with the Union gaming your line is open.

Hi, everyone.

Just one of the question for me Andy I was wondering if you could talk a little bit about our strategy going forward as it relates to M&A.

And one of your focus might be.

Whether it's continue.

John did you tuck ins in Illinois.

If they are small stuff to do in Montana to bolt on once the century acquisition closes.

Nevada be of market you'd look to expand the footprint.

Those opposed to other.

Stage, one of the <unk> gaming is legal today that you don't have a foothold.

Continued yet so just big Big picture.

What makes sense for the M&A strategy going forward.

Yes, I would say that.

We are actively looking.

Beyond the Illinois, I think there's real opportunity to bring our best practices into.

The other states and with partners in other markets.

That being said.

The Illinois has always.

Provided opportunities for us to grow.

And.

I think the combination of growing Illinois.

Into more importantly is the focus of.

The inclusion on the <unk>.

National footprint.

<unk>.

Kathryn simultaneously.

A follow up for that maybe Andy is.

Are there any states outside of Nevada, and Montana.

But look, particularly interesting and what day.

The potential transaction loans look more like the.

The century acquisition, where there is a little bit of scale to it rather than maybe a smaller move perhaps like George was.

I would say.

That the smaller moves will continue to happen.

And there are some transformational acquisitions out there.

Whether they are in 'twenty, one 'twenty two 'twenty three.

It is not clear.

But we're very open to continuing to grow the business.

And as we identify companies like century, the good partners for us.

And on a cultural fit we will continue to.

Bring them into the Accel family.

Great. Thanks, so much Randy.

There are no further questions at this time I will now turn the call back to Andy Rubenstein for closing remark.

I just wanted to thank everyone for joining us today, we're looking forward to.

Two of very strong 21 and.

Hopefully.

This is the last.

The conversation that we have on our call related to Covid affected earnings so wishing everyone. A good week and thank you for joining us.

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

The disconnect.

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Okay.

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