Q1 2021 Accel Entertainment Inc Earnings Call
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Good day, and thank you for standing by welcome to the axle infotainment Martha one one day went the one earnings call conference call. At this time all participants are in a listen only mode. After the speaker presentation, there will be of question.
And answers session. The asked the question during the session you will need the press star one on your telephone keypad. If you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker of today, Mr. Matthew Ellis. Please go ahead.
Welcome to Accel Entertainment's first quarter 2021 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 we 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 1095 of 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 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 from 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 for <unk> first quarter earnings call.
We were thrilled with the play to start the year, we set of new revenue and adjusted EBITDA record despite being closed for more than half of January.
Q1 gaming revenue was $140 million of year over year increase of $38 million.
For the $38 million increase is broken out as follows.
Existing locations contributed $35 million for the increase meaning same store sales growth of 34%.
Acquisitions, and new locations net of closures contributed $8 million to the increase.
And the reduction in operating gaming days due to COVID-19 shutdown from 76 days in Q1 2020 to 72 days in Q1, 2021 had a negative impact of $5 million.
The primary drivers of the increase at existing locations, where the higher bet limits software the <unk>.
The GT and improvements we made the optimized machines at our locations during the most recent shutdown.
Largest typically the best month for our industry and this year was no different the strong performance continued into April where we actually earn more revenue per day than March.
We've been cautious with our guidance as we evaluate the short term impact of the recent stimulus.
We also understand we're currently one of the few forms of available entertainment for our players.
However, with the strong play continuing each passing week, we have more confidence that the elevated revenue. We are realizing is a new normal.
We are also encouraged by the vaccine progress and recent comments about a full reopening this summer in Illinois as we believe we are still missing many of our historical players either do the caution will reduced indoor bar and restaurant capacity.
We believe that the pandemic introduced our product to many new players as a more convenient option then casinos.
And we believe that many of those new players will stay with us post pandemic.
At the same time, we also expect to gain back the aforementioned players we have not seen.
Based on the sustained strong performance and other factors just mentioned.
We've increased our guidance, which Brian will walk you through shortly.
Turning to growth, we see opportunities of new markets, both organic and inorganic.
Last year, we entered the Georgia, and a small way, but we still see upside then.
And then earlier this year, we announced a large expansion into Nevada, and Montana through our acquisition of century.
Our M&A pipeline remains active and we expect to announce more opportunities in the future.
Speaking of a century.
We are working through the regulatory applications and we expect to close in late 2021.
Essentially is also performing better than our original estimates as.
As we get closer to closing, we'll provide more updates on central is the latest performance and our integration plans.
On the organic front, we are cautiously optimistic that several states will consider distributed gaming.
While the recent Senate vote in Missouri did not go the way we wanted there is still a significant momentum.
For gaming to be legalized in the future.
We will continue to monitor the various opportunities across the country and provide updates when appropriate.
We believe our growth playbook of established in Illinois will enable us to be successful in any future market.
With that I turn it over to Brian to walk you through the numbers in more detail.
Thanks, Andy as of March 31, we had 12720 <unk> in 2470 locations.
Year over year increases of 14% and 5% respectively.
Also attrition continues to mirror the pre COVID-19 historical averages.
Revenue per location per day for the first quarter was $784 a year over year increase of 37%.
As Andy discussed earlier, the primary drivers of the increase for the higher bet limits software the <unk>.
Six ppt initiatives and improvements we made to optimize machine center locations during the most recent shutdown.
At the end of March our average residual contract length was approximately $6 seven years.
As of April 30, we have installed more than 260, <unk> and expect to install a total of <unk> hundred by June.
The handful of municipalities still only allow five btt's. So this number could increase should they change their audiences.
For the first quarter, we had total revenue of $147 million and adjusted EBITDA of $26 million.
Year over year increases of 38% and 74% respectively.
Capex was $2 million cash spend for the first quarter compared to $4 million a year ago.
At the end of the first quarter, we had a practice of $157 million of net debt and $249 billion of liquidity consisting of $173 million of cash on our balance sheet is $76 million of revolver availability.
Based on the player behaviors and the favorable trends Andy discussed earlier I would now like to provide revised guidance for 2021.
We are now forecasting to end the year with 13375 to 13525, <unk> in 2000, and 575% to 2600 locations.
Revenue for 2021 is now expected to be $650 to $705 million with adjusted EBITDA of $117 million to $127 million.
To refresh. This includes the fact that the first 15 days of the year or without gaming in Illinois with that fully reopened until the first week of February.
Capex is still forecasted to be 20% to $25 million of cash spend.
All of the revised amounts assume no M&A and minimal impact from COVID-19.
Finally, I want to briefly discuss the amended 10-K, we filed yesterday.
Based on the recent staff statement issued by the SEC and in consultation with our auditors, we reclassified our warrants from equity to of liability and recorded the change in the value of our warrants on our income statement.
The SEC pronouncement was primarily directed towards the companies that became public through mergers with special purpose acquisition companies and was not specific to excel.
Also the change resulted in no impact to cash for adjusted EBITDA and nearly all of the warrants for exchange for Aon's shares in Q3 2020.
As always we are committed to following the latest accounting guidance and will continue to hold ourselves for the highest standards.
Back to you Andy.
Thanks, Brian.
Extremely pleased with our performance this quarter and excited by the continuing strong performance.
Our asset light hyper local business model creates the platform to weather difficult times and thrive as the country reopens.
Please know our success would not be possible without the dedication of our employees and establishment partners.
We will now take your questions.
And as a reminder, the asked the question you will need the press star one on your telephone keypad withdraw your question press the pound key.
Your first question comes from the line of Jordan Bender of Macquarie. Your line is now open.
Hey, guys. Good morning, hope you're doing well.
There was a pretty large acquisition in the space a few weeks ago I was just.
Looking to get your thoughts on does this change anything from a competitive standpoint.
Could it make it harder for you to meet the convert some of these.
Locations over the two cell now thanks.
Please clarify which acquisition you are discussing.
The J&J adventures.
With the Ags.
Yes.
We don't.
We don't think it will have any real impact and.
We're continuing to progress on our our own plans.
To continue to grow organically through within the market.
Okay.
And then the follow up on the gross the comments.
I think in the past you've talked about the need for a casino in downtown Chicago.
In order for politicians to start to look at legalization of distributed gaming in Cook County, with an RFP underway in that market for that casino is there any change in your thought core of anything that youre hearing net we could start to hear some move me for the <unk>.
<unk> talent Chicago area.
Yes.
I'd say that the timeline is still long.
The RFP is going to take a while.
I'm going to take a while to build a permanent casino.
I don't think the issue will be addressed until.
So some of some significant time.
Of the operation of the permanent casino. So we're looking we're looking at quite a few years. So it's not in our budget.
The near future.
Okay perfect. Thanks.
Your next question comes from the line of O'meara Sandor from Jpmorgan. Your line is now open.
Okay, and the Brian I appreciate you taking the questions and congrats on the strong results.
I just had a question for the sustainability of the strong demand trends and how do you think about the impact of <unk>.
Reduced capacity.
Throughout the first quarter and then our limited capacity I guess.
Obviously the shutdown early in January.
So I think there's two elements that are going on with reduced capacity.
One there's obviously less people.
Allowed inside of the facility.
The impact is I'd say relatively minimal because you got to remember we only have.
Six machines, but it does have some effect because people are we're reluctant to go out.
Because it wasn't the same experience as they had before.
The bigger part of it.
I'd say is there is still a.
The population that does not comfortable going out too.
Establishments to socialize in public.
And a lot of those are more.
<unk>.
Of the older player base.
I think we haven't seen some of those players come back and I think that will be kind of.
A replacement for some of the pent up demand that debt fueled.
Some of the March.
<unk>, so I think it will balance itself out.
And we will get those customers back.
Which will continue.
Path with the same store sales growth.
Okay. That's helpful. Thank you and then one question on M&A can you comment on.
How are you.
Other <unk>.
Distressed debt.
The other operators in Illinois, the maybe prevention of opportunity in debt and 7% to 28% market share in the 10-Q, how much more runway.
In that state.
We're hopeful that there'll be other.
The other opportunities to work with.
Some of the operators that.
See that we have of value proposition that.
Offers a unique experience for the establishment.
Well as.
Their ability to conversion to contribute to what we're doing so.
<unk>.
There is still opportunities and we're.
Continuing to explore those opportunities and we'll see how that goes.
Great. Thanks, Congrats again.
Your next question comes from the line of John Decree. Your line is now open.
Hi, everyone.
Two questions from me the first is.
Andy could you give us a little color on your backlog I think the.
The presentation, you've mentioned that there is still a strong backlog of contracted locations waiting to go live and if you can give us a little more detail or day.
More new openings or more conversions in.
As the we.
We kind of advance through the reopening.
How does that backlog build is it has it picked up as business picked up.
Any thoughts there would be helpful.
Yes, I mean, I think we've demonstrated in the first two license periods that we've gotten.
<unk>.
<unk> been successful in receiving a larger proportion of the licenses than are our.
Our market share so.
Reflecting on that I think as we go forward.
We do we've had some success.
With people that are looking to.
Either open up new businesses or they've taken over businesses that closed last year.
And as new ownership.
So I think youll see us as their of becomes more confidence in the economy.
And the reopening that the back half of 'twenty one into 'twenty two.
Flat.
Our strong.
Path of re openings and growth.
From our backlog.
Got it understood.
And to pivot to the higher Max debt and pay out.
I believe you mentioned that the upgrades are nearly complete.
Bob.
I'm wondering as we look at the strong demand and revenue per day across here.
Machines, if you have a sense of how the higher Max bet machines are performing relative to those that have not yet been upgraded.
I guess, we're all kind of trying to decipher how much is pent up demand and stimulus checks versus how much of some of those structural changes.
The rigs in the Illinois hit of 40 gig.
Probably a tough question this early but.
But yeah.
Yes, there is.
Yes, there is a lot of noise, but I can kind of give you a little clarity so.
Most all of the establishment that have any kind of considerable revenue have all been upgraded.
For the Max that's higher.
Jackpots, so we're not going to.
C.
That much more lift.
Laughed because most of everybody has been upgraded as far as.
The.
The pent up demand versus kind of the new norm.
You saw.
You guys don't have the ability to see it but we saw in the first.
Weaker to couple of weeks in March when the stimulus checks hit this this like real surge.
And then it kind of normalized out in that normalized normalization continued.
Through April and we're seeing it.
And into early May.
That being said, we're still seeing.
Seasonality.
And maybe a little bit greater on the seasonality as reopening.
Of the economy has occurred so it does appear that those enhancements have.
Created a new.
Normalization of play.
And we've built some new customer base.
Through a lot of the players that used to go to casinos.
Net.
When the pandemic opened up last July.
And then we reopened again in January saw the convenience of our establishment as.
A very good replacement for.
For the.
The trips that they were making to the casinos. It probably still will end up going back for the casinos, but on a more reduced level because they recognize that.
We have similar equipment with.
Good payouts.
Very good experience.
And it's much more convenient.
That's great that's really helpful. Andy Thank you.
Your next question comes from the line of Greg Greenberg.
Northland Your line is now open.
Hey, Thanks for taking the questions and congrats on the strong results.
The first was just kind of wondering if you could provide a general update on how penetrated do you think the Illinois market currently is and maybe I guess the level of opportunities, you're and you're still seeing for new location penetration of the state.
As far as of the overall market I mean, I still see that the market is growing.
And.
You'll always.
Have.
Growth in kind of of that replacement, where the people always that fail in their business.
And.
New businesses reopened either in their place and that same establishment of.
For.
Within that market so.
We see that cycle continue.
To occur.
Maybe at a more reduced factor going forward.
But.
Because we've been able to.
Obtained a solid pipeline.
Historically and going forward.
We will continue to grow.
As we outperform our market share.
Okay great.
If I could I get asked about the M&A pipeline you said it remains active.
Is that pipeline, mostly new market oriented or kind of focused on adding additional of Illinois operator.
Yes, I would say I mean, we're working on on both fronts.
We've.
Identified opportunities in some of the new markets that.
That don't have gaming yet, but also we've identified.
The opportunities in Georgia that we obviously capitalize from the past.
We think that century will allow us to become introduced to other markets. So while we'll always be have an eye on Illinois, and the opportunities there I think that.
The growth going.
Going forward, we'll probably.
We put more focus on the <unk>.
States outside of Illinois.
Okay, Great I guess the last one for me if I could just follow up on the backlog that you're talking about the remaining pretty healthy here.
Yes.
From for maybe a directional level are a lot of locations that recently reopened now more interested in adding the GT for their establishments or I guess are you seeing similar levels of demand that you saw kind of in the queue for early 2021 timeframe I guess just trying to.
You talked about the second half of 2021 expecting it to look better but could you just comment on the dynamics that youre seeing everything kind of reopened.
Yes.
Most of them.
Most new establishment to open up.
Have the PTT revenue and their budgets.
And so the expectation that they're going to have gaming is.
Very prevalent.
Why was wireless looking toward the end of the second half of 'twenty one.
And into 'twenty two.
As.
The confidence that a small business owner has an open it up the new business is becoming greater every day as the economy has picked up.
As it appears that the worst of COVID-19 is clearly behind us and so that bill.
Business risk that.
A small business owner takes when they open up of new business has been reduced and so.
They're starting to look at those businesses. The closed during COVID-19 that was the empty establishment that where the local that the.
The number of three local bar and Theyre small town and say you know what I can reopen that business I can do it.
And it's a relatively low risk proposition because it's already built out and.
I'm willing to make a go of it we're seeing more and more of that attitude.
That will.
Allow us to to build.
New.
Opportunities in our pipeline.
For the next.
Call It 12 months to 18 months.
Great that's good to hear thanks, Andy.
Again participants if you would like to ask the question you May Press Star then the number one on your telephone keypad. Your next question comes from the line of Steve The shallow from Deutsche Bank. Your line is now open.
Hey, guys. Thanks for taking my questions just wanted to get your guys' opinion on some of the various balances we've seen it come off for expanding.
<unk> been kind of slow to work their way through the not past conveyor interest on the sports betting.
Rich it's interesting when you look at kind of some of the tax revenues net of Adt's generate for the states.
Kind of how are you guys thinking about debt.
And the.
I mean, the legislation for <unk> is always challenging and there is as you can look historically.
<unk>.
It doesn't pass and the new states very often.
And.
I think legislators.
When theyre looking at sports betting.
They see something that is more of kind of a wave that is occurring throughout the year.
United States and they're looking for their market to participate.
And it definitely is.
Hey.
Our form of.
Gaming net.
Wasn't available and accepting of few states prior to.
The most of the last few years and so.
I think.
As we look at the <unk>.
Obviously, the revenue is far greater for for a one of the states that net.
Bring on the gaming.
But.
Oftentimes, we see headwinds from.
Existing casino operators, who are in that state.
Sure.
There are <unk>.
People that are running skill based gaming or sweepstakes gaming or whatever you would like to call it that.
Net.
Are not in favor of a regulated the GT market.
And so those are positions have always been challenging.
In addition to the anti gaming.
Sentiment in the given state so.
Where we do see a lot of opportunity and we see that.
There will be states that recognize the value of <unk> and the revenues that it can provide that it can help small businesses.
<unk>.
It will always be a challenge.
And.
The next few years I think.
The opportunity is as great as ever and as you saw in both Georgia, and Missouri legislation got very very close.
And.
Our hope is that some of those.
Legislators I.
I appreciate the value that we can bring.
The their budgets.
<unk>.
And the next session or two.
Move that legislation across the goal line.
Okay. That's helpful. Thanks, and then as somewhat following up on that would be the.
Online sports betting there.
Back of your business if volume how do you think potentially at the high gaming of fleet.
We utilized the Illinois Spike.
The opportunity of trees there at all.
So the sports betting I think just in general.
I think has been helpful or non eventful in terms of our business. It allows us to get more people talking about gaming.
But more importantly.
It brings people out to the bars to watch games and have that social environment.
With other people, who are interested in and maybe placing bets on those games.
That by bringing them to the to the point basically from our point of sale.
It gets introduced more people to the <unk>.
It gives them another opportunity to game, while they're at the establishment. So I think it's overall in my opinion has been helpful.
And I think of regulators have done of.
Very good job in implementing it.
And.
We think that I gaming.
Could have a similar positive effect on the market. We just don't know how it's going to be legislated, we don't know the way it's going to be <unk>.
<unk>, our hope is that.
It's available too.
And the one who owns the gaming license or who was able to get that license and and therefore, we are optimistic that we will be.
Able to participate in bringing our players another way to experience gaming.
Okay, Great I appreciate it thanks guys.
Again for participants if you would like to ask the question you May Press Star then the number one our net dollar.
Phone keypad again, that's for the number one on your telephone keypad.
Please standby, while we compile the Q&A roster.
And we don't have any questions feel free to for Mr. Rubin, Steve. Please continue.
Yes, I just wanted to thank everyone for joining us today.
We are very optimistic on the rest of 2021, and we look forward to.
Reconnecting with you in at the end of the next quarter.
Thank you.
And this concludes today's conference call. Thank you for your participation you may now disconnect.
Okay.
Yes.
Thank you.
[music] net.