Q2 2021 Accel Entertainment Inc Earnings Call
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Good day and thank you for standing by welcome to the XL Entertainment Q2, 2021earnings 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.
The ask a question during the session you will need the press star 1 on your telephone keypad. If you require any for the assistance. Please press star zero.
I would now like to hand, the conference call, but your speaker today, Mr. Matthew Ellis Senior Vice President of corporate strategy.
Welcome to XL entertainments second 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 per 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 1090.
These forward looking statements are subject to risks and uncertainties, including those related to COVID-19, and at the variant strains.
Actual results may differ materially from those discussed today and the company undertakes no obligation to update these statements unless required by law.
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 Good morning, everyone. Thank you for joining us broke sales second quarter earnings call.
Im pleased to reported the second quarter of 2021 was the best quarter in <unk> history.
We set new revenue and adjusted EBITDA Records.
As discussed during our June Investor Day, the primary drivers of the higher revenue, where the completion of higher bet limits software upgrades and the fixed the GT installations. The combination of these initiatives contributed to the increase the location revenue on average between 30 and 35%.
Versus 2019 levels. We also benefited from the third round of stimulus checks and higher demand due to the lack of other entertainment options as the economy was not fully open.
The improvements in our product offering with the critical drivers for this strong performance.
Enter the summer months and the Illinois fully reopened we watch revenue closely to see where it would settle <unk>.
February March and April of traditionally the 3 last months of the year, while June and July are lower performing months on.
I'm pleased to share that our July gaming revenue was seasonally better than normal and above our previous expectations.
This reinforces our belief of the elevated revenue. We are seeing was driven by the initiatives and may be sustainable due to Q2 strong results and the strong start to Q3, we are raising our guidance on.
I'll leave it the Brian to walk you through the new numbers later on the call.
Turning to growth our sales teams continue to sign additional competitor and organic locations include.
Including the most recent IGD meeting on July 14th year to date, Accel was awarded 168 or 38% of all new licenses.
Our ability to win more licenses than our current market share is the strong testament to our sales capabilities and is just 1 of many competitive advantages that differentiate us from other operators there.
There are events for the questions about the relatively low number of licenses issued at the last gaming Board meeting in July however.
However, when looking at the calendar there was a short amount of time between meetings. In addition to the July 4th holiday weekend.
We will always push ourselves to win more than our share.
And help our local business partners generate incremental profits, which will lead to further location growth.
It's too soon to determine what the new total number of annual license will be going forward, but we will see a significant amount of runway in Illinois as illustrated in our June Investor Day presentation.
Looking at other states, we remain cautiously optimistic that several states will consider distributed gaming in the future for.
For example.
Virginia recently banned unregulated devices, which could be a first step towards regulated gaming.
We will continue to work with the various stakeholders in these states to educate them about the benefits of distributed gaming and the incremental revenue it generates for state and local governments as well as small businesses.
So the new state of legalized gaming, we believe our growth playbook of Illinois will enable us to be successful in any future market.
On the M&A front, our pipeline remains active and we expect to announce more opportunities in the future in both existing and incremental states.
Georgia, We completed another acquisition in May when we acquired the island games of Southern Georgia, Operator, with 30 locations today, we have approximately 65 locations in Georgia and the backlog of over 100 locations. We expect both numbers to continue growing and we remain excited about the long term prospects for us in the.
Net market.
Switching the century, which operates in Montana, Nevada, South Dakota, West, Virginia, and Louisiana.
We have now submitted all of our applications to the various regulators.
Due to the large backlog of applications in various states, we will likely not be approved until the first half of 2022, which will impact the timing of the closing versus our initial expectations.
We are happy to report the centrally continues to perform better than the original estimates and both sides are excited to combine the best practices of both companies.
Overall <unk> on a strong position to capitalize on the future.
We believe we will offer 1 of the best returns and gaming combined with highly visible growth.
To put on growth into context.
Illinois distributed gaming industry revenue grew 60% from Q2.2019 to Q2.2021.
As compared to the Illinois, casinos revenue, which decreased 7% over the same period.
Over that same period sales growth was 92% overall.
Or $60 or 7% when normalized to the Grand River acquisition with that I'd like to turn it over to Brian to walk you through the numbers in more detail. Thanks, Andy and good morning, everyone. Please remember that we were shut down in the second quarter of 2020, So I will admit prior period comparisons where appropriate or make comparisons to the.
Second quarter of 2019.
For the second quarter, we had total revenue of $202 million and adjusted EBITDA of $43 million.
Revenue per location per day for the second quarter with $855, an all time high for itself, an increase of 35% compared to the second quarter of 2019.
As Andy discussed earlier, the primary drivers of the increase were the higher bet limits software and our <unk> initiative. In addition to some overall higher demand partially driven by the third round of stimulus checks.
Capex for the second quarter was $9 million cash spend of <unk>.
And of this was related to some deferred payments in the first quarter due to the partial shutdown.
As of June <unk>, we had 13177 <unk> in 2000 and 527 locations.
Year over year increases of 19% and 8% respectively.
Okay nutrition continues to remain low and mirrored the pre COVID-19 historical averages.
It is our belief that businesses with incremental gaming revenues had a lower failure rate as compared to the businesses without.
As of June 30, we have largely completed the installation of the higher than on the software and the <unk> across our footprint.
We believe the second quarter results highlight the positive impact of both initiatives.
To refresh everyone's memory the rollout of the 6 PTT started in January of 2020, and the rollout of the higher bet limits software started in July 2020.
At the end of June our average residual contract length was approximately 6.8 years the.
Same line as last year, and a small increase as compared to last quarter.
Our ability to maintain and even raise the residual contract length is the true testimony to the hard work of all of our teams, including service collection of marketing and relationship management.
We have always believed that people give us the competitive advantage and we will continue to invest in them to deliver the best in class experience for our customers locations and players.
At the end of the second quarter, we approximately $167 million of net debt down $20 million from Q1, and $266 million of liquidity consisting of $179 million of cash on our balance sheet and $87 million of revolver availability.
And then you mentioned earlier, we are raising our outlook. However, due to the uncertainty of the Delta variant, we've decided to do so conservatively as follows.
We are now forecasting to end the year with 13555% to 13680 Btt's in 2592 of 2615 locations.
Revenue for 2021 is now expected to be $700 million to $725 million with adjusted EBITDA of 133 to 138 million Capex.
Capex is still expected to be $20 million to $25 million cash spend.
Yearend net debt, excluding any acquisition financing should be approximately $123 million to $128 million, implying of yearend trailing debt to EBITDA multiple of only 9 giving us ample firepower to pursue additional inorganic and greenfield opportunities.
Remember our annual guidance for 2021 includes the impact of of lower than normal Q1, given the COVID-19 shutdowns in place to start the year.
Thank you Andy.
Thanks, Brian.
We're extremely pleased with our performance this quarter and even more excited for what the future holds.
It is important to remember that our product today is substantially better than it was in 2019 and that is reflected in our recent results and outlook.
We have newer cabinets better software.
<unk> jackpots and of our locations continue to invest in nature of gaming areas, given the strength and importance of the incremental revenues, we help them generate.
We were watching the delta variant closely and hopeful that has a minimal impact including on our players customers and accel employees, we remain confident that our asset light hyper local business model creates the platform to outperform the difficult times.
And really thrive under normal circumstances as demonstrated by our recent results. We aim to leverage our differentiator the operating model in extremely strong financial position in order to continue our expansion both in Illinois and across the country. Our success would not be possible without our dedicated employees and loyal customers.
They are the true competitive advantage of our business that make itself the preferred choice and distributed gaming we will now take your questions.
As a reminder to ask a question you will need the press star 1 on your telephone keypad again net of startup line.
So the draw on your question you may see in please press the pound key.
Please stand by the we compile the Q&A roster.
Your first question is from Omer Sander from Jpmorgan. Your line is open.
Hi, Andy Brian Matt Congrats on the strong results. Thanks for taking the question if I heard correctly, you're mostly done with the rollout of the 6 the BGP.
As you look through your portfolio of what does the focus now shifts towards replacing some of the underperforming units both at the existing in the acquired locations I guess the question is how do you how do you think about that opportunity.
Thank you Homer.
We look at the opportunity to replace equipment on a cost basis is something that we do literally weekly evaluating.
Underperforming equipments.
Yes.
Specific locations, where maybe in that particular micro market.
The.
That sort of piece of equipment is desired.
Therefore, looking at where is the momentum in that market on the players.
Sure.
Equipment in there so instead of a constant process on do we keep of Russia.
Inventory of equipment in our warehouse, so we're not having some weight some of the place.
<unk> will update it.
Most of it's an ongoing process on some of them.
We do as the company to optimize the performance or establish the partners.
Yeah.
Alright, Thank you are there regions or.
A portion of the portfolio of that may be underperforming or under indexing relative to the broader part of the portfolio.
Yeah, I mean the.
The.
The state of Illinois.
Many difference.
Right.
Yes.
<unk>.
The.
There's obviously stronger income levels of stronger demand.
In certain markets of the posts others that maybe because the.
Sure.
Black on the alternative entertainment options in 1 area versus another.
As an example, the pure.
The area of because Theres a casino, that's very close to a lot of the establishment.
Performers.
On a lower level on some.
The.
On the northern suburbs of Chicago.
There are spot on.
Some of the issue.
The stronger income levels.
Awesome. That's helpful. Thank you and then maybe just a follow up question you kind of touched on it in your prepared remarks in terms of the new license issuances, which also on surprisingly dip last year due to Covid do you get the sense that there is maybe a desire to catch up on Illinois Gaming Commission front and the need to generate tax revenue.
Yes.
To be honest I don't know.
Exactly the mode.
But they had on our best kind of try new.
Go through an authorized and the applications as possible even in today's environment.
There is somewhat restricted.
Due to the.
Of the workloads and they've got a tremendous amount of workload with the.
The new casinos that Theres still fire.
Authorized or <unk>.
Do the applications so.
Our game is.
On the best they can with the SaaS revenue.
They currently have on.
We're not staffed okay.
A bunch of new casinos, plus a rapidly growing industry at once.
The on a normal staffing level and the additional.
The casino expansion of stuck on.
Yeah.
So on streams on some of the resource.
Awesome. Thanks, so much I appreciate the color.
Your next question is from the keep us from Northland Securities. Your line is open.
Yes.
Hey, good morning, Andy Brian Thanks for taking the questions and congrats on the quarter.
A couple of follow ups I guess first.
The new state markets legalized video gaming what kind of car.
The next.
Early player.
Operator in the market.
Okay great.
As we look at these markets on a lot of them were free.
And the work.
Hang on with the legislators are working on with the long haul.
Based on our partners in those markets.
On historically has been on great business partner to the local operators.
Yes.
Okay.
Oh gosh.
Thanks.
Net.
Historical success net reputation of on.
Being a good business partner, whether it's to the establishment or to the the local operators will continue.
To be or kind of.
Secret to success.
As we've gone into some of these markets already.
We've been able to establish great partnerships.
Thank you will play out with.
And a position of market leadership.
Seeing the market opens up.
We've demonstrated over the last.
10 years.
<unk>.
Can continue just alive and dynamic markets.
Great I appreciate that.
The follow up on you talked about.
In a good number of M&A opportunities that you mentioned wanted to ask I guess on those mostly Illinois focused or are they.
New market focused.
And then maybe.
All of those opportunities.
Changed since the last couple of quarters are you seeing more.
Or is it.
Maybe a little harder to find opportunities now that we're a little bit more out of the pandemic.
Both of them.
The first part of the question as we can.
Look at Illinois.
There's opportunities, but we are focused on really provide that.
<unk>.
The new add on like a free market.
Alright. Thanks.
So the second part of your question.
Those opportunities.
Or as good of our better than they were.
2 quarters ago.
The surveying.
During the.
The pandemic.
Kind of pause on many of.
Operators are.
<unk>.
Central business part of our Ams.
As there is greater visibility.
The earnings release.
Kind of potential.
Both parties.
On more easily able to come to an agreement on what the partnership would look like so I think.
Youll see us.
Continue to pursue opportunities.
Illinois the outside.
And these other states.
Probably.
The an accelerating rate on the next few years.
Awesome great.
Well, that's all I had I just wanted to congratulate you on the license wins do I mean, the 38% of the day, that's impressive but the I'll pass it on thanks.
Thank you.
And as a reminder, that is star 1 to ask a question.
Your next question is from Steve <unk> from Deutsche Bank. Your line is open.
Hey, guys. Thanks for taking the questions margins were pretty impressive for the quarter can you talk about what you are doing on the cost side and the level of sustainability for these levels moving forward.
Yes, Thanks, Steve.
A lot of the margin increase was due to the.
Obviously.
Increased levels so the national.
On metal revenues come on a much higher margin.
On the cost side.
We haven't been the net cost.
Cutting mode, where more of in a harvest mode and we.
Our continuing on.
Yes.
In the film is painful.
Sure.
Uh-huh grow of same store sales as well.
As future opportunities.
I think.
The margin of us.
We will probably.
Kind of move more toward the.
The high 19 low training.
As we again in the on or sustainable.
Revenue.
<unk>.
The performance so.
I think youll see that.
The investments with.
The Florida growth will.
For all of those large loans kind of downturn.
Appointing yourself and but it will also ensure that we will have the growth that we've demonstrated in the past we expect to do on a feature.
Yeah.
Yes.
Okay, great. Thank you that's helpful. And then now that you've been in Georgia for about a year now can you talk about what you've learned in the market.
How big you view of the opportunity to be there.
Yes.
So Georgia is going on.
An interesting year.
We feel very strongly that it's.
That it can be a very successful market on a long term basis.
And we've invested in.
The building our infrastructure.
Working with the state of pilot.
Where do.
Can you sort of a cash out of her redemption on par and where we've seen that redemption heart in the pilot.
The significant permanent.
And.
The performance or the play at those establishments. So we're very excited.
On hopeful hopeful of the expansion.
Of the reduction of hard on I think on.
On a long term basis.
On the market can be meaningful.
The all XL portfolio.
Okay.
Okay I appreciate it thanks guys.
And again that is star 1 to ask the question.
Your next question is from Jordan Bender from Macquarie. Your line is open.
Good morning afternoon, guys. Thanks for taking the question.
With respect to your guidance I guess you have July on the books here.
I was wondering if you could kind of give the puts and takes on what it might take the hit the bottom or the top half of your guidance range per revenue for the year.
Yes, yes, thank you George.
Yes.
Yeah.
Take this 1.
Okay.
Thanks, Andy.
Well basically where the current run rates on revenue will take will be on the higher side.
So.
It's timing on the relative to the lower side of it all depends on how we are investing as Andy mentioned, whether it's internally for building out the Illinois infrastructure <unk> for the national platform.
So based on current run rates, though.
I think we mentioned in the Q.
Minutes ago.
That we thought were taking a higher I'm, sorry, a little conservative approach with the.
Those guidance of that there is upside.
But it's.
I just want to take the month by month and see how it goes with everything.
Okay.
And then as my follow up here you've mentioned the in your prepared remarks.
On the backlog is pretty strong right now I was wondering if you could just give us color on kind of where it sits now versus maybe at the end of <unk>.
The level of take in 2019 or so.
Yes.
Yeah, I would say that we're.
We're actually gaining share.
Momentum.
With our backlog.
And part of that is due to the factors net.
We are seeing.
Business kind of start to reopen on or new ownership and business on.
As close as we've kind of.
People have kind of moving past the.
Kind of.
Yeah.
Concerns around on us long term effects of the pandemic.
No.
I think we have.
A good.
12 months of building on the backlog ahead of us.
Where you'll see strength in.
And the increase of the.
Locations that we have under contract.
And.
In the past and I think we'll reach level.
Probably closer to the iPhone.
Okay, Thanks, guys nice quarter.
Thank you.
Alright, and I am showing no further questions at this time I would like to turn the call back over to Mr. Matt Mr. Andrew Byrne Rubinstein for any additional or closing remarks.
Yes, Thank you everyone for joining us today.
As we look forward we're.
Okay.
As to the.
The continued growth of accel.
Obviously.
From a personal and.
As well as for everyone on what.
Kind of Cerner about the.
On the Delta.
On it.
And how is the economy.
And we have gone to.
Kind of going to take.
The precautions to make sure our employees, our investors and we hope that everyone on our guidance.
Our balance to make sure of that.
The economy.
Moving forward. So thank you again.
Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation and have a great day.
Okay.
Yes.
Okay.
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