Q3 2021 Accel Entertainment Inc Earnings Call

Hello, everyone and welcome to the XO Entertainment Q3, 2021 earnings call, we will begin shortly.

I would like to register a question I'm ready for the Q&A. Please press star followed by one on your telephone keypad. Thank you for your patience.

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Yeah.

Hello, everyone and welcome to the X O Entertainment Q3, 2021 earnings call. We will begin shortly if you would like to register a question button for the Q&A. Please press Star fleet by one on your telephone keypad. Thank you for your patience.

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Hello, everyone and welcome to the X. So entertainment Q3, 2021 earnings call. My name is Daisy and that'll be coordinating today's call.

You will have the opportunity to register a question at the end of the presentation, if you'd like to register a question. Please press star followed by one or no telephone keypad.

I will now hand over to your host Matthew Ellis Senior Vice President of corporate strategy from XOMA Entertainment. So Matthew Please go ahead.

Welcome to Excel Entertainment's third 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 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, including those related to COVID-19, and its 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.

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.

Conciliations 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 Brook cells third quarter earnings call.

It's hard to believe but this is the first time since we became public in November of 2019.

We've been fully open for two consecutive quarters.

I am pleased to report the strong performance for the second quarter continued throughout the third quarter.

On a seasonal basis, the third quarter is typically the lowest performing quarter, but as demonstrated in our results. We continue to see year over year location revenue growth of more than 30%.

As we've highlighted throughout the year the primary drivers of the higher revenue with the completion of higher bet limits software upgrades.

And the six BG T installations, we also continue to optimize our product offering which helps us retain our existing players and to attract new players.

Due to the quarter's strong results, we are raising our current year guidance again, and also releasing 2022 guidance.

Leave it to Brian to walk you through the numbers later in the call.

Turning to growth.

As most of you are already aware on October 22nd we amended our credit facility, which increased our borrowing capacity from 438 million to $900 million.

It was a large asked from our lender group, but after seeing our intended uses of the funds along with our high quality credit story, we actually received.

Commitments in excess of our ask.

Our M&A pipeline is active and we expect to announce more opportunities in the future as both existing and incremental new states.

I'd also like to thank our lender group for their continued support.

Well, we're on the topic of M&A.

Century is still on track to close in the first half of 2022.

And they continue to perform better than our original estimates.

As we're not certain on the timing of closing, we're releasing 2022 guidance to illustrate what <unk> would look like if century was included for the full year.

On the organic front, our sales teams continue to sign additional competitor in organic locations.

Year to date <unk> was awarded 243, new licenses or 35% of the total new licenses awarded.

Our ability to win more licenses in our current market share is a strong testament to our sales capabilities and locations owners, believing in the excel difference.

Our sales team is just one of many competitive advantages that differentiate us from other operators.

We're continuing to monitor the number of licenses awarded each meeting.

But more importantly, we're focused on the size and quality of our sales pipeline, which continues to grow.

We always aim to win more than our fair share of licenses and then work with our location partners to maximize their gaming and overall business revenue.

What do we look at the number of eligible businesses without gaming or the number of Bgc's per capita we believe Illinois is still has a significant amount of future location growth.

In Georgia, we continue to grow our backlog and expect to end the year with 100 live locations. We also continue to work on improving the gaming experience for players and are hopeful that a new redemption option will be introduced in the future. We remain excited about the long term prospects.

For us in this market.

Looking at other states, we remain cautiously optimistic that several states will consider distributed gaming in the future.

For example, Virginia, Missouri will likely introduce distributed gaming bills and the upcoming Legislative sessions, we continue to work with the various stakeholders in these states to educate them about the benefits of distributed gaming and the incremental revenues it generates for state and local governments and small businesses.

Alike.

We are confident that our growth playbook, we built in Illinois will enable us to be successful in any future market.

Overall <unk> is in a strong position to capitalize on the future. We believe we offer one of the best returns and gaming combined with highly visible growth 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.

For the third quarter, we had total revenue of $193 million and adjusted EBITDA of $38 million year over year increases of 43% and 63% respectively.

Revenue per location per day for the third quarter was $798 a year over year increase of 34%.

The primary drivers of the increase were the higher bet limits software and our <unk> initiatives.

Capex for the third quarter was $8 million cash spend.

As of September 30, we had 13380 <unk> in 2549 locations year over year increases of 8% and 15% respectively.

Location attrition continues to remain low.

And mirror that pre Covid historical averages.

With our continued belief that businesses with incremental gaming revenues have a lower failure rate as compared to businesses without.

At the end of September our average residual contract length was approximately $6 seven years.

At the end of the third quarter, we had approximately $148 million of net debt down $19 million from Q2.

Including our amended credit facility, we have $730 million of liquidity, consisting of $180 million of cash in our balance sheet and $550 million of availability.

I would now like to provide updated guidance for 2021 and 2022.

As a reminder, the <unk> 2021 guidance.

<unk> new acquisitions and includes the partial shutdown from January of this year.

We are now forecasting to end the year with $13660 to 13775, Btt's in 2000 and 602000.

620 locations.

Revenue for 2021 is now estimated to be between $725 million to $750 million with adjusted EBITDA of $140 million to $145 million Capex is estimated to be between 20% to $25 million cash spend.

Yearend net debt, excluding any acquisition financing should be approximately $110 million to $115 million, implying a year and trailing debt to EBITDA multiple of only eight giving us ample firepower to pursue additional inorganic and greenfield opportunities.

For 2022, I'm going to share guidance with and without century.

Since the exact timing of century is still uncertain the guidance I'm going to provide with century will be on a pro forma basis with century included for the full year to.

The 2022 guidance also assumes Georgia will no longer be an emerging market in the second half of 2022 since we have the operator in Georgia for more than 24 months.

We expect to end 2022 with $14560 to 14750, <unk> in 2000, and 760 to 2795 locations.

Including century, we expect to end 2022 with 23000 to 25000 Btt's.

And 3000 to 700 to 3800 locations.

22 revenue is estimated to be between $820 million to $870 million.

Assuming the full year benefit from century revenue is estimated to be 1.17 to 1.1 dollars 8 billion.

Adjusted EBITDA is estimated to be between $160 million to $170 million, assuming a full year of century, adjusted EBITDA is estimated to be between $182 million to $198 million.

Cash spend capex is estimated to be between $20 million to $25 million.

Assuming a full year of century cash spend capex is estimated between 25% to $35 million.

Taking into account our amended credit facility the timing of the century acquisition and the growth Andy discussed earlier, we are not guiding on net debt for 2022 at this time.

As we have more visibility, we will resume providing updates.

Back to 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 products and gaming experience today is.

Actually better than it was in 2019 and that is reflected in our results and outlook.

We have newer cabinets better software higher jackpots and our locations continue to invest in nitrile gaming areas, given the strength and importance of the incremental revenues, we help them generate.

We remain confident that our asset light hyper local business model creates a platform to outperform in difficult times and really thrive under normal circumstances as demonstrated by our continued performance. We aim to leverage our differentiated operating model and extremely strong finance.

Position in order to continue our expansion both in Illinois and across the country are.

Our success would not be possible without our dedicated employees and loyal customers. They are the true competitive advantages are businesses that make excel the preferred choice and distributed gaming we will now take your questions.

Thank you very much if anyone would like to register a question. Please press star followed by one on your telephone keypad.

I'm trying to ask a question. Please ensure you I mean on me two likely if you would like to withdraw your question. Please press star flip I T.

Our first question comes from I must Sander from J P. Morgan. Your line is open. Please go ahead.

Hi, Andy Brian Matt Thanks for taking the question.

Hoping you can parse out the commentary a little bit more it looks like your 2021 guidance implies a nice sequential step up in locations in <unk> and the <unk> are you seeing the momentum more on on the conversions and gross units or is it more of a moderation on yet but the attrition is firm.

Yeah.

I would say the the sandy thanks for the question over.

I would say that the.

Attrition has is relatively flat.

As far as its not declining or growing.

Consistent with past experience, it's more on the ability to.

With new customers.

And convert some of our.

Some customers that are currently with some of our competitors.

We are getting some growth.

With additional equipment.

Our current portfolio, but I don't it's not material going forward.

Great. Thank you.

Thank you. Our next question comes from Kathleen Brennan from Goldman Sachs. Catherine Your line is open. Please go ahead.

Hi, This is Noah on for on for Stephen Grambling from Goldman.

Looking at the 2022 guidance that you've given and sort of parsing out what is organic salad versus century, it would seem to be that the contribution from century, you sort of stepped up.

The guidance versus what you had originally outlined at the analyst day are you seeing any trends there in.

In century markets that you know things have been going better than expected or what's driving that.

So we've seen century do a really nice job as the.

As the markets have reopened.

In mid 2020 and going forward.

<unk>.

They have performed better than expected consistent with what we're seeing across the country. So.

There has been some changes in the especially in the Nevada market, where they now.

Have a player.

Rewards program that the state allowed to be implemented July one of this year.

So I think we'll see benefits we've seen benefits from it.

A little bit in the.

The initial phase and I think we'll continue to see it as we go forward.

Into 'twenty two.

Thanks, and if I could just ask one follow up.

Any insight into the potential legalization in Virginia, and Missouri, I realized you you touched on it but any conversations there.

Yeah I mean.

In both markets there has been legislation introduced in the past.

Sure.

There is interest there is interest from the legislators.

The question is whether or not.

The stars were aligned to get that legislation across the finish line.

In any given year.

It could happen.

And it got close in both states at different points over the last couple of years.

Both states see that.

The success that the state of Illinois has had.

And.

As we look forward I mean, it's a.

It's a real benefit for the state as well as for small business owners and so there is or isn't Illinois or have really benefited from.

The raw gaming that was introduced in the 2019 legislation that we implemented.

October of 2012 so.

We're hopeful.

But with any type of legislation.

Until you get it signed by the Governor.

We've learned that lesson a few times here in Illinois.

It's not legislation.

Thanks, that's it for me.

Thank you very much. Our next question comes from Steve <unk> from Deutsche Bank. Steve. Your line is open. Please go ahead.

Hey, guys. Thanks for taking my questions.

I think 2022 year over year guidance implies approximately 15% revenue growth at the midpoint ex century I believe.

With about half coming from new <unk> can you talk about the drivers of the other half.

Okay.

Yes, I mean, one of the bigger drivers is if you recall, we were shut down for.

22 days in January so we're going to pick up.

The revenue from basically.

Zero.

For two thirds of the month more than two thirds of the month of January the other part.

That.

We will see is there was some there'll be some annualized nation of the.

Okay.

The six machines that were implemented after we went up.

And then and then finally a lot of the software that came into play was finally implemented in that first.

Second quarter, so they'll get the benefit of the four dollar bets so all of those different.

Factors will contribute to.

Additional revenue and obviously were.

Our overall economy.

Inflationary pressures and so.

People are spending more and.

The relative value of our entertainment.

Hasnt changed.

Okay. Great. That's helpful. Thanks, and then is there any way you can kind of talk about the cadence within the quarter.

Did you see any impact from the Delta and then if youre able to give any comments on October trends.

Yes.

Yes.

Looking at it like the Delta hasn't really had much effect in.

As we saw in the past as.

Entertainment options are more limited.

We do better because we're a safer.

Sure.

Form of entertainment, that's that's closer to home with environments that they're comfortable.

Well with.

As.

So.

The Delta.

It Hasnt had any anything negative if anything.

As people are.

Traveling a little less than anticipated.

They're staying closer to home and playing our machines and we've had.

A very.

Good performance.

During this period.

<unk>.

October kind of.

As.

Like almost any other relative model.

The seasonality is similar.

Then what would.

As expected so.

We're not seeing any outlier one way or the other.

Okay helpful. Thanks, and then just one more if I could can you just talk about.

The pipeline you are seeing for new locations and how much visibility you do have in 2022.

Pipeline and beyond.

Yeah, so the pipeline.

We.

Even though we only see as far as kind of what our current portfolio of locations that we have signed up and then obviously the gaming board's licensing process is the other major factor.

We continue to perform.

We continue to.

When new opportunities are.

Our customers choose us.

Over other options time, and time again and so.

Can't really see.

How.

Like.

Yes.

Later into the second half of <unk>.

'twenty two is going to.

Perform.

And except for the fact that we do have.

A good team and they have performed in the past and we expect them to continue to succeed in the future. So.

What that means.

Is that Youll, we hope that the performance that you've seen out of excel will continue going forward.

Okay I appreciate it thanks guys.

Thank you very much. Our next question comes from Jordan Bender from Macquarie Capital Jordan. Your line is open. Please go ahead.

Thanks for taking my question, So last week, Illinois expanded gaming.

And allowing slots into a location that you previously couldn't penetrate.

Although I think only about 8% of municipalities didn't allow.

So relatively small but do you know the market size for these better and paternal organizations and is that in your guidance.

So no it's not in our guidance and it's a very small opening that.

That.

Was created.

I would say.

Whatever those municipalities you can't expect more than one or two veterans.

Locations in those business <unk> and a lot of them don't even have veterans.

Calls or American Legion so.

That's kind of.

Not something that we're looking for toward for meaningful revenue and.

Our hope is that at some point.

There is other opt ins, where you can have a more.

A greater ability to.

Spanned the <unk> and some of these opt in communities but.

It's not in any of our guidance.

Okay.

And then the Illinois market is still north of around 55 operators when you look at future years.

What do you see in terms of consolidation and.

How do you fit into that M&A.

You think about M&A inside of the steam versus outside of Illinois.

Yes.

There's always opportunities for consolidation I don't think there'll be.

A lot of significant consolidation.

And part of that is that the.

The market.

Has.

A couple of big players and I think overall the state.

Once.

Wants to keep.

Good competitive market.

But at the same time, I think youll still always see a lot of really small players and as far as Aksel goes we're always pursuing acquisitions.

Inside of Illinois, but I'd say a lot more of our focus.

<unk>.

Has been recently.

Other opportunities in other markets and.

And then separate accessories. The Best example, I think.

That is as we learn new markets through centuries.

Distribution and manufacturing business.

We will identify.

Where we should be next.

Perfect. Thank you Sandy.

Thank you.

As a reminder, ladies and gentlemen, if you'd like to register a question. Please press star followed by one on your telephone keypad.

Our next question comes from Greg <unk> from Northland Securities. Greg. Your line is open. Please go ahead.

Hey, guys. Thanks for taking the questions first just wanted to confirm that.

At nearly 100% in terms of installing the <unk> and then the higher bet limit installations.

Yes, Thanks, Greg.

We are yeah and.

98%.

Percent range.

Not much theres not much additional.

Okay great.

And then if I could follow up on the.

Okay.

What you provided on the M&A pipeline do you think acquisition multiples have changed at all.

Sure.

Maybe since your last few acquisitions.

It has stabilized.

Maybe.

Slightly lower but it's pretty stable.

Got it.

And.

Just a follow up too on your commentary regarding century outperforming your expectations.

Wondering if you could maybe expand on to what degree they did.

Okay.

Yes, I mean there.

Just.

The revenue has been.

Significant.

<unk> is following the trend that we've seen across the country. We're very local very regional type gaming has been a preferred form of entertainment.

As the.

The economy has reopened.

The.

The pandemic period and so.

Where we saw it.

In 2019 about $20 million in EBITDA.

We're expecting it to be somewhere between.

18% to 22% higher.

Uh huh.

There and its based on just that people.

One of entertainment, that's close to home, where they know people who are in establishing that they feel comfortable and they're they're seeing.

A lot of the same trends.

That we've seen in Illinois, there obviously.

Not getting the value of us, adding a sixth machine in higher bet limits, but.

We also think.

They're going to get the benefit of having a player reward system that was just recently implemented.

Got it.

And then I guess last one for me any sense of.

Weather locations under contract that are impacted by.

Labour supply issues at all.

Yes, labor as an industry.

And this industry is.

Being impacted very similar too.

All the kind of lower wage businesses and <unk>.

Unfortunately, a lot of our business partners or <unk>.

Family owned small business owners and so they have a very loyal.

Employee base, but we have seen similar.

Situations, where.

Theres been real struggles.

Two higher or to grow there.

Employee base.

Because of.

Rising wage wages and the limited market and.

We foresee that being a challenge.

In the near future and hopefully.

As more people feel more feel comfortable to go back into the workplace.

Some of that will go away.

Okay understood. Thanks, again and congrats on the results.

Thanks, Greg.

As a final reminder, everyone. If you would like to register a question. Please press star followed by one on your telephone keypad now.

We have no further questions. So I'll hand back over to Andy for closing.

I just wanted to thank everyone for joining us today and wish everyone a.

A safe and healthy holiday season.

Look forward to.

Speaking with everyone again in the new year.

Thank you everyone for joining today's call you may now disconnect your lines and have a lovely day.

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