Q1 2022 Accel Entertainment Inc Earnings Call
Constitute forward looking statements within the meaning of the private Securities Reform Act of 1095.
These forward looking statements are subject to risks and uncertainties, including those relating 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 disclosure.
<unk> and 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 Andy.
Thanks, Derek and good morning, everyone. Thank you for joining us for <unk> first quarter earnings call.
Before we dive in I would like to thank Brian apparel for his hard work and dedication over the last eight years as our Chief Financial Officer.
We would not be the company. We are today without him I would also like to congratulate Matt Ellis on his promotion to succeed Brian .
That has played an integral role in our transformation into a public company and we're confident he is the right person to lead our finance organization as we continue to expand into new markets.
Turning to the quarter I am pleased to report we had another strong quarter, despite the impact of <unk> clients.
We reported revenue of $197 million with year over year same store sales growth of 3%.
When you think about the omicron headwinds, we experienced this quarter versus the fourth round of stimulus checks going out in March of 2021, the year over year growth. We achieved further demonstrates the strength and resilience of our business.
In the current inflationary environment the cost of virtually everything is increasing for example, it cost more to eat travel shop and commute.
Our offering however has not increased in price and our players usually live less than 15 minutes from our locations.
We believe local businesses will continue to invest in gaming due to the incremental profits they receive and players will continue to choose our local price stable high quality offerings due to its appeal and convenience.
Looking at our number of locations. This is the first quarter, where a number of locations dropped due to a change in regulatory practices.
While we usually see an increase in closures after the holidays. The reason for this decrease is due to the <unk> recent enforcement of the 72 hour rule.
The rule requires terminal operators to disconnect and remove their equipment from a location if there's no activity for 72 hours.
In the past, we could leave our equipment if a location was temporarily closed for repairs remodeling.
<unk> change. In addition, if a location went out of business, we could remove our equipment at our convenience.
The 72 hour rule accelerated all planned removals for the next several months as a result, we removed our equipment for approximately 30 locations totaling 150 <unk>.
We view the drop as onetime in nature, and we expect to resume our normal growth trend going forward.
More importantly, this change has almost no impact on our revenue.
On the expense side, just like most other businesses, we experienced higher than expected costs from COVID-19 related and macroeconomic related impacts such as increased expenses for overtime fuel and parts. We are continually monitoring our spend and looking for ways to mitigate increased costs.
Without sacrificing our best in class service.
Our asset light business model will allow us to quickly adjust to any further changes in the market.
Turning to century, we believe we are on track to close at the end of May.
<unk> continues to outperform our original estimates and we're looking forward to combining the best practices of both companies we plan to share more about century and our next earnings call. After the acquisition closes.
Sticking with M&A are.
Pipeline remains active and we are evaluating multiple opportunities in Illinois and across the country.
Our long term goal is to continue to increase the percentage of our revenue generated outside of Illinois.
Central is the first step towards achieving our goal and we hope to announce additional opportunities in the future.
On the organic front, our sales team continues to sign additional competitor and organic locations for the first quarter <unk> awarded 67, new licenses or 35% of the total new licenses awarded our ability to continually win more licenses in our current market share is.
A strong testament to our sales capabilities brand awareness and location owners, believing in the excel difference.
When we look at the number of eligible businesses without gaming with a number of Gtt's per capita we believe Illinois still has a significant amount of highly visible growth.
Looking at other states, we remain cautiously optimistic that several states will consider distributed gaming in the future. We continue to work with the various stakeholders 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 the growth playbook, we built in Illinois, it can be replicated in any future market and our leadership position nationally will create advantages for us.
Overall, <unk>, a very strong position to capitalize on the future.
Our hyper local business model low capital requirements and highly visible growth offers one of the best returns and gaming.
With that I'd like to turn it over to Matt to walk you through the numbers in more detail.
Thanks, Andy and good morning, everyone I've had the opportunity to connect with many of you on today's call and I look forward to continuing that relationship in my new role going forward.
For the first quarter, we had total revenue of $197 million and adjusted EBITDA of $35 million year over year increases of 34 and 37% respectively.
As a reminder, gaming was shut down for the first 18 days of January 2021.
Vocation hold per day for the first quarter was $811 a year over year increase of 3%.
Considering the omicron headwinds perceived pent up demand we experienced in the first quarter of 2021 as well as the fourth round of stimulus checks issued in March 2021, we believe 3% year over year growth further reinforces the strength of our business as a reminder, the 3% growth only accounts for the days we were opened in 2021. So it is.
Apples to apples comparison.
Capex for the first quarter was $7 million cash spend.
As of March 30, <unk>, we had 13663, <unk> and 2565 locations year over year increases of 7% and 4% respectively.
Location attrition continues to remain low and mirror that pre COVID-19 historical averages.
During the quarter, we removed 150 of our <unk> and 30 locations due to the 72 hour rule as Andy mentioned earlier, we think of the drop is onetime in nature. When business is shut down we naturally remove our equipment at the appropriate time, but the 72 hour rule effectively accelerated our planned removals for the next several months going forward we.
Spect to resume our normal growth trend at the end of March our average residual contract length was approximately seven years, a modest increase from last quarter, our ability to increase this figure is a true testament to the strong and long lasting relationships, we've built with our location partners.
I'd now like to provide an update on our share repurchase program as Youre, all aware, we announced a $200 million share repurchase program in November of 2021, as we find the opportunity to return capital to shareholders in the form of buybacks and attractive use of our significant free cash flow.
During the quarter, we purchased $14 million of <unk> stock at an average purchase price of $12 79 per share in.
In April we purchased an additional $6 million of <unk> stock at an average purchase price of $12 17 per share given our relatively under levered balance sheet and strong free cash flow. We are in a position to make exciting investments like century, while thoughtfully continuing to return capital to shareholders.
At the end of the fourth quarter, we had approximately $147 million of net debt and $745 million of liquidity consisting of $195 million of cash on our balance sheet and $550 million of availability on our credit facility.
Turning to outlook as Andy mentioned earlier demand and our revenue continues to be strong and consistent with our guidance despite overcoming.
Q2 is also off to a promising start.
That being said like almost every other business, we are seeing somewhat higher expenses due to inflationary pressures and the tight labor market, the extent to which were not known to us back in November .
Given this and the pending century closing at the end of next month, we anticipate updating guidance at our next call.
Back to you Andy.
Thanks, Matt we are pleased with our performance this quarter and even more excited for what the future holds we can't wait to officially welcome the century team to the <unk> family and we continue to focus on additional growth opportunities.
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 proven business model and extremely strong financial position to continue our expansion and return capital to shareholders. We.
We've gone from operating in one state when we went public in November of 2019 to nine states. After we close century, our success would not be possible without our dedicated employees and loyal customers. They are the true competitive advantages of our business that make it sell the preferred choice and our mark.
Right.
We will now take your questions. Thank.
Thank you if you would like to ask a question. Please press star followed by one on your telephone keypad. If for any reason you would like to remove that question. Please press star followed by team again to ask a question Press Star one as a reminder, if you are using a speaker phone. Please remember to pick up your handset before asking your question we will pause.
Can you. Please ask questions registered thank you.
The first question is from the line of Chad Beynon with.
Macquarie Your line is open.
Hi, good afternoon, Thanks for taking my question.
Wanted to start with a high level and I know in the past at the Investor Day, you talked about the difference between you and other land based properties in the reward system. What we've been hearing from a lot of the operators as they are really pulling back on reinvestment rates and I was wondering if this could be a potential positive.
You guys understanding that it's not in the near term outlook, but if this is something that could help you reengage with some players that left to reengage with players. So you just haven't.
Frequent in your locations, particularly in Illinois.
Thanks, Chad.
I mean, we we have seen that benefit.
In the recent periods, where we're developing relationships with players.
That we had not seen before and they are they have recognized that our offering and our convenience is far superior to what they are.
What they are receiving currently from the regional brick and mortar offerings and so.
With a better product.
And the convenience.
Can you do see.
The increase in.
Player count as well as a lot of new people that.
Basically didn't realize that.
Our offering is very comparable to the brick and mortar business.
Thanks, and then in terms of M&A, Andy you mentioned in your prepared remarks.
The pipeline remains active and you continue to look to diversify outside of Illinois.
Does the changing of interest rates.
Kind of affect how fast you could potentially do some more deals.
Given the cost of capital difference. Thank you.
Hey, Chad, it's Matt I can answer this one I think.
The first thing to think about it is we actually took some steps to protect against an increase in inflation rates, we took out a $300 million four year deferred premium cap, which protects us if LIBOR goes above 2%.
The other piece of that obviously is.
We have relatively low rates on our facility and we will look to continue to protect but.
Given our availability and that we raised that facility last year.
I think if anything it puts us in a good position to get M&A done because we have the financing in place.
Thank you both very much and congrats on the appointment of Matt.
Thanks, Jeff.
Thank you Mr <unk>.
The next question is from Steve <unk> with Deutsche Bank. Your line is open.
Hey, guys. Thanks for taking my questions I think Andy mentioned higher than expected costs due to COVID-19.
In his prepared remarks can you just kind of elaborate on those costs.
You expect those to fall off at all.
Hey, Steve It's Matt again.
So I think a lot of those costs are related again not to the business specific but what we're seeing with the overall economy, particularly over time fuel in parts.
When we look at it sort of just stepping back in terms of guide in everything.
We now look at the company sort of on a combined basis and first and foremost the revenue is remaining strong.
When you think about <unk> this year and sort of last year's stimulus checks that 3% growth really reinforces the strength of the business. We've always sort of said that those 21 levels are here to stay and I think as the results come in we continue to reinforce that.
April and March are always two of the key months of the year and between March and as we said Q2 is off to a promising start we're pretty pleased with what we're seeing.
Kind of pulling it all back together to expenses when we think about it in terms of guide.
We're looking at things now on a combined basis and what I would say is that the increase in expenses has pushed us sort of to the bottom of that kind of pro forma combined guide.
Obviously, we will look for ways to mitigate those expenses, but many of these are sort of what everyone's dealing with throughout the economy.
Okay I appreciate it. Thanks, and then can you just talk us through what you saw in April relative to March and are you able to delineate if youre seeing any degradation from kind of the lower end consumer.
So I would say as you remember we clear award does not live in Illinois. So we can kind of track it the player level we.
We do look obviously per machine per day.
The strength is still there April was going to be a <unk>.
<unk> months, just given what was happening last year, but it came out very well, you'll obviously get the results from the IGD or the numbers from the IGD and about a week or so.
Overall, I think with everything going on our offering remains very attractive it's close to home, it's convenient and as Andy mentioned earlier.
Our high quality offering on par with some of the other options out there.
Okay I appreciate it thanks guys.
Sure. Thank you.
Thank you Mr Zeller.
The next question is from Stephen Grambling with Goldman Sachs. Your line is open.
And then maybe just following up on the macro question I guess has anything changed as you think about.
The relationship of the macro.
And some of the inflationary pressures, particularly as it relates to fuel on a location by location basis.
When you think about it that way I would say again.
We're focused on is the revenue and the play is stronger.
Of course fuel hits us we of vehicles out on the road I think thats hitting everyone, but like when you think about our players and fuel our locations are less than 15 minutes away fuel is not going to.
A decision on whether they kind of go to one of our nearby establishment.
To kind of build on that.
They're more likely to go local then to a destination regional casino, where they're driving 45 minutes to an hour and a half and.
The fuel actually in many situations is the fuel increase in pricing.
It's somewhat beneficial.
That's helpful. And then maybe if you can just give us.
A follow up.
Date on some of the new market expansion and what you see out there are there any other new states that you've got your eye on that you could potentially expand into thank you.
Yes. Unfortunately the.
Spring Legislative sessions.
We're not as productive as we hoped.
We're seeing an opportunity of two.
Continued.
Expand the pilot that we're involved in.
Sure.
In Georgia, and so I think we'll get some more locations involved in that pilot.
Bob.
The other states.
I mean there is.
Is a chance that legislation gets passed its not looking.
That promising and.
We continue to.
To investigate and pursue some of the legacy states and.
Uh huh.
Hopefully.
Century is the beginning of.
Those efforts.
Awesome, Thanks, I will jump back in the queue.
Thank you Mr. Grambling.
Again to ask a question press star one.
The next question is from Greg <unk> with Northland Securities. Your line is open.
<unk>, thanks for taking the questions and congrats on the new role.
I guess just wanted to confirm you talked about seeing no impact from the decline in those I guess the removal of about 30 locations no impact on revenue is that essentially because theyre just inactive location.
That's exactly it I mean this is more of a change in methodology than anything we've always reported.
The number of locations in <unk> by what the Central system tells us, we're not going to make adjustments to that.
And those locations that are being disconnected were not generating revenue so.
It's there's no real change on the revenue its just really we look at it as a change in methodology.
Got it thanks for confirming.
And when I guess you'd think about.
Expectations for new location license issuances from the RGB, maybe this year versus last any thoughts there on how that might trend.
I think it's too soon to tell I mean, we're our focus is is continuing to sign high quality locations and get them into the backlog.
I think the <unk> is working hard to work through their queues to get stuff license, but from our standpoint, it's led sign high quality locations and get them into the queue little too soon to tell on what's sort of the the ongoing licensing pace will be.
Got it.
And.
I know you talked about re addressing guidance in Q2.
After the century acquisition closes are you.
Withdrawing the current guidance or just kind of.
Waiting for that acquisition to close at the end of this month.
I would say, we left it unchanged and waiting to provide an update.
Next month after sent for next quarter excuse me after centuries closed.
Okay sure I guess the last one from me you talked about <unk>.
Few other opportunities both within Illinois.
Other markets.
What type of multiples you, maybe expect to pay on those future M&A opportunities.
Okay.
It's a range.
And it really depends on.
The length of the contract.
The nature of the leadership of that.
That business and the opportunity for growth so.
Traditionally we are targeting are around the seven.
Ish range, but it all depends.
On the actual business.
Okay I appreciate it.
And there are no additional questions at this time I will.
I'll now turn the conference over to Andy for any concluding remarks.
Yes. Thank you I just wanted to thank.
Thank you everyone for joining us today.
We have a very bright.
Summer ahead of US a lot of exciting things happening and we look forward to updating you with.
A lot of good news.
The next time, we get together.
Thank you for joining us and have a nice weekend.
That concludes the Accel Entertainment Q1 2022 earnings call. Thank you for your participation you may now disconnect your lines.
Okay.