Q4 2022 Accel Entertainment Inc Earnings Call
Ladies and gentlemen, please remain in holding the call will begin momentarily.
Please remain holding the call will begin momentarily.
[music].
Good afternoon. Thank you for attending Excel entertainments Q4 full year 2022 earnings call. My name is Matt and I will be your moderator for today's call.
All lines have been muted during the presentation portion of the call up an opportunity for questions and answers at the end if you like to ask a question. Please press star one on your telephone keypad I would now like to pass the conference over to our host Derek Harmer.
Derek Please go ahead.
Welcome to Accel Entertainment's fourth quarter and full year 2022 earnings call.
Participating on the call today are Andy Rubenstein, <unk>, Chief Executive Officer, and Matt Ellis Excels Chief Financial Officer. Please.
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 relating to COVID-19, and its very strange.
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.
A reconciliation 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 Ed.
Derrick and good afternoon, everyone. Thank you for joining us for Xl's fourth quarter and 2022 full year earnings call I'm pleased to report we had another strong quarter and a record $1 22 results for the fourth quarter, we reported record revenue of $278 million a year over year increase.
A 45% and adjusted EBITDA of $43 million, a year over year increase of 30%.
Q4 revenue growth was primarily driven by the successful acquisition of century as well as our growth in Illinois, where we added 52 locations and saw same store sales grew 6%.
Despite the current inflationary environment, our performance continues to demonstrate the strength and resilience of our business model, we believe and our results demonstrate that players continue to seek out our hyper local high quality offering due to its convenience and appeal or.
Our business partners continue to see the benefits of gaming isn't their establishment and we believe they will continue to invest in gaming.
Incremental profits they receive.
On the expense side, we are continuing to adjust to the new normal where we saw inflation and other macroeconomic factors increase many of our large expenses such as labor parts and fuel.
We have and will continue to invest in new technologies to streamline our operations, while always maintaining our reputation for the best in class service.
Our asset light business model and highly variable cost structure allows us to quickly calibrate our business to the current environment.
Turning to century, the integration is going well and we're starting to align on best practices, we have already utilized century's technology capabilities, and our developing markets, which helped us create a differentiated premium offering. We also acquired the Montana slot route progressive in December with 20 <unk>.
Fixed location based in Kalispell.
Overall, we're pleased with the progress we've made but remain focused on continuing to grow organically and inorganically in.
In our developing markets, we continue to invest and remain optimistic about their long term potential.
In Georgia, we've installed prepaid value car technology and more than half of our establishment and early results indicate a noticeable increase in performance as a reminder, in may of 'twenty to 'twenty, two the Georgia Lottery announced it would be expanding its gift card pilot program Mike.
Making it available to all locations. This program allows players to load their winnings onto a prepaid value card, which substantially reduces one of the biggest barriers players space in the Georgia market.
In Nebraska, we're bringing our best practices in the market by working with our location partners to redesign their gaming areas with newer equipment to help attract new players.
Focus in both markets is to grow our backlog and bring new locations live it's important to remember that current performance in both Georgia, and Nebraska is far lower than our mature markets. So will take significant time for today's investments to be fully realized.
On the M&A front, our pipeline remains active and we are evaluating multiple opportunities across the country. Our long term goal is to continue to increase the percentage of our revenue generated outside of Illinois.
Overall <unk> continues to execute its growth playbook, we remain excited about the opportunities in the markets, where we currently operate as well as new markets. We're looking to enter our local business model low capital requirements and highly visible growth offers one of the best returns and gave me with that I'd like to turn it.
It over to Matt Who'll walk you through the numbers in more detail.
Thanks, Andy and good afternoon, everyone for the fourth quarter, we had total revenue of $278 million a year over year increase of 45% and adjusted EBITDA of $43 million a year over year increase of 30%.
For the full year, we set a new external record with total revenue of $970 million and adjusted EBITDA of $162 million year over year increases of 32% and 16% respectively.
I'd like to remind everyone that century has been included in our results since June 1st and century operates in markets, where the revenue split between century and the location is negotiated.
The margins are attractive, but far lower than our existing business for the fourth quarter, Illinois same store sales increased 6% year over year and for the full year, Illinois same store sales increased 3% year over year confirming demand for our offering remains strong.
Capex for the fourth quarter was 14 million cash spend in Capex for the full year was $47 million cashback.
The increase is due to our investments in our developing markets such as Nebraska in Georgia, We continue to see upside in both of these markets and we're excited by the recent growth.
However, it's important to realize today's investments may not be fully realized for several years to come.
As of December 31st we had 23150 terminals and 3598 locations year over year increases of 70% and 39% respectively.
Location attrition continues to remain low and in line with our historical averages.
At the end of the fourth quarter, we had approximately $318 million of net debt and $553 million of liquidity consisting of $224 million of cash on our balance sheet and $329 million of availability on our credit facility.
I would now like to provide an update on our efforts to return capital to shareholders, specifically our share repurchase program.
You're all aware, we announced the $200 million share repurchase program in November of 2021, as we find the opportunity to return capital to shareholders in the form of buybacks as an attractive use of our strong free cash flow.
During the quarter, we purchased $17 million of <unk> stock at an average purchase price of $8 70 a share.
Since the program started we've repurchased $88 million of excel stock through the end of 2022, given a relatively under levered balance sheet and strong free cash flow. We are in a position to continue investing in our new markets, while appropriately returning capital to shareholders.
This time, we are not issuing guidance due to the near term macroeconomic uncertainty, but I'm pleased to share the strong tailwind from the end of last year have continued through the start of 2023.
As we get more visibility will aim to provide an update in the future with that I'd like to turn it back over to Andy. Thanks, Matt. We're pleased with another strong year and remain focused on executing our growth strategy by leveraging the strong foundation, we have built in our proven playbook, we're confident our locally focused business model.
As a platform.
So for them in difficult times and thrived under normal circumstances, we will now take your questions.
If you'd like to ask a question. Please dial star followed by one on your telephone keypad. If for any reason you would like to remove that question. Please press star followed by two again to ask a question press Star one.
As a reminder, if you're using a speaker phone. Please remember you do pick up your handset before asking your question. We will talk to you briefly as questions registered.
The first question is from the line of Omer Sander with Jpmorgan. Your line is now open.
Hey, Andy Matt Thanks for taking my questions, Matt on that last point and hoping you can talk a bit about the moving pieces for this year I know, there's no formal guidance out there, but how are you thinking about maybe the balance of the Illinois licenses issued additional tuck in M&A opportunities looks like you had a nice threat machine operator acquisition in Montana in the quarter any.
Improvement in yield as you go through the century portfolio, and then anything else that might be missing as well.
Thanks, Elmer Yeah, So let me break it down and we'll start with Illinois, but again strong.
Strong start to the year everyone saw the January data again, if these trends are going to continue we should have a nice up here you know well annualized century, and then continue to build from that.
We're seeing good licensing coming out of the Illinois Gaming Board. So we're pleased with that and we will continue to bring on those locations. So nice looking trends in Illinois.
On the century front again, we're continuing to find opportunities that you're not going to see massive movement. There just because of the way those markets operate but we'll continue to look to improve.
And then on M&A you know progressive is a great example, but we always look to execute these and I think you've seen we do do these pretty frequently all things considered so.
We see kind of upside across the board here, it's just a little early in the year with everything going on you know our expenses are pretty well known.
But it felt a little early to issue that guide just given sort of the macro economic situation, but strong start to the year.
We're seeing great play heading into sort of our high season.
Yeah.
Awesome. Thanks, Matt that's helpful. And then maybe maybe if I can just dig into century, but more based on my math. It seems like you're also seeing an improvement in yields there is that just seasonality I know, we don't necessarily have a full a sort of a year's worth of data are you seeing also the benefit of a newer better or higher yielding machines there too.
So we're gonna go with yes, and yes. We are there is some seasonality to that market just like ours, but like we said it's.
It's a complex integration, but it's going well we are sharing practices and we will look to have each site performed better.
Okay.
So much.
Of course.
Thank you for your question.
The next question is from the line of Steve does L O with Deutsche Bank. Your line is now open.
Hey, Matt and Andy Thanks for taking our questions first.
First of all second half margins with century in the portfolio around 15, 5%.
Is that a good way to think about margins moving forward.
Okay.
I think so Steve I mean again, we see some upside.
Remember, our developing markets as they grow they will sort of leave that emerging market status and enter the P&L, but overall, yes again, you know Andy sort of touched on it but we are investing technologies, we want to use our people smarter and we're going to continue to look for ways to try to drive that margin up.
That's not something that we can snap our fingers and do it takes time and maneuvering, but it's a good starting point yes.
Okay.
Okay. Thanks, and then just a follow up on Illinois locations I think 65 for the year closer to 100 ex the removal for the 72 hour rule.
Which is a little lower than years past, how should we think about kind of Illinois location growth moving forward.
Okay.
This is Andy.
The as.
As we look at it there will always be closures of businesses that have failed and new people go into those locations I think that we will get a disproportionate.
Amount of those locations as far as going to us on those new owners.
We also see.
Less growth in kind of new inventory in the market and where we get it we get a significant share of that I don't think the overall pool of new businesses opening that haven't been opened previously will be increasing.
So we're projecting.
Good numbers and as we look forward, but not with the strength that we've seen in the past.
Yeah.
Okay.
Okay I appreciate it thanks guys.
Yeah.
Of course, thank you for your question.
The next question is from the line of Chad Beynon with Macquarie. Your line is now open.
Afternoon. Thanks for taking my question guys.
Matt I know you said that margins in the back half of 'twenty. Two is kind of a good place to start with going forward, but I was wondering if you could talk a little bit more about some of the inflationary items that you guys had touched on in 'twenty. Two I guess, mainly labor just given the the state of the economy I'm assuming that fuel has.
Come down, but just wanted to focus on labor inflation. Thanks.
Okay.
Yeah sure. Thanks for the question Chad I think the back half of 'twenty to again sort of reflects the it's a good run rate for all of the labor changes, we have seen them again, where we're managing a multiple ways. We're looking to be smarter with technology, we're looking at ways, where hey, when we look at accounts, how do we want it to.
Our labor you know we want to focus on our customers that are focused on gaming with us at the expensive maybe someone where gaming is a smaller part of their business.
I think that being said all of the impacts you saw you know we adjusted our Labor force, we adjusted to it and that was fully captured in the back half of the year. So a lot of that wage inflation that you're seeing.
It is kind of fully recognized in that period, it's not partially recognize just sort of the way our performance reviews working again.
It is our biggest sports our employees are one of our most valuable assets. They're context. So we want to be very conscious of this but we do see room to be very smart with our workforce deploy it appropriately.
But I think bottom line the back half of 'twenty to capture sort of that new normal that Andy referenced.
Okay, great. Thank you and then in terms of potential new legislation can you just kind of talk about.
Any particular states that you have your eye on if the investor or if the legislative education process has continued I know theres a number of different bills related to gaming that have been introduced but wondering if there's anything specific to distributed that could provide for an opportunity.
In 23 or beyond.
Okay.
Yeah. The the current yet Ms Andi think the current environment.
And some of the states that we've been monitoring such as Pennsylvania, Virginia, Missouri North Carolina.
Hasn't been that favorable.
Missouri, we saw it recently get stuck.
Yeah.
Pennsylvania is and kind of kind of a permanent a hold.
Virginia, there's some challenges that need to be overcome related too.
The casinos that are coming online and the governor's kind of priorities and then as we look at.
The North Carolina market.
It's there's a lot to be negotiated.
That's the only one that we would that we think is really still have.
Momentum in this.
This session.
And so what would be the.
Outcome is highly uncertain and.
Not necessarily are we optimistic it's the only one that's that's kind of still on the table.
As we look forward into the future years, it will always be considered.
But it's difficult legislation to pass and as we've seen no meaningful legislation has been passed in the last 14 years. So our business model is not.
Predicated on the success of legislation. It's we were focused on growing our existing markets entering into legacy markets and finding opportunities that are unique.
And the gaming industry.
Thanks, Andy Thanks, Matt appreciate it.
Yeah.
Okay.
Thank you George Thank you for your question.
There are currently no further questions registered so as a reminder, its star one on your telephone keypad.
There are no additional questions waiting at this time, so I'll pass the conference back to Andy Roommates Kneen for any closing remarks.
Yeah, just wanted to thank everyone for joining us today, we've had a.
Nice start to the year and we look forward to talking to you.
Sometime in the next few months and are again, everyone be safe and we look forward to talking to you again. Thanks.
That concludes the conference call. Thank you for your participation you may now disconnect your lines.