Q4 2023 Accel Entertainment Inc Earnings Call

February 28, 2024

Paired remarks, my management team with an opportunity for questions and answers at the end.

Okay.

If you'd like to ask a question. Please press star one on your telephone keypad.

Okay.

I would now like to pass the conference over to our host Derek Harmer.

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Okay.

Welcome to Accel Entertainment's fourth quarter and year ended 2023 earnings call.

[music].

Participating on the call today are Andy Rubenstein, <unk>, Chief Executive Officer, and Matt Ellis <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.

Ladies and gentlemen, please remain holding your conference call will begin shortly.

Again, please remain holding your conference call will begin shortly.

[music].

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 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 factors disclosures and our filings with the SEC.

During the call we may discuss certain non-GAAP financial measures for a reconciliation of the non-GAAP financial 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'll now turn the call over to Andy Thanks, Derrick and good afternoon, everyone. Thank you for joining us for <unk> fourth quarter, and 2023 earnings call and.

I am pleased to report we had another record setting year with total revenue of $1 2 billion and adjusted EBITDA of $181 million.

Year over year increases of 21% and 12% respectively.

For the quarter, we reported revenue of $297 million and adjusted EBITDA of $45 million year over year increases of 7% and 3% respectively.

Revenue growth throughout 2023 was driven by the century acquisition.

Adding new locations.

And 3% same store sales growth in the Illinois.

We also saw growth in our developing markets, where we continue to add locations attract new players and improve our offering with better equipment.

Our continued growth demonstrates the strength of our local business model our location partners recognize the value we provide and rely on the incremental revenues are high quality offering brings to their businesses on the expense side. Our cost structure continues to remain in line with our expectations. Despite the inflationary impacts on <unk>.

Hello, everyone.

Thank you for attending today's lifestyle Entertainment Q4, and 2023 earnings call.

My name is Sierra and I will be your moderator today.

All lines will be muted during the prepared remarks of our management team with an opportunity for questions and answers at the end.

<unk> and other expenses such as parts.

Our asset light business model and highly variable cost structure allows us to quickly calibrate our business to any changes in the economy.

If you'd 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.

Looking at future growth, our pipeline remains more active than ever as we evaluate multiple opportunities across the country. We are working hard to get the right opportunities across the finish line and look forward to sharing them with you in the near future.

Welcome to Accel Entertainment's fourth quarter and year ended 2023 earnings call.

Participating on the call today are Andy Rubenstein, <unk>, Chief Executive Officer, and Matt Ellis Excels Chief Financial Officer.

We are also optimistic about the opportunities in the markets, where we currently operate our strong balance sheet locally focused business model and consistent growth offers one of the best returns in gaming with that I'd like to turn it over to Matt to walk you through our financials in more detail. Thanks, Andy and good afternoon, everyone.

Please refer to our website for the press release and supplemental information there'll 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.

For the fourth quarter, we had total revenue of $297 million a year over year increase of 7% and adjusted EBITDA of $45 million a year over year increase of 3%.

Actual results may differ materially from those discussed today and the company undertakes no obligation to update these statements unless required by law for.

For the year, we set a new <unk> record with total revenue of $1 2 billion and adjusted EBITDA of $181 million year over year increases of 21% and 12% respectively.

For 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.

As a reminder century has been included in our results since June one 2022 and century operates in markets, where the revenue split between century and the location is negotiated the.

During the call we may discuss certain non-GAAP financial measures for reconciliations of the non-GAAP financial 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.

The margins are attractive, but far lower than our other markets.

Capex for the fourth quarter was $22 million cash spend and capex for the year was $82 million cash spend the.

I'll now turn the call over to Andy Thanks, Derrick and good afternoon, everyone. Thank you for joining us for <unk> fourth quarter and 2023 earnings call.

The year over year increase was due to several factors.

First we accelerated purchases of a redemption terminals to protect against supply chain disruptions.

I am pleased to report we had another record setting year with total revenue of $1 2 billion and adjusted EBITDA of $181 million.

For new high performing gaming terminals were introduced in Illinois at the same time in.

In the past, we would normally see one high performing cabinet released every 12 to 18 months.

Year over year increases of 21% and 12% respectively.

Lastly, we continue to invest in our developing markets such as Nebraska in Georgia.

For the quarter, we reported revenue of $297 million and adjusted EBITDA of $45 million year over year increases of 7% and 3% respectively.

Based on everything I, just mentioned, we view a portion of 2020 threes capex as onetime in nature, and we are projecting capex in 2024 to be between 55 and $65 million.

Revenue growth throughout 2023 was driven by the century acquisition.

A decrease of more than 20%.

Over the longer term, we expect capex to decrease even further.

Adding new locations.

And 3% same store sales growth in Illinois.

As of December 31, we had 25 83 terminals and 3961 locations year over year increases of 7% and 6% respectively.

We also saw growth in our developing markets, where we continue to add locations attract new players and improve our offering with better equipment.

Excluding Nebraska terminals in locations increased year over year by 5% and 3% respectively.

Location attrition continues to remain low and is mostly attributable to our lowest performing locations closing their doors.

At the end of the fourth quarter, we had approximately $281 million of net debt and $566 million of liquidity consisting of $262 million of cash on our balance sheet and $304 million of availability on our current credit facility.

On labor and other expenses such as parts.

Our asset light business model and highly variable cost structure allows us to quickly calibrate our business to any changes in the economy.

I would now like to provide an update on our capital allocation strategy.

We continue to make progress on our $200 million share repurchase program.

During the quarter, we repurchased one 4 million shares at an average purchase price of $10 31 per share.

We are also optimistic about the opportunities in the markets, where we currently operate our strong balance sheet.

Locally focused business model and consistent growth offers one of the best returns in gaming with that I'd like to turn it over to Matt to walk you through our financials in more detail. Thanks, Andy and good afternoon, everyone.

We are almost 60% through the repurchase program with more than 11 million shares repurchased at a cost of $118 million.

With our strong balance sheet and low leverage we are in a unique position, where we can grow our business and return capital to shareholders.

For the fourth quarter, we had total revenue of $297 million a year over year increase of 7% and adjusted EBITDA of $45 million a year over year increase of 3%.

Similar to prior quarters, we are not issuing guidance due to the near term macroeconomic uncertainty.

With that I'd like to turn it back over to Andy.

For the year, we set a new <unk> record with total revenue of $1 2 billion and adjusted EBITDA of $181 million year over year increases of 21% and 12% respectively.

Thanks, Matt.

We're pleased with another strong year and remain focused on executing our growth strategy to create value for our investors. We're confident that our turnkey full service local gaming solutions provide a platform to continue to produce strong and consistent results are.

As a reminder century has been included in our results since June one 2022 and century operates in markets, where the revenue split between century and the location is negotiated the.

Our focus is to provide unmatched customer support guidance and expertise so our location partners to grow their businesses, we will now take your questions.

The margins are attractive, but far lower than our other markets.

Capex for the fourth quarter was $22 million cash spend and capex for the year was $82 million cash spend the.

Okay.

We will now begin the Q&A session.

If you'd like to ask a question. Please press star followed by one on your telephone keypad.

The year over year increase was due to several factors.

First we accelerated purchases of a redemption terminals to protect against supply chain disruptions.

To remove your question press Star followed by Tim.

And if you are using a speakerphone. Please pick up your handset before asking your question.

For new high performing gaming terminals were introduced in Illinois at the same time in.

Our first question today comes from Steve <unk> with Deutsche Bank.

In the past, we would normally see one high performing cabinet released every 12 to 18 months.

Please proceed.

Hey, good evening, Matt and Andy Thanks for taking our questions.

Lastly, we continue to invest in our developing markets such as Nebraska in Georgia.

Wanted to focus on Illinois location growth first if we could flex link up a little bit over 4% versus the market up about 3% for Illinois and <unk>.

Based on everything I, just mentioned, we view a portion of 2020 threes capex as onetime in nature, and we are projecting capex in 2024 to be between 55 and $65 million.

<unk>, you're gaining some share can you just talk about what is driving that.

A decrease of more than 20%.

Are these new locations are these conversions.

Over the longer term, we expect capex to decrease even further.

And how does your current pipeline look.

As of December 31, we had 25083 terminals and 3961 locations year over year increases of 7% and 6% respectively.

Thanks, Steve.

So as we look at it our we've always had a very strong sales effort.

We see that a lot of new business owners.

Excluding Nebraska terminals in locations increased year over year by 5% and 3% respectively.

<unk> itself as a as their partner.

And what we're seeing more and more of is the competitors' locations are recognizing that <unk> has a preferred offering and as a preferred business partner. So we're seeing both of that.

Location attrition continues to remain low and is mostly attributable to our lowest performing locations closing their doors.

Help.

<unk> grow our current base.

<unk>.

The.

We're always looking at our portfolio. So we are constantly paring down the bottom of our portfolio where locations are profitable.

I would now like to provide an update on our capital allocation strategy.

As we continue to grow I think youll see more and more.

We continue to make progress on our $200 million share repurchase program.

Established with owners choosing to excel as they have through the last 12 years.

During the quarter, we repurchased one 4 million shares at an average purchase price of $10 31 per share.

Yeah.

We are almost 60% through the repurchase program with more than 11 million shares repurchased at a cost of $118 million.

Okay. Thank you.

And then I guess turning to margins.

Down modestly year over year and sequentially.

With our strong balance sheet and low leverage we are in a unique position, where we can grow our business and return capital to shareholders.

How should we think about the margins moving forward.

Into this year and I guess, what kind of topline growth do we need to see to get some margin expansion.

Similar to prior quarters, we are not issuing guidance due to the near term macroeconomic uncertainty.

Yes, so Steve Hey, it's Matt. Thanks for the question I think the first part of this obviously, you've adjusted for century and all of that.

With that I'd like to turn it back over to Andy.

Thanks, Matt.

What it really comes down to is sort of that balance of revenue growth versus labor and we've talked about it and I think the expense side of our business is really easy to forecast again labor seems to be in line and we're not seeing.

Our focus is to provide unmatched customer support guidance and expertise so our location partners to grow their businesses, we will now take your questions.

Sort of those crazy hikes, we saw nearly almost a year and a half ago, but there is still inflation out there in the labor market does remain a bit challenging.

The other side of it as a revenue and.

Okay.

We will now begin the Q&A session.

The beauty of our business is there is no concentration of revenue. There is no micro economic thing thats going to hit US hard the hard part is we don't have those forward leaning forward indicators early bookings or anything like that to predict so I think.

If you'd like to ask a question. Please press star followed by one on your telephone keypad.

To remove your question press Star followed by Tim.

And if you are using a speaker phone please pick up your handset before asking your question.

Again, we're coming into this year, some cautious, but if we get the growth like we've seen in the weather holds up and again, we depend on people sticking close to home and sticking to their routines.

Our first question today comes from Steve <unk> with Deutsche Bank.

Please proceed.

Yeah.

Hey, good evening, Matt and Andy Thanks for taking our questions.

We will get that revenue pop.

Wanted to focus on Illinois location growth first if we could flex link up a little bit over 4% versus the market up about 3% for Illinois and <unk>.

It's hard to give you an exact number but if we get to that upper single.

Mid to slightly below mid single digit revenue growth, you'll see that margin come back up but it's really just a balancing act right now.

<unk>, you're gaining some share can you just talk about what is driving that.

Overall, I'd say to.

So relatively we had some tough comps we had great weather last January and February but the year started out like we would expect.

Are these new locations are these conversions.

And how does your current pipeline look.

Okay.

But the old days of mid and upper single digit growth. There. So I think it'll be relatively flat, but we will.

Thanks, Steve.

So as we look at it our we've always had a very strong sales effort.

We will see how it turns out.

We see that a lot of <unk>.

New business owners.

Okay, great. Thank you.

Shoes itself as as their partner and what we're seeing more and more of is the competitors' locations are recognizing that <unk> has a preferred offering in as a preferred business partner. So we're seeing both of that.

Okay.

Our next question today comes from Chad Beynon with Macquarie.

Please proceed.

Hi.

And Andy and Matt Thanks for taking my question.

Wanted to ask about the M&A environment, and we've been talking about.

He helped grow our current base.

Potential rate.

Declines here for some time, obviously the rates came down a little bit and now there.

The.

We're always looking at our portfolio. So we are constantly paring down the bottom of our portfolio where locations are profitable.

They're kind of stubbornly at levels that are that are higher than we thought at this point in the year.

But when you talk to potential sellers.

As we continue to grow I think youll see more and more.

Is this still a potential catalyst or are they waiting for rates to come down are you guys waiting for rates to come down and could there still be.

Established with owners choosing to excel as they have through the last 12 years.

The opportunity in the next six to 12 months.

Okay.

We kind of get through the cyclical period to just add inorganically. Thanks.

Okay. Thank you.

And then I guess turning to margins.

Yes, Thanks, Greg.

Down modestly year over year and sequentially.

We look at it.

There is always opportunities and.

How should we think about the margin moving forward.

Into this year and I guess, what kind of topline growth do we need to see to get some margin expansion.

We've I think identify the few that we have.

Can you to work with and we'll see how that plays out over the next couple of quarters.

Yeah.

Yes, so Steve Hey, it's Matt. Thanks for the question I think the first part of this obviously, you've adjusted for century and all of that.

I think what has been a challenge.

Is a gap between the.

<unk>.

The buy in the cell and that where the seller expectation is still closer to what we saw in 19 and 20.

And the buyers have kind of adjusted to a different economic environment.

Do I see that gap closing.

A little bit.

But I don't think its going to close until.

You have some of the rates.

Kind of decline from the levels that they're at.

Or you see some of the pressure on some of these companies who are over Levered.

That they need to take action and so we believe we're well positioned as a buyer.

We have.

Low leverage we have great availability.

And I think what you'll end up seeing is that will <unk>.

We'll execute.

In the next 12 to 18 months on some opportunities that.

We will be.

Appropriately priced.

Thanks, Andy and Matt on the 80 plus million dollars of Capex.

23, So you mentioned that that's coming down at 24 quite significantly because it was a higher period and it doesn't sound like it was deferred capex. It sounds like it was it was capex to grow the business is there some type of return that we should assume on kind of the extraordinary capex.

And the year with some new terminal purchases are you seeing those returns absent some of the weather.

Is it bringing in new customer just any additional information in terms of the extra cash outflow and kind of how that can lead to growth. Thanks.

Sure. Thanks, Chad I think the place we see the biggest return as our developing markets great Examples Nebraska those investments there.

That market ramps. The primary catalysts. There now is increased demand as players in that market get used to the product and we see like the product again, the percentages are outrageous, but we're starting at low numbers, but.

That market has turned EBIT positive and we expect to see decent growth out of it again.

On the Illinois side, you can divide it into two sort of investments one is the investment in extending revenue, which while you don't get that growth you get that certainty and more revenue and consistent revenue the.

The other half you do get it where you are taking out a less desirable machine with a better machine and you are able to work with that owner to drive more traffic because they have a better offering so.

We are seeing those returns.

The biggest return again would be in the developing markets.

Illinois, when you have that.

I would say that it takes a little longer obviously, particularly at your best locations because the demand is there and it's more the players expect it rather than the demand at those locations change because new product comes but in both cases, we are happy with the returns we're seeing.

Great I appreciate it and nice quarter guys.

Thanks Chip.

Our next question comes from Greg give us with Northland.

Please proceed.

Great. Thank you I just wanted to clarify I think you said it.

Illinois Brookdale.

<unk> up 3% for the full year wondering if there were any differences in Q4 was that just about in line with that 30%.

So Q4 was a tad lower as you saw in the press release and again I think the biggest thing is to just look at the weather.

Again.

Yes.

Play is consistent right. It's these other things we can't control.

Ironically.

A nice mild weekend in the winter.

Can really move the needle and in.

In 'twenty, two we had good weather.

23 overall in this winter in the Midwest has been mild.

But I don't think theres anything to look at other than more just you look at the overall local gaming space and the demand is still there and a good way.

And we saw that again here, we had a few rough weekends in January but overall raw.

Revenues coming in like we expect again, it's a more modest growth in the old of mid single digits, but we're up a little and it's what we would expect to see in an environment like this which I think compared to overall sort of local gaming.

Our business is holding up very well.

Okay, Great and I just wanted to ask if anything.

Regarding our prospects in Nebraska, or Georgia, specifically, Nebraska like how should we is there anything changed I guess in terms of the prospects you're seeing there.

I think the range you are closer to 140 locations now versus $1 400, a year ago.

Think about that rate of growth or do you think like an acquisition makes sense to kind of accelerate your presence in the market just curious how youre thinking about growth within the bracket.

Yes, we're.

We're looking at acquisitions, all the time we.

We've seen a lot of growth recently organically.

It's pretty clear that.

Like we are the premium and preferred vendor.

And business partner to establishment, especially in Nebraska.

A large gap.

And I don't think.

That gap can be closed anytime soon so we're winning.

These new partners over and over again that I think.

The need.

Foreign acquisition isn't as great.

The other thing I will tell you is.

There are a couple of opportunities that we're evaluating and.

Wouldn't be surprised if.

By the end of the year.

One of them kind of decide hey, this is this.

This is my time and my partner.

Great. Thanks, I guess I have a quick follow up are.

Are you able to comment on maybe what market or markets that that would be in <unk>.

We were to see something before the end of the year.

I think.

It's hard to predict because the seller.

<unk>.

Maybe talking to us or may be engaged.

<unk>.

I think you'll see we'll probably do a couple of things outside of Illinois.

And.

Whether something happens that Illinois, or not really uncertain, but I think youll see some growth outside of Illinois is one of our focuses.

We've discussed.

Which market.

Uncertain right now, but I think you'll we'll definitely execute on that.

Okay. That's fair thank you.

Thank you all for your questions.

There are currently no questions registered so as a reminder, it is star one to ask a question.

We have no questions waiting at this time, so I'd like to pass the conference to Andy Rubenstein for closing remarks.

Thank you all for joining us today.

Like we said we had a very strong 2023 24 is definitely off to the rates.

<unk>.

And we're very optimistic that we will continue its growth trajectory.

And as I, just recently said that the opportunities outside of Illinois.

Are presenting themselves every day and the question is.

What we actually.

Execute on and and the performance that we'll be able to provide.

Whether it's on the latter part of.

24 or.

Youll see in 'twenty five so thank you again and look forward to.

To reconvene in about three months.

The need.

Thanks.

Foreign acquisition isn't as great.

That will conclude today's conference call.

The other thing I will tell you is.

You all for your participation you may now disconnect your line.

There are a couple of opportunities that we're evaluating and.

I wouldn't be surprised if.

By the end of the year.

One of them kind of decide hey, this is this.

This is my time and my partner.

Great. Thanks, I guess I had a quick follow up would just be are.

Are you able to comment on maybe what market or markets that that would be and if we were to see something before the end of the year.

Okay.

I think.

Yes.

It's hard to predict because the sellers.

<unk>.

Maybe talking to us or may be engaged.

I think you'll see we'll probably do a couple of things outside of Illinois.

And.

Whether something happens in Illinois are or not.

Really uncertain, but I think youll see some growth outside of Illinois is one of our focuses as we.

We've discussed.

Which market.

Uncertain right now, but I think you'll we'll definitely execute on that.

Okay. That's fair thank you.

Thank you all for your questions.

There are currently no questions registered so as a reminder, its star one to ask a question.

We have no questions waiting at this time, so I'd like to pass the conference to Andy Rubenstein for closing remarks.

Thank you all for joining us today.

Like we said we had a very strong 2023.

24 is definitely off to the rates.

<unk>.

And we're very optimistic that <unk> will continue its growth trajectory.

And as I, just recently said that the opportunities outside of Illinois.

Are presenting themselves every day and the question is.

What we actually are.

Execute on and and the performance that we'll be able to provide.

Whether it's on the latter part of.

24 or.

That you'll see in 'twenty five so thank you again and look forward to.

To reconvene in about three months.

Thanks.

That will conclude today's conference call.

You all for your participation you may now disconnect your line.

Thank you all for your participation you may now disconnect your line.

Q4 2023 Accel Entertainment Inc Earnings Call

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