Q3 2024 Accel Entertainment Inc Earnings Call
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Good afternoon and thank you for standing by. The conference call will be shortly. Again, the conference call will be shortly. Thank you for your patience.
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Good afternoon and thank you for joining the Excel Entertainment Q3 2024 earnings call. My name is Kate and I will be the moderator for today's call.
At this time, all lines are an adolescent only mode and will be until the question and answer portion of the call. If you would like to cue up for a question you may do so by pressing star, followed by a one on your telephone keypad.
I would now like to turn the call over to Derek Harmer, General Council and Chief Compliance Officer. Derek, you may proceed. Welcome to the Channel Entertainment's third quarter of 2024 earnings call.
Participating on the call today are Andy Rubenstein, Excel's executive officer, Matt Ellis, Excel's chief financial officer, and Mark Phelan, Excel's president of U.S. gaming.
Please report to our website for the press release and supplemental information that will be discussed on this call. Today's call is be 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 board-looking statements within the meaning of the private securities reform act of 1995. These board-looking statements are subject to risks and uncertainties.
After results made different materialies from those discussed today, and the company undertakes no obligation to update these statements unless required by law.
for more detailed discussion of these and other risk factors investors should review the forward-looking statement section of the earnings press release available on our website as well as other risk factor disclosures in our findings with the SEC.
Any projected financial information presented in this call is for a illustrative purpose as only and should not be relied upon as being predictive of future results.
The inclusion of any financial forecast information in this call should not be regarded as a representation by any person that the results reflected in such forecasts will be achieved.
During the call, we made the stunt certain non-gap financial measures.
Corrections of the non-gap 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.
and Good afternoon everyone. Thank you for joining us for Excel's third quarter earnings call.
We had another strong quarter. We reported revenue of $32 million and it justed even up $46 million.
Proof of the resiliency of our convenient local gaming offering. Secondly, we made solid progress in our pending acquisition of Fairmont Park, which is expected to close this quarter.
In terms of financial performance, our largest market, Illinois, posted market-wide GGR growth of 5% year-over-year, our performing Illinois Casinos, which were down 1% year-over-year on a comparable basis.
We are proud of the strong foundation we have built in our home state, leading in a model that's a win, win, win for our state, our customers and local convenience-based gaming providers like us.
We continue to optimize our largest state-based Ralph Woodburn managing head count and broader operational excellence to more than offset the modest drag from recent facts and creases.
During the quarter, our location count was down and up at succulentsally. In Illinois, this was due to two factors. First, the strategic closers of 2200 performing locations.
and second, some openings were delayed by the cancellation of the July Illinois Gaming Board meeting.
The subsequent IGB meeting was in September and not all locations were live by month and by the middle of October the remaining licensed locations were live.
Regarding our strategic closures in Illinois, we continue to review our portfolio and look for opportunities to prove.
We have identified a subset of our locations within our bottom-style performers that we will face out over coming quarters.
Even we also have an attractive pipeline of planned openings at promising locations. We expect near-term, the little-a-net unit growth to be flattest, with some potential positive impact, and even a, and returns an invested capital as we rotate locations.
A class art footprint, we continue to refine our sales in operating model, focusing on the highest whole-grade locations.
This improvement in the composition of our portfolio will help both top line and bottom line, driven by suicidal segmentation and resource allocation.
In Nebraska, we're encouraged that strong revenue growth during the quarter was driven by whole per day. We are seeing fruits of our strategic products shifts, swapping in higher performing games and removing lower performing revenue share units.
We see more one way to do this across our fastest growing market.
On the regulatory front, we're going to continue to lay the groundwork for ticketing ticket out, also known as Tito, which would make cash processing more efficient and more importantly, create a more convenient experience for our players.
A whileing them to switch between games and our venues without cash and hell and cashing in each time. Making our sights more akin to a casino experience.
We expect Pdo to be rolled out in the first half of 2025. We continue to monitor the regulation related to this.
Before I turn it over to Mark, I want to take a few minutes to talk about Excel's value proposition and where we see our greatest opportunities for growth.
For both our customers and players, we provide a high quality, slot gaming experience, and a low price point that can be accessed by our players at a local convenient retail location of their choosing, in 15 minutes or less.
We support retail gaming partners by providing them with high margin and revenue per square foot gaming products and self-service technology. We instead play a loyalty to our rewards programs and create memorable player experiences with our diverse game selection.
and finally, we maintain collaborative and reliable partnerships with regulators across 11 different regulatory structures. All, while generating attractive research on capital, in the low teams.
In our core, Rob Bays Business Model, our steady state growth algorithm is both simple and compelling.
We target low to no digit revenue growth.
Medley Senudin, David Eberegraus, five Senudin jet.
Free Castflow growth and core business cap-ax quickly compressing down towards 40 million dollars.
Looking ahead, the primary lovers for growth in our core, brought business are one, growing organically and allowing the brass and Georgia through both newly licensed establishments and converting container locations.
II, driving profitability in the Braskin Georgia, through operational execution and strategically position ourselves in the face of favorable legislation.
3. Collecting a greater center of location economics through selectively owning establishments in markets where this is permitted and is otherwise profitable.
and for preparing ourselves for future opportunities and new states likely to legalize local gaming in the future.
Outside of our core business are emanating pipeline remains active.
as demonstrated by the Phelmont announcement. We also expected to provide an update on Louisiana before you end.
We are confident that we can leverage our proven capabilities as a local gaming operator to convert opportunities in the attractive and sizable.
Nationwide $15 billion GGR local gaming market. Most assets in this market are unconsolidated and city-ebid levels that are below the radar of larger gaming companies, conditions that play to our strengths.
Speaker Change: As a prime example of these opportunities, I'm going to turn it over to Mark.
Mark: Thanks, Andy. We announced the acquisition of Firmont last quarter for approximately $35 million in Excel stock.
The acquisition includes a master's sports betting license with a long-term partnership with the Fandle, a race track, an off-track betting facility, as well as multiple opportunities across the state, and the ability to develop a best-in-class locally focused casino.
We also welcome Bill Starritz and Rob Vittali, both world class value creators as long-term investors in Excel.
Much of this transaction builds on the core capabilities and local gaming that we have honed over the last 15 years with the track to return on capital in free cash flow.
In September, we received transaction approval by the Illinois Racing Board. On October 24th, we received required approvals from the Illinois Gaming Board.
Speaker Change: With these approvals, we can move forward with closing ceremony which we expect to close in early December. We will provide an update.
Looking ahead, November 2nd is the final day of racing for the 2024 season. Subsequently, we will begin construction of the phase 1 facility with permits pulled and approved.
Speaker Change: We've also hired a general manager to oversee Casino Development and Operations and onboard an industry veteran to console on all aspects of horse racing.
Speaker Change: As a reminder, we expect to develop this project in two phases. Phase I will be built in the existing grandstand with approximately 250 slot machines, 4-6 electronic cable games, improved food and beverage amenities in a fandle branded sportsbook.
This will be done with relatively low capital intensity and is expected to open in second quarter 2025.
Speaker Change: For Phase 2, we'll erect a permanent casino on-site with detailed plans for 600-plus slot machines, 24-table games, improved food and beverage amenities, and a new larger fan-duel sports fund.
We are combining our local gaming expertise with key partnerships in areas outside our core business to create an exceptional customer offering.
and we are encouraged by the progress so far. Overall, phase one and phase two casino buildout plans remain on track and we will provide additional updates when the time comes. With that, I'll pass it over to Matt to go over the fundamentals of the quarter.
Thanks, Mark, and good afternoon, everyone. For the third quarter, we had total revenue of $302 million, a year over year, increase of 5.1%. And adjusted even a $46 million, a year over year, increase to 3.9%.
As of September 30th, we had 25,729 terminals in 4,4 team locations. You're over your increases of 4.1 and 2.8 percent respectively.
Revenue per location for the third quarter in our core states with us follows.
Speaker Change: Bill and O'ay was $839 per day and increase of 1.7% year over year. Montana was $613 per day and increase of 3.7% year over year.
Nevada was $82 per day, which was flat to the prior year, and Nebraska was $257 per day, and increases 16.8% year over year.
The increases in Illinois, Montana and Nebraska are really emphasized the strength and resilience of both our business model and more importantly, consumers are continue to choose our high quality local and convenient offering.
Capital expenditures for the third quarter were $17 million cash spend. As a reminder, the primary driver of our elevated capax was the introduction of four new high-performing gaming terminals at the same time in Illinois.
We view this year's and last year's elevated cap-axes one-time in nature. For 2024, we are projecting cap-axe across our court of be between $60 and $65 million. The decrease of more than 20% from last year.
Over the longer term, we expect CapEx to decrease even further towards $40 million as Andy highlighted earlier.
This will be an encouraging boost to capital returns and thus returns on capital.
Speaker Change: At the end of the third quarter, we had approximately $289 million in that debt and $538 million of liquidity, consisting of $265 million cash on our balance sheet and $273 million of availability on our credit facility.
Speaker Change: On our Capital Education Strategy, we continue to make progress on our $200 million share repurchase program.
Speaker Change: During the quarter, we repurchased $585,000 in an average purchase price of $10.52 cents a share for a total of $6 million.
We are 70% of the way through the Repurchase Program with 13.5 million shares repurchased at a cost of 140 million dollars.
Speaker Change: with our strong balance sheet and low leverage, we are at a unique position where we can grow our business and return capital to shareholders.
Speaker Change: with that I'd like to turn it back over to Andy.
Thanks, Matt. As I mentioned earlier, we are very pleased with our strong performances quarter and excited for what the future holds with Phelan Park.
Speaker Change: For the immediate term, we will be focused on executing our growth algorithm with improving cash flow and returns and closing the Ferma acquisition.
Long-term, we look forward to capitalizing and the significant growth opportunities ahead of us as an aligned and incentivized Excel team.
Accelerate Main Strong is evidenced by our third quarter results in our healthy balance sheet. Enabling us to pursue a multi-prong approach to capital return, making us a compelling investment.
The local gaming is an attractive growing niche within the broader gaming market, with multiple opportunities to generate strong and consistent revenue and EBITDA growth, as well as strong free cash flow and return time capital. We will now take your questions.
We will now be in the question and answer portion of the call. If you would like to ask a question, you may do so by pressing star, followed by a one. When you tell a phone keep at, if for any reason you would like to remove your question, you may do so by pressing star, followed by a two.
Speaker Change: As a reminder, if you were using a speaker phone, please remember to pick up your hands up before asking your question. Again, to ask a question, it is star followed by a one on your telephone keypad.
Speaker Change: The first question will come from the line of Steve Pizzela with Deutsche Bank? Steve, your line is now open.
Speaker Change: [inaudible]
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So it's not a question of now as the time. It's something that we're constantly evaluating. Recently, we've caught in the last.
Year, we've seen the continuation of inflation in wages in a lot of the costs of good sold or assets that we deploy. But most recently, the biggest
Hitt to was the tax site.
Speaker Change: We had in the last legislative session.
The state took an additional 1% tax on the industry, having us and having...
Speaker Change: the establishment owners. And many of the situations, it pushed us into a lower profit margin than we'd like to be. And we have...
We acted to that by taking a closer look at those locations and whether we could make adjustments in our cross-run, and when we couldn't get it back to the...
The level that we see fit, we have had to make the difficult decisions to redeploy our equipment either.
In other locations or to bring to exit the actual location.
Okay, that's helpful, thank you. And then just one of the follow-up on Sermon if we could. Do you have any updated thoughts on the projections for the acquisition at all? And can you just remind us exactly what you get on the sports betting side and somebody economics of those arrangements?
and then also if it will notice was to ever legalize I could see how would you think about this in the context of potential having potentially having a leverage to an I could see no product but also the potential will impact on the route gaining business.
Okay, thanks Steve. I'm going to have Mark Phelan who's leaving the project for us answer.
All of our construction cards
Speaker Change: So far in line with what we've projected back in July, which is all public.
I think we said ultimately the project would be a 20 to 25 million already without project.
Speaker Change: and we still feel really comfortable about that over the next couple of years.
Speaker Change: In terms of the deal with Fandle, it's confidential, I can just say it's a very...
and favorable relationship for both Phelmont and Fandle. And it's a contract extends for a significant period of time, well beyond sort of the next couple years, and we're excited to be partners with them.
Okay, appreciate it, thanks guys.
Thank you. See you next question. We'll come from the line of Chad Bainon with Macquarie. Chad, your line is now open.
Hi guys, this is Sam on for chat. Thanks for taking our question. We wanted to ask about M&A activity. Any new opportunities that you guys are seeing in the sub 25 million dollar EBITDA level? Obviously, there's a lot of runway as you mentioned in your opening remarks.
So maybe also getting a better idea of what are some of the biggest hurdles that you currently see in the market that you need to overcome with potential targets in order to come to terms.
Speaker Change: Any color would be helpful.
Thanks for having me, Sandy.
Speaker Change: We're with Glee Singh.
A fair amount of inventory to the market, there's some that are actively being marketed as well as a couple kind of private conversations.
Speaker Change: The bed-ask is...
is a different, is narrowing and I think a lot of it is due to the fact that some of the sellers have recognized the value of a partnership with Excel and I think.
that will just similar to what Mark that reference in our prepared statements.
There are people like Bill Sturitz that recognize Excel as a great partner and one that can get them high returns on their investment and...
Speaker Change: In a lot of these situations, the seller has either decided to partner with Excel and participate going forward, or recognizes Excel the ability to create additional value.
I think you'll see in the next 12 to 18 months.
Speaker Change: Moore of these types of opportunities, very local, a lot of them can be small business owners that identify themselves as a very good partner.
Speaker Change: Thanks for the color and then as a follow up, I want to ask about any potential state legislation that you will be tracking closely into next year.
and whether this upcoming election, if you're potentially having impact on this state legislation, you know, legislators shuffle around, et cetera.
Hey Chad, this is Mark.
Officer Sam: Officer Sam.
We track the couple of the higher sort of probability states or Pennsylvania, Virginia, North Carolina, Missouri.
In particular, we'll focus on North Carolina as they have a real need to raise revenues for a variety of reasons.
and they have a long history of creating gaming. In terms of the election coming up, certainly states with dominant political positions that might be at risk.
Our good candidates for potential legislation if results tend to take away those dominant political positions. And we have a couple of states like that and we're watching them very closely.
Speaker Change: Thanks for watching, I'll drop back in the queue.
Thank you.
Speaker Change: As a reminder, if you would like to ask a question, it is star followed by a one on your telephone keypacks. The next question will come from the line of Greg Gibbis with Northland Capital Markets. Greg, your line is now open.
Faith, they should have in the questions, Andy, Matt and Mark. You know, one of the follow-up on the location closures, and you may be spoke to this, but what was the estimated impact to the businesses profitability as a result of that?
Hey, Travis, that's a good question. You know, when you think about our base and the denominator, here, uh...
To see the impact on 22 locations is pretty minimal. I think it would be sort of mentioned this is always happening with some of the recent changes we might accelerate. Some of these closures, so as we talked about before, I mean, this is part of our overall growth again that.
sort of mid-single-digity bitter growth, low-single-digit revenue, higher-free cash flow. But, too, when you think about such a small number, it's going to have a minimal impact on those metrics. But I think overall it'll be important to achieve that goal about growth that we talked about.
Yep, got it, that's fair.
and a couple questions relating to, I guess, the Coriola and I mark it, you know, you pointed out, it looks like the scene I was being down 1% year over year versus year growth.
Other than the probably, I could be attributed to the different business model.
Point or what do you point to in terms of the outperformance there? Are there any other factors maybe besides that and then you know separately within Illinois Pito how do you kind of expect ticket in to get out to impact the business?
Speaker Change: Hello.
Zanny, um, text correct. V.
The product that we put out in the marketplace tends to be...
A level of level, a lot of our competitors in terms of we fresh.
What we have.
in our establishments with the latest.
Speaker Change: Aquednaid.
We have very similar games to what they see in the casino.
Speaker Change: and...
The fact that our product is very local, they don't have to make.
A big evening to go to the casino, and on one given machine they get the equivalent of 10 to 15 slot machines because of the multi-game offering.
Speaker Change: We were seeing more and more.
Speaker Change: of a customer selection to play in their local, their tavern, convenience store.
as opposed to making the trip to the regional casino.
I think none of this.
Environment is such that it benefits us. We still have strength in the consumer, but they're being a little more prudent.
and we look forward to providing a quality offering to them both in times of...
Speaker Change: with the economies and flux to when it's.
Edith speak and even when you're challenges, people choose the quality offering that we provide. Looking at things such as Tito,
I think that won't provide a lift. The question is how much?
So we're looking forward to that for some time in the second quarter next year and now I think we'll almost.
will provide some growth in the industry because of the convenience and the ability to have a better experience.
Makes sense. Appreciate the color.
Speaker Change: Thank you.
At the time, there are no further questions registered in the queue. As a final call for questions, if you would like to queue up, you may do so by pressing star followed by a one on your telephone keypad. We will pause here briefly to allow any remaining questions to be registered.
We do not have any further questions in the queue, so I will turn the call back over to Andy Rubenstein.
It's one of thank everybody for joining us.
Speaker Change: We wish you guys an early happy holidays.
Starting tomorrow with Halloween, and we look forward to rejoining you in the new year with some positive results for the year. And a lot of exciting news for 2025.
Thank you.
That concludes today's call. Thank you all for your participation and you may now disconnect your lines.
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Speaker Change: [inaudible]