Accel Entertainment Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 28, 2024

There are 7 speakers on the call.

Operator

Hello, everyone. Thank you for attending today's Xcel 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 from our management team with an opportunity for questions and answers at the end. I'd now like to pass the conference over to our host, Derek Harmer.

Speaker 1

Welcome to Xcel Entertainment's 4th quarter year ended 2023 earnings call. Participating on the call today are Andy Rubinstein, Xcel's Chief Executive Officer and Matt Ellis, Exel's 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.

Speaker 1

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 factor disclosures and our filings with the SEC. 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.

Speaker 1

I will now turn the call over to Andy.

Speaker 2

Thanks, Derek, and good afternoon, everyone. Thank you for joining us for Exel's 4th quarter and 2023 earnings call. I'm pleased to report we had another record setting year with total revenue of $1,200,000,000 and adjusted EBITDA of $181,000,000 year over year increases of 21% 12% respectively. For the quarter, we reported revenue of $297,000,000 and adjusted EBITDA of $45,000,000 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 Illinois.

Speaker 2

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 our 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 labor and other expenses such as parts. Our Asset Light business model and highly variable cost structure allow us to quickly calibrate our business to any changes in the economy.

Speaker 2

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. 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.

Speaker 3

Thanks, Andy, and good afternoon, everyone. For the Q4, we had total revenue of $297,000,000 a year over year increase of 7% and adjusted EBITDA of $45,000,000 a year over year increase of 3%. For the year, we set a new Excel record with total revenue of 1.2 $1,000,000,000 and adjusted EBITDA of $181,000,000 year over year increases of 21% and 12% respectively. As a reminder, Centuri has been included in our results since June 1, 2022 and Centuri operates in markets where the revenue split between Century and the location is negotiated. The margins are attractive, but far lower than our other markets.

Speaker 3

CapEx for the Q4 was $22,000,000 cash spend and CapEx for the year was $82,000,000 cash spend. The year over year increase was due to several factors. First, we accelerated purchases of our redemption terminals to protect against supply chain disruptions. 2nd, 4 new high performing gaming terminals were introduced in Illinois at the same time. In the past, we would normally see one high performing cabinet released every 12 to 18 months.

Speaker 3

Lastly, we continue to invest in our developing markets such as Nebraska and Georgia. Based on everything I just mentioned, we view a portion of 2023's CapEx as one time in nature and we are projecting CapEx in 2024 to be between $55,000,000 $65,000,000 a decrease of more than 20%. Over the longer term, we expect CapEx to decrease even further. As of December 31, we had 25,083 terminals in 3,961 locations, year over year increases of 7% and 6%, respectively. Excluding Nebraska, terminals and locations increased year over year by 5% and 3%, respectively.

Speaker 3

Location attrition continues to remain low and is mostly attributable to our lowest performing locations closing their doors. At the end of the Q4, we had approximately $281,000,000 of net debt $566,000,000 of liquidity, consisting of $262,000,000 of cash on our balance sheet and $304,000,000 of availability on our current credit facility. I would now like to provide an update on our capital allocation strategy. We continue to make progress on our $200,000,000 share repurchase program. During the quarter, we repurchased 1,400,000 shares at an average purchase price of $10.31 per share.

Speaker 3

We are almost 60% through the repurchase program with more than 11,000,000 shares repurchased at a cost of $118,000,000 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. 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.

Speaker 2

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

Operator

We will now begin the Q and A session. Our first question today comes from Steve Pizzella with Deutsche Bank. Please proceed.

Speaker 4

Hey, good evening, Matt and Andy. Thanks for taking our questions. I just wanted to focus on Illinois location growth first, if we could. Looks like up a little bit over 4% versus the market up about 3% for Illinois, implying you are gaining some share. Can you just talk about what is driving that?

Speaker 4

Are these new locations? Are these conversions? And how does your current pipeline look?

Speaker 2

Thanks, Steve. So as we look at it, we've always had a very strong sales effort. We see that a lot of new business owners choose Excel as their partner. And what we're seeing more and more of is the competitors' locations are recognizing that Accel has a preferred offering and is a preferred business partner. So we're seeing both of that help grow our current base.

Speaker 2

We're always looking at our portfolio. So we are constantly tearing down the bottom of our portfolio where locations are profitable. But as we continue to grow, I think you'll see more and more establishment owners choosing Excel as they have, through the last 12 years.

Speaker 4

Okay. Thank you. And then I guess turning to margins, down modestly year over year and sequentially. How should we think about the margin moving forward into this year? And I guess, what kind of top line growth do we need to see to get some margin expansion?

Speaker 3

Yes. So Steve, hey, it's Matt. Thanks for the question. I think the first part is obviously you've adjusted for Century and all of that. What it really comes down to is sort of that balance of revenue growth versus labor.

Speaker 3

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 sort of those crazy hikes we saw nearly almost a year and a half ago. But there's still inflation out there and the labor market does remain a bit challenging. The other side of it is our revenue. And the beauty of our business is there's no concentration of revenue.

Speaker 3

There's no microeconomic thing that's 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, again, we're coming into this year, some cautious, but if we get the growth like we've seen and the weather holds up and again, we depend on people sticking close to home and sticking to their routines, we'll get that revenue pop. It's hard to give you an exact number, but if we're get to that upper mid 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.

Speaker 3

Overall, I'd say it's a relatively we had some tough comps, we had great weather last January February, but the year started out like we'd expect, but the old days of mid and upper single digit growth aren't there. So I think it'll be relatively flat, but we will we'll see how it turns out.

Speaker 4

Okay, great. Thank you.

Operator

Our next question today comes from Chad Beynon with Macquarie. Please proceed.

Speaker 5

Hi. Afternoon, Andy and Matt. Thanks for taking my question. I wanted to ask about the M and A environment. We've been talking about the potential rate declines here for some time.

Speaker 5

Obviously, the rates came down a little bit and now they're kind of stubbornly at levels that are higher than we thought at this point in the year. But when you talk to potential sellers, is this still a potential catalyst? Are they waiting for rates to come down? Are you guys waiting for rates to come down? And could this still be an opportunity in the next 6 to 12 months as we kind of get through the cyclical period to just add inorganically?

Speaker 5

Thanks.

Speaker 2

Thanks, Greg. As we look at I mean, there's always opportunities. And we've, I think, identified a few that we have continued to work with and we'll see how that plays out over the next couple of quarters. But I think what has been a challenge is a gap between the buy and the sell and that where the seller expectation is still closer to what we saw in 2019 2020 and the buyers have kind of adjusted to a different economic environment. Do I see that gap closing?

Speaker 2

A little bit, but I don't think it's 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 we'll execute in the next 12 to 18 months on some opportunities that will be appropriately priced.

Speaker 5

Thanks, Andy. Matt, on the $80,000,000 plus of CapEx in 2023. So you mentioned that that's coming down in 2024 quite significantly because it was a higher period and it doesn't sound like it was deferred CapEx. It sounds like it was CapEx to grow the business. Is there some type of return that we should assume on kind of the extraordinary CapEx in the year with some new terminal purchases?

Speaker 5

Are you seeing those returns absent some of the weather? Is it bringing a new customer? Just any additional information in terms of the extra cash outflow and kind of how that can lead to growth? Thanks.

Speaker 3

Sure. Thanks, Chad. I think the place we see the biggest return is our developing markets. Great example is Nebraska. Those investments there, as that market ramps, the primary catalyst there now is increased demand as players in that market get used to the product and we see like the product.

Speaker 3

Again, the percentages are outrageous, but we're starting at low numbers, but that market has turned EBITDA positive and we expect to see decent growth out of it again. On the Illinois side, you can divide it into 2 sort of investments. 1 is the investment in extending revenue, which while you don't get that growth, you get that certainty in more revenue and consistent revenue. The other half, you do get it where you're 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.

Speaker 3

So we are seeing those returns. The biggest return again would be in the developing markets. In Illinois, when you have that, I would say that it takes a little longer, obviously, particularly at your best location 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.

Speaker 5

Great. Appreciate it. Nice quarter, guys.

Speaker 2

Thanks, Chad.

Operator

Our next question comes from Greg Gibas with Northland. Please proceed.

Speaker 6

Great. Thank you. Just wanted to clarify, I think you said Illinois same store sales, up 3% for the full year. Wondering if there were any differences in Q4, was that just about in line with that 3%?

Speaker 3

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, 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.

Speaker 3

And in 'twenty two, we had good weather, 2023 overall and this winter in the Midwest has been mild. But I don't think there's anything to look at other than more just you look at the overall local gaming space and the demand is still there, Greg, in a good way. And we saw that again here. We had a few rough weekends in January, but overall, revenues coming in like we expect. Again, it's a more modest growth than the old of mid single digits, but we're up a little and it's what we'd 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.

Speaker 6

Okay, great. And I just wanted to ask if anything regarding your prospects in Nebraska or Georgia, but specifically Nebraska, like how should we has anything changed, I guess, in terms of the prospects you're seeing there? And I think the rate you're close to 240 locations now versus 140 a year ago. Should we think about that rate of growth? Or do you think like an acquisition makes sense to kind of accelerate your presence in the market?

Speaker 6

Just curious how you're thinking about growth within Nebraska.

Speaker 2

Yes. Thanks, Greg. We're looking at acquisitions all the time. We've seen a lot of growth recently organically. It's pretty clear that like we are the premium preferred vendor and business partner to establishments, especially in Nebraska.

Speaker 2

I mean, there's a large gap. And I don't think that gap is going to be closed anytime soon. So we're winning these new partners over and over again. And I think the need for an acquisition isn't as great. The other thing I will tell you is, there are a couple opportunities that we're evaluating and I wouldn't be surprised if by the end of the year, one of them kind of decides, hey, this is my time and Exela is my partner.

Speaker 6

Great. Thanks. I guess a quick follow-up would just be, are you able to comment on maybe what market or markets that would be in, if we were to see something before the end of the year?

Speaker 2

I think it's hard to predict because the seller may be 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 or not, really uncertain. But I think you'll see some growth outside of Illinois. It's one of our focuses as we've discussed.

Speaker 2

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

Speaker 6

Okay, that's fair. Thank you.

Operator

Thank you all for your questions. There are currently no questions registered. We have no questions waiting at this time. So I'd like to pass the conference to Andy Rubinstein for closing remarks.

Speaker 2

Thank you all for joining us today. Like we said, we had a very strong 2023, 2024 is definitely off to the right start, and we're very optimistic that Xcel 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 the performance that we'll be able to provide, whether it's on the latter part of 2024 or that you'll see in 2025. So thank you again and look forward to reconvening in about 3 months.

Operator

Thanks. That will conclude today's conference call. Thank you all for your participation. May now disconnect your line.

Powered by Quartr
Earnings Conference Call
Accel Entertainment Q4 2023
00:00 / 00:00