Q1 2024 Accel Entertainment Inc Earnings Call

Participants

Derek Harmer; Chief Compliance Officer, General Counsel; Accel Entertainment Inc

Andrew Rubenstein; President, Chief Executive Officer, Director; Accel Entertainment Inc

Mathew Ellis; Chief Financial Officer; Accel Entertainment Inc

Chad Beynon; Analyst; Macquarie Capital (USA) Inc.

Steve Pizzella; Analyst; Deutsche Bank

Presentation

Operator

Everyone. Thank you for attending today's Accel Entertainment Q1 2024 earnings call. My name is Sarah, and I will be your moderator for today. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers. (Operator Instructions) I would like to pass the conference over to our host, Derek Harmon.

Derek Harmer

Welcome to Accel Entertainment's first quarter 2024 earnings call. Participating on the call today are Andy Rubenstein, Accel's Chief Executive Officer; and Matt Ellis, Accel'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. 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 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 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.

Andrew Rubenstein

Thanks, Derek, and good afternoon, everyone. Thank you for joining us from Accel's First Quarter Earnings Call. I'm pleased to report we once again had a strong quarter, we reported revenue of $302 million, a year-over-year increase of 2.9% and adjusted EBITDA of $46 million, a year-over-year increase of 0.3%. Similar to other companies. In Illinois, we saw negative same-store sales growth, primarily due to unfavorable weather, especially in January.
However, adding new locations in Illinois, Nebraska allowed us to grow revenue. Overall, our location partners recognize the value we provide to rely on the incremental revenues our convenient, high-quality offering brings to their businesses.
On the expense side, we continue to optimize our operations, which has helped us maintain a stable cost structure. Despite inflationary impacts. Our highly variable cost structure allows us to quickly adjust to any changes in the economy.
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 are currently operating our strong balance sheet, proven business model and consistent growth offer one of the best investments in gaming.
With that, I'd like to turn it over to Matt to walk you through our financials in more detail.

Mathew Ellis

Thanks, Andy, and good afternoon, everyone. For the first quarter, we had total revenue of $302 million, a year-over-year increase of 2.9% and adjusted EBITDA of $46 million, a year-over-year increase of 0.3%. As of March 31st, we had 25,321 terminals and 3,987 locations year-over-year increases of 5.6% and 5.1%, respectively.
Location attrition continues to remain low and is mostly attributable to our lowest performing locations, closing their doors. Capital expenditures for the first quarter were $21 million cash spend. The increase was attributable to payments of outstanding invoices from last year.
As a reminder, the primary driver of our elevated CapEx was the introduction of four new high-performing gaming terminals at the same time in Illinois. In the past, we would normally see one high-performing cabinet or at least every 12 to 18 months. We view last year in this quarter's CapEx as one-time in nature, for 2024, we are still projecting CapEx to be between $55 million and $65 million, a decrease of more than 20%.
Over the longer term, we expect CapEx to decrease even further. At the end of the first quarter, we had approximately $286 million of net debt and $553 million of liquidity, consisting of $254 million of cash on our balance sheet and $299 million of availability on our credit facility.
On our capital allocation strategy, we continue to make progress on our $200 million share repurchase program during the quarter, we repurchased 600,000 shares at an average purchase price of $10.60 a share for a total of $6 million. We are almost 60% through the repurchase program with 12 million shares repurchased at a cost of $124 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.
With that, I'd like to turn it back over to Andy.

Andrew Rubenstein

Thanks, Matt. We're pleased with another strong quarter 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.

Question and Answer Session

Operator

Thank you. We'll now begin the Q&A. (Operator Instructions)
Chad Beynon, Macquarie.

Chad Beynon

Afternoon, Andy, Matt, thanks for taking my question. I wanted to start with on just kind of the legislation landscape, places like Virginia, North Carolina, Georgia, et cetera, and not necessarily for 24, but kind of where things are shaping up and if you think any of these have a decent probability of passing something favorable for your business in '25? Thanks.

Andrew Rubenstein

Thanks, Chad. This is Andy. As far as risk of go down the states that you mentioned and a few others, Virginia has legislation that's kind of pending not probable of getting passed and signed by the governor, but somebody has to given that state because of the existing equipment that's out in the field and on the governor's desire to kind of clean up an illegal industry.
I don't think this year is the year, whether '25 is the year, I don't know on, but it has a probability it's actually greater than zero, but it's tough legislation and the interest in general and but we feel that somebody has to give because there's been so many different bills that have been pushed forward in the last couple of years, and there's a real need to do something.
Georgia legislation passed this year, kind of solidifying the gift card or kind of value card as a redemption option. And I believe that's the beginning of a more long term on movement in Georgia toward a cash-out environment. That's more like Illinois. I don't think that's going to happen in 25 or 26, but it's directionally positive on that that bill signed and done North Carolina is still the recession.
So going on last year, that's very close. This year. We haven't seen the wells on, but again, there is good momentum due to the fact that there's a lot of equipment out in the field that there's own. There's a strong opposition to and let's call it an illegal market from the government leaders. So and this year's legislation will probably not include casino, and that gives it a better chance.
But again, it's not it's very difficult legislation to pass. And I'm not that optimistic. And finally, a Pennsylvania has a very similar situation and to go South Carolina, Virginia, there hasn't been any real movement there. Whether it happens, it could be it is going to have to be some type of an impetus to for them to push some legislation through because there appears to be a lot of people that are happy with the status quo.
So on was that we would tell you I think I would say it's less than 50% chance of anything happen in the next two years. But there are states that have a reason to pass legislation, allowing VGTU.s or skill game environment, and that would be regulators and our watching it actively were ready to move when as legislation gets passed on, we're going to expand what we're doing and lead into the gift card in Georgia. So it will benefit our business. But the question is how much.

Chad Beynon

That's great. Thanks for running through that, Andy. And then just in terms of what you're seeing with the consumer in your establishments. So the revenue growth was was stronger than I guess what we've seen in a lot of weather impacted markets and kind of what we've seen from other operators in the first quarter. That would tell me that the February March, I guess exit rate was fairly stable or maybe even healthy. I would say is that kind of what you're you were seeing some in your establishments? Were you pretty happy with how the business recovered throughout the quarter after a tough January?

Andrew Rubenstein

Yes, it was a very strong recovery from kind of getting us a real punched in the mouth early in the day in the year and who kind of gives us confidence that our where we sit in kind of the world of gaming. We talk at the time about like the vertical of gaming that where we are the arms, the gaming entertainment that is closest to home. It takes the least investment to participate.
You don't have to drive very far you have to fly anywhere on you don't have to have a large commitment in terms of the play. And so as the dollars get pushed away from the destination gaming even away from people's drop off from their regional big casino nights out on. They keep one that will get pushed down to us. But even more importantly on they have a we're a regular experience for them and works good every day or weekly entertainment. And we seemed to benefit on in kind of all economic cycles in the questions, just how much.

Chad Beynon

Thank you, very much.

Andrew Rubenstein

Thank you.

Operator

Steve Pizzella, Deutsche Bank.

Steve Pizzella

Hey, can you hear me now?

Andrew Rubenstein

Yes.

Mathew Ellis

Hey, Steve.

Steve Pizzella

Hey, Matt, Andy. Thanks and good evening, everyone. Just wanted to ask from an M&A perspective, what's kind of holding back deals from getting to the finish line and what geographies have you guys been looking at.

Andrew Rubenstein

So unless there's anything there's been holding them back. We take a very disciplined approach going through diligence on making sure that any regulatory questions are answered. Prior to closing. And I believe that on those things that we're pursuing on, we'll get there. It's just more important to us to get there in a very confident way, minimizing any future risks on and to fully understand the business and the potential revenue, and that makes us price accordingly.
So the opportunities are are we believe, are going to be significantly accretive to the business. But we have we've been doing a lot of work to make sure that the right type of opportunities for Accel to expand. And as far as geographically as being a national company.
It's not just one market or one area of the country that we're looking. I would expect us to be involved in multiple markets by the end of the year with some of these opportunities that we've talked about, we're excited to share that with you when they get to the finish line.

Steve Pizzella

Okay, thanks. And then always nice to see revenue growth in Illinois, even when the location hold per day is down year over year, driven by the actual location growth. Can you give us any color on the pipeline you have for on location growth moving forward? Are there new, Illinois or some of your other states and how we should think about that, the remainder of the year?

Andrew Rubenstein

Yes. I mean, we continue to have the opportunities. We have the establishment owners and select us consistently over our competition. And we tend to win on the sales front over and over again and that whether that's Illinois, whether it's Montana, whether it's Nevada, Georgia, and I think that that team will continue to carry us as we move forward.
And we are obviously always experience business owners that are not successful and their establishments close but on we continue to upgrade our portfolio is the bottom kind of self cleansers and on the locations that we sign on a whole are definitely a big improvement from what we lose.
So you're seeing a constant improvement in the portfolio on. I think as we've seen some on have softness with some of our locations that will be a little more cautious in bringing new locations on because going forward.
And there's it's you needed a certain amount of revenue on the location side more than than we do to support your establishments cost structure as they have been there, as well as on labor costs, rise on raw material costs on cost of goods sold and they impact those businesses greater than ours. And so we're very aware of that as their business model changes to be a little more cautious on that as we sign up new locations.

Steve Pizzella

Okay, thanks. And then just one more for me, if I may. The Nevada location hold per day, it was just slightly negative year over year in the quarter. Was there anything you're seeing in that market for highway? And how should we think about that moving forward?

Mathew Ellis

Thanks, Steve, this is Matt. Tom. I think similar to what Andy said earlier, players push to our local close to home offering, and there's a very local regional offering there as well. But we don't see anything systemic. I think demand's still there. You look at that overall locals market, I think we're on the better end of that spectrum.
And it's just again, our offering improves, especially we're able to make smart investments in that market with our locations. So obviously, I would love to see it up. But I think with what you're seeing again, it highlights that close to home, convenient offering the whole concept of 10 minutes door to door versus a much further journey to something else.

Steve Pizzella

Okay. Appreciate it. Thanks, guys.

Mathew Ellis

Thank you.

Operator

Thank you all for your questions there currently no questions waiting. So as a reminder, it is star to ask question. It seems we have no further questions. So I will pass the conference back over to Andy Rubenstein for closing remarks.

Andrew Rubenstein

Thank you, everyone, for joining us today. As a reminder, the Accel Entertainment annual meeting is tomorrow on hoping everyone will be able to join us. We had a very good first quarter despite a rough start, and we're excited one month into the second quarter and job. We look forward to sharing more and more news about the growth of Accel on our next quarter's call. So thank you, and I hope all of you enjoy it the other day, Mother's Day weekend.

Operator

That will conclude today's conference call. Thank you all for your participation. You may now disconnect your lines.