This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk03: thank you for attending today's excel entertainment q4 in 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 if you'd like to ask a question please press star 1 on your telephone keypad i'd like to pass the conference over to our host derek harmer welcome to excel entertainment's fourth quarter and year-ended
spk01: 2023 Earnings Call. Participating on the call today are Andy Rubenstein, Excel's Chief Executive Officer, and Matt Ellis, Excel'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 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. I will now turn the call over to Andy.
spk04: Thanks, Derek, and good afternoon, everyone. Thank you for joining us for Excel's fourth quarter and 2023 earnings call. I'm 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 sensory acquisition, adding new locations, and 3% same-store sales growth in 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 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. 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.
spk06: Thanks, Andy, and good afternoon, everyone. 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%. For the year, we set a new Excel record with total revenue of $1.2 billion and adjusted EBITDA of $181 million. Year-over-year increases of 21% and 12%, respectively. As a reminder, Sentry has been included in our results since June 1, 2022, and Sentry operates in markets where the revenue split between Sentry and the location is negotiated. 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 year-over-year increase was due to several factors. First, we accelerated purchases of our redemption terminals to protect against supply chain disruptions. Second, four 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. 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 and $65 million, a decrease of more than 20%. Over the longer term, we expect CapEx to decrease even further. As of December 31st, 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. 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. 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 1.4 million shares at an average purchase price of $10.31 per share. 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. 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.
spk04: 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.
spk03: We will now begin the Q&A session. If you would like to ask a question, please press star followed by one on your telephone keypad. To remove your question, press star followed by two. And if you are using a speakerphone, please pick up your handset before asking your question. Our first question today comes from Steve Bozella with Deutsche Bank. Please proceed.
spk02: 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? Are these new locations? Are these conversions? And how does your current pipeline look?
spk04: 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 Excel has a preferred offering and is a preferred business partner. So we're seeing both of that help grow our current base. We're always looking at our portfolio, so we are constantly paring 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.
spk02: Okay, thank you. And then I guess turning to margins down modestly year over year and sequentially, how should we think about the margins moving forward into this year? And I guess what kind of top line growth do we need to see to get some margin expansion?
spk06: Yeah, so Steve, hey, it's Matt. Thanks for the question. I think the first part is obviously, you know, 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. And, you know, we've talked about it and I think the expense side of our business is really easy to forecast. You know, 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's our revenue. And, you know, the beauty of our business is there's no concentration of revenue. There's no micro economic 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, you know, 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, you know, get to that upper, you know, 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. Overall, I'd say, you know, it's a relatively We had some tough comps. We had great weather last January and February, but the year started out like we'd expect. But the old days of, you know, mid and upper single digit growth aren't there. So I think it'll be relatively flat, but we will, you know, we'll see how it turns out.
spk02: Okay, great. Thank you.
spk03: Our next question today comes from Chad Bainon with McGuire. Please proceed.
spk00: Hi. Afternoon, Andy and Matt. Thanks for taking my question. Wanted to ask about the M&A environment. We've been talking about the potential rate declines here for some time. 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 six to 12 months as we kind of get through the cyclical period to just add in organically? Thanks.
spk04: Thanks, Greg. As we look at it, 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 quarters. But I think what has been a challenge is a gap between the buy and the sell, and that where the sell 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 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 leveraged 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.
spk00: Thanks, Andy. Matt, on the 80 plus million of CapEx in 23, so you mentioned that that's coming down in 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 in the year with some new terminal purchases? Are you seeing those returns absent, you know, 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.
spk06: Sure. Thanks, Chad. I think the place we see the biggest return is our developing markets. You know, great examples, Nebraska. Those investments there, as that market ramps, you know, the primary catalyst 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 EBITDA positive, and we expect to see decent growth out of it again. the illinois side you can divide it into two sort of investments one is the investment in extending revenue which well you don't get that growth you get that certainty and 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 so we are seeing those returns The biggest return, again, would be in the developing markets. You know, in Illinois, when you have that, I would say that it takes a little longer, obviously, particularly at your best location because the demand's 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.
spk00: Great. Appreciate it. Nice quarter, guys. Thanks, Chip.
spk03: Our next question comes from Greg Gibbous with Northland. Please proceed.
spk05: Greg Gibbous Great. Thank you. I just wanted to clarify. I think you said Illinois sand thaw sales up 3% for the full year. Wondering if there were any differences in Q4. Was that just about in line with that 3%?
spk06: 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, you know, a nice mild weekend in the winter can really move the needle. And in 22, we had good weather. 23 overall in 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, revenue's 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, you know, our business is holding up very well.
spk05: Okay, great. And, you know, I just wanted to ask if anything regarding your prospects in Nebraska or Georgia, but specifically Nebraska, you know, 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 an acquisition makes sense to accelerate your presence in the market? I'm just curious how you're thinking about growth within Nebraska.
spk04: Yeah, that's right. 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. I mean, there's a large gap. And I don't think that gap's 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 Excel is my partner.
spk05: Great, thanks. I guess a quick follow-up would just be, you know, 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?
spk04: 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 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. Which market, uncertain right now, but I think we'll definitely execute on that.
spk05: Okay, that's fair. Thank you.
spk03: 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.
spk04: Thank you all for joining us today. Like we said, we had a very strong 2023. 24 is definitely off to the right start. And we're very optimistic that Excel 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 24 or that you'll see in 25. So thank you again and look forward to reconvening in about three months. Thanks.
spk03: That will conclude today's conference call. Thank you all for your participation. You may now disconnect your line.
Disclaimer