Q4 2023 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
Steven Pizzella; Analyst; Deutsche Bank Securities Inc.
Chad Beynon; Analyst; Macquarie Capital USA Inc.
Greg Gibas; Analyst; Northland Securities, Inc.
Presentation
Operator
Hello, everyone. Thank you for attending today's Accel Entertainment Q4 and 2023 earnings call. My name is Sarah and I will be your moderator today. (Operator Instructions) I'd like to pass the conference over to our host, Derek Harmer .
Derek Harmer
Welcome to Accel Entertainment's Fourth Quarter and Year Ended 2023 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 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.
Andrew Rubenstein
Thanks, Derek, and good afternoon, everyone. Thank you for joining us for Accel'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 Century acquisition at 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 that 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 allows 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.
Mathew Ellis
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 first, 2022 and Century 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. Capex for the fourth quarter was $22 million cash spend and CapEx for the year was $82 million cash spent.
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, for 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 2020 three's CapEx as one-time in nature, and we are projecting CapEx in 2024 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.
As of December 31st, we had 25,083 terminals and 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.
Andrew Rubenstein
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.
Question and Answer Session
Operator
We will now begin the Q&A session. (Operator Instructions) Steve Pizzella, Deutsche Bank.
Steven Pizzella
And 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're gaining some share. Can you just talk about what is driving that? Are these new locations or these conversions? And how does your current pipeline look?
Andrew Rubenstein
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. It shows itself as a 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 on the 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 established builders choosing Accel as they have through the last 12 years.
Steven Pizzella
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?
Mathew Ellis
Yes. So Steve, Hey, 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. And 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 of sort of those crazy hikes we saw nearly almost to half ago, but there's still inflation out there in the labor market does remain a bit challenging.
The other side of it's our revenue. And 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, 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 were to 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.
Overall, I'd say, you know, it's still 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 mid and upper single digit growth there. So I think it will be relatively flat, but we will see. We'll see how it turns out.
Steven Pizzella
Okay, great. Thank you.
Operator
Our next question today comes from Chad Beynon with Macquarie. Please proceed.
Chad Beynon
Hi, afternoon, Andy, Matt and 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 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, 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? Thanks.
Andrew Rubenstein
Thanks, Greg. As we look at it, I mean, there's 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 arms, the buy and the sell. And that's where the seller expectation is still closer to what we saw in 19 and 20. And the buyers of have kind of adjusted to a different economic environment. Do I see that gap closing a little better, but I don't think it's going to close until you have some of the rates on 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 on. We have low leverage. We have great availability. And I think what you'll end up seeing is that we'll execute on in the next 12 to 18 months on some opportunities that will be appropriately price.
Chad Beynon
Thanks, Andy. Matt, on the $80 million-plus 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 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 next?
Mathew Ellis
Sure. Thanks, Chad. I think the place we see the biggest return is our developing markets, feel 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 that.
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 on 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 in 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 players expected 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.
Steven Pizzella
Great. Appreciate it. Nice quarter, guys.
Andrew Rubenstein
Thanks, Steve.
Operator
Greg Gibas, Northland. Please proceed.
Greg Gibas
Yes, great. Thank you. And just wanted to clarify, I think you've said Illinois same-store sales on up 3% for the full year. Wondering if there were any differences in Q4 was it's about in line with that 3%.
Mathew Ellis
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, we're seeing plays consistent right. It's these other things we can't control. Ironically at all a nice mild weekend in the winter, it can really move the needle. And in 22, we had good weather about 23 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 you know, mid single digits, but were 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.
Greg Gibas
Okay, great. And just wanted to ask if anything regarding your prospects in Nebraska or Georgia specifically, Nebraska, you know, like how should we have 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 one quarter 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. I'm just curious how you're thinking about growth within Nebraska.
Andrew Rubenstein
Yes, 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 means there's a large gap. And I don't think and that gap will be closed anytime soon. So we're winning have 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 on one of them kind of decides hey, this is this is my time and as my partner.
Greg Gibas
Great, thanks. I guess as a quick follow-up, would you be able to comment on maybe what markets are markets that that would be in, and if we were to see something before the end of year?
Andrew Rubenstein
I think you it's hard to predict because the sellers on may be talking to us or may be engaged. And I think you'll see it. We'll probably do a couple of things outside of Illinois and and whether something happens or they are not really uncertain but I think you'll see some growth outside of Illinois. It's one of our focuses, as we've discussed on which market uncertain right now. But I think you'll we'll definitely execute on that.
Greg Gibas
Okay, that's fair. Thank you.
Operator
Thank you all for your questions. (Operator Instructions) So I'd like to pass the conference to Andy Rubenstein for closing remarks.
Andrew Rubenstein
Thank you all for joining us today. And like we said, we had a very strong 2023. '24 is definitely off to the rates start on. And we're very optimistic that Accel will continue its growth trajectory. And I just recently said that the opportunities outside of Illinois. They are presenting themselves every day. And the question is what we actually do execute on and and the performance that we'll be able to provide, whether it's the latter part of 24 for that you'll see in 25. So thank you again and look forward to to reconvening in about three months. Thanks.
Operator
That will conclude today's conference call. Thank you all for your participation. You may now disconnect your lines.
