Accel Entertainment, Inc. Price & Performance (ACEL)

Participating on the call today are Andy Rubinstein, Axcel's Chief Executive Officer Matt Ellis, Axcel's Chief Financial Officer and Mark Phelan, Axcel's President of U. S. Gaming. 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 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 the earnings press release available on our website as well as other risk factor disclosures in our filings with the SEC. [indiscernible] Any projected financial information presented in this call is for illustrative purposes only and should not be relied upon as being predictive of future results. The inclusion of any financial forecast information in this call not be regarded as a representation by any person that the results reflected in such forecast will be achieved.

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. Thanks, Derek. And good afternoon, everyone. Thank you for joining us for today's call. I'm pleased to report we had another record setting year. With total revenue of $1,200,000,000 and adjusted EBITDA of $189,000,000 proof of the resiliency of our convenient local gaming offering. It was a very important for us. We entered into Louisiana on November 1, and acquired Fairmont Park outside St. Louis on December 2. Our teams are hard at work integrating Louisiana and preparing for the Phase one opening of the Fairmont Casino in the second quarter of this year. In terms of financial performance, Illinois, our largest market, hosted market wide GGR growth of 4% year over year. Outperforming Illinois casinos which were down 3% 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 partners and local convenience space gaming providers like us. During the quarter, our location count in Illinois was down again sequentially. This was due to the strategic closures of 16 underperforming locations. Without these closures, our location count would have been flat for the quarter. For the full year, we strategically closed 54 underperforming locations. Which helped us right size our operations in response to the 1% increase in the state gaming tax on 07/01/2024. We expect this process to continue as we review our portfolio and look for opportunities to improve financial performance. We've identified a subset of locations within our bottom desk aisle performers that we will phase out over coming quarters. Given we have an attractive pipeline of promising locations, we expect near term Illinois net unit growth to potentially be flat with planned positive impacts to EBITDA and greater returns on invested capital, as we rotate locations. Across our footprint, we continue to refine our sales and operating model. Focusing on the highest hold per day locations. The improvement in the composition of our portfolio will help drive both top line and bottom line growth driven by choiceful segmentation and resource allocation.

In addition to what I just mentioned, we've leaned into our continuous process of reviewing our markets and operations to find areas of improvement. As a result, we've identified additional efficiencies and opportunities for growth that will result in improved performance and an increase in free cash flow. On the regulatory front, Illinois continues to lay the groundwork for ticket in, ticket out. Also known as Tido. Which should make cash processing more efficient. More importantly, it will create a more convenient experience for our players. Allowing them to switch between games in our locations without cashing out and cashing in each time. Making our sites more akin to a casino experience. We're hopeful PETA will be rolled out in 2025. We continue to monitor regulation related to this. Before I turn it over to Mark, I'm going to take a few minutes to talk about Accel'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 at a low price point that can be accessed by our players at a local convenient retail location of their choosing in fifteen minutes or less from their home.

We support retail gaming partners by providing them with high margin revenue gaming products, and labor light self-service technology. We instilled player loyalty through our rewards programs by creating memorable player experiences with our diverse gaming selection. And finally, we maintain collaborative and reliable partnerships with regulators across 11 different regulatory structures. All while generating attractive returns on capital. In our core route based business model, our steady growth algorithm is both simple and compelling. We target low single digit revenue growth mid single digit EBITDA growth and high single digit free cash flow growth assuming normalized CapEx levels. Which Matt will address later. Looking ahead, the primary levels for growth in our core at ROUTFISH one, growing organically in Illinois Nebraska, and Georgia through both newly licensed establishment and converting competitors' locations. Two, driving profitability in Nebraska and Georgia through operational execution and strategically positioning ourselves in the face of favorable legislation. Three, collecting a greater share of location economics through selectively owning establishments and markets where this is permitted and is otherwise profitable. And preparing ourselves for future opportunities in new states likely to legalize local gaming in the future. Outside of our core business, our M and A pipeline remains active.

As demonstrated by the Federmont and Louisiana acquisitions. We are confident that we can leverage our proven capabilities as a local gaming operator to convert opportunities in the attractive and sizable nationwide $15,000,000,000 plus GGR local gaming market. Most assets in this market are unconsolidated and sit at EBITDA levels that are below the radar of larger gaming companies. Conditions that play to our strengths.

With that, I'm going to turn it over to Mark to provide an update [indiscernible] Thanks, Andy. We closed the Fairmont acquisition on December 2 for approximately $40,000,000 in Accel stock after adjusting for working capital and the price of Excel stock at close. The acquisition includes a master sports betting license with a long term partnership with Sandal, a horse race track, off track betting facility opportunities, and the ability to develop a best in class locally focused casino.

This transaction builds on our core capabilities in local gaming that we've honed over the last with attractive returns on capital and free cash flow. We are combining our local gaming expertise with key partnerships in areas outside our core business to create an exceptional customer offering. As a reminder, we expect to develop this project in two phases. Immediately after closing, we started construction on Phase one of our casino, which will be built in the existing grandstand with approximately two fifty five electronic gaming devices, four electronic cable games, and significantly improved food and beverage amenities. As of now, we expect to open Phase one during the second quarter of twenty twenty five and we look forward to welcoming players once the facility is open. For Phase two, we'll build a permanent casino on-site with detailed plans for 600 plus slot machines 24 table games, food and beverage amenities and a new and improved sandals sportsbook. 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 fourth quarter, we had total revenue of $318,000,000 a year over year increase of 6.9% and adjusted EBITDA of $47,000,000 a year over year increase of 6.2%.

For the full year, set a new Accel record with total revenue of $1,200,000,000 and adjusted EBITDA of $189,000,000 year over year increases of 5.24.2% As of December 31, we had 26,346 terminals in 4,117 locations. Year over year increases of 53.9% respectively. Revenue per location for the quarter in our core states was as Illinois was $868 per day an increase of 3.5% year over year.

Montana was $614 per day an increase of 4.6% year over year Nevada was $786 per day a decrease of 6.7% year over year Nebraska was $253 per day an increase of 5.9% year over year and Louisiana was $979 per day.

The increases in Illinois, Montana and Nebraska really emphasize the strength and resilience of both our business model and more importantly consumers who continue to choose our high quality local and convenient offering. Capital expenditures for the fourth quarter were $11,000,000 of cash [indiscernible] and capital expenditures for 2024 were $67,000,000 of cash spent. For the full year, we spent $2,000,000 on Fairmont and Louisiana leaving $65,000,000 of cash spend in our existing market At the end of the fourth quarter, had approximately $314,000,000 of net debt and $425,000,000 of liquidity consisting of $281,000,000 of cash on our balance sheet and $144,000,000 of availability on our credit facility. Looking ahead, we are forecasting $75,000,000 to $80,000,000 of CapEx for 2025 comprised of $39,000,000 to $41,000,000 in our existing markets, dollars $5,000,000 to $7,000,000 in Louisiana, and $31,000,000 to $32,000,000 for Famant. I'd like to note that CapEx for Fairmont includes both Phase one and initial construction for Phase two. After Fairmont and the initial CapEx in Louisiana, we expect company wide normalized CapEx to return to $40,000,000 to $45,000,000 which will be an encouraging boost to free cash flow and returns on capital. On our capital allocation strategy, we continue to favorably view share repurchases as an effective way to return capital to our shareholders.

During the quarter, we repurchased 361,000 shares at an average purchase price of $11.14 a share, for a total of $4,000,000 For the full year, we repurchased approximately 2,400,000.0 shares at an average purchase price of $10.42 for a total of $25,000,000 Earlier this week, our Board of Directors authorized replenishing our share repurchase program back to $200,000,000 With our strong balance sheet, and low leverage, we are in a unique position where we can grow our business and continue to return capital to shareholders. With that, I'd like to turn it back over to Andy. Thanks, Matt. As I mentioned earlier, we are very pleased with our And the fact that our teams are working hard to complete construction on Phase one of the Fairmont For the immediate term, we remain focused on executing our growth algorithm with improving cash flow and returns. Long term, we look forward to capitalizing on the significant growth opportunities ahead of us. As an aligned and incentivized Accel team. Exel remains strong as evidenced by our results and healthy balance sheet, enabling us to pursue a multi pronged approach to capital allocation making us a compelling investment. 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 returns on capital. We will now take your questions.

We will now begin the question and answer session. The first question will come from the line of Steve Isela? Deutsche Bank? Steve, your line is now open. Thanks, Matt and Andy. Are a lot of moving parts with adding in Louisiana to the model for ten months.

And '25, everything that comes with Fairmont and the added temporary casino, how should we think about the contributions to the model Thanks, Steve. It's Matt. Let's start with Louisiana. You look back to when we disclosed closing it and we disclosed $6,000,000 of EBITDA. So I think for the full year 2025, you should add that and like you called out, two months of them in twenty twenty four's results. For Fairmont, as Mark said, we're planning to open in Q2.

So we might want to split the difference there. But as we sort of talked about earlier, full run Fairmont all built out, all said and done. We forecasted $25,000,000 of EBITDA and we sort of guided that the temp would do about a third of that. So you've got a third of that 25 and then you need to prorate it for opening in, we'll call it, the middle of Q2.

Okay, thanks. That makes sense. And then just looking in Illinois in January, it looks like it started off pretty strong. At least looking at the data we can see, Did you see similar trends in other markets And are you able to comment at all on February? Yes, I mean, it's Andy. Thanks, Steve. We had very favorable weather in January this year. Where last year it was a bit rough. And then The weather in February here is been not as good as it was last year. Wouldn't say the don't know whether it'll actually balance themselves out elsewhere in the country, we haven't seen the extremes that we've experienced here in Illinois the weather factor Overall, I think there's been a well received demand for our gaming product. And I think we're seeing good results early from some of the remodels we're doing in Louisiana some new product we're introducing in some of the other markets. To kind of upgrade our routes has all been very positive from a consumer perspective.

Okay. Thank you. Appreciate it.

Thank you for your questions. The next question comes from the line of Chad Beynon with Macquarie. Chad, your line is now open.

Hi, good afternoon. Andy, Matt, thanks for taking my question. Andy, you mentioned just the pruning of the Illinois units really to focus on free cash flow per location. So definitely appreciate on there.

At what point will you be through this and then we should expect some growth in the market. Thanks.

Yes. So I don't think they're totally tied together The pruning is really that bottom the very bottom of our portfolio. And there will always be Some that need to be pruned. And we make investments or we have confidence in our ability either reignite poor performing locations or locations that we think will be decent performers the owners of the facilities aren't that committed to gaming and therefore we're not getting the returns that we need. [indiscernible] that part of our business will be a constant process. And I think as we've been a little more aggressive in the the pruning. As we've seen costs increase from labor We've seen a tax increase last summer. Our focus is to to obviously increase the free cash flow And I think the growth will be continuous because as the our assets will be redeployed into better accounts. And I think you'll you see it constantly I think it will really kind of manifest itself probably later this year into next year where the average profitability of the location will be noticeably better.

Okay. Great. Thank you. And then last week, one of the big manufacturers in the space acquired a e pull tab or a company in the charitable gaming space. Then we're able to shine some more light on that I believe when you guys talked about the potential areas of expansion for Exel Accel, e pull tabs was in there. I don't think a lot of investors or analysts had a full appreciation of of the sector. But now that another company in the space has shined light on that, And they talked about potential expansion and, yes, how large the sector is. Is that something that you think is a little bit more front and center in the near term Just given some of the heightened awareness for that sector or does that kind of weigh on the scale equal to some of the other opportunities for future growth? Thank you. Hey, Chad, it's Mark.

Good question.

So that market is a really interesting one, but it's and By the way, it was a great outcome for The company that was purchased Grover and we're friendly with that management team and happy that they were able to realize the value they did But that's a real content market It's less of a product and service market that we're familiar with So it made a lot of sense for Light and Water to purchase them because of their the superiority of their content. In terms of Accel, participate in that market we would really have to have a partner who could provide that kind of superior content and we could complement that with our our ground game. So it's an interesting market, but it's one where it's It's something we'd have to partner with someone to really participate in.

Okay. And then lastly, if I can sneak in one more. There's been some legislation here in January and February. I think most of it has been around just moving tax rates around and there's been some that have that would potentially bring in iGaming or sports betting. We haven't seen as much in your sector Is that something that you think still could come maybe in this session here kind of early in 2025 that we're just not aware of at this point? Or do you think a lot of future expansion In the route market, kind of gets pushed into a later period? Terms of the legislation? Thanks. Thanks. Yes, this is Davey.

It's something that we are always aware of. We haven't seen any real iGaming legislation bubble up in this legislative session. Inevitably, we'll see it whether we'll gain any traction Not as likely as in the past. But I believe it will we'll continue to see iGaming legislation in certain markets I don't think it's as likely to be in some of the route gaming markets [indiscernible] I think it's more likely to appear in markets that that don't have route gaming or have minimal casino presence. Illinois, with extensive Brooks and Border route gaming I wouldn't say it would be the first market. That would pass legislation from going forward, Norwood, Nevada, but we're constantly monitoring it and we're trying to educate the legislators that the route gaming market is a much better solution with much more regulation and consumer protection. [indiscernible] Appreciate it. Thanks Andy.

Thank you for your questions. The next question comes from the line of Craig Givis with Northland. Greg, your line is now open.

Hey, Andy, Mark and Matt. Thanks for taking the questions.

I wanted to ask, I guess, if you could speak to the growth opportunities you see in Louisiana Do you expect to continue to be acquisitive in that market or focus more on organic growth there? Thanks, Greg. It's Andy.

We see it's almost kind of a contradicting market a mature market one that's been around for thirty plus years. But at the same time, a market that's not that sophisticated and well developed. So you still have an incredibly fragmented market And there's two markets in that that we're looking at. In Louisiana, the truck stops, which I think there's like 197 truck stops in the state and it's still heavily fragmented. And then even more fragmented is the bar market.

Which there most bars in the state of Louisiana are utilizing very old legacy equipment twenty plus years old. And we see the opportunity to Improve our truck stops. We've We've done pretty well so far And we're evaluating what needs to be done With the routes that we've purchased, I believe that we'll grow organically over time. And the truck stops as some of the ownership transitions over the next ten years One or two a year may be available for us to to acquire and grow our Our presence Got it. That's helpful. And one of the follow-up on Fairmont. I guess, one, could you maybe remind us of the timing of Phase two development And I think you already kind of spoke to the uplift you expect to see with maybe Phase one being a third of that. Wondering if you could maybe break out piece relates to the FanDuel component in that. And if not, could you maybe break that out?

So in terms of timing, think we've guided to sort of end of twenty twenty seven for the Phase two. As Matt pointed out, we're planning to go live with Phase one in Q2 and that would give us a little over two two plus years to build a more permanent [indiscernible] And we're not allowed to break out revenue, but Greg, it's Matt. We can't fully break it out, but if you think back to when we announced it, The track was around breakeven, maybe making a little. So that would sort of imply without with just racing F and B and sports book sort of how the track was doing pre [indiscernible] Got it. That's helpful. Thanks, guys.

Thank you for your questions.

At this time, we do not have any further questions registered in the queue. At this time, we do not have any further questions. Andy Rubinstein for any final remarks.

Yes, just wanted to thank everyone for joining us we will be connecting with you in about two months. I think the year is off to a really good start and we'll be excited to share some of the progress we've made when we talk again in May.

That concludes today's call.