Accel Entertainment, Inc. Q4 FY2025 earnings call

Excel delivered strong finish to 2025 with record financial results. In Illinois, team focused on improving location mix, redeploying underperforming assets. Rollout of ticket-in, ticket-out technology in Illinois. Montana refining gaming machine placement strategy. Nevada completed accretive acquisition of Dynasty Games, entered into new route partnership. Integration of Toucan Gaming in Louisiana progressed well. Fairmont Park Casino and Racing completed first full racing season, ramped up casino operations with healthy customer engagement.

In the fourth quarter, total revenue increased 7.5% year-over-year to $341 million, and adjusted EBITDA grew 19% to $56 million. For the full year, revenue was over $1.3 billion and adjusted EBITDA was $210 million. In Illinois, optimizing footprint and terminal base. In Nevada, terminal accounts increased 13% year over year in Q4. Louisiana revenue increased significantly in Q4 after adjusting for the stub period. Nebraska and Georgia delivered strong growth. Fairmont Park Casino and Racing completed first full racing season and ramped up casino operations.

Priorities for 2026 include driving steady organic growth in core markets, scaling profitability in developing markets, executing accretive tuck-in acquisitions, and consistently converting earnings into free cash flow.

Risk of market regulatory changes affecting operations. Risk of execution challenges in new market expansions and acquisitions.

Q: Hi, thanks for taking my question. Andy, Mark, congrats on the new rules. Looks like things are moving ahead in Chicago. IGB just started accepting applications last week. Do you guys view that as just a matter of time or are there any political or legislative points of failure until you guys can start generating some revenue in that market?

A: There is a process that still needs to happen within the city, but the fact that the IGB has accepted, begun accepting applications is a great sign. So we're still waiting on some of the procedures related to licensing in the city and how the cities will either regulate the gaming or facilitate individual establishments and getting it started and obtaining a license from the city so there is some of that still that needs to happen but the fact that the the IGB is accepting applications is a great start.

Q: Hi, everyone. Thanks for the question. We've been watching author and play out over the last several weeks. Curious to get your views around the bankruptcy debt tracking, depending on how that plays out. You could be left with the only operational track in the state. I guess also, what does that kind of mean for your investment at your track, including the casino?

A: Hey Jordan, it's Mark. So I say as a as a horse racing fan, it's a tough moment for Illinois horse racing. Hawthorne's decline is painful for everyone who cares about sport racing, particularly in Illinois, and our thoughts were the Carey family. They they they carry Illinois horse racing for over a century and and we wish them well and. Whatever comes next for them. That being said, the parimutuel horse racing market is facing significant headwinds nationally as well as in the state of Illinois. But we are, as you point out, still standing and still very much excited about the coming season, which starts in April, and we stand ready to support the Illinois Racing Board in any capacity that they require to help make sure racing operations, specific employees, horsemen, and all the backside communities have a workable path going forward.

Q: Hey guys, thank you so much for taking my question. Congrats on a really nice quarter and congrats to Andy and Mark on the transition into new roles. For my first question, there's been some route gaining traction in state sessions like Pennsylvania, Virginia, Missouri, and North Carolina. Could you talk about how you view any of these as likely to legalize this year? And could you think or talk about how you think about building versus buying to get a foothold in these markets if they go online?

A: Hey, Patrick, it's Mark. I would say we formally included Chicago in those emerging markets, and thankfully that's now going to be a reality. So we're pretty excited about that. That being said, there's these types of situations don't happen often. And so I'm a little more conservative in terms of the other markets that you mentioned, Pennsylvania, North Carolina, Virginia, Missouri. They all have outstanding legislation in terms of legalizing some form of electronic gaming machines for routes. Each of them has their own nuances, which may or may not make it a higher probability to go legal. But I would just caution a lot of these states except for North Carolina, have a casino, which is always an issue with trying to pass legislation for BGTs and always makes it very difficult. And it's just naturally difficult to pass gaming laws. So we prepare for the best, but our budget and our expectations are prepared for not having this in this year, if that helps. Your second question in terms of... Go ahead. Yeah, in terms of acquiring things, we actually have a pretty good ground game in a lot of these markets, like Chicago, for example, where organically we will acquire stores through our own internal customer acquisition group. But certainly, as Andy showed over the last 17 years, we will ultimately acquire other routes over time as that sort of unfolds.

Q: Hi Patrick, it's Andy. So as we've talked about in the past, this is a continuous process of improving and optimizing our Illinois route and having nearly 2,700 establishments, we're always looking at the performance at the bottom and whether or not it makes sense to continue operating in those locations. And as we acquire or win new locations every month or every meeting with the IGB, we we take an even deeper look at those locations and oftentimes reallocate our assets to what we expect to be higher performing positions. So I would expect that with such large numbers, we'll continue doing this. There may be some more loss of locations. but you'll probably see as Chicago comes on for that trend to be reversed as there'll be a significant increase in locations from the Chicago market.

Q: Hey, good afternoon, everybody, and thank you for taking my questions. Also wanted to just say thanks to Andy for the time over the years and congratulations to you, Mark. First, just wanted to ask how you think about the increased tax returns here moving forward. Have you seen historically a direct correlation with that and increased gaming at your locations? And have you maybe seen any impact this far recently as returns start to come in?

A: uh steve yeah so that typically uh has got a high correlation in terms of play uh february march as you can imagine are are usually our best months um and we're you know we don't guide but uh certainly uh that that seasonal impact hasn't changed this year from what we're seeing okay.

Q: Sure. So from a capital perspective, maintenance versus growth, the way we define those two is probably important to just refresh everybody on. But the way we define it is growth is a new location. We're adding machines to it. Or it's a location, for example, that has five machines and we go to six. Paul Cecala, Capital in those two instances would be growth, most of what's left is maintenance so largely in our maintenance space, we consider a replacement of a brand new machine and an existing location with. Paul Cecala, That is that capacity for machines, even though it's a brand new machine we we consider that maintenance. Paul Cecala, that's a little bit different than other companies but that's how we think about it, so I want to at least set the table on that, but in terms of like next year where that's going. You know, if you think about our space and you think about what we just got done talking about in terms of reducing our locations and kind of, you know, firing bad customers, so to speak, the need for us to continue to spend a lot to expand our locations in Illinois is low. And therefore, most of the maintenance or most of the capital that we're spending next year in our large market is going to be, you know, on that maintenance side. If you think about the other markets, those are investing in growth side. However, those are much, much smaller markets. So when you look at the company as a whole, you see most of it sitting in maintenance capital. And then refresh me on the other question. I'm sorry. How do you think about balancing buybacks versus incremental tuck in acquisition or maybe something bigger?

A: Yeah, so I would say our position on that hasn't changed much over the last, you know, six months or so, or even longer than that. But we look at every dollar of investment and we look at the return on investment that we can get from it. And we just measure that against, you know, our internal capital returns versus our M&A versus, you know, debt payoff and shareholder buybacks and that sort of thing. You know, given where things are moving and kind of just recent studies, you know, I think M&A tends to be the most attractive if we can get the price right. So that tends to be where we focus our energy on the most. But to the extent that there's nothing in the pipeline or things that we don't like, then we'll pursue, you know, alternative activities. I guess maybe if I could follow up real quick. Do you think about the balance sheet any different now moving forward than the current leverage profile historically of the company, which has been fairly conservative? Would you be more willing to take on additional leverage should the opportunities present itself, I guess, or potentially incremental capital return?

A: Yeah, I think the way that I, so first of all, again, I would go back to, you know, we're going to evaluate the deals as they come through, but the way that I think about the fact that we have an untapped accordion feature out there, a revolving feature out there, is likely going to be for something that would be a significant sort of M&A. That would be the ultimate use for something like that. Most of the stuff we're going to do with our current cash balance and, you know, through tuck-ins and that sort of thing. So, yeah, I wouldn't think that we need to hit that revolver. And I think if anything, you know, We're not in the business of wanting to lever up substantially for any particular reason right now. There's just not enough evidence of it. It would have to be a very, some sort of very large deal or something like that that came up, you know, for us to go down that path.

Q: Thank you for the question, David. Looking at Chicago, we see ourselves as an obvious leader from our experience, from the fact that we're the most chosen company to do business with. in the state of Illinois, and we expect to continue to win in that market. That being said, I don't expect us to greatly exceed our current market share in the city of Chicago. Today we're in just shy of 30% range of the market. I don't think we're going to be any more than that, but what I do think is the performance per location will be greater than what we show in the rest of our portfolio. And we've seen things happen over the last, and we're now in our 14th year of operation, that allow us to better select locations, better to equip them, and I think the performance that we'll achieve will exceed the rest the rest of the portfolio's performance.

Q: Yeah. Okay. Yeah. We have, it's a great question, David. We have about 81% of the machines upgraded, but what happens is not all the machines are upgraded in every location. And so there's machines that they can take their ticket and utilize for play, and there's ones that they can't. I think once we get closer into the 90s, then you're going to start to see a real benefit. The other thing that really needs to happen is the player has to change its behavior. They're just learning after playing with cash entirely for the last 14 plus years that they can use their ticket to go from machine to machine. I believe that as far as the innings in the game, we're probably third inning by the time we talk. Again, at the end of when we, now first quarter earnings will probably be the fourth or the fifth. I think it will start accelerating through the end of the year. And it's something that we're constantly evaluating. We're just starting to optimize because we're getting some confidence that in certain establishments the customer is comfortable with utilizing the tickets. But it's something that's, again, like, third inning in terms of the implementation and results.

Q: Hey, Chad. It's Mark. So just to remind everyone, we do partner with a fairly significant gaming operator in Illinois, and that's FanDuel with Fairmont Park's online sports betting license. In terms of other markets, we're always looking for partnerships. Route gaming is really just an extension of local gaming, which if you go to other parts of the world, includes online, includes owning local casinos, as well as doing distributed gaming in bars and taverns and things like that. So there's always a possibility. We also do produce our own content through our subsidiary, Grand Vision Gaming. And there's always elements of partnering with content producers, as content's a big driver of play in our markets. So it's a great question. We're always looking for those partners. As I mentioned before, to really drive away from being a more commodity like vendor. We really need to specialize in content and payments and loyalty and things like that. And those are sometimes best done through other partners. So we're always got our eye on it.

Q: And then我know you just hit on Tito, but around the W2G jackpot limits, is that something that um you know you think can can also um help drive additional yields across your your fleet thank you so chevy and this is andy thank um the answer is yes but the challenge is the in illinois you need legislation for the the bet uh the jackpot to be raised and then you need the manufacturers to redo the software to accommodate it. In terms of priorities, the route markets come far after the casinos because they can make those changes right away and have the leverage to be able to distribute the games with the new jackpots to many, many markets. I expect Illinois probably to be the first one. to be able to experience it because it's the greatest opportunity. And probably Nevada will see it because they utilize the same software that's utilized in the casinos. The other markets will follow, but I wouldn't expect a real bump from that. We don't expect it to happen in 2026. So eventually it will help us, but it's It's kind of next step for the manufacturers.

Q: Hey, good afternoon, Andy, Mark, Brett. Thanks for taking the questions. Congrats on the results. Wanted to follow up maybe on the opportunity within Chicago and maybe what you see as kind of the total establishment count for that market, and maybe if you could share a little bit more on Estimated timing there. I know that you mentioned they're accepting applications. It's a good sign. When do you expect to maybe hear more about that developing?

A: Well, as Annie said, we're very confident the market will roll out given that the Illinois Gaming Board is accepting applications from locations. There are some rules that need to be promulgated. We're helping Chicago leaders work through that and provide sort of best practices to make and to expedite the rollout. You know, if you really had to push me against the wall to say when we're going to go live, I'd say more likely later in the Q4 for 26 or potentially even Q1 of 27, just given the backlog of applications currently at the Illinois Gaming Board. Um, but again, it depends a lot on how quickly the city can roll out these, uh, these rules. So we're, uh, we're actually awaiting and we're helping out, uh, leadership in terms of helping them do best practices.

Q: Yeah. So from a revenue perspective, and we just closed this, but from a revenue perspective, those two acquisitions are made up about 5% of our Q4 revenue and about 5% of our full year as well. So in terms of the revenue side, that's about what they are. We don't disclose on the EBITDA side, you know, but those are our emerging investments, so emerging investments in the plays that we have there. So, you know, we're not making, you know, double-digit growth or anything like that on the bottom line. But on the top line, you know, we've talked before about it, and that's about 5%.