Accel Entertainment, Inc. (ACEL) Earnings

Management highlights

- Chicago Market Update * Licensing is progressing: the Illinois Gaming Board issued the first two rounds of video gaming establishment licenses, and Excel has secured approvals for 17 of 39 licensed establishments, equal to 44% of approved locations to date. The City of Chicago is now processing local license applications, with the first live operations expected to launch in the coming weeks, after minor delays. * Excel is operationally ready, with pre-staged equipment, pre-mapped routes, and existing statewide infrastructure that limits incremental launch costs. The company expects full market deployment will take more than five years, with a projected total annual market size of ~$1 billion in revenue. - Strategic Direction * Prioritize route quality over absolute route size, focusing on high-return capital deployment and improved experiences for players and location partners. * The company is repositioning from a logistics-focused business to a gaming and hospitality company, competing on player experience, content, customer service and differentiation to drive long-term margin expansion. * Maintain a disciplined capital allocation strategy, prioritizing a strong balance sheet, organic high-return investment, disciplined acquisitions, and returning excess capital to shareholders when shares trade below intrinsic value. - Operational Milestones * Completed the full rollout of Tito ticket-in, ticket-out technology across all Illinois installed terminals; the technology has been positively received by customers, improves operational efficiency, and is already reducing cash held in the field to improve working capital over time. * Expanded the Nevada footprint via a new route agreement with Green Valley Grocery, adding ~600 terminals in southern Nevada, bringing total terminals with partner Inavi Oil to over 1,000. * Continued share repurchases: repurchased 500,000 shares for $5.6 million in Q2, bringing first-half repurchases to 1.6 million shares for $18 million; cumulative repurchases since 2021 total $201 million, with $146 million of remaining capacity. - Leadership Transition * On August 7, outgoing CEO Andy will become Chairman, with Mark becoming CEO and Stan Giedros promoted to Chief Operating Officer. The leadership transition is complete and the company is positioned for its next growth chapter.

Guidance

- Full-year 2026 capital expenditure is projected to be in the range of $60 million to $70 million, down from ~$89 million in 2025. The majority of this spending is for replacement capital to deploy newer, higher-performing equipment to existing locations, with an expected payback period of 2 to 3 years; the final figure depends on Chicago deployment timing and year-end payment schedules. - Management expects the ramp-up of upgraded convenience store locations in Nevada (including equipment upgrades, payment technology additions and loyalty program rollout) will take 6 to 12 months to complete. - Chicago video gaming market will take approximately five or more years to reach full deployment.

Segment performance

Overall company: Q2 total revenue increased 10% year-over-year to $368 million; adjusted EBITDA increased 11% to $59 million; operating income was $32 million (vs $27 million YoY); net income was $13 million (vs $7 million YoY); diluted EPS was $0.15 (vs $0.08 YoY). Illinois (cornerstone of distributed gaming): Average location hold per day increased 9% YoY to $992, driven by portfolio quality optimization (removing low-volume unprofitable locations and adding higher-performing new locations). Ticket-in, ticket-out technology (Tito) rollout is complete across the entire installed base. Montana: Delivered a solid quarter, with location hold per day increasing 3% YoY. Century Gaming completed a full machine conversion at Northern Winds Casino 2 for long-time tribal partner Chippewa Cree tribe. Nevada: Quarterly revenue increased 17% YoY; locations grew 54% YoY and terminals grew 53% YoY, driven by the Dynasty Games acquisition and new partnerships with Rebel and Green Valley Grocery (Anabi Oil). Blended hold per day declined 15.8% YoY, driven by a rapid expansion of the lower hold per day convenience store segment that changed the business mix; early indicators for the new locations are encouraging as they complete 6-12 months of experience upgrades. Nebraska & Georgia (developing markets): Both delivered exceptional double-digit growth, with revenue increasing 55% and 47% YoY respectively, and both now generate significant adjusted EBITDA growth, becoming meaningful contributors to overall company earnings rather than just incremental revenue. Louisiana: Toucan (Excel's Louisiana subsidiary) completed the acquisition of Rice Palace Truck Stop Casino during the quarter, adding 50 terminals with plans to expand to 60. Toucan revenue increased 14% YoY, while terminal count increased 27% YoY. Fairmont Park: The property delivered its strongest ever quarter on a gross profit basis; live table games performed in line with expectations, and incremental gaming revenue will support a $500,000 increase in racing purses for the 2026 season.

Risks & headwinds

- Quarterly free cash flow can experience meaningful volatility from working capital movements, so management encourages investors to evaluate cash generation over longer time horizons rather than annualizing single-quarter results. - The outcome of expanded regulated gaming in Illinois (following the state Supreme Court ruling that unregulated skill gaming is illegal) remains uncertain, with multiple potential outcomes that cannot be reliably handicapped at this time. - The pace of Chicago license approvals and launch may be slower than currently expected, even though no additional regulatory or political hurdles are foreseen at this stage.

Analyst Q&A

• Q: Excel has secured 44% of initial Chicago approved establishment licenses, which is higher than its current statewide Illinois market share. Will Chicago market share end up near the 30% statewide level long-term? /

  A: Management expects Chicago market share will be relatively close to the company's existing statewide Illinois market share. Local relationships will develop gradually over time, and no material divergence from the statewide share is expected.

• Q: The expected Chicago go-lode in the coming weeks is well ahead of consensus expectations for late Q4. Will the application approval process accelerate after the first locations launch, or are there remaining political hurdles? /

  A: Management does not foresee any additional regulatory or political hurdles after the first locations launch. Once the process begins, a steady flow of new approvals is expected, though the exact timeline from weeks to a couple months for initial launch remains uncertain, with this being the last major step to opening the market.

• Q: Is the multi-year cycle of pruning low-quality locations in Illinois complete now that location count grew sequentially for the first time in two years? How should we think about location count going forward? /

  A: Management does not focus on absolute location count growth, only route and location quality. Independent business closures will consistently remove lower-performing locations from the route, while new locations added are higher-performing, so this quality improvement trend will continue to drive margin growth per machine over time.

• Q: What is the strategic rationale for acquiring the Rice Palace Truck Stop Casino outright in Louisiana, and will owning larger properties be a priority going forward in permitted markets? /

  A: Louisiana's gaming market is centered on truck stop locations that can host up to 60 terminals. Owning these properties lets Excel operate and manage them according to its own plans, which is currently in the company's best interest. Management sees additional acquisition opportunities in Louisiana to leverage scale and improve long-term earnings.

• Q: Now that the Tito TITO rollout is fully complete in Illinois, what is player adoption and what impacts are you seeing on demand and operating costs? /

  A: Anecdotal customer feedback for TITO has been positive. The technology has already delivered a clear reduction in total cash held in the field, which improves working capital, though management cannot currently isolate TITO's specific impact on overall sales and revenue from other business drivers.