Accel Entertainment, Inc. Q4 FY2024 earnings call

• Record-setting year with total revenue of $1.2 billion and adjusted EBITDA of $189 million. - Entered Louisiana on November 1st and acquired Fairmont Park outside Saint Louis on December 2nd; teams preparing for phase one opening of Fairmont Casino in Q2 2025. - Strategically closed 16 underperforming locations in Q4 Illinois and 54 full year to right-size operations due to gaming tax increase. - Refining sales and operating model focusing on highest hold per day locations; identified efficiencies and growth opportunities. - Illinois working on TITO to improve cash processing and player experience, hopeful for 2025 rollout. - Growth levers: organic growth in Illinois, Nebraska, and Georgia; driving profitability in Nebraska and Georgia; owning establishments in profitable markets; preparing for new states. - Fairmont acquisition details: closed Dec 2 for ~$40M in Accel stock; phase one to have 255 electronic gaming devices, 4 electronic table games; phase two to include 600+ slot machines, 24 table games, improved FanDuel sportsbook. - Financials: Q4 total revenue $318M (+6.9% YOY), adjusted EBITDA $47M (+6.2% YOY); 2024 total revenue $1.2B, adjusted EBITDA $189M. CapEx Q4 $11M, 2024 $67M; 2025 CapEx forecast $75M-$80M. Share repurchases: Q4 repurchased 361,000 shares for $4M, full year 2.4M shares for $25M; board authorized $200M share repurchase program.

For the fourth quarter, total revenue was $318 million, a year-over-year increase of 6.9%, and adjusted EBITDA was $47 million, a year-over-year increase of 6.2%. For the full year, total revenue was $1.2 billion and adjusted EBITDA was $189 million. Key product segments: Illinois, the largest market, had market-wide GGR growth of 4% year-over-year; revenue per location in Illinois was $868 per day, up 3.5% YOY. Montana had revenue per location of $614 per day, up 4.6% YOY. Nebraska had revenue per location of $253 per day, up 5.9% YOY. Louisiana had revenue per location of $979 per day. The Fairmont acquisition closed on December 2nd for approximately $40 million in Accel stock after adjusting for working capital.

• Forecasted $75 million to $80 million CapEx for 2025, with normalized CapEx returning to $40 million to $45 million after Fairmont and initial Louisiana CapEx. - Board of directors authorized replenishing the share repurchase program to $200 million. - Expect growth through organic expansion in existing markets, M&A, and preparation for new states legalizing local gaming.

• Forward-looking statements subject to risks and uncertainties as actual results may differ materially. - Risks related to regulatory changes, weather impacts on business performance, competition in the local gaming market, and execution of M&A and expansion plans.

Q: How should we think about the contributions to the model from Louisiana and Fairmont?

A: Thanks, Steve. Let's start with Louisiana. You look back to when we disclosed closing it, and we disclosed $6 million of EBITDA. So I think for the full year 2025, you should add that. And like you called out, two months of them in 2024's results. For Fairmont, as Mark said, we are planning to open in Q2. So you 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 million of EBITDA. And we have sort of guided that the temp would do about a third of that. So you have got a third of that $25 million, and then you need to prorate it for opening in, we will call it, the middle of Q2.

Q: Did you see similar trends in other markets besides Illinois in January, and can you comment on February?

A: Yeah, 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 has been not as good as it was last year. I wouldn't say they will actually balance themselves out, but elsewhere in the country, we haven't seen the extremes that we've experienced here in Illinois with the weather factor. Overall, I think there's been a well-received demand for our gaming product. And I think we are seeing good results early from some of the remodels we are doing in Louisiana and some new product we are introducing in some of the other markets. To kind of upgrade our routes has all been very positive from a consumer perspective.

Q: At what point will you be through pruning Illinois units and when should we expect growth in the market?

A: Yeah. So I don't think they are 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 to 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 are not getting the returns that we need. So that part of our business will be a constant process. And I think as we've been a little more aggressive in the pruning, as we've seen costs increase from labor, we've seen a tax increase last summer. Our focus is to obviously increase the free cash flow. And I think the growth will be continuous because as our assets will be redeployed into better accounts. And I think you will 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.

Q: Is the e-pull tabs sector more front and center in the near term given heightened awareness?

A: Hey, Chad. It's Mark. Good question. So that market is a really interesting one, and it was a great outcome for the company that was purchased, Grover, and we are 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 products and service market that we are familiar with. So it made a lot of sense for Light and Wonder to purchase them because of the superiority of their content. In terms of Accel participating 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 ground game. So it's an interesting market, but it's one where it's something we'd have to partner with someone to really participate in.

Q: Do you expect to continue to be acquisitive in Louisiana or focus more on organic growth there?

A: Yeah. 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, a hundred and ninety-seven truck stops in the state, and it's still heavily fragmented. Then even more fragmented is the bar market, which 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 done pretty well so far. And we're evaluating what needs to be done with the routes that we've purchased. I believe that will 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 acquire and grow our presence.

Q: Timing of Fairmont phase two development and FanDuel component?

A: So in terms of timing, I think we've got it to sort of end of 2027 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 plus years to build a more permanent facility. And we're not allowed to break out the FanDuel revenue, but... Matt Ellis: 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&B, and the sportsbook, sort of how the track was doing pre-Racino.