Accel Entertainment - Earnings Call - Q2 2025

Executive Summary

• Record Q2 revenue of $335.9M (+8.6% YoY) and record Adjusted EBITDA of $53.2M (+7.1% YoY); GAAP diluted EPS was $0.08, pressured by a loss from the change in fair value of contingent earnout shares.
• Versus S&P consensus: revenue beat by ~$3.4M (+1.0%), Primary (normalized) EPS beat ($0.26 vs $0.225), and Adjusted EBITDA slightly beat ($53.2M vs $52.7M)*; GAAP EPS of $0.08 reflects non-GAAP adjustments.
• Management reaffirmed FY25 CapEx of $75–$80M with allocations for legacy ($39–$41M), Louisiana ($5–$7M), and Fairmount ($31–$32M), and expects normalized annual CapEx to return to $40–$45M after projects.
• Near-term catalysts: Illinois hold-per-day strength, TITO rollout in Illinois, Louisiana expansion (legislation adding machines), and steady Fairmount ramp; buybacks of ~$6.7M in Q2 signal capital return commitment.

What Went Well and What Went Wrong

What Went Well

• Record quarterly revenues ($335.9M) and record Adjusted EBITDA ($53.2M) driven by core Illinois strength and contributions from new markets, including Louisiana and Fairmount.
• Illinois revenue at a quarterly record ($245.4M) with location hold-per-day up 5.6% YoY to $910; management highlighted consistent monthly volume through Q2.
• Louisiana (Toucan Gaming) generated ~$9.6M in Q2 revenue, benefitting from legislation allowing an additional VGM per route location and additional VGMs at truck stops; Fairmount ramp tracking to contribute meaningfully in 2026.

What Went Wrong

• GAAP net income fell 50.2% YoY to $7.3M, primarily due to the loss on change in fair value of contingent earnout shares versus a gain in the prior period.
• Nevada revenue declined 7.7% YoY due to the loss of a key customer in 2024; while margins improved through optimization, this weighed on consolidated performance.
• Manufacturing revenue declined YoY (Q2 manufacturing $1.8M vs $5.2M) as GrandVision Gaming updated its operating platform and timing of software sales shifted.

Transcript

Speaker 6

Good afternoon, and thank you for attending the Accel Entertainment second quarter earnings call. My name is Jason, and I'll be the moderator today. All lines will be muted during the presentation portion of the call, with opportunities for questions and answers at the end. Now, let's pass the conference over to your host, Scott Levin.

Speaker 4

Welcome to Accel Entertainment's second quarter 2025 earnings call. Participating on the call today are Andy Rubenstein, Accel's Chief Executive Officer, and Mark Phelan, Accel's President and Acting CFO. 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 Litigation Reform Act of 1995. These forward-looking statements are subject to risk 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 a 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. 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 should not be regarded as a representation by any person that the results reflected in such forecasts 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.

Following management's prepared remarks, we will open the call for a question and answer session. With that, I would now like to introduce Andy. Please go ahead.

Speaker 2

Thank you, Scott, and good afternoon, everyone. We appreciate you joining us today. In the 2025 second quarter, Accel generated record quarterly revenue and adjusted EBITDA of $336 million and $53 million, respectively. We continue to build on our leading position in delivering the best gaming experience for the U.S. locals market, as we support more than 27,000 legal and regulated gaming terminals and over 4,400 retail partners across 10 states. Across our broader portfolio, we generated growth in the majority of the markets where we operate. Our Q2 growth reflects our disciplined expansion strategy and consistent execution in our core, developing, and new markets. Accel's continued growth will benefit from its strong competitive position and healthy balance sheet as we pursue our multipronged growth strategy. Today's call should leave everyone with the understanding that local gaming is an incredibly attractive, resilient, and growing segment within the broader gaming market.

As a leader in this segment, Accel expects to continue to generate near and long-term growth in revenue, adjusted EBITDA, and free cash flow. We plan to achieve these goals by leveraging our operating expertise while also remaining focused on often overlooked M&A opportunities, which I will discuss in more detail later on the call. As the market leader in Illinois, this market remains the foundation of our business, with second quarter revenue up over 8% to a quarterly record $245 million. This increase was driven by our strategic game enhancements and location optimization initiatives, which resulted in a 6% year-over-year increase in location hold per day to $910. Our second largest core market, the Montana distributed gaming route, grew revenue by 2.6% as it continues to scale its content and systems products to support its dominant market share.

Our developing markets, Nebraska and Georgia, grew revenue by 26.1% and 53.5%, respectively, while Nevada revenue declined by 7.7%. As Nebraska and Georgia continue to take market share with superior service and products, Nevada's decline reflects the loss of a key customer in 2024 due to a change in ownership. We remain optimistic about our growth potential in all three markets, where strategic investments are now beginning to contribute to Accel's overall growing adjusted EBITDA. In our new markets, we are seeing tangible contributions from our Toucan Gaming acquisition in Louisiana. That acquisition further expanded our operations in the Southeast by adding over 600 terminals across nearly 100 locations. Toucan Gaming generated approximately $10 million of second quarter revenue, and we expect to realize additional synergies and revenue, as well as adjusted EBITDA performance gains.

Our performance reinforces our confidence that these benefits will become even more apparent into next year. In April, Accel's installation of 271 gaming positions completed phase one of its casino at Paramount Park. Our soft opening just prior to the Kentucky Derby generated a strong turnout, bringing excitement to this historic venue. Paramount continues to ramp up steadily, and we remain confident in its long-term contribution. We expect our player acquisition and retention strategy to expand our player database and drive market share gains. In addition to our racing and casino business at Paramount, Accel benefits from a long-term revenue-sharing agreement tied to FanDuel's online sports betting operations across the state of Illinois. When taken together, the early operational progress at Paramount and the FanDuel revenue-sharing arrangement reinforce our confidence that Paramount Park Casino and Racing will continue to contribute to our adjusted EBITDA growth as we move into 2026.

Looking ahead, our M&A pipeline remains active. We continue to evaluate opportunities across the large and fragmented local gaming market, estimated at over $15 billion nationally. We remain focused on disciplined, accretive transactions that do not stretch our balance sheet. Most of these assets are below the radar of larger operators, creating attractive opportunities for Accel to expand our footprint while maintaining strong financial discipline. Our consistently strong financial performance and ongoing progress reflect the inherent resilience of our business model and its ability to generate compelling returns on invested capital. Our decentralized approach, spanning thousands of retail locations, provides the diversification and the flexibility to efficiently allocate capital in line with local demand and market dynamics. With that, I'm going to turn it over to Mark to walk us through the financial results in added detail.

Speaker 4

Thanks, Andy. For the second quarter, total revenue was $336 million, representing year-over-year growth of 9%. With the acquisition of Paramount Park and our Louisiana assets, total revenue was $317 million, representing year-over-year growth of 2.4%. Adjusted EBITDA for the second quarter was $53 million, a year-over-year increase of 7% compared to the second quarter of 2024. As of June 30, 2025, we operated approximately 27,400 terminals across more than 4,400 locations, representing year-over-year increases of 3.4% and 3.1%, respectively. As Andy stated earlier, we look at our distributed gaming portfolio across three markets: core, developing, and new. Each of these markets is positioned to grow revenue and earnings at different rates for different reasons. Our core markets, Illinois and Montana, are our largest and most seasoned markets, and we expect them to scale their platforms to drive higher margins and free cash flow over time.

Our developing markets in Nebraska, Nevada, and Georgia are fast-growing markets where we expect our prior infrastructure investments and scale to generate meaningful increases in revenue and operating margins. We expect that our new markets of Louisiana and Paramount Park will experience revenue growth while initially generating lower margins as we invest in their operating platforms. I also wanted to provide more revenue detail on our two core markets, Illinois and Montana. The Illinois distributed gaming market contributed $236 million of revenue, which grew by $9 million, or 3.9% in the second quarter of 2025 compared to prior years.

Our Montana distributed gaming route experienced positive quarterly revenue growth of 2.6%, while Grand Vision Gaming, Accel's wholly owned slot machine manufacturer, saw a decline in revenue primarily due to timing on software sales as Grand Vision Gaming, or GVG, updates its operating platform to support product availability in Accel's other markets. GVG, our Billings, Montana-based slot manufacturer, and Century, which runs our distributed gaming route, are reported together under Montana Consolidated Operations. As a result, the year-over-year quarterly revenue shows a decline for Montana on a consolidated basis. As we mentioned earlier, Nevada experienced a revenue drop from the loss of a key customer due to an ownership change. In spite of that loss, we have done a great job optimizing our operating footprint in Nevada in the second quarter.

I also wanted to address our recent operational wins, which include Illinois increased operating margins by 70 basis points in the second quarter of 2025 as the team scaled our existing infrastructure. Illinois launched Ticket In, Ticket Out, TITO late in July, with a phased rollout expected over the next few months and a full implementation date to be determined. We believe TITO has the potential to provide a better player experience, lower field cash needs, and potentially lower our operating expenses. Montana rolled out proprietary gaming content and gaming systems designed to increase average profitability per store. Both Nebraska and Georgia utilized attractive redemption products and gaming infrastructure to profitably increase market share. Finally, Louisiana legislation passed that allows for an additional video gaming machine per route location, as well as additional video gaming machines to truck stops.

As a reminder, our route markets are bifurcated between negotiated and legally defined revenue splits with retail and state government partners. Only our Illinois, Georgia, and Pennsylvania markets have legally defined revenue splits, which are determined statutorily. The rest of our markets have revenue splits which are negotiated between locations and Accel. For competitive reasons, we do not disclose the operating margins in these states and their implied gross margins, both of which are driven by revenue splits. Moving on to capital expenditures, for the second quarter, our CapEx totaled approximately $26 million. We are reaffirming our full-year 2025 CapEx forecast of $75 million to $80 million, including approximately $39 million to $41 million for our legacy market, $5 million to $7 million for Louisiana, and $31 million to $32 million for Paramount Park.

CapEx for Paramount Park covers both phase one, which is now complete, and our initial investments in phase two planning. Following the completion of these projects, we expect normalized annual CapEx to return to the $40 million to $45 million range. At quarter end, we had approximately $331 million of net debt and $392 million of liquidity, consisting of $265 million of cash and $127 million of availability under our credit facility. Lastly, we remain committed to returning capital to our shareholders. During the second quarter, we repurchased 634,000 shares at an average price of $10.58 per share for a total of $6.7 million. This brings the total shares repurchased for the six months ended June 30, 2025, to 1.6 million shares at a total of $16.9 million.

With a strong balance sheet and low leverage, we believe we are well positioned to continue to grow our business and return capital to shareholders. With that, I'd like to turn it back over to Andy.

Speaker 2

Thanks, Mark. As I mentioned earlier, we are pleased with the direction of the business, including our record quarterly revenue and record quarterly adjusted EBITDA. Local gaming remains an attractive, resilient, and growing market segment with large untapped potential, which presents Accel with multiple opportunities to continue to generate strong and consistent revenue, adjusted EBITDA, and free cash flow growth moving forward. With that, I now would like to open the call to questions. Operator?

Speaker 6

If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you'd like to move that question, please press star followed by two. Again, to ask a question, it is star one on your telephone keypad. Our first question is from Chad Beynon with Macquarie. The line is now open.

Speaker 0

All right, good afternoon, Andy and Mark. Thanks for taking my question. I wanted to start with the strong growth that you showed in Illinois. Since it's the biggest market and you're categorizing it as a core market, can you just talk about what you saw throughout the quarter? We've heard from a number of other gaming companies who have said that the quarter started off certainly differently than it finished, given all the volatility in the market. I was just wondering if you could give a little bit more detail in terms of how the quarter shaped out, given some consumer volatility. Thank you.

Speaker 5

Hey, Chad, it's Mark. Thanks for the question. It was actually pretty consistent growth through the quarter. All three months generally were kind of consistent with the volume. We didn't really see much of a peak or valley. It was just generally consistent.

Speaker 0

Great. Thank you. Andy, just on your comments around M&A, I know you introduced the idea in a larger way probably about a year ago with the Paramount acquisition. What size asset portfolio EBITDA should we think about that you and the team will be looking at? Maybe asked a different way, how much leverage are you willing to put on this business at this point, given your cash and facility availability at this point? Thank you.

Speaker 2

Thanks, Chad. As we look at it, we're always opportunistic on the acquisitions, but I would tell you, consistent with our history, we're not looking to lever up the company in any extreme way. We've always kind of played it relatively conservatively. We have plenty of availability in our credit facility as we're about to refresh that. Obviously, the company generates significant cash flow. As we move forward, we're evaluating opportunities to best deploy that cash. Like the recent opportunities that we saw both at Paramount and in Louisiana, we take advantage of those opportunities. I would expect that we would be consistent in looking where the opportunities are adjacent or actually involved with the markets that we're in. We look to continue to grow with those different opportunities.

Speaker 5

Hey, Chad, this is Mark too. I would just point out that the locals gaming market, of which we think we're a premier player in, generally are smaller assets in that these are unconsolidated, sort of less professional operators. It tends to lean where the opportunities are smaller and you can take more bite-sized acquisitions.

Speaker 0

Okay. I would presume with some of those, there's opportunities to improve the margins or improve something with the business that you have the business acumen to implement.

Speaker 2

I think in general, we have a competitive advantage in the fact that we have scale. We have the ability to implement technology from the Grand Vision operations that we have. We operate systems, reward systems in both Montana, Nevada, and in Nebraska. We have the ability to manufacture equipment. As we look at a market, we can take a more holistic view, and we believe that it's allowed us to be much more competitive and much more aggressive as we approach these opportunities.

Speaker 0

Appreciate it. Thank you, Bob.

Speaker 2

Thank you.

Speaker 6

Our next question is from Steve Pizzella with Deutsche Bank. Your line is now open.

Speaker 3

Andy, good afternoon, and thank you for taking our questions. First, you noted TITO in Illinois started in July. What are your expectations for how that can impact earnings moving forward?

Speaker 2

Thanks, Steve. It's Andy. As we look at TITO, it's really, really early in the game because over half of the machines have not had TITO implemented. We're waiting for the IGB as they're rolling it out. We're really early; we're literally weeks into it. I think it's our second week. This quarter, we don't expect anything material. By the time we report the third quarter, we'll be able to give you a little more indication of what impact it will have on the market. We do think it will help reduce the cash that we have as people utilize their tickets in multiple machines and aren't continually cashing out. The player experience will be better, and it should mildly reduce the collection costs. We're watching it closely, and we'll see what more to report after this quarter.

Speaker 3

Okay. Thanks. In Nevada, I think you noted the loss of a key customer. What is the market growing at the one customer? Have you seen any changes in the market to start the third quarter at all?

Speaker 5

Yes, Steve. It's Mark. Net of that customer, we actually grew slightly in revenue year over year. In terms of the market there, it's really bifurcated into locations that have licenses and locations that don't, and instead pay leases. We're much more aggressive about the former in terms of getting higher margins. We saw that from our team there. They performed significantly better in terms of margin, even without the one key customer. We like that market a lot, actually, and we're growing, and that's why we've kind of included it in our developing markets, even though it's a market that's been around 30-plus years.

Speaker 3

Okay. Great. Thank you.

Speaker 6

Our next question is from Greg Gibas with Northland. Your line is now open.

Speaker 7

Hey, good afternoon, Andy, Mark. Thanks for taking the questions. Congrats on the record results. I wanted to just ask maybe how performance at the racetrack and casino has performed relative to your initial expectations and maybe what your updated expectations are for Paramount this year following phase one completion and launch.

Speaker 5

Yeah. Hey, Greg. It's Mark. We don't just, you know, we're not going to break out operating segments, but we underwrote the park as sort of a valuable asset for a variety of reasons. Some have to do with casino, racing, sports book, and F&B, the food and beverage. We've seen positive indicators for all four that kind of matched our internal expectations. We're pretty excited about the asset. It's still very early days. It's the 13th week. We commented that we think it's going to be a significant contributor in 2026, and we still feel pretty confident about that.

Speaker 7

Great. I guess to follow up there, when do you expect to have maybe a more material update on phase two timing, given that you are spending CapEx this year on phase two planning? What more specifically is that kind of spending going towards or allocated for?

Speaker 5

The second part of the question, Greg, is really just design. You have to kind of understand the asset. We invite all of you to come out and view it sometime. It's a 183-acre campus with multiple different buildings. One of the things you really need to understand in order to be successful in phase two is how people interact between those buildings. We're still really figuring that out. We've learned a lot in the last 13 weeks, and we think we'll learn a lot more. The racing season ends at the end of October. We're kind of like TBD on exactly what we're going to do for phase two. We also have to work with the Illinois Gaming Board in order to meet their timeline. There's a lot that goes into it, but we're trying to be very thoughtful about it and be extremely good stewards of capital.

Speaker 7

Got it. Appreciate that. Lastly, could you just remind us of the timing of that key customer in Nevada just as we think about year-over-year comps?

Speaker 5

Yeah, it was kind of end of Q3 when they left. 2024, sorry.

Speaker 7

Got it. Thanks very much. Thank you.

Speaker 6

It looks like there are no more questions, so I'll pass the call back over to the management team for closing remarks.

Thank you. At Accel, we're staying focused, we're executing well, and we remain confident in our long-term strategy. I want everybody to enjoy the rest of the summer, and we look forward to sharing our continued progress when we report results again this fall. Thank you for joining us.

That concludes the conference call. Thank you for your participation. Enjoy the rest of your day.