Accel Entertainment, Inc.

Good afternoon, and thank you for joining the Excel Entertainment Q3 2024 earnings call. My name is Kate, and I will be the moderator for today's call. At this time, all lines are in a listen-only mode and will be until the question and answer portion of the call. If you would like to queue up for a question, you may do so by pressing star followed by A1 on your telephone keypad. I would now like to turn the call over to Derek Harmer, General Counsel and Chief Compliance Officer. Derek, you may proceed.

Welcome to Excel Entertainment's third quarter 2024 earnings call. Participating on the call today are Andy Rubenstein, Excel's chief executive officer, Matt Ellis, Excel's chief financial officer, and Mark Phelan, Excel's president of US 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 and the company undertakes no obligation to update these statements unless required by law. For more detailed discussion of these and other risk factors, Investors should review the forward-looking statement 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. I will now turn the call over to Andy.

Thanks, Derek, and good afternoon, everyone. Thank you for joining us for Excel's third quarter earnings call. We had another strong quarter. We reported revenue of $302 million and adjusted EBITDA of $46 million. Proof of the resiliency of our convenient local gaming offering. Secondly, we made solid progress in our pending acquisition of Fairmont Park, which is expected to close this quarter. In terms of financial performance, our largest market, Illinois posted market-wide GGR growth of 5% year-over-year, outperforming Illinois casinos, which were down 1% 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 customers, and local convenience-based gaming providers like us. We continue to optimize our largest state-based route footprint, managing headcount and broader operational excellence to more than offset the modest drag from recent tax increases. During the quarter, our location count was down a bit sequentially. In Illinois, this was due to two factors. First, the strategic closures of 22 underperforming locations. And second, some openings were delayed by the cancellation of the July Illinois Gaming Board meeting. The subsequent IGB meeting was in September, and not all locations were live by month end. By the middle of October, the remaining licensed locations were live. Regarding our strategic closures in Illinois, we continue to review our portfolio and look for opportunities to prune. We have identified a subset of our locations within our bottom decile performers that we will phase out over coming quarters. Given we also have an attractive pipeline of planned openings at promising locations, we expect near-term Illinois net unit growth to be flattish with some potential positive impact on EBITDA and 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. This improvement the composition of our portfolio will help both top line and bottom line driven by choiceful segmentation and resource allocation in nebraska we're encouraged that strong revenue growth during the quarter was driven by hold per day we are seeing fruits of our strategic product shifts swapping in higher performing games and removing lower performing revenue share units we see more runway to do this across our fastest growing market. On the regulatory front, Illinois continues to lay the groundwork for Ticket In, Ticket Out, also known as TITO, which would make cash processing more efficient and more importantly, create a more convenient experience for our players, allowing them to switch between games and our venues without cashing out and cashing in each time, making our sites more akin to a casino experience. We expect Tito to be rolled out in the first half of 2025. We continue to monitor the regulation related to this. Before I turn it over to Mark, I want to take a few minutes to talk about Excel'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 15 minutes or less. We support retail gaming partners by providing them with high margin revenue per square foot gaming products and self-service technology. We instill player loyalty through our rewards programs and create memorable player experiences with our diverse game selection. And finally, We maintain collaborative and reliable partnerships with regulators across 11 different regulatory structures, all while generating attractive returns on capital in the low teams. In our core route-based business model, our steady-state growth algorithm is both simple and compelling. We target low single-digit revenue growth, mid-single-digit EBITDA growth, high single-digit free cash flow growth, and core business CapEx quickly compressing down towards $40 million. Looking ahead, the primary levers for growth in our core route business are one, growing organically in Illinois, Nebraska, and Georgia through both newly licensed establishments and converting competitor 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 in markets where this is permitted and is otherwise profitable. And four, preparing ourselves for future opportunities in new states likely to legalize local gaming in the future. Outside of our core business, our M&A pipeline remains active, as demonstrated by the Fairmont announcement. We also expect to provide an update on Louisiana before year end. 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 billion 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. As a prime example of these opportunities, I'm going to turn it over to Mark.