Ladies and gentlemen, thank you for standing by, and welcome to the Accel Entertainment Fourth Quarter and Full Year 2020 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions]. I would now like to hand the conference over to your speaker today, Matthew Ellis. Thank you. Please go ahead.

Welcome to Accel Entertainment's fourth quarter and full year 2020 earnings call. Participating on the call today are Andy Rubenstein, Accel's Chief Executive Officer; and Brian Carroll, Accel's Chief Financial Officer. 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 and the current health concerns. 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. 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 Mr. Andy Rubenstein.

Thanks, Matt. Good morning, everyone. Thank you for joining us for Accel's Fourth Quarter and Full Year 2020 Earnings Call. We had a strong start to the fourth quarter, but as everyone is aware, Illinois VGTs were shut down for the second time on November 19. Similar to last time, we reduced our cash burn and furloughed idle employees, but unlike the last shutdown, we were allowed to install, swap, and upgrade our VGTs. We took this opportunity to clear most of our backlog and position Accel and our location partners for a strong relaunch. In mid-January, regions throughout the state began to reopen with limited gaming hours. By February 5, all regions returned to normal hours of gaming operations with limited indoor dining. As reported in the IGB data, Accel generated more than $48 million of gaming revenue in February, the best month in our history despite extreme temperatures, multiple snowstorms and only being 28 days long. Revenue at locations opened in both February 2020 and February 2021 was up almost 20%, mostly driven by the higher bet limit software and the additional six VGTs. These initial results continue to demonstrate the resilience and strength of our local business model. Turning to M&A. It was a busy quarter and start to 2021. On December 30, 2020, we acquired American Video Gaming, a Northern Illinois operator for $30 million. The integration went smoothly, and we are pleased to welcome American Video Gaming’s 49 locations to the Accel family as well as Will, Barry, and John Filer, whose family has owned and operated American Video Gaming for more than 70 years. This acquisition further demonstrates our ability to find well-run, financially attractive opportunities that complement our business. On March 2, we announced our expansion into the Western United States, with the acquisition of Century Gaming, a route operator in Montana and Nevada as well as a manufacturer of gaming terminals. Century has more than 8,500 gaming terminals in over 900 locations. We expect them to generate $220 million of revenue and $20 million of adjusted EBITDA in 2021. We will pay $140 million, implying a purchase multiple of seven times adjusted EBITDA. We have full confidence in Steve Arntzen and his management team to continue successfully running the business and look forward to sharing and implementing the best practices of both companies. While we like the financial economics on their own, I would like to spend some time discussing additional benefits of the acquisition. Century brings two new states to the Accel family, further diversifying our geographical footprint outside of Illinois. Century owns Grand Vision Gaming, which designs gaming software and assembles gaming terminals. A proprietary terminal known as Power Vision is exclusively provided on Century's Nevada route. Grand Vision is also licensed to sell gaming terminals in Montana, South Dakota, West Virginia, and Louisiana. While Grand Vision will not be able to sell gaming terminals in Illinois because Accel cannot hold both the terminal operators’ license and a manufacturer and distributors’ license in its home market, we think this offering will be valuable and a differentiator in other states. Finally, Century designs and owns Gamblers Bonus, a popular player rewards product offered at their Nevada locations. While play rewards have not yet been approved in the Illinois market, we believe this technology, combined with our own expertise, will provide a powerful and cost-effective platform to launch our own product when and if appropriate. Before turning it over to Brian, our CFO, to walk you through our results in more detail, I would like to briefly discuss one final item. On December 18, we received a disciplinary complaint from the IGB alleging violations of the Video Gaming Act and the IGB’s adopted rules for video gaming. The complaint seeks to fine Accel $5 million. Reiterating our previous public comments, we intend to vigorously defend the company against the allegations in the complaint, and we deny any allegations of wrongdoing. We filed our initial answer to the IGB's complaint on January 11 and have begun the administrative hearing process. As this is an open matter, we cannot take questions or comment further. Over to you, Brian.

Thank you, Andy. As of December 31, we had 12,247 VGTs in 2,435 locations, year-over-year increases of 17% and 5%, respectively. The increase in locations demonstrates that Accel continues to grow despite the current COVID challenges. Our sales teams continue to sign new organic and competitor locations, and we are particularly pleased that our involuntary attrition rate on closures remains in line with the pre-COVID historical averages. The IGB scheduled eight meetings for 2021, the same number of meetings as 2019, which should allow for a return to pre-COVID levels of annual new license fees. At the end of December, our average residual contract length was approximately 6.8 years. As a reminder, in February 2018, the IGB limited agreements to no more than eight years. As of March 15, we have installed more than 1,106 VGTs and expect to install a total of 1,300 by June. For the full year, we had total revenue of $316 million and adjusted EBITDA of $34 million. For the fourth quarter, we had total revenue of $74 million and adjusted EBITDA of $5 million. The declines from prior year were due to the two shutdowns from March 16 to June 30 and November 19 to mid-January of 2021. I think it is important to note that our asset-light business model generated positive adjusted EBITDA despite being shut down over 40% of the year. Further, we continue to set new revenue and adjusted EBITDA records during the months we were open, demonstrating the resilience of our business. Our hyper-local and intimate gaming experience continues to offer players a safe and comfortable environment to enjoy our machines. CapEx was $26 million cash spend in 2020 compared to $21 million in 2019, the increase was largely attributed to the purchases of six VGTs, which were installed throughout the year. As a reminder, CapEx is primarily related to our location and VGT growth. At the end of 2020, we had approximately $176 million of net debt and $234 million of liquidity, consisting of $134 million of cash on our balance sheet and $100 million of revolver availability. With 2020 behind us, I would now like to provide guidance for 2021. We are forecasting to end the year with 13,250 to 13,400 VGTs in 2,550 to 2,575 locations. Revenue for 2021 is expected to be between $580 million to $600 million with adjusted EBITDA of $95 million to $100 million. CapEx is forecasted to be $20 million to $25 million of cash spend. Keep in mind, these amounts include the January 2021 shutdown, assume no M&A and include increased operating expenses for COVID. Back to you, Andy.

Thank you, Brian. I think everyone at Accel is focused on 2021 and glad to put 2020 behind us. I cannot fully express how thankful and proud I am of all of our employees and location partners who met and conquered the challenges we faced in 2020. They adapted throughout the year to changing mitigations and positioned Accel to emerge stronger than ever. We will now take your questions.

[Operator Instructions] Your first question comes from Jordan Bender with Macquarie.

So in terms of your 2021 guidance and the cost related to COVID, I'm coming out to roughly $1 million a month. Is that something in the range that you guys are looking at? And then should we expect similar margin levels on the Illinois operation at similar pre-COVID EBITDA levels?

This is Brian. I don't -- we have much lower anticipated expenses for COVID throughout the year. And it's -- we can discuss later where you got that from, but it's probably a fraction of that.

Okay. And then similar, will you be looking at similar margin levels on similar EBITDA levels post COVID?

Pretty close. It's still not over yet, so we still have to go through the year, but we're pretty comfortable with the guidance we provided with. Like I said, January was neutral. And so the balance of the year, what we forecasted for guidance is between $95 million and $100 million.

Okay. Perfect. And then it might be tough to differentiate because of the closing, but the stronger hold per day results you're seeing, can you kind of talk about what is coming from maybe a stronger consumer versus what you're seeing versus the increased limit?

Well, we don't have the ability to identify exactly what the cause of the increase in revenue. We're seeing kind of year-over-year increases in the range of around 20%. And that increase is a combination of the higher bet limits, larger jackpots, the addition of the six machines and the ability for the large truck stops to go from six machines to ten machines. And obviously, there is some pent-up demand as people haven't been able to play over the last few months. So the combination of all those factors clearly has increased the play. And the other part of it is there is a bit of reluctance for players to go to the casinos because of the crowds and concerns around COVID-19. We believe that we'll see continued growth in the player base because of COVID concerns, a lot of the older players still have not come back to our establishments as they are using caution in kind of reentering the entertainment society.

Our next question comes from Greg Gibas with Northland Securities.

First, I was just kind of wondering if you could talk about maybe the biggest differences and similarities between the gaming markets in Montana and Nevada compared to Illinois and maybe what attract either of those markets? And how does overall penetration or saturation compare across those spaces?

This is Andy. So I'd say there are quite a few differentiations between the two markets. The ability to have up to 15 machines in an establishment or more in those markets is definitely a real differentiator, where, obviously, we're limited to the six machines or the ten machines in the large truck stop. The other big driver is of the differences is the fact that the split of revenue between the establishment and the operator is negotiated in the Nevada and Montana markets. And therefore, more of the economics go to the establishment owner as how the market has played out. And therefore, it's discouraged investment in innovation in both those markets because there isn't as much cash flow on a per establishment basis. We believe that we can bring innovation to the market without considerable expense and help Century in both those markets kind of not just innovate, but to be able to extend their leadership in those markets. With those two opportunities, both in Nevada and Montana, I think we can assist their business and grow their same-store sales as well as their customer base.

Okay. Great. I appreciate that. And then I wanted to touch on the recent acquisition of American Video Gaming. What attracted you to that operator? Was it kind of regions in Illinois that weren't as penetrated from your current portfolio? And could you share any valuation metrics on that transaction?

Yes. I mean their route kind of overlaps a lot of our existing business and so we're very familiar with the establishments. We're very familiar with the Filer family. They have been friends of Accel for a long time. And as we were having conversations there appear to be good synergies as well as opportunities to share best practices.

Okay. Great. And I guess last one for me. I was just kind of wondering if you could comment on the size of your backlog. I don't think you did in your prepared comments and maybe the average time it will take to deploy that interacted backlog?

Yes. Our backlog continues to be significant. The deployment of it is often determined by licensing and the Illinois Gaming Board has been fairly predictable in how they license. So you can look at historical patterns and extrapolate what would happen in 2021.

Your next question comes from Steven Pizzella with Deutsche Bank.

Just on the American Video Gaming acquisition, are you able to provide the contribution you baked in for the 2021 guide?

Yes. This is Brian. If you go to the Illinois Gaming Board website, you'd see that approximately on an annualized basis is about $12 million to $13 million of revenue, gaming revenue. We do not disclose what their EBITDA contribution is.

Okay. And then can we just get maybe an update on the pipeline you see for additional legalization of VGTs in additional states? I know you guys are pretty dialed in?

Yes. I wouldn't call it a pipeline. There's a lot of states that have legislation percolating. You can kind of look through the list of legislation. We've seen Missouri and Pennsylvania with extended legislation; Virginia has potential transformation legislation. There are some other states that have kind of had discussions. There is no definitive, this is what's going to happen. We are monitoring all of the different states.

Your next question comes from John DeCree with Union Gaming.

Everyone just one question for me. Andy, I wonder if you could talk a little bit about strategy going forward as it relates to M&A and where your focus might be whether it's continuing to do tuck-ins in Illinois, if there's small stuff to do in Montana to bolt-on once the Century acquisition closes? Would Nevada be a market you'd look to expand the footprint, those as opposed to other states where VGT gaming is legal today that you don't have a foothold yet. So just big picture, what makes sense for the M&A strategy going forward?

Yes. I would say that we are actively looking beyond Illinois. I think there's real opportunity to bring our best practices into other states and with partners in other markets. That being said, Illinois has always provided opportunities for us to grow. I think the combination of growing Illinois, but more importantly, the focus of increasing our national footprint will tap in simultaneously.

A follow-up to that. Maybe, Andy, is, are there any states outside of Nevada and Montana that look particularly interesting and would potential transaction look more like the Century acquisition where there's a little bit of scale to it rather than maybe a smaller move perhaps like Georgia was?

I would say the smaller moves will continue to happen, and there are some transformational acquisitions out there, whether they're in 2021, 2022, or 2023 is not clear, but we're very open to continuing to grow the business. As we identify companies like Century that are good partners for us, and our cultural fit will continue to bring them into the Accel family.

There are no further questions at this time. I will now turn the call back to Andy Rubenstein for closing remarks.

Yes. I just wanted to thank everyone for joining us today. We're looking forward to a very strong 2021. Hopefully, this is the last conversation that we have on a call related to COVID-affected earnings. Wishing everyone a good week, and thank you for joining us.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.