Good day, and thank you for joining us. Welcome to the Accel Entertainment Quarter 1 2021 Earnings Call. I would now like to turn the call over to your speaker today, Mr. Mathew Ellis. Please proceed.

Welcome to Accel Entertainment's first quarter 2021 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 first quarter earnings call. We were thrilled with the play to start the year. We set a new revenue and adjusted EBITDA record despite being closed for more than half of January. Q1 gaming revenue was $140 million, a year-over-year increase of $38 million. The $38 million increase is broken out as follows: Existing locations contributed $35 million to the increase, meaning same-store sales growth of 34%. Acquisitions and new locations net of closures contributed $8 million to the increase and the reduction in operating gaming days due to COVID shutdown from 76 days in Q1 2020 to 72 days in Q1 2021 had a negative impact of $5 million. These primary drivers of the increase in existing locations were the higher bet limit software, the 6 VGT, and improvements we made to optimize machines at our locations during the most recent shutdown. March is typically the best month for our industry, and this year was no different. The strong performance continued into April, where we actually earned more revenue per day than March. We've been cautious with our guidance as we evaluate the short-term impact of the recent stimulus. We also understand we are currently one of the few forms of available entertainment for our players; however, with strong play continuing each passing week, we have more confidence that the elevated revenue we are realizing is a new normal. We are also encouraged by the vaccine progress and recent comments about a full reopening this summer in Illinois, as we believe we are still missing many of our historical players either due to caution or reduced indoor bar and restaurant capacity. We believe that the pandemic introduced our product to many new players as a more convenient option than casinos, and we believe that many of those new players will stay with us post-pandemic. At the same time, we also expect to gain back the aforementioned players we have not seen. Based on the sustained strong performance and other factors just mentioned, we've increased our guidance, which Brian will walk you through shortly. Turning to growth. We see opportunities in new markets, both organic and inorganic. Last year, we entered Georgia in a small way, but we still see upside. Then earlier this year, we announced a large expansion into Nevada and Montana through our acquisition of Century. Our M&A pipeline remains active, and we expect to announce more opportunities in the future. Speaking of Century. We're working through the regulatory applications, and we expect to close in late 2021. Century is also performing better than our original estimates. As we get closer to closing, we will provide more updates on Century's latest performance and our integration plans. On the organic front, we are cautiously optimistic that several states will consider distributed gaming. While the recent Senate vote in Missouri did not go the way we wanted, there is still significant momentum for gaming to be legalized in the future. We will continue to monitor the various opportunities across the country and provide updates when appropriate. We believe our growth playbook established in Illinois will enable us to be successful in any future market. With that, I turn it over to Brian to walk you through the numbers in more detail.

Thanks, Andy. As of March 31, we had 12,720 VGTs in 2,470 locations, year-over-year increases of 14% and 5%. Also, attrition continues to mirror the pre-COVID historical averages. Revenue per location per day for the first quarter was $784, a year-over-year increase of 37%. As Andy discussed earlier, the primary drivers of the increase were the higher bet limit software, the 6 VGT initiatives, and improvements we made to optimize machines at our locations during the most recent shutdown. At the end of March, our average residual contract length was approximately 6.7 years. As of April 30, we've installed more than 1,200 6 VGTs and expect to install a total of 1,300 by June. A handful of municipalities still only allow 5 VGTs, so this number could increase should they change their ordinances. For the first quarter, we had total revenue of $147 million and adjusted EBITDA of $26 million, year-over-year increases of 38% and 74%, respectively. CapEx was $2 million cash spend in the first quarter compared to $4 million a year ago. At the end of the first quarter, we had approximately $157 million of net debt and $249 million of liquidity, consisting of $173 million of cash on our balance sheet and $76 million of revolver availability. Based on the player behaviors and the favorable trends, Andy discussed earlier, I would now like to provide revised guidance for 2021. We are now forecasting to end the year with 13,375 to 13,525 VGTs, and 2,575 to 2,600 locations. Revenue for 2021 is now expected to be $650 million to $705 million with adjusted EBITDA of $117 million to $127 million. To refresh, this includes the fact that the first 15 days of the year were without gaming, and Illinois was not fully reopened until the first week of February. CapEx is still forecasted to be $20 million to $25 million of cash spend. All of the revised amounts assume no M&A and minimal impact from COVID-19. Finally, I want to briefly discuss the amended 10-K we filed yesterday. Based on the recent staff statement issued by the SEC and in consultation with our auditors, we reclassified our warrants from equity to a liability and recorded the change in the value of our warrants on our income statement. The SEC pronouncement was primarily directed towards companies that became public through mergers with special-purpose acquisition companies and was not specific to Accel. Also, the change resulted in no impact on cash or adjusted EBITDA and nearly all the warrants were exchanged for A1 shares in Q3 2020. As always, we are committed to following the latest accounting guidance and we'll continue to hold ourselves to the highest standards. Back to you, Andy.

Thanks, Brian. We are extremely pleased with our performance this quarter and excited by the continuing strong performance. Our asset-light hyper-local business model creates a platform to weather difficult times and thrive as the country reopens. Please know our success would not be possible without the dedication of our employees and establishment partners. We will now take your questions.

Your first question comes from the line of Jordan Bender of Macquarie.

There was a pretty large acquisition in the space a few weeks ago. I was just looking to get your thoughts on. Does this change anything from a competitive standpoint? Could it make it harder for you to maybe convert some of these locations over to sell now?

Please clarify which acquisition you're discussing.

The J & J Ventures.

With IGS?

Yes.

We don't think it will have any real impact, and we're continuing to progress on our own plans to continue to grow organically within the market.

Okay. And then the follow-up on the growth comments. I think in the past, you've talked about the need for a casino in Downtown, Chicago in order for, I guess, politicians to start to look at legalization of distributed gaming in Cook County. With an RFP underway in that market, for that casino, is there any change in your thought or anything that you're hearing that we could start to hear some movement for the Downtown Chicago area?

Yes. I would say that the timeline is still long. The RFP is going to take a while. It's going to take a while to build a permanent casino. I don't think the issue will be addressed until some significant time of operation of the permanent casino. So, we're looking at quite a few years. So it's not in our budget in the near future.

Your next question comes from the line of Omer Sander from JP Morgan.

Congratulations on the strong results. I have a question regarding sustainability and the strong demand trends. How do you view the impact of reduced capacity during the first quarter, especially considering the shutdown in early January?

I believe there are two factors contributing to the reduced capacity. First, there are fewer people allowed inside the facility, which has a minimal impact since we only have six machines. However, it does affect attendance because people are hesitant to go out as the experience has changed. The more significant factor is that some individuals, particularly older members of our player base, are still uncomfortable with going out to social venues. We haven't seen many of these players return, which could represent a replacement for some of the demand we experienced in March. I think things will balance out eventually, and we'll welcome those customers back, supporting our continued growth in same-store sales.

I think that's helpful. One question on M&A is whether there are other operators in Illinois that present some opportunities. Considering you're at 27% to 28% market share in the first quarter, how much more potential is there in that area?

We're hopeful that there'll be other opportunities to work with some of the operators that see that we have a value proposition that offers a unique experience for the establishment as well as their ability to merge in to contribute to what we're doing. So there's still opportunities, and we're continuing to explore those opportunities, and we'll see how that goes.

Your next question comes from the line of John DeCree.

I have two questions. First, Andy, could you provide some insight into your backlog? In the presentation, you mentioned that there is still a strong backlog of contracted locations awaiting activation. Can you share more details on whether these are primarily new openings or conversions? As we progress through the reopening, how has that backlog developed? Has it increased as business has picked up? Any insights would be appreciated.

Yes, I think we've shown in the first two license periods that we've successfully secured a larger share of the licenses than our market share indicates. Looking ahead, we've had some success with individuals looking to start new businesses or those who have taken over businesses that closed last year. As confidence in the economy grows and we see more reopening, I believe the second half of 2021 into 2022 will show a strong trend of reopenings and growth from our backlog.

Got it. Understood. And to pivot to the higher max bet and payout, I believe you mentioned that the upgrades are nearly complete. Wondering, as we look at the strong demand and revenue per day across your machines, if you have a sense of how the higher max bet machines are performing relative to those that have not yet been upgraded. I guess, we're all kind of trying to decipher how much is pent-up demand and stimulus checks versus how much is some of those structural changes that the new regs in Illinois had afforded you? Probably a tough question this early, given all the noise, but.

Yes, there is a lot happening, but I can provide some clarity. Most establishments generating significant revenue have already been upgraded to the maximum bets and higher jackpots. Therefore, we are unlikely to see much more growth, as nearly everyone has been improved. Regarding pent-up demand compared to the new norm, we observed a noticeable surge in the first weeks of March when the stimulus checks were distributed, followed by a normalization that continued into April and early May. Nevertheless, we are still experiencing seasonality, which may be somewhat heightened following the economic reopening. It seems that these enhancements have established a new standard of play, and we have attracted new customers who previously visited casinos. When the pandemic restrictions eased last July, and we reopened in January, many customers found our establishments to be a convenient alternative to their casino trips. While they may return to casinos, it will likely be at a reduced frequency since they see that we offer similar equipment with good payouts and an excellent experience, all while being much more convenient.

Your next question comes from the line of Greg Gibas of Northland.

Congrats on the strong results. First, I was just kind of wondering if you could provide a general update on how penetrated do you think the Illinois market currently is. And maybe, I guess, the level of opportunities you're still seeing for new location penetration in the state?

As far as the overall market, I mean, I still see that the market is growing. And you'll always have growth in kind of that replacement where there's people always that fail in their business and new businesses reopen, either in their place, in that same establishment or within that market. So we see that cycle continue to occur maybe at a more reduced factor going forward. But because we've been able to obtain a solid pipeline, historically, and going forward, we'll continue to grow as we outperform our market share.

Okay. Great. And if I could, I guess, ask about the M&A pipeline. You said it remains active. Is that pipeline mostly new market-oriented or kind of focused on adding additional Illinois operators?

Yes, we are working on both fronts. We have found opportunities in some new markets that currently do not have gaming, and we have also recognized opportunities in Georgia that we have taken advantage of in the past. We believe that Century will help us enter other markets. While we will continue to pay attention to Illinois and the opportunities there, our growth moving forward will likely be more concentrated in states outside of Illinois.

Okay, great. I have one last question. I want to follow up on the backlog. You've mentioned it's still quite healthy. Can you provide some insight into whether many locations that recently reopened are now more interested in adding VGTs to their establishments? Are you seeing demand levels similar to what you experienced in Q4 and early 2021? I’m trying to understand the dynamics since everything reopened, especially since you mentioned that you expect the second half of 2021 to improve.

Yes. I believe that most new establishments include VGT revenue in their budgets, indicating a strong expectation for gaming. My focus on the latter half of 2021 and into 2022 stems from the increasing confidence among small business owners in starting new ventures as the economy improves and the most challenging times of COVID seem to be behind us. Consequently, the risks associated with opening a new business have diminished. Many are considering reopening businesses that closed during COVID, such as the local bar in their town, and are motivated by the relatively low risk because the infrastructure is already in place. This positive mindset is creating new opportunities in our pipeline for the next 12 to 18 months.

Your next question comes from the line of Steve Pizzella from Deutsche Bank.

I wanted to get your thoughts on the various bills related to expanding VGTs. They seem to be progressing slowly compared to some of the sports betting legislation, which is interesting given the tax revenues that VGTs generate for the states. How are you all considering this situation?

The legislation for video gaming terminals is always difficult. Historically, it doesn't pass in new states very often. Legislators tend to view sports betting as a trend sweeping across the United States, looking for their market to be part of it. Video gaming terminals represent a form of gaming that was only available in a few states until recently. While the revenue potential for states that adopt this gaming is significant, there are often challenges from existing casino operators within those states. There are individuals involved in skill-based or sweepstakes gaming who oppose a regulated video gaming terminal market. Additionally, there is often anti-gaming sentiment in various states. However, we see considerable opportunity in states that recognize the value of video gaming terminals and the revenue they can generate to support small businesses. This will always be challenging, but in the coming years, the opportunities are greater than ever. In both Georgia and Missouri, legislation came very close to passing. We hope that some legislators will understand the benefits we can offer to their budgets, enabling this legislation to advance in the next session or two.

Okay, that's helpful. Following up on that, how has online sports betting affected your business? What are your thoughts on the potential of iGaming if it were legalized in Illinois? Do you see any opportunities there?

So, in general, sports betting has been beneficial for our business. It encourages more conversations about gaming and, more importantly, attracts people to bars to watch games and enjoy a social atmosphere with others who are interested and may be placing bets. This brings individuals to the venue, allowing them to discover VGTs and providing them with another gaming option while they're there. Overall, I believe it's been positive, and our regulators have done a commendable job in its implementation. We also believe that iGaming could have a similar favorable impact on the market, although we're uncertain about the legislative process and implementation. Our hope is that it becomes accessible to anyone with a gaming license or the ability to obtain one, and we remain optimistic about our participation in offering players an additional way to enjoy gaming.

And we don't have any questions over the phone. Mr. Rubenstein, please continue.

Yes. So I just wanted to thank everyone for joining us today. We are very optimistic on the rest of 2021, and we look forward to reconnecting with you at the end of the next quarter. Thank you.

And this concludes today's conference call. Thank you for your participation. You may now disconnect.