Executive Summary / Key Takeaways

• Accel Entertainment ($ACEL) continues to demonstrate robust financial performance, with Q3 2025 revenue increasing 9.1% year-over-year to $330 million and Adjusted EBITDA growing 11.5% to $51 million, driven by strategic expansion and operational efficiencies.
• The company's core distributed gaming model, supported by proprietary technology and a disciplined approach to capital allocation, underpins consistent growth in established markets like Illinois and Montana, while rapidly scaling profitability in developing regions such as Nebraska and Georgia.
• Strategic acquisitions, including Toucan Gaming in Louisiana and the Fairmount Park racino in Illinois, are successfully integrating and contributing to revenue, with Fairmount Park expected to be a significant EBITDA contributor by 2026.
• Accel maintains a strong balance sheet, bolstered by a recently refinanced $900 million credit facility, providing ample liquidity for growth investments and shareholder returns through an opportunistic share repurchase program.
• Key initiatives like the rollout of Ticket-In, Ticket-Out (TITO) functionality in Illinois and ongoing portfolio optimization are poised to enhance player experience, streamline operations, and further improve free cash flow and returns on invested capital.

Introduction: Accel's Blueprint for Local Gaming Dominance

Accel Entertainment, Inc. stands as a leading distributed gaming operator in the United States, carving out a significant niche in the burgeoning local entertainment market. The company's core business revolves around the installation, maintenance, and operation of gaming terminals, redemption devices with ATM functionality, and amusement devices in authorized non-casino locations such as bars, restaurants, and convenience stores. This decentralized approach, spanning thousands of retail locations across ten states, provides a diversified and resilient revenue stream, distinguishing Accel from traditional casino operators. Accel's overarching strategy is a multi-pronged growth algorithm: driving organic expansion in existing markets, scaling profitability in developing and new markets, maintaining financial discipline, and returning capital to shareholders through opportunistic share repurchases.

Accel's journey began in Illinois in 2012, establishing a foundational presence that has since expanded into Georgia (2020), Iowa (2021), Montana, Nevada, and Nebraska (2022), and Pennsylvania (2023). This geographic diversification culminated in a transformative 2024, marked by strategic acquisitions like Toucan Gaming in Louisiana and the Fairmount Park racino in Illinois, significantly broadening its operational scope and market reach. The company's history is characterized by a continuous focus on providing turnkey, full-service gaming solutions and robust customer support, which has been instrumental in building strong partnerships with local businesses.

Technological Edge and Operational Moats

Accel's competitive advantage is significantly bolstered by its technological capabilities and operational expertise. The company's wholly-owned slot machine manufacturer, Grand Vision Gaming (GVG), designs and manufactures proprietary gaming terminals and software. This in-house capability allows Accel to develop and deploy gaming content and systems specifically tailored to increase average profitability per store. GVG is actively updating its operating platform to ensure product availability across Accel's diverse markets, enabling a more holistic and aggressive approach to market opportunities and acquisitions.

Beyond proprietary content, Accel is advancing the rollout of Ticket-In, Ticket-Out (TITO) functionality in its largest market, Illinois. This innovation is designed to enhance player convenience by allowing seamless transitions between games without repeated cash-outs and re-ins, thereby mimicking a more integrated casino experience. TITO is also expected to streamline operations, reduce cash handling costs, and mildly decrease collection expenses. While still in its early stages with mid-single-digit utilization, management anticipates TITO's usage to grow into double digits by the next reporting period, with noticeable impacts on cash balances and overall performance expected well into the second quarter following the Q3 2025 report. These technological differentiators contribute directly to Accel's competitive moat by improving operational efficiency, enhancing the player experience, and supporting market share gains and profitability.

Competitive Arena

Accel operates in a highly fragmented yet attractive local gaming market, estimated to be over $15 billion nationally. Competition in distributed gaming is fierce, based on service responsiveness, product popularity, content, features, quality, functionality, and reliability. Accel differentiates itself through its scale, localized execution, and customer-focused services. In markets with statutory revenue splits, such as Illinois, Georgia, and Pennsylvania, where pricing is not a factor, Accel's focus on location and customer experience, player appeal, and reputation are critical. In markets with negotiated splits, including Montana, Nevada, Nebraska, Iowa, and Louisiana, pricing becomes a key driver in contract negotiations.

Accel's ability to implement technology from its Grand Vision operations, coupled with its experience in operating reward systems in Montana, Nevada, and Nebraska, provides a competitive edge. The company's bundled services, encompassing both gaming and amusement devices, can lead to lower operating and maintenance costs for its partners. While direct quantitative comparisons with all niche competitors are challenging to ascertain, Accel's strong performance in Illinois, where it posted market-wide Gross Gaming Revenue (GGR) growth of 4% year-over-year, outperforming Illinois casinos which were down 3% year-over-year on a comparable basis, suggests robust market penetration and operational effectiveness. However, Accel faces vulnerabilities from regulatory dependencies and potential technological gaps compared to rivals like Light & Wonder (LNW) with its advanced content or Everi Holdings (EVRI) with its integrated payment technology. The fragmented Louisiana market, for instance, presents an opportunity for Accel to upgrade legacy equipment and outperform competitors by implementing best practices and proprietary technology.

Financial Performance: A Story of Resilient Growth

Accel Entertainment's financial performance in the third quarter of 2025 underscores the resilience and effectiveness of its distributed gaming model. Total revenue for the quarter increased 9.1% year-over-year to $330 million, contributing to a nine-month total net revenue of $989.5 million, an 8.3% increase over the prior-year period. This growth was primarily fueled by higher net gaming revenue, an increase in gaming locations and terminals, and a significant boost from ATM fees and other revenue, which now includes contributions from racing operations.

Net income for Q3 2025 reached $13 million, a substantial increase from $4.9 million in the prior-year period, while Adjusted EBITDA grew 11.5% to $51 million. For the nine months ended September 30, 2025, Adjusted EBITDA stood at $153.9 million, an 8.5% increase year-over-year. This profitability expansion reflects strong top-line growth coupled with disciplined cost management. Operating income for the quarter was $25 million, up 16.1% year-over-year. The effective tax rate for Q3 2025 was 25.20%, a notable decrease from 42.20% in the prior-year period, primarily driven by the change in the fair value of contingent earnout shares, which is considered a discrete tax item.

Cash Flow and Capital Management

Accel maintains a robust liquidity position, with $290.2 million in cash and cash equivalents as of September 30, 2025. The company's primary short-term cash needs include operating expenses, contingent earnout payments, property and equipment purchases, debt servicing, and its share repurchase program. Net cash provided by operating activities for the nine months ended September 30, 2025, increased by $12.1 million to $119.8 million, largely due to higher deferred income taxes and favorable changes in working capital.

In September 2025, Accel significantly strengthened its financial foundation by completing a new $900 million senior secured credit facility, comprising a $300 million revolving credit facility and a $600 million term loan, both maturing in 2030. This refinancing enhanced liquidity, extended debt maturities, and lowered the company's cost of capital. The weighted-average interest rate on borrowings was approximately 6.50% as of September 30, 2025, benefiting from interest rate caplets hedging $300 million of the term loan. Accel was in compliance with all debt covenants and expects to remain so for the next 12 months. The company's net debt stood at approximately $305 million, indicating a conservative leverage profile.

Accel also actively returns capital to shareholders, repurchasing $6.8 million of common stock in Q3 2025, bringing year-to-date repurchases to $23.7 million. The Board of Directors replenished the share repurchase program back to $200 million in Q4 2024, demonstrating a commitment to shareholder value.

Strategic Initiatives: Fueling Future Expansion

Accel's strategic roadmap is designed to capitalize on the fragmented local gaming market through a combination of organic growth, market optimization, and targeted acquisitions.

Core Market Optimization and Innovation

In its core markets, particularly Illinois, Accel is focused on continuous route optimization. This involves strategically pruning underperforming locations, with 54 such locations closed in 2024 in response to a 1% state gaming tax increase. This disciplined approach aims to improve financial performance and free cash flow by redeploying assets into higher-yielding accounts. Management expects this process to lead to stable machine counts but a growing average revenue per machine, with the average profitability of locations noticeably improving later this year and into 2026. The ongoing rollout of TITO functionality in Illinois is a key operational innovation, expected to enhance player experience and operational efficiency.

Developing and New Market Scaling

Accel is successfully scaling its developing markets, Nebraska and Georgia, which both delivered strong double-digit revenue growth in Q3 2025 (30% and 49.3%, respectively). These markets are tracking toward continued expansion through 2026, consistent with the company's long-term model. While Nevada experienced a 7.4% revenue decline in Q3 2025 due to the loss of a key customer in 2024, management noted that, net of this customer, revenue grew slightly year-over-year, and the team is optimizing its operating footprint for higher margins. The company is actively transitioning new locations in Nevada and expects continued growth.

Strategic Acquisitions and Integration

Accel's M&A pipeline remains active, focusing on disciplined, accretive opportunities within the large and fragmented local gaming market. The primary market for bolt-on acquisitions is Louisiana, where the Toucan Gaming acquisition in November 2024 has been successfully integrated, contributing $9 million in Q3 2025 revenue. This acquisition added 670 terminals across nearly 100 locations, and Accel is optimizing routes for higher returns, viewing Louisiana as a mature but unsophisticated market ripe for upgrades with proprietary technology.

The acquisition of Fairmount Park - Casino Racing in December 2024 marked Accel's entry into the casino and horse racing segment. Phase 1 of the casino, featuring approximately 255 electronic gaming devices and enhanced food and beverage amenities, opened in April 2025, becoming Illinois's first racino. Fairmount Park has shown strong player engagement and sequential monthly revenue growth, supporting management's long-term confidence in its contribution through gaming, food and beverage, and a sports betting partnership with FanDuel. Fairmount Park is expected to be a significant contributor to Adjusted EBITDA by 2026, with Phase 2 development, including a permanent casino with over 600 slot machines, targeted for completion by the end of 2027.

Outlook and Guidance: Charting a Course for Sustained Returns

Accel Entertainment's outlook for the coming periods is characterized by a commitment to sustained growth and improved returns, underpinned by its resilient business model and strategic initiatives. The company is affirming its full-year 2025 capital expenditure forecast of $75 million to $80 million. This allocation includes $39 million to $41 million for legacy markets, $5 million to $7 million for Louisiana, and $31 million to $32 million for Fairmount Park, with the latter encompassing initial construction for Phase 2. Following the completion of the Fairmount and initial Louisiana projects, normalized annual CapEx is expected to return to a range of $40 million to $45 million, which management anticipates will provide an encouraging boost to free cash flow and returns on capital.

Management's rationale for this outlook is rooted in the continued optimization of its Illinois route, where stable machine counts and growing average revenue per machine are expected. The TITO rollout in Illinois is projected to show noticeable impacts on cash balances and performance well into the second quarter following the Q3 2025 report. Fairmount Park is anticipated to become a significant contributor to Adjusted EBITDA by 2026, with valuable insights from Phase 1 informing the scope and timing of Phase 2. Developing markets like Nebraska and Georgia are expected to continue their market expansion through 2026, consistent with long-term expectations. Accel's priorities remain clear: driving steady growth and efficiency in core markets, scaling profitability in developing and new markets, and maintaining financial discipline while returning capital to shareholders through opportunistic share repurchases.

Risk Factors: Navigating the Landscape

While Accel Entertainment demonstrates strong operational and financial performance, investors should be aware of several pertinent risks. Macroeconomic factors, including ongoing interest rate uncertainty, persistent inflation, and potential tariffs, could increase the risk of an economic recession and volatility in capital markets. These conditions may adversely impact location partners and players' disposable incomes, potentially affecting gaming activity and, consequently, Accel's revenues and cash flows. Although the company has not observed material impacts from these factors in the first nine months of 2025, it continues to monitor conditions closely and may take responsive actions.

Interest rate risk is another consideration, given Accel's $600 million in floating-rate debt. A 1% increase in underlying interest rates could negatively impact future earnings and cash flows by approximately $3 million annually, though this risk is partially mitigated by interest rate caplets hedging a portion of the term loan. Furthermore, legislative changes, such as the One Big Beautiful Bill Act signed in July 2025, impact the timing of certain tax deductions, leading to shifts between current and deferred tax expenses, though not affecting the overall effective tax rate. Regulatory dependencies and potential technological gaps compared to larger, more innovation-focused competitors also present ongoing challenges that could affect Accel's market positioning and growth trajectory.

Conclusion

Accel Entertainment has established itself as a formidable player in the distributed gaming sector, leveraging a resilient business model, strategic geographic expansion, and a commitment to operational excellence. The company's disciplined approach to growth, evident in its core market optimization, successful integration of new acquisitions like Toucan Gaming and Fairmount Park, and ongoing technological enhancements such as TITO, positions it for sustained financial performance. With a strong balance sheet, robust cash flow generation, and a clear strategic vision for both organic and inorganic growth, Accel is well-equipped to capitalize on the attractive and fragmented local gaming market. The company's ability to drive consistent revenue, EBITDA, and free cash flow growth, while prudently managing capital and returning value to shareholders, underscores its compelling investment thesis. As Accel continues to refine its operations and expand its footprint, its technological leadership and localized service model are expected to be key drivers in delivering improving returns into 2026 and beyond.