Ladies and gentlemen, thank you for standing by, and welcome to the Accel Entertainment Q4 2019 Earnings Call. [Operator Instructions] I would now like to turn the call over to Mr. Mathew Ellis, Senior Vice President of Corporate Strategy. Please go ahead.

Thank you. Welcome to Accel Entertainment's Full Year 2019 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 & 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, Mat. Good morning, everyone. Thanks for joining us for Accel's 2019 Full Year's Earning Call and our 2020 Outlook. Our record fourth quarter results punctuated an exciting conclusion to a truly transformational year in 2019 here at Accel. We had record results and positioned ourselves well to capitalize on the many growth opportunities that are in front of us. 2019 was a year that delivered a number of significant events for Accel's future growth. First, we completed our business combination with TPG Pace Holdings to become the first publicly listed gaming-as-a-service company. This gives us a number of advantages, most notably differentiated access to the institutional capital markets and the ability to attract top-tier talent to expand beyond Illinois, as we will discuss later. The transaction resulted in an initial enterprise value of approximately $1 billion. This was a very successful transaction for Accel and all of our shareholders, both original and new. I cofounded Accel with the vision of delivering industry-leading service quality, strong regulatory compliance and focus on strong small business partnerships, which could be a powerful means of differentiation in the high-growth gaming-as-a-service sector. Second, our M&A pipeline has never been better. The opportunity to acquire Grand River Jackpot quickly became available and closed in late September. This was a strategic addition to our Southern Illinois portfolio. With the addition of Grand River, we are the only terminal operator with comprehensive state-wide coverage and have a strong position in the St. Louis area to launch the Missouri expansion if the recently proposed VGTs legislation there passes. While only a few months have passed since the closing, Grand River field operations have already been fully integrated into our operations, and we are actively working to optimize legacy Grand River locations, machine mix as well as their marketing,…

Thank you, Andy. We had a very busy fourth quarter. We completed our business combination with TPG Holdings and continue the integration of Grand River Jackpot. As of December 31, we operated 10,499 VGTs in 2,312 locations. This is the first quarter in which Grand River locations are in our results for the full quarter. Our combined hold per day for the fourth quarter of 2019 was $122. Excluding Grand River, our fourth quarter 2019 hold per day was $131, a 3% year-over-year increase over the fourth quarter of 2018. At the end of 2019, our average residual contract length is approximately 6.9 years. And on a stand-alone basis excluding Grand River, our residual contract length is approximately 7.2 years. We are now in the process of upgrading Grand River's equipment and operations. And as a result, their hold per day should increase. Also, as we renew their contracts and extend their life, our blended contract length will improve as well. We had total revenue for 2019 of $424 million, an increase of 28% from 2018; and adjusted EBITDA of $80 million, which represents a 25% increase from 2018. Both of these figures only include approximately 1 quarter of contribution from Grand River. We had total revenue for the fourth quarter 2019 of $121 million, which is an increase of 33% from the same period in 2018; and adjusted EBITDA of $21 million, an increase of 23% from the same period in 2018. We were able to partially offset the recent 3% Illinois gaming tax increase, which is 1.5% tax increase to Accel, with solid operating leverage at the G&A level. As a reminder, as part of the recent Illinois gaming legislation, the tax increase went in effect on July 1. But for the 2019 year, the corresponding revenue enhancers,…

Thank you, Brian. I'm excited about the opportunities in front of us and our position to capitalize on them. In summary, we have a great pipeline of future organic and inorganic growth, a strong balance sheet to make smart investments and a differentiated business model that should allow us to maintain strong growth rates and provide excellent service quality to our customers. I am particularly excited about Ryan and Michael joining our team. We are already the fastest growing company in the gaming space, and we look to further accelerate our expansion with their additional bandwidth and expertise. I've been very pleased to see the investor interest in Accel, and we will endeavor to continue our investor outreach and education to allow for a greater understanding of our unique position in the gaming sector and how we intend to drive returns for our shareholders. Obviously, at this time, it is tough to handicap the duration and severity of coronavirus. I continue to be focused on the wellbeing of our stakeholders, which are our employees, partners, customers and suppliers, and I'm not trying to minimize the challenges that this current environment presents or will continue to present. But we, as a company, are well positioned. We will now take your questions.

[Operator Instructions] Your first question today comes from the line of Greg Gibas of Northland Securities.

First, when we think about the mix of terminals from Grand River typically having those lower holds per day, looks like the blended hold per day metric comes to around $122. So I guess, as you implement your strategy to kind of maximize the performance of those terminals in those acquired locations, how long do you think it takes to maybe begin to see those get closer to that $130 range that you've had with kind of the legacy terminals?

This is Andy. We don't expect it to get to the $130 level. Their performance is handicapped by the types of location they're in and the demographics of those areas. They're in more rural and lower income municipalities. They also are in places where they have a very limited exposure to gaming parlors because there is not the concentration of population. So we're expecting the optimization of the equipment to help our performance but nowhere near the performance of the rest of the portfolio. I would say the expectation is to get it more -- to get that performance closer to par of comps in the areas that those -- that their establishments are located. And that's probably a 5% to 7% lift is -- would be our guess. We're seeing some performance improvement already, but it's going to take a while for the players to understand -- to know that there's the same quality of machines and the right machines in there, where those players may have locked their locations or play elsewhere, to come to their locations.

Got it. I appreciate that color, Andy. And then secondly, roughly what stage are we at with respect to the installation of the additional sixth VGT establishments that already had 5? I know this began in January. But when we think about installing sixth machines coming to about 1,000 locations by the end of Q3 this year, like you said, how should we think about those being weighted? Would it be pretty equally across the quarters? Or do you expect maybe a majority to come earlier in the year?

So as we focus, we try to get those machines out as quickly as possible where there was the greatest demand in terms of performance for those machines. We were slowed initially because the Gaming Board just kind of sprung it on us and didn't give us the rules of how we were going to do it. So we've continued to increase the velocity that we're deploying these machines. So I would expect that we'll easily have most of the equipment out there sooner rather than later. And on a good week now, we're probably deploying in excess of 60 VGTs, where in the past it was probably less than half that amount. So it's rapidly increasing. And I wouldn't be surprised if we put up 100 VGTs in 1 week on a good week. So we're making progress, and I think you'll see that when the VGTs get turned on.

Okay. Great. That's good to know. And then did you -- or maybe can you break down the backlog just in terms of what would be competitive conversions versus maybe the ones that are just installing a sixth VGT? And then maybe just new establishment wins, can you break down that backlog?

So competitive conversions, we really don't want to get in detail on that. As far as the sixth VGTs, we have at least 600 locations in the backlog will probably exceed that number, I don't know by what amount. As you get deep -- as the number gets closer to 1,000, the quality of those locations and the performance of that sixth VGT will probably decline because they're the lower part of our portfolio. And what was the last question?

Well, I guess, just a breakdown in terms of the backlog that is competitive conversions versus maybe new establishments, have you broken that out?

Yes, there's far more new establishments always than competitive conversions. We have -- you can kind of see on the Gaming Board's website the pending locations. And you can see the trends of new licenses that will -- that we're getting. We're working pretty consistently to kind of maintain those levels. And as far as the competitors, like I said before, we're -- we have a good pipeline, but we don't want to go into detail on it.

Your next question comes from the line of Stephen Grambling of Goldman Sachs.

I'm sorry for being a little bit myopic here, but it seems to be the topic du jour in most of our investor conversations. Can you just walk through some of the measures you're taking to mitigate some cost pressures amidst the COVID-19 outbreak and maybe talk through what your different levers of liquidity are? And also, any thoughts that you may have on your customers' balance sheets as well, if you have any insight onto that?

So I'll address the first one. We don't have visibility to our customers' balance sheets. Like our customers, we have much more variable costs than fixed costs. So we are pretty well positioned to absorb this situation for a significant amount of time. We're still operating today just like we were yesterday. Our revenue is -- was pretty good yesterday. We expect it to be decent today. And then we go into the period where we'll have no revenue for 14 days. The reality of our situation is we are a very local business and we are the place where people are most comfortable to get their entertainment because they know the people who are -- most of the people who are patronizing their establishment. It's kind of -- I used the kind of phrase, "We're the place where everybody knows your name." And that will be and it has been the sanctuary where people have gone for entertainment. And our numbers have not felt significant strain during this period. And a lot of our establishments are in towns that have very little communication with the big cities, and they have seen almost no impact. So we believe we're really well positioned. We have the ability to turn off a lot of our variable costs as our people aren't traveling and we don't have the normal expenses related to mobility around the state. And a lot of our hourly employees, who work part-time or such, will be engaging in activities in the interim to prepare us to relaunch. And what that involves is we're initiating a sanitation -- sanitization project that we think will be very effective.

That's helpful. And I guess, one other follow-up on that. Are there things that you're consciously thinking about as you look at the situation and think about different contingencies about how you could change your sales, marketing or general strategy to ensure that you can gain share coming out? Or is there any prior examples that you can think of where there was maybe some changes to any local areas that could have driven the opportunity for market share gains on the back end of this?

Yes, we're very conscious of not trying to utilize the situation to create a competitive advantage. We're trying to be good partners for existing businesses. And we believe by doing the right things and helping them sanitize their establishments, we're going to demonstrate that we are a good business partner. And when people make the selection in the future, we'll be able to point to, this is what we've done. And time and time again, establishments choose Accel because we are the best business partner for a small business owner.

[Operator Instructions] Your next question in queue comes from the line of John DeCree of Union Gaming.

I apologize, Andy, if you've already addressed this. I was a little late to hop on. But I wanted to ask about the software updates for taking higher bets and having the higher payout. I wasn't sure if you provided a status update on that. And if you've seen -- if it's out and operating, if you've seen any noticeable uptick in play on games that have that update?

Yes. So there's been a limited deployment of them because many of the manufacturers' software has not been fully approved through the testing process with the Illinois Gaming Board. And the ones that we have deployed, we've seen an uptick, but it's such limited numbers that we can't project based on it. One of the things that we should be aware of is the -- there's 2 major manufacturers in this industry in Illinois, IGT and Scientific Games. IGT, we will be able to deploy their software through our central system directly to the machine, so it should be a very rapid deployment. Unfortunately, Scientific Games software upgrades are not compatible with the central system, and we will have to go load them on each individual machine throughout the state. The IGT product makes up, call it, 46%, 47% of our equipment, and the balance is the Sci Games. There's about 1% or less of everyone else's equipment.

Okay. That's helpful. I appreciate that update, Andy. And again, forgive me if you've already discussed this. But Missouri, a target new market potentially with some legislation hopping around the house. Would you be able to give us a quick update on kind of what you're seeing legislatively in Missouri?

Yes. I mean the House is very positive, I think it's House Bill 2088. But it's going to have to get through the Senate. And while there's some optimism, you don't -- I mean it's really hard to predict whether or not that legislation is going to make it through.

And at this time, there are no further questions in queue. I turn the call back to the presenters for any final remarks.

Yes. I just want to thank everyone for joining the call and appreciate your understanding and patience during this difficult period. Accel is doing everything we can to be good partners, to make sure of the safety and health of our employees. And we look forward to coming out of this stronger than we have ever been. So thank you for calling, and we look forward to the next time with better news. Thanks.

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