Ladies and gentlemen, thank you for standing by, and welcome to the Accel Entertainment Q1 2020 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Mathew Ellis, SVP of Corporate Strategy. Thank you. Please go ahead, sir.

Welcome to Accel Entertainment's First Quarter 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.

Thank you, Mat. Good morning, everyone. Thank you for joining us for Accel's first quarter 2020 earnings call during these unprecedented times. Accel had normal operations for the first 76 days of the first quarter with strong operational and financial performance prior to the shutdown. Gaming revenue increased 29% compared to the first 76 days of 2019. As a reminder, on March 16, the Illinois Gaming Board shut down all video gaming terminals across the state of Illinois. And on March 20, Illinois Governor, Pritzker, announced a stay-at-home order that has been subsequently extended to May 30. As soon as terminals were shut down, we immediately began collecting all field cash on an expedited basis. We were able to collect and secure field cash within 72 hours with the vast majority collected within the first 2 days. This was a monumental logistical achievement, and I'm extremely proud of our team for their ability to execute on such short notice. With our video gaming machines shut down and all nonessential business in Illinois temporarily suspended, we made the decision to significantly reduce our monthly cash expenses. This included furloughing the vast majority of our employees. In addition, Accel senior management, including myself; our CFO, Brian Carroll; our General Counsel, Derek Harmer; and others, are foregoing 100% of our respective base salaries until video gaming operations resume. By taking these measures, Accel's projected monthly cash expenses have been reduced to the range of $2 million to $3 million monthly while operations are suspended. We have also been in frequent contact with our location partners to assist them during these turbulent times. We've been working with our partners to make sure they are aware of, and in many cases, helping them apply for all federal, state and local government assistance programs, such as…

Thank you, Andy. We had a very busy first quarter prior to the shutdown with large-scale rollout of the 6 VGT beginning in mid-January. As of March 31, we operated 11,164 VGT in 2,353 locations, year-over-year increase of 41% and 35%, respectively. Our combined hold per day for the first 76 days we were operating in the first quarter FY '20 was $124. Excluding Grand River, our first quarter hold per day was $132. At the end of March, our average residual contract length is approximately 7 years. And on a stand-alone basis, excluding Grand River, our residual contract length is approximately 7.2 years. We are in the process of upgrading Grand River's equipment and operation and will continue once operations resume and expect these improvements will increase the hold per day of these locations. We had total revenue for the first quarter of $105 million, an increase of 8% from 2019. Gaming revenue for the first 76 days of the quarter totaled $101 million, which was 29% higher than the first 76 days of 2019. Adjusted EBITDA for the quarter totaled $15 million. CapEx remained limited with approximately $3.7 million cash spend in the first quarter compared to $5.6 million in the first quarter 2019. The majority of this CapEx was associated with purchases of new equipment for the 6th machine rollout. At the end of the first quarter, we had approximately $207 million of net debt and $216 million of liquidity, consisting of $167 million of unrestricted cash and $50 million of revolver availability. In mid-March, we drew down the remaining $65 million available to us on our delayed draw term loan. We are in full compliance with all of our bank covenants. And given our substantial cash balance and expected cash expenses of $2 million to $3 million per month, we believe we have multiple years of liquidity without needing to raise any outside capital to run the business. Back to you, Andy.

Thank you, Brian. These are challenging times, but I've been extremely proud of how the Accel team has responded to the current environment. I'm confident that Accel will continue to provide the same great customer service we've been known for. The combination of our strong balance sheet and our asset-light business model means that we are well positioned to successfully maintain our leadership position in the industry. We will now take your questions.

[Operator Instructions] Your first question comes from the line of a participant whose information was unable to be gathered. Caller, please state your first and last name and your company.

This is Stephen Grambling from Goldman Sachs. Just wanted to get a little more color on the location commentary. So you mentioned that -- I think it was 90% will be open within 3 days. I guess what's the commentary on the other, call it, 10%? Are those -- should we be expecting further delays in opening? Or have you had any sense for how many might close permanently? And then also, is there any color that you're getting from interest from other restaurant bars that may be planning on adding VGTs to improve cash flow of their business in a recovery scenario where fewer customers come through the door?

So the first part of the question, the 10%, there will be some locations that will not open. We've seen probably about 15 to 20 of our locations that have indicated that they are not opening or will not be continuing with video gaming. So that's -- that number is a little less than 1%. And to give you an idea, on an annual basis, there's about 120 of our locations that discontinue gaming. So it's not really that disproportionate from the normal operation. We do believe that there will be additional locations that will not open for one reason or another. You have to remember a lot of these locations are taking advantage of government subsidies during this time period. So if they're getting those subsidies, they're going to continue taking that subsidy until the latest possible date for them to make a decision. So we really don't have a great grasp on how many won't reopen. There are a lot of locations that are taking this time to do remodeling, to redo their floors, and they may not be prepared to open up right out of the gate. And then there's other ones that are going to have a transition time where they've got to bring employees back. They need to do -- if they don't have enough time, they need to reorder supplies and such. So we're -- in our survey, 90% were ready to go right out of the gate. Those others, some of them will not open, but most of them will delay the opening due to time needed for preparations. Remind me the second part of your question?

It was just on any incremental thoughts around new business win potential as maybe some of these restaurants and bars may plan to add VGT to improve their cash flow in a recovery, especially where fewer customers come through the door.

I think you see some of that. I don't think it will be a significant wave of demand. Ironically, we have signed up locations during this time period and have a few of them where we've actually submitted their application to the gaming board. So there is that indication that people are still wanting VGTs, and there will be that opportunity. I think the bigger opportunity that we'll see is where locations that fail or don't reopen, whether it's our portfolio or other people's portfolio, will be identified as good opportunities for other entrepreneurs to go open up that place. And as we've indicated in the past, we are able to win a disproportionate amount of new locations or new organic locations. So we think we'll benefit somewhat from that situation as these new owners take over establishments, especially the ones that aren't ours. We'll win them over from our competitors.

Makes sense. And then one other follow-up. Are there any steps to increase hygiene or the safe use of the machines once restaurants reopen? And how do you kind of assess those costs, whether it's on your end or the restaurant owner's end?

As a company, we've made a significant investment in buying sanitizing products, whether it's the actual -- like hand sanitizer or sprays to help keep our employees clean as well as when our employees go out to the establishments. We believe that the gaming board is going to give us direction on how to -- or what their expectation is for keeping the equipment clean and safe because the establishments have an obligation to provide an atmosphere of safety for their customers. I think they'll participate in helping us execute on that program. We have also purchased a significant amount of masks for our own employees because, obviously, they're out in the field, they're in establishments. We want to make sure there's a safe environment for them to work in. And -- but we believe that it's probably the responsibility of each establishment owner to provide those types of protections for their employees as they're conscious and they're more aware of the safety needs in their given establishment.

[Operator Instructions] Your next question comes from the line of Greg Gibas.

First, if we think about the general weakening, I guess, of state budgets across the nation as a result of the pandemic, do you see this as a potential reason for accelerating the legalization of video gaming terminals in new states?

As I've spoken in the past about the challenges related to passing legislation related to video gaming, that will continue to exist. But with that said, I think the ability to get legislation passed in this environment will be slightly easier or people will be more willing to consider it. We don't see legislation moving in this session in states that we thought had a good opportunity. We -- it actually hurt us in the state of Virginia when legislation was moving in the right direction and the governor decided to take a different direction because of COVID-19. But I do think the opportunity will be there. I do think that it will get larger consideration as we move forward. I don't think it will happen in the very near future. I think it will have to be down the road in other legislative sessions because most of the focus today is on the -- like absolute immediate needs of each state. And the amount of collaboration that needs to occur to get video gaming legislation passed is significant, and it doesn't happen overnight. So I don't see it happening right away.

Okay. That makes sense. And now that several of the gaming board meetings have been canceled, is there any concern relating to the pace, I guess, of new license being issued? And do you expect the gaming board to maybe make up for that lack of new license approvals when they start to hold meetings again?

So that's a good question. So I think what will occur is the work that was done prior to the shutdown will all get kind of pushed through. So you get a lot of licensing from there. The -- what will happen -- what unfortunately will happen is there'll be time lost outside of the obvious time that we haven't met and that in order for them to do licensing, they have to do an on-site investigation. And the state agents are not visiting the locations because, obviously, they're closed. So I think you'll see a backlog that will occur sometime between -- next meeting's in June, we don't know if it's going to be scheduled, but until the first actual meeting after they're able to go out to the location. So that will create a lot of locations that will be pushed into the queue that are not in the queue today. So the short answer is, yes, we're going to have a delay. The second answer is I do think there'll be a catch-up, but I think it will be later than we think. It probably won't occur until like September. And then I think there's basically a bunch that will be lost because people that started the licensing process or intending to move forward with gaming may have decided you know what, this isn't the right environment for me to start a new business, and I'm going to hold off. So you'll see a little fallout from that as well.

Okay. Got it. That's helpful. And then the last one for me was just relating to the installation of the 6 machines this year, which began January. It looks like you're about halfway to your expectation of 1,000 installs from this. But I guess I was just wondering how the shutdown generally affected the installs, if in any way at all. I mean are you still able to make these installations even if the establishments are shut down? And I guess if you could just talk about the pace of those 1,000 new installs being roughly on track with your expectations?

So when shutdown occurred, shutdown occurred. And in shutdown, our -- the gaming board shut down our ability to deliver and install machines. So the last machine that we reported we installed is the last machine that has been installed. We would love to get out there and be able to go into locations and put out the 6 machines. Until the gaming board allows or the governor deems our business part of preparation for relaunch, we're not able to install machines. And so it will create a delay. For the most part, we got a large percent of our best locations getting the 6 machines, so they'll have higher utilization than the second half. And I do anticipate us exceeding that 1,000 machine number by the end of the year. I just don't know based on how many locations come back and how many locations get licensing that will -- the actual number will be.

Your next question comes from the line of John DeCree.

I'd like to go back to an earlier question. Andy, and I'm sure you're probably still waiting on some additional guidance from the state. But wanted to get your thoughts on the reopening process, maybe a little bit more color on how you envision it. I guess the simple question is when you get the green light from the state, can you kind of flip the switch on right away? Or will it take some time to get your teams out and get machines back on? I guess how quickly can you get up and running? And then a follow-up to that is how you envision other than kind of increased hygiene and cleanliness. I mean, the casinos are talking about spacing out of slot machines, et cetera, obviously, smaller locations that you're in. But curious if you expect any kind of changes to your configurations, social distancing, anything else that you might think you might be required to look at?

So ideally, on the preparation needed to fully launch effectively or relaunch effectively, we'd need somewhere around 7 to 10 days heads up from the state. We have begun all the preparatory planning to be ready. But the biggest thing that we'll have to do is actually go out to all these establishments and make sure the machines are in good operating order, reload cash that we've pulled from all of the redemption devices. That's going to take some time. I mean there's really no way around it. At the absolute shortest amount of time we could probably move within about, call it, 4 days, but we're going to need time from the state. Based on conversations with the Illinois Gaming Board, they think that we'll get about a week's notice. We are working actively with them to having -- to get them to allow us to do some of the work we need in the field prior to even knowing an exact relaunch date and we'll see. They were receptive. Obviously, they need the governor's green light for that to happen. As far as the distancing and spreading of machines and sanitization, one of the things that we all need to realize is what -- our presence inside a tavern or a convenience store or a restaurant is no different than a customer who's eating there. And so if you're going -- if the state is going to say that there's going to be 6 people allowed at a table, that's a smaller distance than the 6 people who are sitting on our slot machines. So a typical table, tables may be 3 feet by 6 feet or 2 feet by 6 feet, you could have 6 people sitting at that table. They're not -- the governor is not…

That makes sense, Andy. I think that's helpful. And if I could, one more, on a quick update on the software updates to higher bet limits, I think you've mentioned some of that can be done remotely. Not sure if you could kind of give us an update on progress for that and how many will need physical site visits to get those -- that software upgraded once we open back up again. And that's all for me.

Yes. Thanks, John. So just for everyone's knowledge, the equipment, the software that's made by SCi Games at this point, the most current version, it will allow us to have the higher bet limits and bigger jackpots. All the Scientific Games software needs to be loaded physically onto the machines. Their software was designed -- this latest version of software was not designed to be able to be sent remotely. So until the next version of their software, we're going to have to go out and do that on every machine. All the IGT software can be sent throughout remotely. So we've got IGT. That's a yes, we can do it remotely. And the SCi Games is a no. They are about 50-50 of our portfolio. We have a small percentage of our machines from NOVOMATIC. They can do -- they could be done remotely. I think most of them have already been done. It's the SCi Games software that's the challenge. We haven't been -- it's not -- it wasn't ready to be loaded onto the machines when the stay-at-home order was put in place. So we haven't done anything with it. We're hoping that they'll be ready as soon as we're out -- able to go out to the machines. I mean they've had plenty of time. The question is whether or not the gaming board has given the approval for that software.

There are no further questions at this time. I will turn the call back over to Mr. Rubenstein.

Thank you, everyone, for joining us today. We're hoping that the next time we're on the phone, we can let you know about some decent revenue in the -- towards the end of the second quarter. And we appreciate you taking your time out of your day. And hopefully, everyone stays healthy and safe. Thank you.

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