Executive Summary / Key Takeaways

• Resilient Growth Engine: Accel Entertainment (ACEL) demonstrates robust performance in the fragmented $15 billion local gaming market, achieving record Q2 2025 revenue of $335.9 million (+8.6% YoY) and Adjusted EBITDA of $53.2 million (+7.1% YoY), driven by strategic expansion and operational optimization.
• Strategic Diversification & M&A Acumen: Recent acquisitions, including Toucan Gaming in Louisiana and Fairmount Park Casino & Racing in Illinois, are successfully expanding Accel's footprint into new geographies and the racino segment, with Fairmount's Phase 1 casino opening in April 2025 already contributing to revenue.
• Technological & Operational Edge: Accel leverages proprietary gaming content, systems, and manufacturing capabilities (Grand Vision Gaming) to enhance player experience, optimize location profitability, and gain market share, exemplified by the Illinois TITO rollout and Montana's content strategy.
• Disciplined Capital Allocation: The company maintains a strong balance sheet with $264.6 million in cash and $127 million in credit facility availability (as of June 30, 2025), supporting an active M&A pipeline and a replenished $200 million share repurchase program, while projecting normalized CapEx of $40 million to $45 million post-2025.
• Favorable Competitive Positioning: Accel differentiates itself through a vast, localized network, superior service, and a holistic entertainment offering that consistently outperforms traditional casinos in its core markets, positioning it strongly against both direct and indirect competitors.

The Local Gaming Landscape and Accel's Foundation

Accel Entertainment, Inc. (ACEL) stands as a prominent force in the burgeoning U.S. local gaming market, a segment estimated at over $15 billion nationally. This market, characterized by its resilience and growth potential, forms the bedrock of Accel's business model. The company's core operations revolve around the installation, maintenance, and servicing of gaming terminals, redemption devices with ATM functionality, and amusement devices in non-casino venues such as bars, restaurants, and convenience stores.

Accel's journey began in Illinois in 2012, where it meticulously built its expertise in distributed gaming. This foundational experience honed its approach to local market dynamics, customer relationships, and regulatory compliance. Over the years, Accel strategically expanded its footprint, entering Georgia in 2020, Iowa in 2021, and further into Montana, Nevada, and Nebraska in 2022. This geographic diversification, coupled with a series of targeted acquisitions in 2024—most notably Toucan Gaming in Louisiana and Fairmount Park Casino & Racing in Illinois—has transformed Accel into a multi-state operator with a diversified revenue stream, including a strategic entry into the brick-and-mortar casino and horse racing segments.

The company's overarching strategy is one of disciplined expansion, focusing on accretive M&A opportunities in the fragmented local gaming market that often fly "below the radar of larger operators." This approach, combined with continuous operational optimization within its existing routes, aims to generate consistent revenue, Adjusted EBITDA, and free cash flow growth. Accel's decentralized model, spreading capital across thousands of retail locations, provides inherent diversification and flexibility, allowing it to efficiently allocate resources in response to local demand and market dynamics.

Technological Edge: Powering the Player Experience

Accel's competitive strength is significantly underpinned by its technological differentiation and a commitment to enhancing the player and partner experience. The company's core technology encompasses proprietary gaming content, advanced gaming systems, and efficient redemption devices. Through its wholly-owned subsidiary, Grand Vision Gaming (GVG) in Montana, Accel also designs and manufactures gaming terminals and related equipment. This vertical integration provides a unique advantage in controlling product quality, innovation, and supply chain.

The tangible benefits of this technological focus are evident across its operations. In Montana, for instance, the rollout of proprietary gaming content and systems is specifically "designed to increase average profitability per store." This direct link between technology and financial performance underscores its strategic importance. Similarly, in Illinois, the phased rollout of "Ticket In, Ticket Out" (TITO) technology, which began in late July 2025, is a significant operational and player-centric innovation. TITO is expected to "provide a better player experience, lower field cash needs and potentially lower our operating expenses" by allowing players to seamlessly switch between games without repeated cash-outs and re-ins. This mimics a more traditional casino experience, enhancing convenience and potentially increasing play duration.

Accel's R&D initiatives, particularly at GVG, are geared towards continuously updating its operating platforms to support product availability across all its markets. This ensures that its distributed gaming routes in Montana, Nevada, Nebraska, and Georgia benefit from cutting-edge equipment and software. The strategic intent behind these technological investments is clear: to build a stronger competitive moat, drive operational efficiencies, and secure market share gains. For investors, this translates into a business capable of sustaining higher average revenue per location, optimizing cost structures, and enhancing overall profitability through a differentiated and continuously improving product offering.

Competitive Arena: Accel's Differentiated Play

Accel Entertainment operates in a dynamic and competitive landscape, where it strategically positions itself as a leader in the distributed gaming niche. Its competitive standing is shaped by a blend of operational excellence, localized market penetration, and a commitment to superior service.

Direct competitors in the broader gaming equipment and solutions space include major players like Light & Wonder , Everi Holdings , and PlayAGS . While these companies often boast broader portfolios and significant R&D budgets, Accel differentiates itself through its specialized focus on non-casino locations and its comprehensive, turnkey solutions. Light & Wonder (LNW), for example, excels in global gaming content and digital innovation, but Accel's strength lies in its deep understanding and execution within the local retail environment. Everi Holdings (EVRI), with its strong financial technology and payment solutions, offers integrated systems, yet Accel's holistic entertainment package, including amusement devices and standalone ATMs, often provides a more complete offering for its retail partners. PlayAGS (AGS) emphasizes creative game designs, but Accel's operational execution and consistent refresh of equipment in its establishments, offering "very similar games to what they see in the casino" with multi-game options, often lead to a superior local player experience.

Accel's competitive advantages, or moats, are multifaceted. Firstly, its extensive network of partnerships with thousands of licensed establishments across 10 states fosters strong customer loyalty and generates stable, recurring revenue streams. This localized presence allows Accel to be highly responsive to market demands and build deep relationships, a critical differentiator against larger, less agile competitors. Secondly, its proprietary technology, including gaming content and systems developed through GVG, provides an edge in product performance and operational efficiency. This allows Accel to offer a differentiated product that resonates with local players and helps optimize profitability per location. Lastly, Accel's regulatory expertise across 11 different regulatory structures is a significant barrier to entry for new players and a complex challenge for less experienced operators.

Despite these strengths, Accel faces vulnerabilities. Its regulatory dependencies mean changes in state gaming taxes, such as the 1% increase in Illinois in July 2024, can directly impact profitability and necessitate strategic adjustments like the pruning of underperforming locations. While Accel invests in technology, potential technological gaps compared to the R&D capabilities of larger, globally-focused competitors could pose a long-term challenge, requiring continuous investment to maintain its product edge.

Indirect competition comes from online gaming platforms like FanDuel (with whom Accel also partners at Fairmount) and traditional brick-and-mortar casinos. Accel strategically counters these by emphasizing the convenience and local accessibility of its offerings. Players can access a high-quality slot gaming experience "in 15 minutes or less from their home," without the need for a dedicated trip to a larger casino. This "local convenience" and the "multigame offering" on single machines contribute to Accel's consistent outperformance of Illinois casinos, which were down 1% year-over-year in Q3 2024 while Accel's Illinois GGR grew 5%. This demonstrates a clear customer preference for Accel's model, especially in an environment where consumers are becoming "a little more prudent" with their entertainment spending.

Financial Performance: A Story of Growth and Optimization

Accel Entertainment's financial performance in the first half of 2025 underscores its strategic effectiveness and operational resilience. The company reported record quarterly revenue of $335.9 million in Q2 2025, an increase of 8.6% year-over-year. For the first six months of 2025, total net revenues reached $659.8 million, up 7.9% from the prior year. This growth was primarily fueled by a 7.1% increase in net gaming revenue, reflecting an expanded footprint of 27,388 gaming terminals (+3.4% YoY) across 4,427 locations (+3.1% YoY) as of June 30, 2025. A significant contributor was the 171.1% surge in ATM fees and other revenue in Q2 2025, which included the initial contributions from the newly opened Fairmount Park Casino & Racing operations.

Profitability metrics, while showing some fluctuations due to specific items, generally reflect a healthy underlying business. Adjusted EBITDA for Q2 2025 was $53.2 million, growing 7.1% year-over-year, and for the first six months, it reached $102.7 million, up 7.1%. The TTM EBITDA margin stands at 12.33%. Operating expenses saw increases in line with growth, with general and administrative expenses rising 17.9% in Q2 2025 due to higher compensation costs as operations expanded. Depreciation and amortization of property and equipment also increased 21.3% in Q2 2025, reflecting the growing number of gaming terminals deployed. However, other expenses, net, decreased 44.1% in Q2 2025, primarily due to lower fair value adjustments of contingent consideration liabilities.

Net income for Q2 2025 was $7.3 million, a decrease of 50.2% year-over-year, and for H1 2025 was $21.9 million, a slight decrease of 0.6%. This decline was largely influenced by a $5.7 million loss in Q2 2025 (and a $3.4 million loss in H1 2025) from the change in fair value of contingent earnout shares, a non-cash item driven by the market value of Accel's Class A-1.00 common stock. This also significantly impacted the effective tax rate, which rose to 41.2% in Q2 2025 from 21.2% in the prior year.

Accel's liquidity position remains robust, with $264.6 million in cash and cash equivalents and $127 million of availability under its credit facility as of June 30, 2025. This strong liquidity supports its ongoing operations and strategic initiatives. Net cash provided by operating activities increased by $6.9 million to $64.6 million in H1 2025, primarily due to favorable working capital adjustments. While net cash used in investing activities decreased by $9.4 million to $60.0 million in H1 2025 (due to fewer large acquisitions in the current period), net cash used in financing activities increased by $26.3 million to $21.3 million, reflecting higher net debt repayments and increased share repurchases. The company is in the preliminary stages of refinancing its Senior Secured Credit Facility, aiming to do so before it becomes current, and remains in compliance with all debt covenants.

Capital allocation is a key focus, with the Board approving a replenishment of the share repurchase program back to $200 million in February 2025. In H1 2025, Accel repurchased 1.62 million shares for $16.9 million, demonstrating its commitment to returning capital to shareholders.

Segment Deep Dive: Core, Developing, and New Markets

Accel's diversified portfolio is strategically managed across core, developing, and new markets, each contributing uniquely to its growth narrative.

Core Markets (Illinois and Montana): These established markets are expected to scale platforms for higher margins and free cash flow. Illinois, the company's largest market, saw its distributed gaming revenue grow by 3.9% in Q2 2025, with location hold-per-day increasing by 5.6% to $910. Operating margins in Illinois improved by 70 basis points in Q2 2025, reflecting the benefits of scaled infrastructure and strategic game enhancements. Accel continues a program of "pruning" underperforming locations, having strategically closed 54 in 2024 to optimize profitability following a 1% state gaming tax increase. This initiative aims for flat near-term unit growth but with positive impacts on EBITDA and returns on invested capital. Montana's distributed gaming route revenue grew 2.6% in Q2 2025, bolstered by the rollout of proprietary gaming content and systems designed to increase average profitability per store. However, consolidated Montana revenue declined due to timing on software sales from Grand Vision Gaming as it updates its operating platform.

Developing Markets (Nebraska, Georgia, and Nevada): These markets are targeted for meaningful increases in revenue and operating margins, leveraging prior infrastructure investments. Nebraska and Georgia are fast-growing, demonstrating impressive Q2 2025 revenue growth of 26.1% and 53.5%, respectively. Both states are successfully taking market share with superior service, attractive redemption products, and gaming infrastructure. Nevada, while experiencing a 7.7% revenue decline in Q2 2025 due to the loss of a key customer in late Q3 2024, has shown slight growth excluding this customer and improved margins through operational optimization.

New Markets (Louisiana and Fairmount Park): These recent expansions are poised for significant revenue growth, albeit with initial lower margins due to investment in operating platforms. The Toucan Gaming acquisition in Louisiana (November 2024) contributed approximately $10 million in Q2 2025 revenue, and management anticipates additional synergies and performance gains into next year as it optimizes and remodels truck stops and introduces proprietary technology. Recent Louisiana legislation allowing for additional video gaming machines per route location and at truck stops further enhances growth prospects. Fairmount Park Casino & Racing, acquired in December 2024, marked Accel's entry into the racino market. Phase 1 of the casino, featuring 271 gaming positions, opened on April 18, 2025, generating $9.5 million in Q2 2025 revenue and $0.53 million in Adjusted EBITDA. Management expects Fairmount to ramp up steadily and become a "significant contributor" to Adjusted EBITDA growth by 2026, with a long-term target of $20 million to $25 million annually for the full build-out (Phase 1 & 2). Phase 2 planning is underway, with a thoughtful approach to design and capital stewardship, and more clarity expected after the racing season concludes in October 2025.

Strategic Outlook and Growth Levers

Accel Entertainment's outlook is one of sustained growth, driven by a clear strategic roadmap. Management anticipates generating near- and long-term increases in revenue, Adjusted EBITDA, and free cash flow, capitalizing on the inherent strengths of its business model and market opportunities.

The core route business is projected to follow a "steady growth algorithm" targeting low single-digit revenue growth, mid-single-digit EBITDA growth, and high single-digit free cash flow growth, assuming normalized capital expenditure levels. This organic growth will be fueled by expanding in newly licensed establishments and converting competitor locations in key markets like Illinois, Nebraska, and Georgia. Operational execution and strategic positioning in the face of favorable legislation are expected to drive profitability in Nebraska and Georgia.

M&A remains a critical growth lever. Accel's pipeline is active, focusing on "disciplined, accretive transactions" in the fragmented local gaming market. The company's ability to leverage its scale, proprietary technology, and operational expertise provides a distinct advantage in acquiring smaller assets that are often overlooked by larger operators. This strategy is expected to continue expanding Accel's footprint without over-leveraging its balance sheet.

Capital expenditures are forecast at $75 million to $80 million for full-year 2025, including $39 million to $41 million for legacy markets, $5 million to $7 million for Louisiana, and $31 million to $32 million for Fairmount Park (covering Phase 1 completion and initial Phase 2 planning). Crucially, following the completion of these significant projects, normalized annual CapEx is expected to return to a lower range of $40 million to $45 million**, which management projects will provide an "encouraging boost to free cash flow and returns on capital." This disciplined approach to capital deployment underscores a commitment to long-term shareholder value.

Accel also actively monitors legislative opportunities in states like Pennsylvania, Virginia, North Carolina, and Missouri for potential legalization of local gaming. North Carolina, in particular, is a focus due to its revenue needs and gaming history.

Risks and Challenges

Despite its strong position, Accel faces several pertinent risks. Macroeconomic factors, including ongoing interest rate uncertainty, persistent inflation, and increased tariffs, could impact player disposable income and the financial health of location partners. While no material impacts beyond higher compensation costs were observed in H1 2025, these factors remain a watchpoint.

Regulatory dependencies are a continuous challenge. The 1% state gaming tax increase in Illinois in 2024 directly impacted profit margins, necessitating strategic location pruning. The volatility of the contingent earnout share liability, tied to the market value of Accel's common stock, can also introduce fluctuations in net income and the effective tax rate. Furthermore, the company's CFO transition in May 2025 introduces a period of leadership change, though Mark Phelan's appointment as acting CFO provides operational continuity.

Competitive pressures, particularly from larger, more technologically advanced players or the rise of iGaming, could pose long-term threats. While Accel believes its route gaming model offers superior consumer protection and is less likely to be the first target for iGaming legislation, the company must continuously invest in its technology and service to maintain its edge. The loss of a key customer in Nevada in late 2024 highlights the ongoing need for strong customer retention and diversification.

Conclusion

Accel Entertainment has firmly established itself as a resilient and growing leader in the U.S. local gaming market. Its compelling narrative is built upon a foundation of strategic geographic expansion, a disciplined M&A approach, and a relentless focus on operational excellence and technological differentiation. The company's ability to consistently deliver record revenues and Adjusted EBITDA, even while integrating significant acquisitions and optimizing its existing portfolio, speaks to the strength of its decentralized business model and its deep understanding of local player preferences.

With a healthy balance sheet, a clear capital allocation strategy, and a commitment to leveraging its proprietary technology and extensive network, Accel is well-positioned to capitalize on the vast untapped potential within the $15 billion local gaming market. While macroeconomic headwinds and regulatory shifts present ongoing challenges, Accel's proactive management, strategic investments in new markets like Fairmount Park, and continuous innovation in player experience (such as the TITO rollout) reinforce its competitive moat. For discerning investors, Accel Entertainment offers a compelling opportunity for sustained growth and attractive returns in a fundamentally strong and expanding segment of the gaming industry.