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Accel Entertainment (NYSE:ACEL) - A Slot Machine Operator Delivering Consistent Growth and Shareholder Returns
Published on September 24, 2024 | Ticker: ACEL

Accel Entertainment is a leading distributed gaming operator in the United States, providing turnkey, full-service gaming solutions to bars, restaurants, convenience stores, and other establishments across the country. The company has established a strong presence in key markets, including Illinois, Montana, Nevada, and Nebraska, leveraging its expertise to drive consistent growth and shareholder returns.

Financials

In the fiscal year 2023, Accel Entertainment reported impressive financial results, with annual net income of $45.6 million, annual revenue of $1.17 billion, annual operating cash flow of $132.5 million, and annual free cash flow of $50.8 million. These figures demonstrated the company's ability to generate consistent profitability and healthy cash flows, which are crucial for funding its growth initiatives and returning capital to shareholders.

Q1 2024 Performance

Accel Entertainment's first quarter of 2024 was another strong showing, with revenue of $301.8 million, a 2.9% year-over-year increase. The company's adjusted EBITDA for the quarter was $46 million, a 0.3% year-over-year increase. These results were driven by continued growth in the company's gaming terminal and location footprint, with the total number of terminals increasing 5.6% to 25,321 and the total number of locations increasing 5.1% to 3,987 compared to the prior-year period.

Geographic Breakdown

Accel Entertainment's revenue was primarily generated from its operations in Illinois, which accounted for $224.9 million, or 74.5% of total revenue, in the first quarter of 2024. The company also had a significant presence in Montana, Nevada, and Nebraska, contributing $38.1 million, $29.2 million, and $5.8 million, respectively, to the quarter's revenue.

Revenue Breakdown and Trends

Accel Entertainment's revenue was primarily derived from its net gaming operations, which accounted for $288.1 million, or 95.5% of total revenue, in the first quarter of 2024. The company also generated revenue from amusement devices ($6.1 million), manufacturing ($2.2 million), and ATM fees and other sources ($5.3 million).

The increase in total revenue was driven by a 3.1% year-over-year growth in net gaming revenue, which was partially offset by a 9.8% decline in amusement revenue. The manufacturing and ATM fees and other revenue categories saw modest increases of 4.1% and 8.8%, respectively.

The decline in amusement revenue was primarily due to unfavorable weather conditions, particularly in January, which impacted player traffic at the company's locations. However, the addition of new locations in Illinois and Nebraska helped offset this decline and contributed to the overall revenue growth.

Outlook

Accel Entertainment's management team has demonstrated a strong focus on operational efficiency, which has helped the company maintain a stable cost structure despite inflationary pressures. The company's highly variable cost structure allows it to quickly adjust to changes in the economic environment, positioning it well to navigate any potential headwinds.

Looking ahead, Accel Entertainment's pipeline of growth opportunities remains robust, with the company evaluating multiple opportunities across the country. Management is working diligently to execute on these initiatives and expects to share more details with investors in the near future. The company's strong balance sheet, with $253.9 million in cash and cash equivalents and $299 million in available credit facility as of March 31, 2024, provides ample flexibility to fund its growth plans and return capital to shareholders.

Shareholder Returns and Capital Allocation

Accel Entertainment has demonstrated a commitment to returning capital to its shareholders through its $200 million share repurchase program. During the first quarter of 2024, the company repurchased 594,817 shares at an average price of $10.60 per share, bringing the total shares repurchased under the program to 12 million at a cost of $124 million. This strategic capital allocation decision underscores the company's confidence in its long-term growth prospects and its ability to generate consistent free cash flow.

Risks and Challenges

While Accel Entertainment has delivered strong financial and operational performance, the company faces several risks and challenges that investors should be aware of. These include regulatory changes in the gaming industry, competition from other distributed gaming operators, and the potential impact of macroeconomic conditions on consumer spending and player traffic at its locations.

Conclusion

Accel Entertainment's consistent financial performance, strategic growth initiatives, and shareholder-friendly capital allocation make it an attractive investment opportunity in the distributed gaming space. The company's focus on providing unmatched customer support, guidance, and expertise to its location partners has allowed it to maintain a strong competitive position and drive consistent growth. With a robust pipeline of growth opportunities, a healthy balance sheet, and a commitment to returning capital to shareholders, Accel Entertainment appears well-positioned to continue delivering value for its investors.

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