Business Overview: A Decade of Steady Growth and Diversification
Accel Entertainment, Inc. (ACEL) is a leading distributed gaming and local entertainment operator in the United States, providing turnkey, full-service gaming solutions to bars, restaurants, convenience stores, truck stops, and fraternal and veteran establishments across the country. The company's strategic combination of operational excellence, technology-driven innovation, and disciplined capital allocation has solidified its position as a preferred partner for local business owners in the markets it serves.
Accel Entertainment was founded in 2012 and began operations in Illinois, where it was licensed by the Illinois Gaming Board (IGB) as a terminal operator. The company's core business model revolves around the installation, maintenance, and operation of gaming terminals, redemption devices, and amusement equipment in authorized non-casino locations. Accel's strong relationships with its location partners, coupled with its unwavering commitment to customer service and regulatory compliance, have been instrumental in driving its success.
In its early years, Accel Entertainment focused on establishing itself as a preferred partner for local businesses in Illinois, offering a turnkey, full-service gaming solution. The company worked closely with the IGB to ensure compliance with all applicable gaming regulations. This foundational work laid the groundwork for Accel's future expansion and success.
Over the years, Accel has steadily expanded its geographic footprint, with operations now spanning across eight states, including its home state of Illinois, as well as Montana, Nevada, Nebraska, Georgia, Iowa, Louisiana, and Pennsylvania. This diversification has not only mitigated the company's exposure to regional economic fluctuations but has also enabled it to capitalize on emerging opportunities in new markets. Accel's expansion was facilitated by strong relationships with key manufacturers, developers, and third parties who provided the gaming terminals, amusement machines, and related supplies that Accel deployed in its partner locations.
During its growth period, Accel faced significant legal challenges. The company was involved in a series of legal disputes stemming from claims that it had wrongly contracted with certain licensed establishments in 2012, allegedly violating the contractual rights held by another operator. This litigation was protracted, involving multiple lawsuits and appeals. However, the dispute was ultimately resolved in Accel's favor through decisions by the Illinois courts and the Illinois Gaming Board, which affirmed the validity of Accel's contracts.
In addition to its core distributed gaming business, Accel has strategically diversified its revenue streams through acquisitions. In 2022, the company purchased Century Gaming, Montana's largest gaming operator and a leader in the Nevada gaming market. This acquisition significantly expanded Accel's presence in these key markets. Furthermore, in December 2024, the company acquired Fairmount Holdings, Inc., the owner of the FanDuel Sportsbook Racetrack in Collinsville, Illinois, for approximately $40.5 million in Accel stock. This acquisition not only provides Accel with a presence in the lucrative sports betting and casino gaming market but also allows the company to leverage its expertise in local gaming to enhance the customer experience and drive growth in this new vertical.
In November 2024, Accel further expanded its operations by acquiring 85% of Toucan Gaming, a Louisiana-based operator and owner of multiple licensed video poker establishments, for $41.6 million in cash. This move strengthened Accel's position in the Louisiana market and diversified its revenue streams.
Business Segments: Distributed Gaming, Manufacturing, and Casino & Racing
Accel Entertainment's primary business segment is distributed gaming, which accounts for the majority of its revenue and operations. In this segment, the company offers a comprehensive gaming solution to its location partners, including customer support, guidance, and expertise to help partners grow their businesses with incremental revenue. Accel installs, maintains, operates, and services gaming terminals and related equipment, as well as redemption devices and stand-alone ATMs, for its location partners. The company also provides amusement devices, such as jukeboxes, dartboards, and pool tables, to enhance the customer experience and engagement at these locations.
In addition to distributed gaming, Accel operates a manufacturing segment through its Grand Vision Gaming subsidiary. This division designs and manufactures gaming terminals and software that are sold to Montana, South Dakota, and West Virginia. In 2024, the manufacturing revenue was $12.23 million, representing a decrease of 8.4% compared to the previous year.
The company's newest segment is Casino and Racing, which was established through the acquisition of Fairmount Holdings in December 2024. This segment includes the FanDuel Sportsbook Racetrack in Collinsville, Illinois, and the planned casino development at the same location. In 2024, the acquired assets of Fairmount generated revenues of $1.4 million and net income of less than $0.1 million.
Financial Performance: Resilience and Consistent Growth
Accel Entertainment's financial performance has been characterized by resilience and consistent growth, even in the face of economic challenges. In fiscal year 2024, the company reported total revenue of $1.23 billion, a 5.2% increase from the previous year. Its adjusted EBITDA for the year reached $189 million, up 4.2% year-over-year, showcasing the company's ability to maintain profitability and operational efficiency. The company's net income for the year was $35.29 million, with annual operating cash flow of $121.19 million and annual free cash flow of $54.65 million.
In the most recent quarter, Accel reported revenue of $317.52 million, representing a 6.9% year-over-year growth. Net income for the quarter was $8.36 million, an increase of 3.7% compared to the prior year quarter.
The company's distributed gaming segment, which is its core business, generated net gaming revenue of $1.17 billion in 2024, an increase of 5.3% compared to the prior year. This growth was driven by an increase in the number of gaming locations and terminals operated by the company. Accel's amusement revenue, which represents amounts collected from amusement devices operated at its location partners, was $22.24 million in 2024, a decrease of 7.2% year-over-year.
Liquidity and Balance Sheet Strength
The company's balance sheet remains strong, with $281.31 million in cash and cash equivalents and $425 million in total liquidity as of December 31, 2024. Accel's net debt position stood at $314 million, providing the company with ample financial flexibility to pursue strategic initiatives and navigate potential economic headwinds.
Accel's capital allocation strategy has also been a key driver of its success. The company has actively invested in organic growth opportunities, such as expanding its footprint and optimizing its existing operations, while also exploring strategic acquisitions like the Fairmount transaction. Additionally, Accel has demonstrated a commitment to returning capital to shareholders, with a $200 million share repurchase program in place.
The company's debt-to-equity ratio stood at 0.135 as of December 31, 2024, indicating a conservative approach to leverage. Accel Entertainment also maintains a $150 million revolving credit facility, of which $143.5 million was available as of December 31, 2024. The company's current ratio of 2.76 and quick ratio of 2.69 as of December 31, 2024, further underscore its strong liquidity position.
Navigating Challenges and Seizing Opportunities
Accel Entertainment's success has not been without its challenges. The company has had to navigate a complex regulatory landscape, as it operates in highly regulated gaming markets across the United States. Compliance with ever-evolving state and local regulations has required Accel to maintain a strong focus on governance and risk management.
The company has also faced operational challenges, such as the need to continuously optimize its portfolio of locations and gaming terminals to maximize profitability. Accel has demonstrated its ability to proactively address these challenges, implementing strategic closures of underperforming locations and refining its sales and operating model to enhance the composition of its portfolio.
Despite these obstacles, Accel has remained agile and forward-thinking, seizing opportunities to diversify its business and drive growth. The acquisition of Fairmount, for example, has positioned the company to capitalize on the rapidly growing sports betting and casino gaming market, complementing its core distributed gaming operations.
Furthermore, Accel has been at the forefront of technological advancements in the industry, investing in innovative solutions that enhance the player experience and improve operational efficiency. The company's focus on embracing new technologies, such as the introduction of ticket-in, ticket-out (TITO) functionality in Illinois, has allowed it to stay ahead of the curve and maintain a competitive edge.
Looking Ahead: Promising Prospects and Strategic Initiatives
As Accel Entertainment looks to the future, the company remains well-positioned to capitalize on the continued growth of the distributed gaming market and the emerging opportunities in the sports betting and casino gaming sectors. With a robust pipeline of organic growth initiatives, strategic acquisitions, and technological advancements, Accel is poised to deliver sustained value for its shareholders.
In its core distributed gaming business, Accel is focused on driving profitability and optimizing its portfolio of locations, leveraging its data-driven insights and operational expertise to identify and capitalize on the most promising growth opportunities. The company's strategic closures of underperforming locations, coupled with its emphasis on high-yield establishments, have already yielded positive results, and Accel expects this trend to continue.
Moreover, Accel's expansion into the casino and racing industry through the Fairmount acquisition presents significant upside potential. The company is actively working on the phased development of the Fairmount property, with the first phase of the casino expected to open in the second quarter of 2025. This strategic initiative will not only diversify Accel's revenue streams but also strengthen its positioning in the local gaming landscape.
For 2025, Accel has provided guidance on its capital expenditures, which are expected to range between $75 million and $80 million. This includes $39 million to $41 million in existing markets, $5 million to $7 million in Louisiana, and $31 million to $32 million for the Fairmount project, covering both phase 1 and initial construction for phase 2. After these investments, the company anticipates normalized company-wide capital expenditures to return to $40 million to $45 million per year.
The phase 1 of the Fairmount Casino, set to open in the second quarter of 2025, will feature approximately 255 electronic gaming devices, 4 electronic table games, and improved food and beverage amenities. The full build-out (phase 2) is planned to include over 600 slot machines, 24 table games, enhanced food and beverage offerings, and an improved FanDuel sportsbook. Accel expects the temporary Fairmount Casino (phase 1) to generate about a third of the $25 million EBITDA that the full build-out (phase 2) is forecasted to produce.
Additionally, Accel anticipates adding $6 million of EBITDA from the Louisiana acquisition for the full year 2025, further contributing to its growth prospects.
Conclusion: A Compelling Opportunity in the Distributed Gaming Space
Accel Entertainment's track record of consistent growth, operational excellence, and strategic diversification make it a compelling investment opportunity in the distributed gaming space. The company's robust financial position, disciplined capital allocation strategy, and ability to navigate challenges while seizing new opportunities position it for continued success.
As Accel continues to execute on its strategic initiatives, investors may find the company's blend of stability, growth potential, and shareholder-friendly policies highly attractive. With a proven management team, a diversified business model, and a promising outlook, Accel Entertainment appears poised to maintain its position as a leading player in the dynamic and rapidly evolving distributed gaming industry.
The distributed gaming industry in the United States is estimated to have a compound annual growth rate (CAGR) of 3-5% over the next 5 years, driven by the expansion of gaming into new jurisdictions and the resilience of the industry during economic downturns. Accel Entertainment's strong market presence, customer relationships, and commitment to innovation and technology integration are key strengths that support its continued success in this growing market.