Accel Entertainment Inc (ACEL) Q3 2024 Earnings Call Highlights: Strong Revenue Growth and …

• Revenue: $302 million, a year-over-year increase of 5.1%.

• Adjusted EBITDA: $46 million, a year-over-year increase of 3.9%.

• Terminals and Locations: 25,729 terminals in 4,014 locations, year-over-year increases of 4.1% and 2.8% respectively.

• Revenue per Location: Illinois: $839 per day (+1.7% YoY), Montana: $613 per day (+3.7% YoY), Nevada: $802 per day (flat YoY), Nebraska: $257 per day (+16.8% YoY).

• Capital Expenditures: $17 million for the third quarter; projected $60-65 million for 2024.

• Net Debt: Approximately $289 million.

• Liquidity: $538 million, including $265 million in cash and $273 million credit facility availability.

• Share Repurchase Program: 585,000 shares repurchased at $10.52 per share, totaling $6 million; 70% completed with 13.5 million shares repurchased for $140 million.

Release Date: October 30, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Accel Entertainment Inc (NYSE:ACEL) reported strong financial performance with Q3 2024 revenue of $302 million and adjusted EBITDA of $46 million, showcasing resilience in their local gaming offering.

• The company made significant progress in its pending acquisition of Fairmont Park, expected to close in early December, which includes a master sports betting license and partnership with Fanduel.

• Accel Entertainment Inc (NYSE:ACEL) demonstrated growth in its largest market, Illinois, with a 5% year-over-year increase in market-wide GGR, outperforming Illinois casinos.

• The company is optimizing its operations by strategically closing underperforming locations and focusing on high-performing sites, which is expected to enhance returns on invested capital.

• Accel Entertainment Inc (NYSE:ACEL) is actively pursuing growth opportunities through M&A, with a focus on acquiring establishments in markets where it is profitable and preparing for future opportunities in new states likely to legalize local gaming.

Negative Points

• The company faced a modest drag from recent tax increases in Illinois, impacting profitability and prompting strategic closures of underperforming locations.

• Sequential decline in location count in Illinois due to strategic closures and delays in openings caused by the cancellation of a gaming board meeting.

• The introduction of new gaming terminals led to elevated capital expenditures, with projected CapEx for 2024 between $60 million and $65 million, although expected to decrease in the longer term.

• The acquisition of Fairmont Park involves significant capital investment, with the project expected to cost between $20 million and $25 million over the next couple of years.

• The company faces challenges in the M&A market, with a narrowing bid-ask differential and the need to overcome hurdles with potential targets to reach agreements.

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Q & A Highlights

Q: Why is now the right time for location closures, and how will this affect location performance and margins in Illinois? A: Andrew Rubenstein, CEO, explained that the decision to close locations is part of an ongoing evaluation process. Recent factors such as inflation in wages and a tax hike have impacted profit margins, prompting a closer review of underperforming locations. The closures aim to redeploy equipment to more profitable locations, improving overall margins and performance.

Q: Can you provide an update on the Fairmont acquisition and its projections, particularly regarding sports betting and potential impacts of iCasino legalization in Illinois? A: Mark Phelan, President of U.S. Gaming, stated that construction costs for Fairmont are in line with projections, with the project expected to cost $20-25 million. The partnership with Fanduel is favorable and long-term. If Illinois legalizes iCasino, it could provide leverage for Accel, but the impact on route gaming is uncertain.

Q: What are the current M&A opportunities, and what challenges do you face in the market? A: Andrew Rubenstein noted that there is a fair amount of inventory in the market, with narrowing bid-ask differentials. Sellers recognize the value of partnering with Accel, which can create additional value. Opportunities are expected to increase over the next 12-18 months, particularly with small business owners.

Q: Are there any state legislations you are monitoring that could impact your business, especially with the upcoming elections? A: Mark Phelan mentioned that Accel is closely watching states like Pennsylvania, Virginia, North Carolina, and Missouri. North Carolina is of particular interest due to its need for revenue. Political changes from the elections could influence legislation in these states.

Q: How do you explain the outperformance of Accel’s Illinois market compared to casinos, and what impact will the ticket-in, ticket-out (TITO) system have? A: Andrew Rubenstein attributed the outperformance to Accel’s high-quality, local gaming offerings, which are more convenient than casinos. The TITO system is expected to enhance customer experience and provide growth by making cash processing more efficient, with implementation anticipated in the second quarter of next year.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.