Accel Entertainment (ACEL) Q3 2023: 7% EBITDA Growth Anchored by New Market Expansion
Accel Entertainment’s Q3 results highlighted steady revenue and EBITDA growth, fueled by new location additions and continued expansion outside Illinois. Management emphasized the durability of the distributed gaming model and outlined a pipeline of geographic growth opportunities, while maintaining a disciplined capital allocation stance. With stable margins and a resilient cost structure, Accel is focusing on new markets and tuck-in acquisitions to drive long-term shareholder value.
Summary
- Geographic Diversification Accelerates: Expansion into new states and markets drives incremental growth beyond Illinois.
- Cost Structure Resilience: Asset-light model and stable labor costs support margin steadiness despite inflationary pressures.
- Growth Pipeline in Focus: Management signals active pursuit of new locations and verticals for 2024 and beyond.
Business Overview
Accel Entertainment operates a distributed gaming platform, primarily providing video gaming terminals (VGTs, slot-style machines in non-casino locations) to local establishments such as bars, restaurants, and gaming cafes. The company earns revenue by sharing gaming proceeds with its establishment partners, with Illinois as its largest market, but is expanding into states like Nebraska, Montana, and Georgia. Accel’s business model is asset-light, with a variable cost structure, enabling nimble responses to local market trends and economic shifts.
Performance Analysis
Accel delivered 8% year-over-year revenue growth and 7% adjusted EBITDA growth in Q3, underpinned by a 5% increase in locations and a 7% rise in gaming terminals deployed. New site additions in Illinois and developing markets such as Nebraska and Georgia were primary growth drivers, supplemented by modest same-store sales gains (1%). While the Illinois market remains foundational, management continues to stress the importance of diversifying revenue streams geographically.
Margins remained largely stable despite inflationary pressures, with management highlighting the company’s ability to calibrate expenses quickly due to its highly variable cost base. CapEx rose to $19 million as Accel accelerated equipment purchases and invested in new market entry, though management expects capital intensity to moderate in 2024. Share repurchases continued, reflecting confidence in the balance sheet and cash flow generation.
- Location Growth Engine: New locations and terminals, especially in Illinois and emerging states, are the main revenue levers.
- Stable Cost Base: Labor and supply chain costs have stabilized, supporting predictable margins.
- CapEx Timing Shift: Elevated Q3 CapEx reflects opportunistic equipment buys, expected to normalize next year.
Overall, Accel’s Q3 results demonstrate the durability of its distributed gaming model and its ability to scale profitably, even as competition and macroeconomic headwinds persist.
Executive Commentary
"Our continued growth in the current economic environment demonstrates the strength of our hyper-local business model. Our establishment partners recognize and rely on the incremental profits that our high-quality offering brings to their businesses."
Andy Rubenstein, Chief Executive Officer
"CapEx for the third quarter was $19 million cash spend. The increase is due to accelerating some purchases in Illinois and additional investment in our developing markets, such as Nebraska and Georgia. We continue to see upside in both these markets, and we're excited by the recent growth."
Matt Ellis, Chief Financial Officer
Strategic Positioning
1. Distributed Gaming Model Advantage
Accel’s asset-light, hyper-local approach allows rapid scaling and cost flexibility, positioning the company to outperform in both robust and challenging economic cycles. The distributed model, where gaming terminals are placed in third-party venues, enables Accel to quickly adjust to local demand and economic shifts.
2. Geographic Diversification
The strategic push to expand outside Illinois is gaining traction, with new locations in Nebraska, Georgia, and Montana. Management is targeting a higher percentage of revenue from non-Illinois markets, reducing regulatory and concentration risk while tapping into underpenetrated regions.
3. Tuck-in Acquisitions and Vertical Integration
Opportunistic tuck-in acquisitions remain a key pillar, especially in mature markets like Illinois where consolidation opportunities persist. Accel is also leveraging its manufacturer status in states like Louisiana and South Dakota to vertically integrate and capture additional margin.
4. Capital Allocation Discipline
With over $572 million in liquidity and a low net leverage profile, Accel is balancing growth investments with shareholder returns, as evidenced by ongoing share repurchases. Management’s measured approach to CapEx and opportunistic buying during supply chain normalization further reflects disciplined capital deployment.
5. Resilient Customer Value Proposition
Accel’s focus on convenience, quality, and local access differentiates its offering, even as new casinos open in core markets. The company’s ability to deliver a casino-like experience in neighborhood venues supports stable customer demand and mitigates competitive threats from larger destination properties.
Key Considerations
This quarter’s results underscore Accel’s ability to grow through both organic expansion and disciplined capital management, while maintaining operational flexibility. The company’s focus on non-Illinois markets and new verticals positions it for continued outperformance as the distributed gaming sector evolves.
Key Considerations:
- Pipeline Visibility: Active evaluation of new markets and verticals provides multiple growth levers for 2024 and beyond.
- Margin Management: Stable cost base and variable expense structure help defend margins against labor and inflation shocks.
- CapEx Normalization: Recent equipment investments are expected to taper, supporting free cash flow in future quarters.
- Shareholder Returns: Ongoing buybacks reflect management’s confidence in sustainable cash generation.
Risks
Key risks include regulatory uncertainty in core and developing markets, competitive pressure from new casino entrants, and potential macro-driven declines in discretionary consumer spending. While management cites resilience, a slowdown in same-store sales or unexpected attrition in key states could pressure future growth and margins. Analyst questions focused on the sustainability of margin structure and the pace of geographic diversification, highlighting external skepticism around long-term growth visibility.
Forward Outlook
For Q4 2023, Accel did not provide formal guidance, citing macroeconomic uncertainty, but management expressed confidence in finishing the year with record results if current trends persist.
- Stable demand and continued new location additions expected through year-end.
- CapEx projected to decline by 10 to 20% in 2024 as equipment purchases normalize.
For full-year 2023, management reiterated a positive outlook, emphasizing ongoing expansion efforts and a robust deal pipeline.
- Growth in non-Illinois revenue share targeted as a long-term goal.
Management highlighted several factors that support their outlook:
- Strong balance sheet and liquidity to fund both organic and inorganic growth.
- Active pursuit of opportunities in Montana, Nebraska, Georgia, and other emerging markets.
Takeaways
Accel’s Q3 performance reinforces the durability of its distributed gaming model, with growth fueled by new locations and steady same-store trends. Management’s emphasis on geographic diversification and disciplined capital allocation positions the company to capitalize on new market opportunities while defending profitability.
- Growth Engine in New Markets: Expansion in Nebraska, Georgia, and Montana is providing incremental growth, with more states under evaluation for 2024 entry.
- Margin and Capital Discipline: Stable cost structure and a measured approach to CapEx and buybacks support long-term shareholder value.
- Watch for Execution on Pipeline: The pace and success of new market entry and tuck-in acquisitions will be critical to sustaining double-digit growth beyond 2024.
Conclusion
Accel Entertainment delivered another solid quarter, leveraging its asset-light model and geographic reach to drive growth and defend margins. With a robust pipeline and disciplined execution, the company remains well-positioned to extend its leadership in distributed gaming as new markets open up.
Industry Read-Through
Accel’s results highlight the resilience of distributed gaming models, particularly those that leverage local partnerships and variable cost structures. The company’s ability to sustain growth despite new casino openings in Illinois suggests that convenience gaming remains a durable consumer preference, even as destination casinos proliferate. For other gaming operators, the quarter underscores the value of geographic diversification and asset-light expansion, as well as the importance of disciplined capital allocation in an inflationary environment. As regulatory frameworks evolve and new states open to distributed gaming, operators with flexible, scalable models are likely to capture outsized share of incremental growth.