Overview of Company’s Financial Performance

The company, Accel Entertainment, provides gaming terminals and operates distributed gaming in several U.S. states. In the first quarter of 2024, Accel’s total net revenues increased by 2.9% compared to the first quarter of 2023, from $293.2 million to $301.8 million. This was primarily driven by a 3.1% increase in net gaming revenues.

Accel’s net income declined by 19.2%, from $9.2 million in Q1 2023 to $7.4 million in Q1 2024. However, the company uses the non-GAAP measures of Adjusted EBITDA and Adjusted Net Income to evaluate ongoing operations. On an Adjusted basis, EBITDA was flat at $46.2 million in Q1 2024 compared to Q1 2023, while Adjusted Net Income declined by 7.4% from $21.1 million to $19.5 million.

Revenue and Profit Trends

Accel’s revenues increased in Q1 2024 compared to Q1 2023, driven by higher net gaming revenues from more gaming locations and terminals.

Net Gaming - Net gaming makes up the majority of Accel’s revenues at 96%. This increased by 3.1% or $8.8 million in Q1 2024 compared to Q1 2023, reflecting more gaming locations and terminals.

Amusement - Amusement revenues declined by 9.8% or $0.7 million due to less amusement device usage.

Manufacturing - Manufacturing revenues increased slightly by 4.1% or $0.1 million due to higher software sales.

ATM Fees - ATM fees grew by 8.8% or $0.4 million with more ATM transactions.

On the profit side, while net income declined by 19.2%, Adjusted Net Income, which excludes certain non-cash and non-recurring items, declined by a smaller 7.4%.

Higher revenues were offset by increases in operating expenses, including cost of revenues, general and administrative costs, depreciation and amortization, and interest expense. General and administrative costs grew the most at 10.7% due to more payroll and stock compensation costs as Accel expands operations.

Strengths and Weaknesses

Strengths

• Steady increase in gaming locations and terminals, especially in core Illinois market
• Overall revenue growth despite economic uncertainty
• Strong cash flow generation and liquidity position

Weaknesses

• Declines in net income and Adjusted Net Income
• Rising operating expenses putting pressure on margins
• Emerging markets like Pennsylvania still generating losses

Future Outlook

Accel expects to continue growing locations and terminals in existing markets in 2024. The company is also focused on geographic expansion and will be closely monitoring new distributed gaming opportunities.

However, there is uncertainty around the impact of broader economic conditions. A recession could negatively affect consumer discretionary spending and gaming revenues. Rising costs, especially labor, could also squeeze margins further.

Accel has levers to pull in response, including adjusting capital expenditures and controlling costs. The company appears well positioned with a strong balance sheet including $254 million in cash and $299 million in revolver availability.

In summary, while Accel showed resilient top line growth in Q1 2024, rising costs and uncertainty in the operating environment remain risks to profitability going forward. The company’s scale and leadership position in distributed gaming provide some insulation, but continued execution will be required.