Slot machine and terminal operator Accel Entertainment (NYSE:ACEL) reported Q4 CY2024 results beating Wall Street’s revenue expectations, with sales up 6.9% year on year to $317.5 million. Its GAAP profit of $0.41 per share was significantly above analysts’ consensus estimates.
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Accel Entertainment (ACEL) Q4 CY2024 Highlights:
- Revenue: $317.5 million vs analyst estimates of $306.1 million (6.9% year-on-year growth, 3.7% beat)
- EPS (GAAP): $0.41 vs analyst estimates of $0.14 (significant beat)
- Operating Margin: 6.5%, down from 8.6% in the same quarter last year
- Video Gaming Terminals Sold: 26,346, up 2,090 year on year
- Market Capitalization: $976.6 million
Accel CEO Andy Rubenstein commented, “I am very pleased to report that we ended 2024 on very strong footing, positioning us well as we enter 2025. We delivered another record quarter in terms of revenue, entered the Louisiana market with our acquisition of Toucan Gaming, and closed on our acquisition of FanDuel Sportsbook & Horse Racing, where we have already started construction on Phase I of our casino in anticipation of opening in the second quarter of 2025. We continue to strengthen our core and are expanding our offerings, which we believe will maintain attractive low-teens returns on capital, generate more free cash flow, and improve our trading multiples, making Accel a compelling investment opportunity.”
Company Overview
Established in Illinois, Accel Entertainment (NYSE:ACEL) is a provider of electronic gaming machines and interactive amusement terminals to bars and entertainment venues.
Gaming Solutions
Gaming solution companies operate in a dynamic and evolving market, and the digital transformation of the gaming industry presents significant opportunities for innovation and growth, whether it be immersive slot machine terminals or mobile sports betting. However, the gaming solution industry is not without its challenges. Regulatory compliance is a crucial consideration as companies must navigate a complex and often fragmented regulatory landscape across different jurisdictions. Changes in regulations can impact product offerings, operational practices, and market access, requiring companies to maintain flexibility and adaptability in their business strategies. Additionally, the competitive nature of the industry necessitates continuous investment in research and development to stay ahead of competitors and meet evolving consumer demands.
Sales Growth
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Luckily, Accel Entertainment’s sales grew at an impressive 23.7% compounded annual growth rate over the last five years. Its growth beat the average consumer discretionary company and shows its offerings resonate with customers.
Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. Accel Entertainment’s recent history shows its demand slowed significantly as its annualized revenue growth of 12.7% over the last two years is well below its five-year trend. 
We can better understand the company’s revenue dynamics by analyzing its number of video gaming terminals sold, which reached 26,346 in the latest quarter. Over the last two years, Accel Entertainment’s video gaming terminals sold averaged 15.6% year-on-year growth. Because this number is higher than its revenue growth during the same period, we can see the company’s monetization has fallen. 
This quarter, Accel Entertainment reported year-on-year revenue growth of 6.9%, and its $317.5 million of revenue exceeded Wall Street’s estimates by 3.7%.
Looking ahead, sell-side analysts expect revenue to grow 1.8% over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and indicates its products and services will see some demand headwinds.
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Cash Is King
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
Accel Entertainment has shown mediocre cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 8.9%, subpar for a consumer discretionary business.
Key Takeaways from Accel Entertainment’s Q4 Results
We liked that Accel Entertainment beat revenue and EPS expectations this quarter. Still, shares traded down 2.8% to $11.41 immediately after reporting.
Should you buy the stock or not? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.