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Accel Entertainment Announces Q3 2023 Operating Results

Accel Entertainment, Inc. (NYSE: ACEL) today announced certain financial and operating results for the third quarter ended September 30, 2023.

Highlights:

 

  • Ended Q3 2023 with 3,687 locations; an increase of 5% compared to Q3 2022
  • Ended Q3 2023 with 24,016 gaming terminals; an increase of 7% compared to Q3 2022
  • Revenue of $287.5 million for Q3 2023, an increase of 8% compared to Q3 2022
  • Net income of $10.5 million for Q3 2023; a decrease of 53% compared to Q3 2022 primarily attributable to the $1.6 million loss on the change in fair value of the contingent earnout shares in Q3 2023 compared to the $10.4 million gain in Q3 2022
  • Adjusted EBITDA of $44.1 million for Q3 2023; an increase of 7% compared to Q3 2022
    • Illinois same stores sales growth was 1% in Q3 2023
  • Q3 2023 ended with $282 million of net debt; a decrease of 9% compared to Q3 2022
  • Repurchased approximately $3 million of Accel Class A-1 common stock in Q3 2023

Accel CEO Andy Rubenstein commented, “We are pleased to deliver another strong quarter. Our consistent growth in the face of uncertain economic times is a testament to the resilience of our business model. We continue to evaluate opportunities to further expand our reach outside of Illinois and solidify our position as a national leader in distributed gaming. We believe that our strong balance sheet and locally focused business model offer one of the best returns in gaming.”

Condensed Consolidated Statements of Operations and Other Data

 

Three Months Ended

September 30,

 

Nine Months Ended

September 30,

(in thousands)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

 

 

 

 

 

Total net revenues

$

287,497

 

$

266,967

 

$

   873,352

 

$

   691,727

Operating income

 

     25,120

 

 

     23,239

 

 

       81,956

 

 

       71,761

Income before income tax expense

 

     15,080

 

 

     27,358

 

 

       46,347

 

 

       77,227

Net income

 

     10,450

 

 

     22,444

 

 

       29,615

 

 

       60,696

Other Financial Data:

 

 

 

 

 

 

 

Adjusted EBITDA(1)

 

     44,138

 

 

     41,125

 

 

     136,869

 

 

     119,083

Adjusted net income (2)

 

     19,067

 

 

     18,932

 

 

       60,566

 

 

       59,053

(1)

 

Adjusted EBITDA is defined as net income plus amortization of intangible assets and route and customer acquisition costs; stock-based compensation expense; loss (gain) on change in fair value of contingent earnout shares; other expenses, net; tax effect of adjustments; depreciation and amortization of property and equipment; interest expense, net; emerging markets; and income tax expense. For additional information on Adjusted EBITDA and a reconciliation of net income to Adjusted EBITDA, see “Non-GAAP Financial Measures—Adjusted EBITDA and Adjusted net income.”

(2)

 

Adjusted net income is defined as net income plus amortization of intangible assets and route and customer acquisition costs; stock-based compensation expense; loss (gain) on change in fair value of contingent earnout shares; other expenses, net; and tax effect of adjustments. For additional information on Adjusted net income and a reconciliation of net income to Adjusted net income, see "Non-GAAP Financial Measures—Adjusted net income and Adjusted EBITDA.”

 

Net Revenues

 

 

 

 

 

 

 

(in thousands)

Three Months Ended

September 30,

 

Nine Months Ended

September 30,

 

 

2023

 

 

2022

 

 

2023

 

 

2022

Net revenues by state:

 

 

 

 

 

 

 

Illinois

$

   212,113

 

$

   200,914

 

$

    647,903

 

$

    601,735

Montana

 

       39,362

 

 

       33,456

 

 

      115,088

 

 

        44,282

Nevada

 

       28,003

 

 

       28,439

 

 

        87,833

 

 

        37,359

Other

 

         8,019

 

 

         4,158

 

 

        22,528

 

 

          8,351

Total net revenues

$

   287,497

 

$

   266,967

 

$

    873,352

 

$

    691,727

 

Key Business Metrics

 

 

 

 

 

 

 

Locations (1)

As of September 30,

 

2023

 

2022

Illinois

          2,724

 

          2,596

Montana

            611

 

            586

Nevada

            352

 

            335

Total locations

          3,687

 

          3,517

Gaming terminals (1)

As of September 30,

 

2023

 

2022

Illinois

        15,020

 

        14,033

Montana

          6,252

 

          5,782

Nevada

          2,744

 

          2,614

Total gaming terminals

        24,016

 

        22,429

(1)

 

Based on a combination of third-party portal data and data from our internal systems. This metric is utilized by Accel to continually monitor growth from existing locations, organic openings, acquired locations, and competitor conversions.

Condensed Consolidated Statements of Cash Flows Data 

 

Nine Months Ended

September 30,

(in thousands)

 

2023

 

 

 

2022

 

Net cash provided by operating activities

$

            92,007

 

 

$

            78,250

 

Net cash used in investing activities

 

(35,404

)

 

 

(168,871

)

Net cash (used in) provided by financing activities

 

(50,328

)

 

 

103,898

 

Non-GAAP Financial Measures

 

 

 

 

 

 

 

 

Three Months Ended

September 30,

 

Nine Months Ended

September 30,

(in thousands)

 

2023

 

 

 

2022

 

 

 

2023

 

 

 

2022

 

Net income

$

    10,450

 

 

$

    22,444

 

 

$

    29,615

 

 

$

     60,696

 

Adjustments:

 

 

 

 

 

 

 

Amortization of intangible assets and route and customer acquisition costs (1)

 

        5,299

 

 

 

        5,156

 

 

 

      15,825

 

 

 

       12,278

 

Stock-based compensation (2)

 

        2,718

 

 

 

        1,070

 

 

 

        6,973

 

 

 

         4,956

 

Loss (gain) on change in fair value of contingent earnout shares (3)

 

        1,625

 

 

 

     (10,358

)

 

 

      11,063

 

 

 

     (19,497

)

Other expenses, net (4)

 

        1,682

 

 

 

        3,106

 

 

 

        5,006

 

 

 

         7,894

 

Tax effect of adjustments (5)

 

       (2,707

)

 

 

       (2,486

)

 

 

       (7,916

)

 

 

       (7,274

)

Adjusted net income

 

      19,067

 

 

 

      18,932

 

 

 

      60,566

 

 

 

       59,053

 

Depreciation and amortization of property and equipment

 

        9,405

 

 

 

        8,136

 

 

 

      27,914

 

 

 

       20,575

 

Interest expense, net

 

        8,415

 

 

 

        6,239

 

 

 

      24,546

 

 

 

       14,031

 

Emerging markets (6)

 

           (86

)

 

 

           418

 

 

 

         (805

)

 

 

         1,619

 

Income tax expense

 

        7,337

 

 

 

        7,400

 

 

 

      24,648

 

 

 

       23,805

 

Adjusted EBITDA

$

    44,138

 

 

$

    41,125

 

 

$

   136,869

 

 

$

   119,083

 

(1) Amortization of intangible assets and route and customer acquisition costs consist of upfront cash payments and future cash payments to third-party sales agents to acquire the location partners that are not connected with a business acquisition, as well as the amortization of other intangible assets. We amortize the upfront cash payment over the life of the contract, including expected renewals, beginning on the date the location goes live, and recognizes non-cash amortization charges with respect to such items. Future or deferred cash payments, which may occur based on terms of the underlying contract, are generally lower in the aggregate as compared to established practice of providing higher upfront payments, and are also capitalized and amortized over the remaining life of the contract. Future cash payments do not include cash costs associated with renewing customer contracts as we do not generally incur significant costs as a result of extension or renewal of an existing contract. Location contracts acquired in a business combination are recorded at fair value as part of the business combination accounting and then amortized as an intangible asset on a straight-line basis over the expected useful life of the contract of 15 years. “Amortization of intangible assets and route and customer acquisition costs” aggregates the non-cash amortization charges relating to upfront route and customer acquisition cost payments and location contracts acquired, as well as the amortization of other intangible assets.

(2) Stock-based compensation consists of options, restricted stock units, and performance-based restricted stock units.

(3) Loss (gain) on change in fair value of contingent earnout shares represents a non-cash fair value adjustment at each reporting period end related to the value of these contingent shares. Upon achieving such contingency, shares of Class A-2 common stock convert to Class A-1 common stock resulting in a non-cash settlement of the obligation.

(4) Other expenses, net consists of (i) non-cash expenses including the remeasurement of contingent consideration liabilities, (ii) non-recurring lobbying and legal expenses related to distributed gaming expansion in current or prospective markets, and (iii) other non-recurring expenses.

(5) Calculated by excluding the impact of the non-GAAP adjustments from the current period tax provision calculations.

(6) Emerging markets consist of the results, on an Adjusted EBITDA basis, for non-core jurisdictions where our operations are developing. Markets are no longer considered emerging when we have installed or acquired at least 500 gaming terminals in the jurisdiction, or when 24 months have elapsed from the date we first install or acquire gaming terminals in the jurisdiction, whichever occurs first. We currently view Iowa and Pennsylvania as emerging markets. Prior to April 2023, Nebraska was considered an emerging market. Prior to July 2022, Georgia was considered an emerging market.

Reconciliation of Debt to Net Debt

 

As of September 30,

(in thousands)

 

2023

 

 

 

2022

 

Debt, net of current maturities

$

       484,004

 

 

$

       497,976

 

Plus: Current maturities of debt

 

           28,479

 

 

 

           23,463

 

Less: Cash and cash equivalents

 

       (230,388

)

 

 

       (212,063

)

Net debt

$

       282,095

 

 

$

       309,376

 

Conference Call

Accel will host an investor conference call on November 7, 2023 at 4:30 p.m. Central Time (5:30 p.m. Eastern Time) to discuss these operating and financial results. Interested parties may join the live webcast by registering at https://www.netroadshow.com/events/login?show=b504ca72&confId=56166. Registering in advance of the call will provide listeners with a personalized link to view the webcast and an individual dial-in for the call. This registration link to the live webcast will also be available on Accel’s investor relations website, as well as a replay of the webcast following completion of the call: ir.accelentertainment.com.

About Accel

Accel believes it is the leading distributed gaming operator in the United States on an Adjusted EBITDA basis, and a preferred partner for local business owners in the markets Accel serves. Accel’s business consists of the installation, maintenance and operation of gaming terminals, redemption devices that disburse winnings and contain automated teller machine (“ATM”) functionality, and other amusement devices in authorized non-casino locations such as restaurants, bars, taverns, convenience stores, liquor stores, truck stops, and grocery stores.

Forward-Looking Statements

 

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, contained in this press release are forward-looking statements, including, but not limited to, any statements regarding our estimates of number of gaming terminals, locations, revenues, Adjusted EBITDA and capital expenditures. The words “predict,” “estimated,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “will,” “would,” “continue,” and similar expressions or the negatives thereof are intended to identify forward-looking statements. These forward-looking statements represent our current reasonable expectations and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance and achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. We cannot guarantee the accuracy of the forward-looking statements, and you should be aware that results and events could differ materially and adversely from those contained in the forward-looking statements due to a number of factors including, but not limited to: Accel's ability to successfully integrate its business with the business of Century and realize the full benefits of the Century acquisition; Accel’s ability to operate in existing markets or expand into new jurisdictions; Accel’s ability to manage its growth effectively; Accel’s ability to offer new and innovative products and services that fulfill the needs of location partners and create strong and sustained player appeal; Accel’s dependence on relationships with key manufacturers, developers and third parties to obtain gaming terminals, amusement machines, and related supplies, programs, and technologies for its business on acceptable terms; the negative impact on Accel’s future results of operations by the slow growth in demand for gaming terminals and by the slow growth of new gaming jurisdictions; Accel’s heavy dependency on its ability to win, maintain and renew contracts with location partners; unfavorable macroeconomic conditions or decreased discretionary spending due to other factors such as increased interest rates, increased inflation, actual or perceived instability in the U.S. and global banking systems, high fuel rates, recessions, epidemics or other public health issues, terrorist activity or threat thereof, civil unrest or other macroeconomic or political uncertainties, that could adversely affect Accel’s business, results of operations, cash flows and financial conditions and other risks and uncertainties indicated from time to time in documents filed or to be filed with the Securities and Exchange Commission (“SEC”).

Accordingly, forward-looking statements, including any projections or analysis, should not be viewed as factual and should not be relied upon as an accurate prediction of future results. The forward-looking statements contained in this press release are based on our current expectations and beliefs concerning future developments and their potential effects on Accel. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control), or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described in the section entitled “Risk Factors” in the Annual Report on Form 10-K filed by Accel with the SEC, as well as Accel’s other filings with the SEC. Except as required by law, we do not undertake publicly to update or revise these statements, even if experience or future changes make it clear that any projected results expressed in this or other press releases or future quarterly reports, or company statements will not be realized. In addition, the inclusion of any statement in this press release does not constitute an admission by us that the events or circumstances described in such statement are material. We qualify all of our forward-looking statements by these cautionary statements. In addition, the industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors including those described in the section entitled “Risk Factors” in the Annual Report on Form 10-K filed by Accel with the SEC, as well as Accel’s other filings with the SEC. These and other factors could cause our results to differ materially from those expressed in this press release.

Non-GAAP Financial Information

This press release includes certain financial information not prepared in accordance with Generally Accepted Accounting Principles in the United States (“GAAP”), including Adjusted EBITDA, Adjusted net income, and Net Debt. Adjusted EBITDA, Adjusted net income, and Net Debt are non-GAAP financial measures and are key metrics used to monitor ongoing core operations. Management of Accel believes Adjusted EBITDA, Adjusted net income, and Net Debt enhance the understanding of Accel’s underlying drivers of profitability and trends in Accel’s business and facilitates company-to-company and period-to-period comparisons, because these non-GAAP financial measures exclude the effects of certain non-cash items, represents certain nonrecurring items that are unrelated to core performance, or excludes non-core operations. Management of Accel also believes that these non-GAAP financial measures are used by investors, analysts and other interested parties as measures of financial performance.

Adjusted EBITDA, Adjusted net income, and Net Debt

Although Accel excludes amortization of intangible assets and route and customer acquisition costs from Adjusted EBITDA and Adjusted net income, Accel believes that it is important for investors to understand that these route, customer and other intangible assets contribute to revenue generation. Any future acquisitions may result in amortization of intangible assets and route and customer acquisition costs.

Adjusted EBITDA, Adjusted net income, and Net Debt are not recognized terms under GAAP. These non-GAAP financial measures exclude some, but not all, items that affect net income, and these measures may vary among companies. These non-GAAP financial measures are unaudited and have important limitations as an analytical tool, should not be viewed in isolation and do not purport to be alternatives to net income as indicators of operating performance.

ACCEL ENTERTAINMENT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

(In thousands, except per share amounts)

Three Months Ended

September 30,

 

Nine Months Ended

September 30,

 

 

2023

 

 

2022

 

 

 

2023

 

 

2022

 

Revenues:

 

 

 

 

 

 

 

Net gaming

$

     274,123

 

$

       255,606

 

 

$

       831,054

 

$

       662,491

 

Amusement

 

            5,411

 

 

             4,860

 

 

 

           17,839

 

 

           14,543

 

Manufacturing

 

            3,334

 

 

             2,489

 

 

 

              9,886

 

 

              3,408

 

ATM fees and other

 

            4,629

 

 

             4,012

 

 

 

           14,573

 

 

           11,285

 

Total net revenues

 

        287,497

 

 

         266,967

 

 

 

         873,352

 

 

         691,727

 

Operating expenses:

 

 

 

 

 

 

 

Cost of revenue (exclusive of depreciation and amortization expense shown below)

 

        198,743

 

 

         185,878

 

 

 

         604,603

 

 

         473,164

 

Cost of manufacturing goods sold (exclusive of depreciation and amortization expense shown below)

 

            2,065

 

 

             1,656

 

 

 

              5,627

 

 

              2,421

 

General and administrative

 

          45,183

 

 

           39,796

 

 

 

         132,421

 

 

         103,634

 

Depreciation and amortization of property and equipment

 

            9,405

 

 

             8,136

 

 

 

           27,914

 

 

           20,575

 

Amortization of intangible assets and route and customer acquisition costs

 

            5,299

 

 

             5,156

 

 

 

           15,825

 

 

           12,278

 

Other expenses, net

 

            1,682

 

 

             3,106

 

 

 

              5,006

 

 

              7,894

 

Total operating expenses

 

        262,377

 

 

         243,728

 

 

 

         791,396

 

 

         619,966

 

Operating income

 

          25,120

 

 

           23,239

 

 

 

           81,956

 

 

           71,761

 

Interest expense, net

 

            8,415

 

 

             6,239

 

 

 

           24,546

 

 

           14,031

 

Loss (gain) on change in fair value of contingent earnout shares

 

            1,625

 

 

         (10,358

)

 

 

           11,063

 

 

          (19,497

)

Income before income tax expense

 

          15,080

 

 

           27,358

 

 

 

           46,347

 

 

           77,227

 

Income tax expense

 

            4,630

 

 

             4,914

 

 

 

           16,732

 

 

           16,531

 

Net income

$

       10,450

 

$

         22,444

 

 

$

         29,615

 

$

         60,696

 

Earnings per common share:

 

 

 

 

 

 

 

Basic

$

            0.12

 

$

             0.25

 

 

$

              0.34

 

$

              0.66

 

Diluted

 

              0.12

 

 

                0.25

 

 

 

                0.34

 

 

                0.66

 

Weighted average number of shares outstanding:

 

 

 

 

 

 

 

Basic

 

          85,865

 

 

           89,992

 

 

 

           86,305

 

 

           91,299

 

Diluted

 

          87,114

 

 

           90,528

 

 

 

           87,022

 

 

           91,945

 

ACCEL ENTERTAINMENT, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

(In thousands, except par value and share amounts)

September 30,

 

December 31

 

 

2023

 

 

 

2022

 

Assets

(Unaudited)

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

             230,388

 

 

$

             224,113

 

Accounts receivable, net

 

                 13,362

 

 

 

                 11,166

 

Prepaid expenses

 

                   8,027

 

 

 

                   7,407

 

Inventories

 

                   6,780

 

 

 

                   6,941

 

Interest rate caplets

 

                   9,927

 

 

 

                   8,555

 

Investment in convertible notes

 

                        —

 

 

 

                 32,065

 

Other current assets

 

                 14,166

 

 

 

                   8,965

 

Total current assets

 

               282,650

 

 

 

               299,212

 

Property and equipment, net

 

               245,714

 

 

 

               211,844

 

Noncurrent assets:

 

 

 

Route and customer acquisition costs, net

 

                 19,127

 

 

 

                 18,342

 

Location contracts acquired, net

 

               177,681

 

 

 

               189,343

 

Goodwill

 

               101,554

 

 

 

               100,707

 

Other intangible assets, net

 

                 21,152

 

 

 

                 22,979

 

Interest rate caplets, net of current

 

                   9,241

 

 

 

                 11,364

 

Other assets

 

                 14,289

 

 

 

                   8,978

 

Total noncurrent assets

 

               343,044

 

 

 

               351,713

 

Total assets

$

             871,408

 

 

$

             862,769

 

Liabilities and Stockholders’ Equity

 

 

 

Current liabilities:

 

 

 

Current maturities of debt

$

               28,479

 

 

$

               23,466

 

Current portion of route and customer acquisition costs payable

 

                   1,481

 

 

 

                   1,487

 

Accrued location gaming expense

 

                   7,858

 

 

 

                   7,791

 

Accrued state gaming expense

 

                 16,965

 

 

 

                 16,605

 

Accounts payable and other accrued expenses

 

                 23,067

 

 

 

                 22,302

 

Accrued compensation and related expenses

 

                   9,192

 

 

 

                 10,607

 

Current portion of consideration payable

 

                   5,175

 

 

 

                   7,647

 

Total current liabilities

 

                 92,217

 

 

 

                 89,905

 

Long-term liabilities:

 

 

 

Debt, net of current maturities

 

               484,004

 

 

 

               518,566

 

Route and customer acquisition costs payable, less current portion

 

                   4,893

 

 

 

                   5,137

 

Consideration payable, less current portion

 

                   5,319

 

 

 

                   6,872

 

Contingent earnout share liability

 

                 34,351

 

 

 

                 23,288

 

Other long-term liabilities

 

                   5,786

 

 

 

                   3,390

 

Deferred income tax liability, net

 

                 46,064

 

 

 

                 37,021

 

Total long-term liabilities

 

               580,417

 

 

 

               594,274

 

Stockholders’ equity:

 

 

 

Preferred Stock, par value of $0.0001; 1,000,000 shares authorized; 0 shares issued and outstanding at September 30, 2023 and December 31, 2022

 

                        —

 

 

 

                        —

 

Class A-1 Common Stock, par value $0.0001; 250,000,000 shares authorized; 94,872,069 shares issued and 85,389,889 shares outstanding at September 30, 2023; 94,504,051 shares issued and 86,674,390 shares outstanding at December 31, 2022

 

                          9

 

 

 

                          9

 

Additional paid-in capital

 

               200,545

 

 

 

               194,157

 

Treasury stock, at cost

 

               (97,509

)

 

 

               (81,697

)

Accumulated other comprehensive income

 

                 12,233

 

 

 

                 12,240

 

Accumulated earnings

 

                 83,496

 

 

 

                 53,881

 

Total stockholders' equity

 

               198,774

 

 

 

               178,590

 

Total liabilities and stockholders' equity

$

             871,408

 

 

$

             862,769

 

 

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