Business Context and Reporting Period
This Form 8-K was filed by Accel Entertainment, Inc. on September 21, 2020. The filing primarily announces the commencement of an underwritten public offering of Class A-1 Common Stock and provides updates on the company's strategic partnership with DraftKings, the resumption of operations following the COVID-19 shutdown, and preliminary operating trends for July and August 2020.
Key Financial Metrics and Capital Events
- Capital Raise: The Company initiated an offering of 12,000,000 shares of Class A-1 Common Stock (8,000,000 by the Company and 4,000,000 by selling stockholders). Underwriters hold a 30-day option to purchase up to 1,800,000 additional shares.
- Revenue (Preliminary): Combined net revenues for July and August 2020 were approximately $89.0 million, compared to $66.8 million for the same period in 2019 and $81.0 million for January and February 2020.
- Margin Impact: Due to additional expenses for responsible operations during the pandemic, margins decreased by approximately 20 basis points for net (loss) income and 80 basis points for Adjusted EBITDA compared to the prior year period.
- Tax Benefit: The Company identified a change in estimate regarding its 2019 income tax provision, planning to record an income tax benefit of approximately $7 million in the third quarter of 2020.
- Liquidity and Debt: The filing text does not provide specific values for total debt, cash flow, or liquidity positions.
Material Changes and Operational Updates
- COVID-19 Recovery: Video gaming in Illinois resumed on July 1, 2020, following a shutdown from March 16 to June 30, 2020. By the third day of relaunch, over 90% of locations were live. The shutdown impacted 106 of 182 gaming days (58%) in the first half of 2020.
- Cost Mitigation: During the shutdown, the Company furloughed approximately 90% of employees, deferred vendor payments, and senior management voluntarily forgone base salaries. Reinstatement of employees began in early June.
- Strategic Partnership: On September 9, 2020, Accel entered an exclusive agreement with DraftKings to promote sports betting content across its 2,350+ Illinois video gaming locations.
Outlook, Risks, and Management Commentary
- Forward-Looking Caution: Management cautions that preliminary trends for July and August 2020 may not continue due to potential regional shutdowns, varying restrictions, or a resurgence of COVID-19. These figures are unaudited and subject to change.
- Market Opportunity: Accel estimates a potential market opportunity of $3 billion in Illinois by 2025, $10 billion in other states with legal VGTs, and up to $30 billion across the U.S. including new product lines like sports betting.
- Expansion Plans: The Company is exploring expansion into states such as Indiana, Missouri, Mississippi, Virginia, and others through legislation or strategic acquisitions.
- Risks: Key risks include the potential for future government-ordered closures, the impact of the pandemic on public health and operations, and the uncertainty of customer demand upon reopening.
Key Facts for Investor Verification
- Verify the final closing price and total proceeds from the 12,000,000 share public offering announced on September 21, 2020.
- Confirm the final audited financial results for the third quarter of 2020, specifically the impact of the $7 million tax benefit and the actual Adjusted EBITDA margins.
- Monitor the stability of the DraftKings partnership and its contribution to sports betting revenue in Illinois.
- Track any future regulatory actions by the Illinois Gaming Board regarding regional or statewide shutdowns.