Accel Entertainment, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual report; the supplied filing text does not provide a clear standalone fourth-quarter income statement or cash-flow summary.
Business context
Accel operates distributed gaming and amusement equipment in bars, restaurants, truck stops and other licensed locations. Its operations span Illinois, Montana, Nevada, Nebraska, Georgia, Iowa and Pennsylvania; it also manufactures gaming equipment. The 2023 results include a full year of Century Gaming, acquired June 1, 2022, versus approximately seven months in 2022.
Financial performance and liquidity
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Total revenue | $1,170.4 million | $969.8 million | +20.7% |
| Operating income | $107.4 million | $96.9 million | +10.9% |
| Operating margin | 9.2% | 10.0% | Down 0.8 percentage points |
| Net income | $45.6 million | $74.1 million | -38.5% |
| Net margin | 3.9% | 7.6% | Down 3.7 percentage points |
| Adjusted EBITDA (non-GAAP) | $181.4 million | $162.4 million | +11.7% |
| Net cash from operating activities | $132.5 million | $108.0 million | +$24.5 million |
| Cash and cash equivalents at year-end | $261.6 million | $224.1 million | +$37.5 million |
Net gaming revenue was $1,113.6 million, up 20.4%; amusement revenue was $24.0 million, manufacturing revenue $13.4 million, and ATM fees and other revenue $19.5 million. Management attributed gaming growth mainly to Century, added locations and 3% same-store sales growth in Illinois. At year-end, Accel reported $545.4 million of borrowings under its credit agreement and approximately $304.0 million of borrowing availability. Cash exceeded borrowings by approximately $283.8 million, before other debt-related items. The weighted-average borrowing rate was 7.3%, compared with 4.4% in 2022.
Capital expenditures for property and equipment were $81.7 million in 2023. The company expects 2024 capital expenditures of approximately $55 million to $65 million. Its credit agreement matures in 2026 and includes leverage and fixed-charge covenants; Accel reported compliance at December 31, 2023 and expects to remain compliant over the next 12 months. It reported no cash dividends and had $81.9 million remaining under its share repurchase authorization at year-end.
Material changes versus FY2022
- Revenue growth included the first full year of Century results. General and administrative expense rose 23.5%, faster than revenue, reflecting payroll, parts and repair costs, higher stock compensation and a $1.1 million IGB settlement charge.
- Operating income increased, but higher interest expense, up 53.2% to $33.1 million, and an $8.5 million loss from revaluing contingent earnout shares weighed on pretax results. FY2022 instead included a $19.5 million gain on that fair-value item.
- Net income declined despite higher revenue and operating income. The effective tax rate increased to 30.6% from 21.8%, with the earnout-share fair-value change the primary driver of the year-over-year tax-rate fluctuation.
- Locations increased 5.9% to 3,961 and gaming terminals increased 6.6% to 25,083. Nebraska locations grew to 238 from 143; the company reported 2,762 Illinois locations.
- Operating cash flow improved, while investing cash outflow fell to $59.8 million from $189.3 million, principally because 2022 included the Century acquisition. 2023 included $32.1 million of proceeds from settlement of the Gold Rush convertible notes.
Outlook, risks and unusual items
- Outlook: No specific revenue or earnings guidance is provided in the supplied filing text. Management said cash, operating cash flows and available credit should meet capital needs for the next 12 months. The company was pursuing Louisiana acquisitions and indicated a potential expansion there in mid-2024.
- Regulatory and legal matters: Accel settled an IGB disciplinary matter in July 2023 for $1.1 million, including a $1.0 million fine, and agreed to added review, training and disclosure requirements. A dispute over a municipal terminal-operator tax remained pending; the company recorded a $1.4 million loss related to municipal tax matters in 2023. Other litigation includes disputes involving J&J and Jason Rowell; management said other pending matters were not expected to have a material adverse effect, but outcomes remain uncertain.
- Licensing: The Nevada terminal-operator license was due for renewal in June 2024, subject to suitability requirements. Gaming approvals and regulatory changes could affect operations and expansion.
- Debt and economic exposure: Borrowings are largely variable-rate. The company estimated a 100-basis-point rate increase would add approximately $2.5 million in annual interest expense at the year-end debt balance, partly offset by interest-rate caplets covering the first $300 million of term loans. Inflation, wages, discretionary spending, location-partner health and supplier availability are cited risks.
- Earnout and dilution: The contingent earnout-share liability was $31.8 million at year-end. Up to 3.33 million remaining Class A-2 shares may convert to Class A-1 shares if specified conditions are met; a change of control can also trigger exchange under the agreement.
- Accounting, controls and audit: FY2023 included $8.5 million of noncash earnout remeasurement loss. Management reported that a previously disclosed material weakness was remediated during Q4 2023; management and KPMG concluded internal control over financial reporting was effective at year-end. KPMG issued an unqualified financial-statement opinion and identified sufficiency of audit evidence over dispersed field cash as a critical audit matter. The company reported no cybersecurity risks in 2023 that materially affected or were reasonably likely to materially affect it.
Important facts for investors to verify
- How much of revenue and EBITDA growth reflects Century and acquisitions versus organic performance, including comparable same-store gaming trends outside Illinois.
- Whether margin pressure, higher payroll and repair costs, and elevated interest expense persist, and how variable-rate debt and caplet protection affect future cash flows.
- Progress on Louisiana acquisitions and 2024 capital spending, alongside the company’s stated $55 million to $65 million capex expectation.
- Resolution and potential financial or licensing consequences of the municipal tax disputes, J&J litigation and other legal matters; confirm Nevada license renewal status.
- Cash quality and accessibility: $261.6 million includes cash held in gaming terminals, redemption terminals, ATMs and company vaults, which KPMG highlighted as an audit-evidence challenge.
- Potential earnout-share conversion and dilution, repurchase activity, and ongoing compliance with debt covenants.