Accel Entertainment, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Accel operates video gaming terminals and related amusement and ATM equipment, primarily in licensed Illinois establishments. Prior-year financial statements were restated. Comparisons are heavily affected by the Illinois gaming shutdown during 2020.
Financial performance
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Revenue | $202.0 million | $0.4 million | $349.0 million | $106.8 million |
| Operating income (loss) | $24.9 million | $(23.8) million | $34.5 million | $(21.7) million |
| Net income (loss) | $12.4 million | $(46.8) million | $13.9 million | $1.3 million |
| Adjusted EBITDA | $43.0 million | $(8.7) million | $68.8 million | $6.1 million |
| Operating margin | 12.3% | Not meaningful | 9.9% | Negative |
Q2 2020 had no gaming days because of the state-mandated shutdown. First-half 2021 revenue increased 226.7% year over year, reflecting the shutdown-affected comparison, more terminals and locations, and higher location hold-per-day. First-half location hold-per-day was $824, up 44.1%; Q2 2021 was $855. The Illinois gaming tax rate rose from 33% to 34% on July 1, 2020.
First-half operating cash flow was $54.2 million, versus cash used of $17.3 million in the prior-year period. Investing cash use was $13.8 million, including $10.9 million of property and equipment purchases and $3.2 million for acquisitions. Financing provided $3.7 million. Cash and cash equivalents were $178.5 million at June 30, 2021, up from $134.5 million at year-end.
Total debt was $351.4 million gross, or $345.0 million net of issuance costs; approximately $18.3 million was current. The company reported about $87 million available under its credit facility. The weighted-average interest rate was approximately 3.3%. Management estimated that a 1 percentage-point rise in rates would increase annual interest expense by approximately $3.5 million, assuming debt remained unchanged.
At June 30, 2021, total assets were $600.8 million and stockholders’ equity was $151.9 million. The company had 13,177 Illinois terminals across 2,527 locations, increases of 18.6% and 8.2%, respectively, from June 2020.
Outlook, risks and notable items
- Management said cash, operating cash flow and borrowing availability should meet capital requirements for the next 12 months, and expected continued compliance with debt covenants. No specific revenue or earnings guidance was provided.
- COVID-19, renewed restrictions, or a shutdown could materially affect revenue, cash flow and asset values; management noted that material impairment losses could result. Gaming resumed statewide by January 23, 2021, though restrictions remained in some regions during the period.
- Accel agreed to acquire Century Gaming for a stated value of approximately $140 million in cash and stock; closing was expected in the first half of 2022, subject to customary conditions and gaming approvals.
- On July 30, 2021, the company notified a terminal operator that it was exercising conversion rights on convertible notes, seeking to convert their $39.7 million fair value and accrued interest into the operator’s common stock, subject to customary closing deliverables.
- Legal and regulatory contingencies include an Illinois Gaming Board disciplinary complaint seeking a $5 million fine and a separate lawsuit seeking $10 million. The company said losses were not probable or reasonably estimable and recorded no reserves for these matters.
- Disclosure controls and procedures were concluded to be ineffective at June 30, 2021 because previously identified material weaknesses remained. Management nevertheless stated that the financial statements fairly presented the company’s condition and results in all material respects.
Important facts for investors to verify
- How normalized gaming revenue, margins and location hold-per-day perform against the shutdown-distorted prior-year periods.
- The terms, financing and regulatory progress of the Century Gaming acquisition, and the outcome of the convertible-note conversion notice.
- Debt availability, covenant headroom and sensitivity to floating interest rates, particularly if gaming activity weakens.
- Developments in the IGB disciplinary complaint, the $10 million lawsuit and other disclosed litigation.
- Progress remediating the material weaknesses in disclosure controls and the implications of the prior-period restatements.