Accel Entertainment, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparative period is Q1 2023. Accel operates distributed gaming, amusement, ATM and gaming-equipment businesses in seven U.S. states. Unless otherwise indicated, amounts below are in millions.
Financial performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Total revenue | $301.8 | $293.2 | +2.9% |
| Operating income | $25.6 | $27.7 | -7.6% |
| Net income | $7.4 | $9.2 | -19.2% |
| Diluted EPS | $0.09 | $0.11 | -$0.02 |
| Operating cash flow | $28.8 | $38.0 | -24.3% |
| Adjusted EBITDA | $46.2 | $46.1 | +0.3% |
Net gaming revenue increased 3.1% to $288.1 million and was the principal driver of revenue growth. Amusement revenue declined 9.8% to $6.1 million; manufacturing revenue was $2.2 million and ATM fees and other revenue were $5.3 million. Reported operating margin was approximately 8.5%, down from 9.4%; net margin was approximately 2.5%, down from 3.1%.
Operating expenses grew 4.0%, faster than revenue. General and administrative expense rose 10.7%, reflecting higher payroll, stock-based compensation, and parts and repair costs. Depreciation and amortization of property and equipment increased 15.1%, primarily with more gaming terminals. Interest expense, net rose 9.8% to $8.7 million. Adjusted EBITDA was essentially flat, while adjusted net income declined 7.4% to $19.5 million.
Financial position, cash flow and capital
- Cash and cash equivalents were $253.9 million at March 31, 2024, versus $261.6 million at year-end 2023. Total assets were $919.1 million.
- Credit-facility borrowings were $542.5 million; balance-sheet debt, net of issuance costs and current maturities, was $511.4 million. The weighted-average borrowing rate was approximately 7.7%. The company reported $299 million of credit-agreement availability and compliance with covenants.
- Operating cash flow of $28.8 million, investing outflows of $25.9 million and financing outflows of $10.5 million resulted in a $7.7 million net cash decrease. Management attributed lower operating cash flow mainly to less favorable working-capital adjustments.
- Investing included $20.6 million of property and equipment purchases and $3.6 million for acquisitions; the company also advanced $1.8 million toward a pending acquisition. Q1 financing included $17.9 million of debt repayments, $15.0 million of new borrowings and $6.1 million of share repurchases.
- Capital expenditures are expected to be approximately $55–65 million in 2024. The board’s repurchase authorization is up to $200 million; $75.8 million remained available at March 31.
Material changes, outlook and risks
- Locations increased 5.1% year over year to 3,987, and gaming terminals increased 5.6% to 25,321. Location hold-per-day was mixed: lower in Illinois and Nevada, higher in Montana and Nebraska.
- Management said it had not observed material effects from macroeconomic conditions or a change in business outlook to date, but cited higher wage costs and debt interest expense. It cautioned that recessionary conditions could affect location partners and players’ discretionary spending.
- Interest-rate exposure remains material: a 100-basis-point increase, assuming debt remained at $542.5 million, would increase annual interest expense by approximately $2.4 million. Caplets hedge exposure on the first $300 million of term debt when the relevant rate exceeds 2%.
- Management believes cash, operating cash flows and borrowing availability are sufficient for requirements over the next 12 months. Results are seasonal; gaming revenue per machine per day is typically lower in summer and higher in colder months. No revenue or earnings guidance is provided in the filing.
- Contingent earnout share fair-value loss was $4.7 million, a non-cash charge. The related liability rose to $36.5 million. Remaining tranches depend on stock-price thresholds and, for one tranche, an LTM EBITDA threshold of $198.6 million as of March 31 or June 30, 2024.
- Legal and regulatory matters include ongoing litigation concerning Illinois gaming-location agreements and disputes over municipal terminal taxes. Management says other ordinary-course claims are not expected to materially adversely affect results, but no damages estimate or reserve was recorded for the J&J-related matter. A prior Illinois Gaming Board matter was settled for $1.1 million and paid in 2023.
- After quarter-end, on May 1, Accel acquired assets covering 16 Illinois locations for approximately $13.7 million, including $11.2 million paid at closing. The CEO also adopted a Rule 10b5-1 plan that may sell up to 580,000 shares between June 14 and December 31, 2024, subject to specified price conditions.
Key facts for investors to verify
- Whether revenue growth and location/terminal additions translate into improved margins, given operating costs grew faster than revenue.
- Debt levels, refinancing and floating-rate exposure, caplet coverage, and continued covenant compliance.
- Progress and cash requirements for the pending Louisiana acquisition, the May 2024 Illinois acquisition, and the $55–65 million capital-expenditure outlook.
- Developments in Illinois gaming-location and municipal tax litigation, and any resulting financial or operating exposure.
- Potential conversion of contingent earnout shares and resulting dilution; actual repurchases and sales under the CEO’s 10b5-1 plan.