Accel Entertainment, Inc. (ACEL) - Q2 2024 10-Q Summary
Business Context and Reporting Period
Accel Entertainment, Inc. is a leading distributed gaming operator in the United States, operating gaming terminals, amusement devices, and ATMs in non-casino locations across Illinois, Montana, Nevada, Nebraska, Georgia, Iowa, and Pennsylvania. This report covers the quarterly period ended June 30, 2024.
Key Financial Metrics
| Metric (in thousands) | Q2 2024 | Q2 2023 | YTD 2024 | YTD 2023 |
|---|---|---|---|---|
| Total Net Revenues | $309,413 | $292,647 | $611,230 | $585,855 |
| Net Gaming Revenue | $293,240 | $277,551 | $581,377 | $556,931 |
| Operating Income | $22,683 | $29,164 | $48,242 | $56,836 |
| Net Income | $14,586 | $9,983 | $22,002 | $19,165 |
| Diluted EPS | $0.17 | $0.11 | $0.26 | $0.22 |
| Operating Cash Flow (YTD) | $57,614 (2024) vs $63,845 (2023) | |||
| Cash and Equivalents | $254,923 (as of June 30, 2024) | |||
| Total Debt (Net) | $565,741 (as of June 30, 2024) | |||
| Adjusted EBITDA (Q2) | $49,665 | $46,612 | $95,912 (YTD) | $92,730 (YTD) |
Material Changes vs. Prior Period
- Revenue Growth: Total net revenues increased 5.7% in Q2 2024 compared to Q2 2023, driven primarily by a 5.7% increase in net gaming revenue due to an expansion in gaming locations and terminals.
- Operating Income Decline: Operating income decreased 22.2% to $22.7 million in Q2 2024. This was largely due to a $7.3 million increase in "Other expenses, net" (compared to $0.1 million in the prior year), driven by fair value adjustments on contingent consideration and non-recurring expenses. This contrasts with a $1.7 million gain in the prior year from a convertible note settlement.
- Net Income Increase: Despite lower operating income, Net Income increased 46.1% to $14.6 million. This was primarily due to a $4.7 million gain on the change in fair value of contingent earnout shares (vs. a $4.8 million loss in the prior year) and a lower effective tax rate (21.2% vs. 37.9%).
- Interest Expense: Interest expense, net, increased 8.0% to $8.9 million due to higher average outstanding debt and interest rates, partially offset by interest rate caplet benefits.
- Key Metrics: Total locations increased 4.7% to 4,034, and total gaming terminals increased 5.7% to 25,757.
Guidance, Outlook, and Risks
- Capital Expenditures: Management anticipates capital expenditures of approximately $55–65 million for the full year 2024.
- Acquisitions:
- Completed: Acquired Jorgenson's Lounge (Montana), Illinois Gaming Entertainment assets, Great Lakes Vending assets, and Doc & Eddy's West in 2024.
- Pending: Entered an agreement on July 12, 2024, to acquire Fairmount Holdings (owner of FanDuel Sportsbook & Horse Racing in Collinsville, IL) for approximately $35 million in stock. Closing expected in Q4 2024.
- Deposits: Paid $15.4 million in deposits toward a pending acquisition of a distributed gaming operator in Louisiana.
- Share Repurchases: Repurchased 905,932 shares in Q2 2024 for approximately $9.3 million. Approximately $66.6 million remains available under the $200 million program.
- Risks and Contingencies:
- Legal: Ongoing litigation regarding 2012 contracts with J&J Ventures Gaming remains pending, though recent IGB rulings were largely in Accel's favor. A settlement with Jason Rowell was reached in July 2024 for $0.1 million.
- Regulatory: Subject to various state gaming regulations; a $1.1 million settlement with the Illinois Gaming Board (IGB) was paid in Q3 2023 regarding alleged Video Gaming Act violations.
- Market Risk: Exposure to interest rate fluctuations on $568.1 million of floating-rate debt, partially hedged with interest rate caplets.
Investor Verification Checklist
- Non-GAAP Reconciliations: Verify the adjustments made to Net Income to arrive at Adjusted EBITDA, specifically the treatment of contingent earnout share gains/losses and contingent consideration remeasurements.
- Contingent Consideration: Review the fair value assumptions for the $11.8 million contingent consideration liability and the $31.8 million contingent earnout share liability.
- Acquisition Integration: Monitor the closing conditions and regulatory approvals for the Fairmount Holdings acquisition and the Louisiana operator acquisition.
- Debt Covenants: Confirm continued compliance with the Senior Secured Credit Facility covenants, given the high leverage and interest rate environment.
- Legal Exposure: Track the status of the J&J Ventures Gaming litigation and any potential future damages or regulatory fines.