Accel Entertainment, Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a standalone fourth-quarter filing. Accel operates gaming terminals and related amusement and ATM equipment in licensed establishments, primarily in Illinois.
Business context and operating performance
At year-end, Accel operated 13,639 video gaming terminals in 2,584 Illinois locations, up 11.4% and 6.1%, respectively, from 2020. Average location hold-per-day rose 37.8% to $806; average remaining contract term was 6.8 years. The company reported a voluntary partner contract renewal rate of approximately 99% over the three years ended 2021.
Financial results
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Total net revenue | $734.7 million | $316.4 million | +132.2% |
| Net gaming revenue | $705.8 million | $300.5 million | +134.9% |
| Operating income (loss) | $70.2 million | $(24.7) million | Improved $94.9 million |
| Net income (loss) | $31.6 million | $(0.4) million | Improved $32.0 million |
| Adjusted EBITDA (non-GAAP) | $139.7 million | $33.9 million | +312.0% |
| Net cash from operating activities | $110.8 million | $(3.7) million | Improved $114.5 million |
| Net cash used in investing activities | $(34.5) million | $(61.4) million | |
| Net cash used in financing activities | $(11.9) million | $74.2 million |
Reported operating margin was approximately 9.6% and net margin approximately 4.3%, calculated from reported revenue and income. Cost of revenue was $494.0 million; it includes gaming taxes, establishment revenue shares, and other direct costs. Interest expense, net, was $12.7 million, versus $13.7 million in 2020.
Cash and cash equivalents were $198.8 million at year-end. Debt outstanding was $350.0 million, or approximately $151.2 million net of cash; the company reported about $550.0 million of additional credit availability. The weighted-average interest rate was approximately 3.2%. Accel reported compliance with its debt covenants at year-end.
Changes versus 2020
- Results rebounded from COVID-19 disruptions: Illinois gaming operations were shut for 148 gaming days in 2020 (40% of the year) versus 18 days in 2021 (5%). Revenue growth and the return to positive operating income and net income therefore reflect a substantially easier comparison as well as business growth.
- Management also cited more locations and terminals, higher location hold-per-day, higher wager-limit software, and the addition of a sixth terminal at eligible locations as revenue drivers.
- In October 2021, Accel amended its credit agreement, increasing the revolving facility to $150 million, establishing a $350 million term loan and a $400 million delayed-draw term loan facility, and extending maturity to October 2026.
- Accel repurchased 701,305 shares for approximately $9.0 million in 2021 under a newly authorized $200 million program.
Outlook, risks, and unusual items
- Management said cash, operating cash flow, and credit availability should be sufficient for capital needs over the next 12 months. It estimated 2022 capital expenditures of approximately $20–25 million.
- Accel expected to begin Pennsylvania gaming operations in 2022, subject to regulatory and other conditions. It also had a pending agreement to acquire Century Gaming for approximately $140 million, expected to close in the first half of 2022 subject to customary conditions, including regulatory approvals.
- COVID-19 restrictions or renewed shutdowns, regulatory changes, Illinois market concentration, competition, partner renewals, supplier dependence, acquisition integration, and floating-rate debt are material risks. A 1 percentage-point increase in rates on $350 million of debt would increase annual interest expense by approximately $3.5 million, assuming the balance remained unchanged.
- Three material weaknesses in internal control over financial reporting remained unremediated at year-end: financial close and review controls; business-combination and route-acquisition-cost accounting; and IT access and change-management controls. Management concluded disclosure controls and internal control over financial reporting were ineffective. The auditor gave an unqualified opinion on the financial statements but was not engaged to audit internal controls.
- An IGB disciplinary complaint alleges violations and seeks a $5 million fine; Accel denies wrongdoing and recorded an estimated loss of $0.6 million. Other litigation includes a dispute with Illinois Gaming Investors seeking $10 million; the filing says no material adverse outcome is expected for ordinary-course matters generally, but outcomes remain uncertain.
- Accel’s $32.1 million Gold Rush convertible-note investment was carried at principal plus accrued interest after the IGB denied transfer of the conversion shares. Accel disputed the decision, stated its legal claims could be worth materially more than the recorded amount, and filed suit against Gold Rush on March 9, 2022. The notes were classified as current in the financial statements.
- Fourth-quarter estimate changes extended gaming-equipment useful lives from 10 to 13 years, route-acquisition-cost amortization from 12.4 to 18 years, and acquired-location-contract amortization from 10 to 15 years. These changes increased 2021 net income by $3.9 million, or $0.04 per share.
- Other notable items included a $9.8 million noncash loss from revaluing contingent earnout shares, a $1.2 million debt-extinguishment loss, and a $4.3 million increase in fair-value adjustments to contingent consideration. CFO Brian Carroll planned to retire from the CFO role by April 30, 2022, with transition assistance thereafter.
Important facts for investors to verify
- How much of the 2021 improvement reflects reopening and easier COVID-19 comparisons versus durable growth in locations, terminals, and hold-per-day.
- Whether the three internal-control material weaknesses are remediated, and whether they affect the reliability or timeliness of future reporting.
- The status and potential financial, licensing, or operational effects of the IGB disciplinary proceeding and other litigation.
- The recoverability and ultimate value of the Gold Rush notes, including the effect of the IGB’s denial and pending legal remedies.
- Execution, funding, regulatory approvals, and expected returns for Pennsylvania expansion and the proposed Century Gaming acquisition; also monitor leverage, interest costs, and covenant headroom.