Accel Entertainment, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; filed March 16, 2021. This is an annual report, not a standalone Q4 filing. Accel operates gaming terminals and related equipment in non-casino locations, primarily in Illinois. COVID-19 shutdowns disrupted Illinois gaming for 148 of 365 gaming days.
Financial performance
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Total revenue | $316.4 million | $428.7 million | Down 26.2% |
| Operating income (loss) | $(24.7) million | $13.3 million | Down $38.0 million |
| Net income (loss) | $(13.0) million | $(15.7) million | Loss narrowed $2.7 million |
| Adjusted EBITDA | $33.9 million | $79.6 million | Down 57.4% |
| Cash from (used in) operating activities | $(3.7) million | $45.6 million | Down $49.3 million |
| Cash and cash equivalents at year-end | $134.5 million | $125.4 million | Up $9.0 million |
| Debt outstanding, gross | $347.6 million | $358.5 million | Down $10.9 million |
Net gaming revenue was $300.5 million, down 26.8%; amusement revenue was $9.2 million, down 5.1%; ATM fees and other revenue were $6.6 million, down 20.8%. Operating margin was approximately negative 7.8%, compared with positive 3.1% in 2019; net margin was approximately negative 4.1%. Cost of revenue was 66.7% of revenue versus 65.8%, partly reflecting the Illinois gaming tax increase from 33% to 34% effective July 1, 2020. Adjusted EBITDA margin was approximately 10.7%, versus 18.6%.
Investing cash outflow was $61.4 million, including $25.8 million of property and equipment purchases and $35.8 million for acquisitions. Financing cash inflow was $74.2 million, including $90.4 million net proceeds from a common-stock offering. The company reported approximately $100 million of availability under its credit agreement. Current assets were $152.0 million and current liabilities $52.4 million.
Material changes and operating developments
- Revenue and Adjusted EBITDA fell sharply as Illinois video gaming was suspended from March 16 through June 30 and again beginning November 19. Operations resumed in stages in January 2021, with some restrictions still in place.
- Excluding the Grand River Jackpot acquisition, net gaming revenue fell 32.8%. Accel operated 12,247 Illinois terminals in 2,435 locations at year-end, increases of 16.6% and 5.3%, respectively, from 2019. Location hold-per-day was $585, compared with $590.
- Accel acquired Tom’s Amusements in Georgia and American Video Gaming in Illinois, and acquired use agreements and equipment for 13 Illinois locations. It received a Pennsylvania terminal-operator license but had not begun gaming there by year-end.
- The company extended estimated useful lives of gaming terminals and equipment from seven to ten years. This reduced 2020 depreciation expense by $7.7 million and net loss by $3.3 million.
- Prior-year and interim statements were restated, principally to classify contingent earnout shares as a liability and record fair-value changes through earnings. The auditor’s opinion on the financial statements was unqualified; the report also notes correction of prior misstatements.
Liquidity, debt, outlook, and risks
Gross debt was $347.6 million, with a weighted-average interest rate of approximately 3.3%; substantially all borrowings were variable-rate and secured. The term loans mature in November 2024, with scheduled principal maturities of $18.25 million annually in 2021–2023 and $292.8 million in 2024. A 1 percentage-point increase in rates would raise annual interest expense by approximately $3.5 million at the year-end balance. Accel was compliant with debt covenants at December 31, 2020, but obtained a waiver of specified financial covenant tests for September 2020 through March 2021.
Management said cash, operating cash flows, and available credit should cover requirements for the next 12 months. It estimated 2021 capital expenditures of $20–25 million. No formal earnings or revenue guidance was provided. Management expressed plans to expand in Georgia and Pennsylvania and announced a proposed $140 million acquisition of Century Gaming in March 2021, subject to customary conditions and regulatory approvals.
Principal risks include renewed COVID-related closures or restrictions, continued weak consumer demand, dependence on Illinois and gaming regulation, licensing delays, competition, supplier concentration, acquisition integration, and variable-rate debt. Accel disclosed three unremediated material weaknesses in financial reporting controls—in financial-statement review and accounting processes, acquisition and route-cost accounting, and IT access and change management. Disclosure controls were deemed ineffective. An Illinois Gaming Board disciplinary complaint seeks a $5 million fine; the company disputes the allegations and recorded no reserve because loss was not considered probable or reasonably estimable. Other litigation includes a $10 million claim by Illinois Gaming Investors and a long-pending dispute with J&J; potential damages were not clearly estimable and no reserves were recorded.
Q4 2020 revenue was $74.4 million, compared with $122.8 million in Q4 2019; Q4 net loss was $8.5 million versus $22.4 million. Quarterly results were materially affected by shutdowns and should not be viewed as indicative of subsequent periods.
Key facts for investors to verify
- How gaming activity, revenue per terminal, and partner locations performed after operations resumed in January 2021, including the effects of capacity and operating-hour restrictions.
- Whether operating cash flow and liquidity can support debt service, capital spending, and planned expansion while maintaining covenant compliance after the waiver period.
- Progress in remediating the three material weaknesses and whether subsequent filings or audits identify additional control issues or restatements.
- The status and potential financial impact of the IGB complaint and the J&J and Illinois Gaming Investors litigation; outcomes and potential damages remain uncertain in the filing.
- Completion terms, financing, regulatory approvals, and integration risks for the proposed Century Gaming acquisition, as well as the performance of the Georgia and Pennsylvania expansion efforts.