Business Context and Reporting Period
Company: Accel Entertainment, Inc. (ACEL)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2024
Business Overview: Accel is a leading distributed gaming operator in the U.S., installing and operating gaming terminals, redemption devices with ATM functionality, and amusement devices in non-casino locations (bars, restaurants, truck stops) across Illinois, Montana, Nevada, Nebraska, Georgia, Iowa, and Pennsylvania. The company also manufactures gaming terminals.
Key Financial Metrics
| Metric (in thousands) | Q3 2024 | Q3 2023 | 9M 2024 | 9M 2023 |
|---|---|---|---|---|
| Total Net Revenues | $302,227 | $287,497 | $913,457 | $873,352 |
| Net Gaming Revenue | $289,923 | $274,123 | $871,300 | $831,054 |
| Operating Income | $21,845 | $25,120 | $70,087 | $81,956 |
| Net Income | $4,895 | $10,450 | $26,897 | $29,615 |
| Diluted EPS | $0.06 | $0.12 | $0.32 | $0.34 |
| Adjusted EBITDA | $45,880 | $44,138 | $141,792 | $136,869 |
| Cash and Equivalents | $265,085 | $230,388 | $265,085 | $230,388 |
| Total Debt (Net) | $554,062 | $542,574 | $554,062 | $542,574 |
| Operating Cash Flow (9M) | $107,665 | $92,007 | $107,665 | $92,007 |
Liquidity: As of September 30, 2024, the company held $265.1 million in cash and cash equivalents. Under its Senior Secured Credit Facility, $273 million remained available. In October 2024, the company borrowed an additional $119.0 million on its Delayed Draw Term Loan (DDTL), utilizing $77.5 million to pay down the revolving credit facility and reserving $35.0 million for a pending acquisition.
Material Changes vs. Prior Period
- Revenue Growth: Total net revenues increased 5.1% in Q3 2024 and 4.6% for the nine months ended September 30, 2024, compared to the prior year. This was driven primarily by a 5.8% increase in net gaming revenue due to an expansion in gaming locations and terminals.
- Profitability Decline: Net income decreased 53.2% in Q3 2024 and 9.2% for the nine-month period. The decline was significantly impacted by a $4.2 million loss on the change in fair value of contingent earnout shares in Q3 (compared to $1.6 million in Q3 2023) and higher interest expense.
- Expense Increases: Operating expenses rose 6.9% in Q3. "Other expenses, net" surged 129.9% due to fair value adjustments on contingent consideration and non-recurring acquisition costs. Interest expense increased 8.9% due to higher average debt balances and interest rates (weighted average ~7.6%).
- Operational Expansion: The company added 108 locations and 1,025 gaming terminals year-over-year. Nebraska saw the highest growth in locations (15.1%) and terminals (28.2%).
Guidance, Outlook, and Risks
- Capital Expenditures: Management anticipates capital expenditures of approximately $60–65 million for the full year 2024.
- Pending Acquisitions:
- Fairmount Holdings: Agreed to acquire Fairmount (owner of FanDuel Sportsbook & Horse Racing in Collinsville, IL) for ~$35 million in stock. Closing expected in Q4 2024, subject to regulatory approval.
- Louisiana Operator: Closing expected in Q4 2024; $18.1 million has been paid as an advance deposit.
- Regulatory Risks: The company faces ongoing litigation regarding location agreements from 2012 (J&J Ventures Gaming) and potential tax disputes with Illinois municipalities regarding terminal operator taxes. A $1.1 million settlement with the Illinois Gaming Board was paid in 2023.
- Market Risks: Exposure to interest rate fluctuations on floating-rate debt (hedged via caplets on the first $300 million of term loans). Economic downturns could reduce player disposable income and impact location partners.
Investor Verification Checklist
- Acquisition Closing: Verify the regulatory approval status and closing timeline for the Fairmount and Louisiana acquisitions, which are critical for future growth.
- Debt Servicing: Monitor the impact of the 7.6% weighted average interest rate on future cash flows, especially given the recent drawdown of the DDTL.
- Contingent Liabilities: Track the fair value volatility of the $36.0 million contingent earnout share liability and $12.9 million contingent consideration, as these significantly impact reported net income.
- Illinois Tax Rate: Confirm the operational impact of the July 1, 2024, increase in Illinois net gaming revenue tax from 34% to 35%.
- Legal Proceedings: Review updates on the J&J Ventures Gaming litigation and municipal tax disputes in Illinois.