Accel Entertainment, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual report; it does not provide a standalone fourth-quarter summary. Accel operates gaming terminals and related amusement, ATM and manufacturing services at non-casino locations. Its results include Century Gaming from its June 1, 2022 acquisition.
Key financial results
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Total net revenue | $969.8 million | $734.7 million | +32.0% |
| Operating income | $96.9 million | $70.2 million | +38.0% |
| Net income | $74.1 million | $31.6 million | +134.8% |
| Adjusted EBITDA (non-GAAP) | $162.4 million | $139.7 million | +16.3% |
| Net cash from operations | $108.0 million | $110.8 million | -$2.8 million |
| Cash and cash equivalents, year-end | $224.1 million | $198.8 million | +$25.3 million |
| Debt, year-end | $545.4 million | $350.0 million | +$195.4 million |
Approximate 2022 margins were 30.8% after cost of revenue, 10.0% operating and 7.6% net; Adjusted EBITDA margin was 16.7%. Capital expenditures were $47.4 million. Operating cash flow less property and equipment purchases was approximately $60.6 million, before acquisitions and other investing activity. Net cash used in investing was $189.3 million, largely reflecting acquisitions and equipment purchases; financing cash flow was positive $106.6 million.
Net gaming revenue was $925.0 million; amusement revenue $21.1 million; manufacturing revenue $7.6 million; and ATM and other revenue $16.1 million. Illinois contributed $808.7 million of revenue, Montana $79.6 million and Nevada $67.0 million. Year-end footprint was 3,598 locations and 23,150 gaming terminals, up 39.2% and 69.7%, respectively; much of the increase reflects Century.
Year-end current assets were $299.2 million and current liabilities $89.9 million. The company reported $329.0 million of remaining credit facility availability. Debt was variable-rate, with a 4.4% weighted-average rate; interest expense increased 70.3% to $21.6 million. A 100-basis-point rate increase was estimated to add about $2.5 million of annual interest expense at the year-end debt balance, partly mitigated by interest rate caplets covering the first $300 million of term debt.
Material changes and unusual items
- Revenue growth reflected the Century acquisition, higher terminal and location counts, and comparison with 2021, when Illinois gaming was shut down for 18 days. Century contributed $146.6 million of revenue and $4.0 million of net income after acquisition.
- Interest expense rose with higher average debt and rates. General and administrative expense rose 31.7%, including Century costs, higher payroll, fuel and fleet costs, and marketing.
- Net income benefited from a $19.5 million non-cash gain on the fair-value change in contingent earnout shares, versus a $9.8 million loss in 2021. The 2022 income tax rate was 21.8%, compared with 32.2% in 2021.
- Management estimates that longer useful-life assumptions adopted in late 2021 reduced 2022 depreciation by $3.7 million and amortization by $8.2 million, increasing net income by approximately $8.5 million, or $0.09 per share.
- Accel repurchased 7.64 million shares for approximately $79.0 million during 2022. About $112.0 million remained under its $200 million authorization at year-end.
Outlook, risks and contingencies
- Management expects 2023 capital expenditures of approximately $40–45 million and said cash, operating cash flow and available credit should meet capital requirements for the next 12 months. No specific revenue or earnings guidance was provided.
- Growth priorities include expanding in existing and new markets, acquisitions, and developing location and player services. Pennsylvania gaming operations were expected to begin in 2023, subject to licensing and implementation.
- Key risks include gaming regulation and license renewals, geographic concentration, competition, location contract retention, supplier and equipment availability, economic conditions affecting discretionary spending, and integration of acquisitions. Management had not observed material macroeconomic effects on its business or outlook to date, but noted higher wages, fuel costs and interest expense.
- The credit agreement requires first-lien net leverage no greater than 4.50x and fixed-charge coverage of at least 1.20x. Accel reported covenant compliance at year-end and expected continued compliance over the next 12 months.
- The company recorded a $1.2 million loss for legal matters in 2022. An Illinois Gaming Board disciplinary complaint seeks a $5 million fine; summary-judgment motions were pending, and the filing does not state a final outcome. Accel also described ongoing litigation involving Gold Rush and location-contract disputes. A $32.1 million Gold Rush convertible-note investment remained classified as current and was described as in default for disclosure purposes, amid regulatory and legal disputes over conversion and repayment.
- Accel disclosed material weaknesses in internal controls due to inadequate staffing and deficiencies in the control environment, risk assessment, information and communication, IT controls and process-level controls. Management and the auditor concluded controls were ineffective at year-end; KPMG issued an adverse opinion on internal control effectiveness. KPMG separately gave an unqualified opinion on the financial statements. Century, representing 9% of assets and 15% of revenue, was excluded from the control assessment.
Most important facts for investors to verify
- Whether internal-control remediation is implemented and operating effectively, and whether Century is incorporated into the control environment.
- Progress and returns from the Century acquisition and newer markets, including Pennsylvania, Nebraska, Montana and Nevada.
- Debt, variable-rate exposure, covenant headroom, credit availability and planned capital spending as rates and equipment needs evolve.
- Developments in the IGB disciplinary matter, Gold Rush dispute and Illinois municipal tax enforcement, including any additional liabilities or payments.
- Underlying growth excluding acquisition effects and prior-year shutdown comparisons; also assess the impact of the longer depreciation and amortization estimates on reported earnings.