Accel Entertainment(ACEL) - 2022 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the company's financial statements, management's analysis, market risk disclosures, and internal controls Financial Statements Accel Entertainment reported significant Q1 2022 financial growth, with revenues up 33.9% and net income surging Condensed Consolidated Statements of Operations and Comprehensive Income Q1 2022 saw total net revenues increase 33.9% to $196.9 million and net income rise to $15.8 million | Financial Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | YoY Change | | :--- | :--- | :--- | :--- | | Total Net Revenues | $196,891 thousand | $147,069 thousand | +33.9% | | Operating Income | $21,207 thousand | $9,555 thousand | +121.9% | | Net Income | $15,788 thousand | $1,501 thousand | +951.8% | | Diluted EPS | $0.17 | $0.02 | +750.0% | Condensed Consolidated Balance Sheets As of March 31, 2022, total assets increased slightly to $624.5 million, with stockholders' equity rising to $166.8 million | Balance Sheet Item | March 31, 2022 (Unaudited) | December 31, 2021 | | :--- | :--- | :--- | | Total Current Assets | $254,604 thousand | $247,995 thousand | | Total Assets | $624,514 thousand | $616,073 thousand | | Total Current Liabilities | $72,370 thousand | $71,835 thousand | | Total Liabilities | $457,692 thousand | $457,612 thousand | | Total Stockholders' Equity | $166,822 thousand | $158,461 thousand | Condensed Consolidated Statements of Stockholders' Equity Total stockholders' equity increased by $8.4 million in Q1 2022, driven by net income and unrealized gains, offset by share repurchases - Key changes in stockholders' equity for Q1 2022 include: - Repurchase of 1,087,990 shares of common stock for $13.9 million - Net income of $15.8 million - Unrealized gain on interest rate caplets of $4.9 million[6] Condensed Consolidated Statements of Cash Flows Net cash from operations remained stable at $22.1 million, while financing activities shifted to a significant use of cash due to stock repurchases | Cash Flow Activity | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $22,061 thousand | $21,586 thousand | | Net cash used in investing activities | ($6,387) thousand | ($2,462) thousand | | Net cash (used in) provided by financing activities | ($19,562) thousand | $19,103 thousand | | Net (decrease) increase in cash | ($3,888) thousand | $38,227 thousand | Notes to the Condensed Consolidated Financial Statements Notes detail business operations, accounting policies, and significant events including expansion, acquisitions, and legal proceedings - The company operates 13,663 video gaming terminals (VGTs) across 2,565 locations in Illinois as of March 31, 2022[11] - In Q4 2021, the company extended the useful lives of its gaming terminals, route/customer acquisition costs, and location contracts, which decreased depreciation and amortization expense in Q1 2022[18][19] - The company has a pending acquisition of Century Gaming, Inc. for $140 million in cash and stock, expected to close in Q2 2022[62] - The company is involved in a legal dispute with Gold Rush Amusements, Inc. over convertible notes after the IGB denied the transfer of Gold Rush common stock to Accel; Accel has filed a lawsuit against Gold Rush[32][33] - The company received a disciplinary complaint from the IGB seeking a $5 million fine, which the company is vigorously defending[112] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes strong Q1 2022 performance to the absence of prior-year COVID-19 shutdowns and increased gaming operations - The increase in Q1 2022 revenue was primarily driven by the absence of the IGB-mandated shutdown that impacted 18 of 90 gaming days (20%) in Q1 2021[148] | Metric | Q1 2022 | Q1 2021 | YoY Change | | :--- | :--- | :--- | :--- | | Total Net Revenues | $196.9M | $147.1M | +33.9% | | Operating Income | $21.2M | $9.6M | +121.9% | | Net Income | $15.8M | $1.5M | +951.8% | | Key Business Metrics | As of March 31, 2022 | As of March 31, 2021 | YoY Change | | :--- | :--- | :--- | :--- | | Licensed establishments | 2,565 | 2,470 | +3.8% | | VGTs | 13,663 | 12,720 | +7.4% | | Location hold-per-day | $811 | $784 | +3.4% | - Adjusted EBITDA for Q1 2022 increased by 36.5% to $35.2 million, compared to $25.8 million in the prior-year period[166] - As of March 31, 2022, the company had $194.9 million in cash and cash equivalents and approximately $550.0 million of availability under its Credit Agreement[169][175] Quantitative and Qualitative Disclosures About Market Risk The company manages interest rate risk on its floating-rate debt through interest rate caplets - The company is exposed to interest rate risk on its $345.6 million of borrowings under its senior secured credit facility as of March 31, 2022[192] - To hedge against rising interest rates, the company entered into a 4-year series of interest rate caplets on January 12, 2022, covering the first $300 million of its term loan, protecting if the 1-month LIBOR exceeds 2%[192] Controls and Procedures Disclosure controls and procedures were deemed ineffective due to material weaknesses, though financial statements are fairly presented - The CEO and CFO concluded that disclosure controls and procedures were not effective as of March 31, 2022, due to previously identified material weaknesses still being present[195] - Notwithstanding the material weaknesses, management asserts that the condensed consolidated financial statements included in the Form 10-Q are fairly presented in all material respects[196] PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, and other disclosures Legal Proceedings The company is involved in several legal disputes, including litigation with J&J Ventures, an IGB disciplinary complaint, and a lawsuit against Gold Rush - The company is involved in a series of litigated matters with J&J Ventures Gaming, LLC over contractual rights dating back to 2012[200] - A disciplinary complaint from the IGB received in December 2020 seeks to fine the company $5 million; the company denies wrongdoing and is defending itself[208] - On March 9, 2022, the company filed a lawsuit against Gold Rush for breach of contract related to convertible notes[209] - The company has recorded estimated legal reserves of $1.6 million as of March 31, 2022, which includes a $1.0 million loss recognized during the first quarter[212] Risk Factors Investors are directed to the comprehensive risk factors detailed in the company's Annual Report on Form 10-K - The report refers to the risk factors described in the Annual Report on Form 10-K for the year ended December 31, 2021, for a comprehensive understanding of investment risks[213] [Unregistered Sales of Equity Securities and Use of Proceeds](index=41&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECU RITIES%20AND%20USE%20OF%20PROCEEDS) The company continued its share repurchase program, repurchasing over 1 million shares in Q1 2022 | Period | Total Shares Purchased | Average Price Paid per Share | Approx. Dollar Value Remaining (in millions) | | :--- | :--- | :--- | :--- | | January 2022 | 561,120 | $12.52 | $184.0 | | February 2022 | 316,277 | $13.15 | $179.8 | | March 2022 | 210,593 | $13.06 | $177.1 | | Q1 2022 Total | 1,087,990 | - | - | Defaults Upon Senior Securities No defaults upon senior securities were reported - No defaults upon senior securities were reported[216] Mine Safety Disclosures This item is not applicable to the company - This item is not applicable to the company[217] Exhibits This section lists the exhibits filed with the Form 10-Q, including employment agreements and certifications - Exhibits filed include an Executive Employment Agreement dated April 25, 2022, CEO and CFO certifications, and XBRL data files[219]