Accel Entertainment Inc

Previous wording

We install, maintain, operate and service gaming terminals and related equipment for our location partners as well as redemption devices that have automated teller machine (“ATM”) functionality and stand-alone ATMs. We offer amusement devices, including jukeboxes, dartboards, pool tables, and other entertainment related equipment. These operations provide a complementary source of lead generation for our gaming business by offering a “one-stop” source of additional equipment for our location partners. We also design and manufacture gaming terminals and related equipment. We are continuously evaluating additional opportunities that are complementary to our core business.

Current wording

We install, maintain, operate and service gaming terminals and related equipment for our location partners as well as redemption devices that have automated teller machine (“ATM”) functionality and stand-alone ATMs. We offer amusement devices, including jukeboxes, dartboards, pool tables, and other entertainment related equipment. These operations provide a complementary source of lead generation for our gaming business by offering a “one-stop” source of additional equipment for our location partners. We also design and manufacture gaming terminals and related equipment. We are continuously evaluating additional opportunities that are complementary to our core business, such as our pending acquisition of the FanDuel Sportsbook & Horse Racing in Collinsville, Illinois, as discussed in Note 10 to the condensed consolidated financial statements.

Previous wording

To date, we have not observed material impacts in our business or outlook, outside of observed increases in our costs related to higher wages and increased interest expense on our debt. In 2023, we accelerated certain of our capital expenditures related to gaming machines and related components to manage our supply chain.

Current wording

To date, we have not observed material impacts in our business or outlook, outside of observed increases in our costs related to higher wages and increased interest expense on our debt. In 2023 and the first half of 2024, we accelerated certain of our capital expenditures related to gaming machines and related components to manage our supply chain.

Previous wording

Cost of revenue. Cost of revenue consists of (i) taxes on net gaming revenue that is payable to the appropriate jurisdiction, (ii) licenses, permits and other fees required for the operation of gaming terminals and other equipment, (iii) location revenue share, which is governed by local governing bodies and location contracts, (iv) ATM and amusement commissions payable to locations, and (v) ATM and amusement fees.

Current wording

Cost of revenue. Cost of revenue consists of (i) taxes on net gaming revenue that is payable to the appropriate jurisdiction (effective July 1, 2024, the tax on net gaming revenue in the State of Illinois increased from 34% to 35%, which is split equally between us and our locations in Illinois), (ii) licenses, permits and other fees required for the operation of gaming terminals and other equipment, (iii) location revenue share, which is governed by local governing bodies and location contracts, (iv) ATM and amusement commissions payable to locations, and (v) ATM and amusement fees.

Previous wording

Total net revenues for the three months ended March 31, 2024 were $301.8 million, an increase of $8.6 million, or 2.9%, compared to the prior-year period. This increase was primarily driven by higher net gaming revenue of $8.8 million, which reflected an increase in gaming locations and terminals. Net revenues by state are presented below (in thousands):

Current wording

Total net revenues for the three months ended June 30, 2024 were $309.4 million, an increase of $16.8 million, or 5.7%, compared to the prior-year period. This increase was primarily driven by higher net gaming revenue of $15.7 million, which reflected an increase in gaming locations and terminals. Net revenues by state are presented below (in thousands):

Previous wording

Cost of revenue for the three months ended March 31, 2024 was $209.2 million, an increase of $5.6 million, or 2.8%, compared to the prior-year period, driven by higher net gaming revenue, as described above.

Current wording

Cost of revenue for the three months ended June 30, 2024 was $213.3 million, an increase of $11.0 million, or 5.4%, compared to the prior-year period, driven by higher net gaming revenue, as described above.

Previous wording

General and administrative expenses for the three months ended March 31, 2024 were $47.6 million, an increase of $4.6 million, or 10.7%, compared to the prior-year period. The increase was attributable to higher payroll-related costs, as we continue to grow our operations, as well as higher stock-based compensation expense and parts and repair expense.

Current wording

General and administrative expenses for the three months ended June 30, 2024 were $46.5 million, an increase of $2.3 million, or 5.2%, compared to the prior-year period. The increase was attributable to higher payroll-related costs, as we continue to grow our operations, as well as higher stock-based compensation expense, partially offset by lower legal settlements and parts and repair expense.

Previous wording

Depreciation and amortization of property and equipment for the three months ended March 31, 2024 was $10.4 million, an increase of $1.4 million, or 15.1%, compared to the prior-year period due to an increased number of gaming terminals.

Current wording

Depreciation and amortization of property and equipment for the three months ended June 30, 2024 was $10.8 million, an increase of $1.3 million, or 14.3%, compared to the prior-year period due to an increased number of gaming terminals.

Previous wording

Amortization of intangible assets and route and customer acquisition costs for the three months ended March 31, 2024 were $5.4 million, an increase of $0.2 million, or 3.7%, compared to the prior-year period.

Current wording

Amortization of intangible assets and route and customer acquisition costs for the three months ended June 30, 2024 were $5.6 million, an increase of $0.3 million, or 5.8%, compared to the prior-year period.

Previous wording

Other expenses, net for the three months ended March 31, 2024 were $2.4 million, a decrease of $0.8 million, or 25.4%, compared to the prior-year period. The decrease was primarily attributable to lower non-recurring expenses and lower fair value adjustments associated with the revaluation of contingent consideration liabilities.

Current wording

Other expenses, net for the three months ended June 30, 2024 were $7.3 million, compared to $0.1 million in the prior-year period. The increase was primarily attributable to higher fair value adjustments associated with the revaluation of contingent consideration liabilities and non-recurring expenses, as well as the impact of a $1.7 million gain recognized in the prior-year period on the convertible note settlement as discussed in Note 4 to the condensed consolidated financial statements.

Previous wording

Interest expense, net for the three months ended March 31, 2024 was $8.7 million, an increase of $0.8 million, or 9.8%, compared to the prior-year period primarily due to higher interest rates, partially offset by a decrease in average outstanding debt and the benefit realized on our interest rate caplets. For the three months ended March 31, 2024, the weighted average interest rate, excluding the impact of our interest rate caplets, was approximately 7.7% compared to a rate of approximately 6.8% for the prior-year period.

Current wording

Interest expense, net for the three months ended June 30, 2024 was $8.9 million, an increase of $0.7 million, or 8.0%, compared to the prior-year period primarily due to an increase in average outstanding debt and higher interest rates, partially offset by the benefit realized on our interest rate caplets. For the three months ended June 30, 2024, the weighted average interest rate, excluding the impact of our interest rate caplets, was approximately 7.7% compared to a rate of approximately 7.2% for the prior-year period.

Previous wording

Loss on change in fair value of contingent earnout shares

Current wording

(Gain) loss on change in fair value of contingent earnout shares

Previous wording

Loss on the change in fair value of contingent earnout shares for the three months ended March 31, 2024 was $4.7 million, an increase of $0.1 million, or 2.5%, compared to the prior-year period. The change was primarily due to the change in the market value of our Class A-1 common stock, which is the primary input to the valuation of the contingent earnout shares.

Current wording

The change in the fair value of contingent earnout shares for the three months ended June 30, 2024 was a gain of $4.7 million, compared to a loss of $4.8 million the prior-year period. The change was primarily due to the change in the market value of our Class A-1 common stock, which is the primary input to the valuation of the contingent earnout shares.

Previous wording

Income tax expense for the three months ended March 31, 2024 was $4.8 million, a decrease of $1.2 million, or 20.6%, compared to the prior-year period. The effective tax rate for the three months ended March 31, 2024 was 39.1% compared to 39.5% in the prior-year period. Our effective income tax rate can vary from period to period depending on, among other factors, the amount of permanent tax adjustments and discrete items. The change in the fair value of the contingent earnout shares is considered a discrete item for tax purposes and can be the primary driver for the fluctuations in the tax rate year over year.

Current wording

Income tax expense for the three months ended June 30, 2024 was $3.9 million, a decrease of $2.2 million, or 35.5%, compared to the prior-year period. The effective tax rate for the three months ended June 30, 2024 was 21.2% compared to 37.9% in the prior-year period. Our effective income tax rate can vary from period to period depending on, among other factors, the amount of permanent tax adjustments and discrete items. The change in the fair value of the contingent earnout shares is considered a discrete item for tax purposes and can be the primary driver for the fluctuations in the tax rate year over year.

Previous wording

The following table sets forth information with respect to our location hold-per-day in our primary locations:

Current wording

The following table sets forth information with respect to our location hold-per-day in our primary locations for the three and six months ended:

Previous wording

(4)Other expenses, net consists of (i) non-cash expenses including the remeasurement of contingent consideration liabilities, (ii) non-recurring lobbying and legal expenses related to distributed gaming expansion in current or prospective markets, and (iii) other non-recurring expenses.

Current wording

•Other expenses, net which consists of (i) non-cash expenses including the remeasurement of contingent consideration liabilities, (ii) non-recurring lobbying and legal expenses related to distributed gaming expansion in current or prospective markets, and (iii) other non-recurring expenses

Previous wording

(6)Emerging markets consist of the results, on an Adjusted EBITDA basis, for non-core jurisdictions where our operations are developing. Markets are no longer considered emerging when we have installed or acquired at least 500 gaming terminals in the jurisdiction, or when 24 months have elapsed from the date we first install or acquire gaming terminals in the jurisdiction, whichever occurs first. We currently view Pennsylvania as an emerging market. Prior to January 2024, Iowa was considered an emerging market. Prior to April 2023, Nebraska was considered an emerging market.

Current wording

◦Markets are no longer considered emerging when we have installed or acquired at least 500 gaming terminals in the jurisdiction, or when 24 months have elapsed from the date we first install or acquire gaming terminals in the jurisdiction, whichever occurs first

Previous wording

We believe that our cash and cash equivalents, cash flows from operations and borrowing availability under the Credit Agreement (as defined below) will be sufficient to meet our capital requirements for the next twelve months. Our primary short-term cash needs are paying operating expenses and contingent earnout payments, purchases of property and equipment, servicing outstanding indebtedness, and funding our Board of Directors approved share repurchase program and near term acquisitions. As of March 31, 2024, we had $253.9 million in cash and cash equivalents.

Current wording

We believe that our cash and cash equivalents, cash flows from operations and borrowing availability under the Credit Agreement (as defined below) will be sufficient to meet our capital requirements for the next twelve months. Our primary short-term cash needs are paying operating expenses and contingent earnout payments, purchases of property and equipment, servicing outstanding indebtedness, and funding our Board of Directors approved share repurchase program and near term acquisitions. As of June 30, 2024, we had $254.9 million in cash and cash equivalents.

Previous wording

As of March 31, 2024, there remained $299 million of availability under the Credit Agreement and the weighted-average interest rate on our borrowings under the Credit Agreement was approximately 7.7%.

Current wording

As of June 30, 2024, there remained $267 million of availability under the Credit Agreement and the weighted-average interest rate on our borrowings under the Credit Agreement was approximately 7.7%.

Previous wording

We recognized anunrealized gain, net of taxes, on the change in fair value of the caplets of$1.1 million for the three months ended March 31, 2024 and an unrealized loss $2.2 million, net of taxes, for the three months ended March 31, 2023. We also recognized interest income on the caplets of $2.6 million and $1.9 millionfor the three months ended March 31, 2024 and 2023, respectively, which are reflected in interest expense, netin the condensed consolidated statements of operations and other comprehensive income.

Current wording

We recognized anunrealized loss, net of taxes, on the change in fair value of the caplets of$1.1 million and an unrealized gain of less than $0.1 million for the three and six months ended June 30, 2024, respectively. In comparison, we recognized an unrealized gain of$2.1 million and an unrealized loss of$0.1 million, net of taxes, for the three and six months ended June 30, 2023, respectively. We also recognized interest income on the caplets of$2.5 million and$5.1 million for thethree and six months ended June 30, 2024. In comparison, we recognized interest income on the caplets of$2.3 million and$4.2 million for the three and six months ended June 30, 2023, respectively. These amounts are reflected in interest expense, netin the condensed consolidated statements of operations and other comprehensive income.

Previous wording

For the three months ended March 31, 2024, net cash provided by operating activities was $28.8 million, a decrease of $9.2 million compared to the prior-year period due primarily to lower working capital adjustments.

Current wording

For the six months ended June 30, 2024, net cash provided by operating activities was $57.6 million, a decrease of $6.2 million compared to the prior-year period due primarily to lower deferred income taxes and lower working capital adjustments, partially offset by higher remeasurements on contingent consideration.

Previous wording

For the three months ended March 31, 2024, net cash used in investing activities was $25.9 million, an increase of $2.3 million compared to the prior-year period and was primarily attributable to more cash used for advances against a portion of the purchase price on pending business and asset acquisitions. We anticipate our capital expenditures will be approximately $55–65 million in 2024.

Current wording

For the six months ended June 30, 2024, net cash used in investing activities was $69.3 million, an increase in cash used of $53.1 million compared to the prior-year period. The increase in cash used was primarily attributable to more cash used for business and asset acquisitions, deposits paid against a portion of the purchase price on a pending business acquisition as well as an investment in an equity interest, partially offset by the proceeds from the settlement of the convertible notes in the prior year and lower purchases of property and equipment. We anticipate our capital expenditures will be approximately $55–65 million in 2024.

Previous wording

Net cash used in financing activities

Current wording

Net cash provided by (used in) financing activities

Previous wording

For the three months ended March 31, 2024, net cash used in financing activities was $10.5 million, an increase of $0.6 million compared to the prior-year period. The change reflects an increase in stock repurchases, partially offset by lower net repayments on borrowings.

Current wording

For the six months ended June 30, 2024, net cash provided by financing activities was $5.0 million, compared to cash used in financing activities of $38.3 million in the prior-year period. The change reflects an increase in cash due to higher borrowings, partially offset by higher stock repurchases.