10-Q: Accel Entertainment Q3 2025: Revenue Up, Net Income Soars

Accel Entertainment reports strong third-quarter 2025 results with significant revenue and net income growth, driven by gaming and ATM operations.

Summary

• Net revenues for the three months ended September 30, 2025, increased by 9.1% to $329.7 million, up from $302.2 million in the prior-year period.
• Net revenues for the nine months ended September 30, 2025, increased by 8.3% to $989.5 million, up from $913.5 million in the prior-year period.
• Net income attributable to Accel Entertainment, Inc. for the three months ended September 30, 2025, surged by 171.8% to $13.4 million, compared to $4.9 million in the prior-year period.
• Net income attributable to Accel Entertainment, Inc. for the nine months ended September 30, 2025, increased by 30.8% to $35.3 million, compared to $26.9 million in the prior-year period.
• Operating income for the three months ended September 30, 2025, rose by 16.1% to $25.4 million, and for the nine months, it increased by 11.6% to $78.2 million.
• Adjusted EBITDA for the three months ended September 30, 2025, was $51.2 million, an increase of 11.5%, and for the nine months, it was $153.9 million, an increase of 8.5%.
• Basic earnings per common share for the three months ended September 30, 2025, was $0.16, up from $0.06, and for the nine months, it was $0.41, up from $0.32.
• The total number of locations increased by 3.8% to 4,451, and gaming terminals increased by 4.5% to 27,714 as of September 30, 2025.
• A new Credit Agreement was entered into on September 10, 2025, refinancing the prior credit facility with a $300.0 million revolving credit facility and a $600.0 million term loan facility, maturing September 10, 2030.
• A loss on debt extinguishment of $1.1 million was recognized in connection with the new Credit Agreement.
• The One Big Beautiful Bill Act, signed July 4, 2025, will result in a favorable reduction in current tax expense, offset by an increase in deferred tax expense, without reducing the overall effective tax rate.

Sentiment

Score: 8

Explanation: Accel Entertainment delivered strong financial performance with significant increases in net income, revenue, and Adjusted EBITDA. Strategic acquisitions contributed to growth in locations and gaming terminals. The successful debt refinancing and compliance with financial covenants demonstrate sound financial management, despite some minor revenue declines in specific segments and increased operating expenses.

Positives

• Net income attributable to Accel Entertainment, Inc. increased significantly by 171.8% for the three months and 30.8% for the nine months ended September 30, 2025.
• Total net revenues grew by 9.1% for the three months and 8.3% for the nine months ended September 30, 2025, driven by strong net gaming and ATM fees.
• Net gaming revenue increased by $18.6 million (6.4%) in Q3 and $53.1 million (6.1%) YTD, reflecting growth in gaming locations, terminals, and casino operations.
• ATM fees and other revenue saw substantial growth of 164.9% in Q3 and 154.9% YTD, including revenue from racing operations.
• Operating income improved by 16.1% in Q3 and 11.6% YTD.
• Adjusted EBITDA increased by 11.5% in Q3 and 8.5% YTD, indicating strong operational performance.
• Interest expense, net, decreased by 5.9% in Q3 and 2.4% YTD due to lower interest rates and the benefit from interest rate caplets.
• A gain of $2.2 million on the change in fair value of contingent earnout shares was recorded in Q3 2025, a positive swing from a $4.2 million loss in Q3 2024.
• The company is in compliance with all debt covenants under the new Credit Agreement as of September 30, 2025, and expects to remain so for the next 12 months.
• The One Big Beautiful Bill Act led to a favorable reduction in current tax expense.

Negatives

• Amusement revenue decreased by 2.5% for the three months and 2.2% for the nine months ended September 30, 2025.
• Manufacturing revenue decreased by 1.6% for the three months and 20.0% for the nine months ended September 30, 2025.
• Net revenues from Nevada decreased by 7.4% in Q3 and 6.8% YTD.
• General and administrative expenses increased by 16.0% in Q3 and 15.0% YTD, primarily due to higher compensation-related costs.
• Depreciation and amortization of property and equipment increased by 21.3% in Q3 and 20.2% YTD due to an increased number of gaming terminals.
• Amortization of intangible assets and route and customer acquisition costs increased by 10.5% in Q3 and 13.0% YTD.
• A loss on debt extinguishment of $1.1 million was recorded in connection with the new Credit Agreement.
• Unrealized losses on interest rate caplets, net of taxes, were $1.1 million for the three months and $3.0 million for the nine months ended September 30, 2025.
• Net cash used in financing activities increased by 116.0% for the nine months ended September 30, 2025, primarily due to lower net borrowings, debt issuance costs, and higher share repurchases.

Risks

• Ongoing interest rate uncertainty, persistent inflation, and increased tariffs could lead to an economic recession and capital market volatility, adversely impacting the business.
• Economic conditions that reduce players' disposable incomes or cause location partners to cease operations could negatively affect revenue and cash flows.
• The company is subject to various federal, state, and local laws and regulations in the states where it operates.
• Legal proceedings, including ongoing litigation with J&J Ventures Gaming, LLC and administrative review actions by Midwest Electronics Gaming LLC, could result in unfavorable outcomes.
• Litigation contesting the validity and enforceability of municipal terminal operator taxes (TO Tax) could impact future tax obligations.
• Fluctuations in the market value of Class A-1 common stock directly impact the fair value of contingent earnout shares, leading to potential gains or losses.
• Results of operations can fluctuate due to seasonal trends, with lower gross revenue per gaming terminal in summer and higher in colder months, and horse racing operations being seasonal.

Future Outlook

Accel Entertainment anticipates capital expenditures of approximately $75-80 million in 2025, with specific allocations for Fairmount, Louisiana, and other general capital needs. The company expects to maintain compliance with all debt covenants for the next 12 months. Management will continue to evaluate the casino and racing operating segment for reportable segment criteria and will closely monitor macroeconomic conditions, prepared to take financial or operational actions if adverse impacts arise. The recently enacted One Big Beautiful Bill Act is expected to favorably reduce current tax expense, offset by an increase in deferred tax expense, without altering the overall effective tax rate.

Management Comments

• "We believe that our cash and cash equivalents, cash flows from operations and borrowing availability under the Credit Agreement will be sufficient to meet our capital requirements for the next twelve months and the foreseeable future thereafter."
• "Our focus is providing unmatched customer support, guidance, and expertise so our location partners can grow their businesses with incremental revenue."
• "We are continuously evaluating additional opportunities that are complementary to our core business, such as our acquisition of Fairmount Park Casino & Racing (Fairmount) in Collinsville, Illinois."

Industry Context

Accel Entertainment operates as a leading distributed gaming operator in the U.S., expanding its presence in both non-casino locations (bars, restaurants, convenience stores) and brick-and-mortar casinos/horse racing venues. The company's growth strategy involves both organic expansion and strategic acquisitions, as evidenced by numerous acquisitions in 2024. The industry is highly regulated at the state level, with revenue splits often statutorily determined or negotiated. The company faces macroeconomic headwinds such as interest rate uncertainty and inflation, which could impact player disposable income and the viability of its location partners. Accel's diversified revenue streams, including gaming, amusement, manufacturing, and ATM services, position it within a broad entertainment and financial services niche.

Corporate Governance

Legal Proceedings

• Ongoing lawsuits and claims in the ordinary course of business, including employee matters, employment of professionals, and non-compete clauses.
• Litigation with J&J Ventures Gaming, LLC regarding contractual rights with 10 licensed establishments from 2012; the Illinois Supreme Court denied J&J's petition for leave to appeal in one case, while a second case awaits a trial court ruling.
• Administrative review action by Midwest Electronics Gaming LLC against the Illinois Gaming Board, the Company, and J&J concerning the validity of certain use agreements; the motion for summary judgment was granted in part and denied in part, with parties proceeding with discovery.
• An Illinois municipality brought an enforcement action for an alleged violation of an ordinance requiring an additional tax; the company pleaded no contest and made appropriate payments.
• Litigation against an Illinois municipality for alleged failure to pay a terminal operator tax (TO Tax); a judge ruled in favor of the Company and a coalition of terminal operators, finding the ordinance pre-empted by State law, but the municipality has filed a motion for leave to appeal.

Stakeholder Impact

• Shareholders are positively impacted by significant increases in net income, EPS, and Adjusted EBITDA, as well as the continuation of the share repurchase program.
• Employees benefit from higher compensation-related costs and the granting of stock-based compensation awards.
• Customers (location partners) benefit from the company's growth in locations and terminals, along with its focus on customer support and expertise.
• Creditors are assured by the successful refinancing of debt under a new Credit Agreement and the company's compliance with all debt covenants.
• Regulatory bodies are involved in ongoing legal proceedings and the company's adherence to state and federal gaming regulations.

Next Steps

• Continue to evaluate the casino and racing operating segment to determine if it meets the criteria of a reportable segment.
• Monitor macroeconomic conditions closely and be prepared to take financial or operational actions in response to adverse impacts.
• Proceed with discovery in the administrative review action filed by Midwest Electronics Gaming LLC.
• Address the municipality's motion for leave to appeal with the appellate court regarding the pre-emption of municipal push tax ordinances.
• Consider future interest rate risk management strategies as current interest rate caplets are set to expire in January 2026.

Key Dates

Recommendation

Accel Entertainment has demonstrated robust financial performance with substantial year-over-year growth in net income, revenue, and Adjusted EBITDA. The company's strategic acquisitions have successfully expanded its operational footprint and gaming terminal count. The recent debt refinancing strengthens its capital structure, and management's proactive approach to macroeconomic factors and compliance with debt covenants indicate sound financial stewardship. Despite minor revenue declines in some segments and increased operating expenses, the overall positive trajectory and strong profitability metrics make it an attractive investment.

Keywords

Distributed gaming, Gaming terminals, ATM, Casino, Horse racing, Accel Entertainment, Financial results, Revenue growth, Net income, Adjusted EBITDA, Debt refinancing, Share repurchase, Illinois, Louisiana, Montana, Nevada, Nebraska, Georgia