Condensed Consolidated Statements of Operations and Other Data

Three Months Ended September 30, 2020

Nine Months Ended September 30, 2020

(in thousands)

2020

2019

2020

2019

Total revenues

$

136,332

$

101,294

$

241,939

$

302,986

Operating income (loss)

8,984

1,018

(12,713

)

18,993

Income (loss) before income tax (benefit) expense

5,550

(2,297

)

(22,885

)

9,475

Net income (loss)

12,143

(1,598

)

(11,097

)

6,725

Other Financial Data:

Adjusted EBITDA(1)

23,098

18,130

29,192

58,799

Adjusted net income(2)

15,421

6,323

8,019

21,394

(1)

Adjusted EBITDA is defined as net (loss) income plus amortization of route and customer acquisition costs and location contracts acquired; stock-based compensation expense; other expenses, net; tax effect of adjustments; depreciation and amortization of property and equipment; interest expense; and provision for income taxes. For additional information on Adjusted EBITDA and a reconciliation of net (loss) income to Adjusted EBITDA, see “Non-GAAP Financial Measures—Adjusted EBITDA and Adjusted net (loss) income.”

(2)

Adjusted net (loss) income is defined as net (loss) income plus amortization of route and customer acquisition costs and location contracts acquired; stock-based compensation expense; other expenses, net; and tax effect of adjustments. For additional information on Adjusted net (loss) income and a reconciliation of net (loss) income to Adjusted net (loss) income, see "Non-GAAP Financial Measures— Adjusted EBITDA and Adjusted net (loss) income.”

Key Metrics

As of September 30,

2020

2019

Licensed establishments (1)

2,363

2,290

Video gaming terminals (2)

11,597

10,346

Average remaining contract term (years) (3)

6.9

7.0

September 30,

2020

2019

Location hold-per-day – for the three months ended(4) (in whole $)

$596

$574

Location hold-per-day – for the nine months ended(4) (in whole $)

$585

$606

(1)

Based on Scientific Games International third-party terminal operator portal data which is updated at the end of each gaming day and includes licensed establishments that may be temporarily closed but still connected to the central system. This metric is utilized by Accel to continually monitor growth from existing locations, organic openings, acquired locations, and competitor conversions.

(2)

Based on Scientific Games International third-party terminal operator portal data which is updated at the end of each gaming day and includes VGTs that may be temporarily shut off but still connected to the central system. This metric is utilized by Accel to continually monitor growth from existing locations, organic openings, acquired locations, and competitor conversions.

(3)

Calculated by determining the average expiration date of all outstanding contracts, and then subtracting the applicable measurement date. The IGB limited the length of contracts entered into after February 2, 2018 to a maximum of eight years with no automatic renewals.

(4)

Calculated by dividing the difference between cash deposited in all VGTs at each licensed establishment and tickets issued to players at each licensed establishment by the number of locations in operation each day during the period being measured. Then divide the calculated amount by the number of operating days in such period. Excluding the Grand River Jackpot acquisition, location hold-per-day was $649 and $637 for the three and nine months ended September 30, 2020, respectively. Location hold-per-day for the nine months ended September 30, 2020 is computed based on 168-eligible days of gaming (excludes 106 non-gaming days due to the IGB mandated COVID-19 shutdown).

Condensed Consolidated Statements of Cash Flows Data

Nine Months Ended September 30,

(in thousands)

2020

2019

Net cash provided by operating activities

$

4,118

$

45,652

Net cash used in investing activities

(23,148

)

(126,259

)

Net cash provided by financing activities

72,735

99,599

Non-GAAP Financial Measures

Three Months Ended September 30, 2020

Nine Months Ended September 30, 2020

(in thousands)

2020

2019

2020

2019

Net income (loss)

$

12,143

$

(1,598

)

$

(11,097

)

$

6,725

Adjustments:

Amortization of route and customer acquisition costs and location contracts acquired(1)

5,648

4,285

16,778

13,212

Stock-based compensation(2)

1,668

127

4,055

383

Other expenses, net(3)

1,383

6,176

5,719

7,546

Tax effect of adjustments(4)

(5,421

)

(2,667

)

(7,436

)

(6,472

)

Adjusted net income

$

15,421

$

6,323

$

8,019

$

21,394

Depreciation and amortization of property and equipment

5,361

6,524

15,299

18,665

Interest expense, net

3,434

3,315

10,172

9,518

Emerging markets(5)

54

—

54

—

Income tax (benefit) expense

(1,172

)

1,968

(4,352

)

9,222

Adjusted EBITDA

$

23,098

$

18,130

$

29,192

$

58,799

(1)

Route and customer acquisition costs consist of upfront cash payments and future cash payments to third-party sales agents to acquire the licensed video gaming establishments that are not connected with a business combination. Accel amortizes the upfront cash payment over the life of the contract, including expected renewals, beginning on the date the location goes live, and recognizes non-cash amortization charges with respect to such items. Future or deferred cash payments, which may occur based on terms of the underlying contract, are generally lower in the aggregate as compared to established practice of providing higher upfront payments, and are also capitalized and amortized over the remaining life of the contract. Future cash payments do not include cash costs associated with renewing customer contracts as Accel does not generally incur significant costs as a result of extension or renewal of an existing contract. Location contracts acquired in a business combination are recorded at fair value as part of the business combination accounting and then amortized as an intangible asset on a straight-line basis over the expected useful life of the contract of 10 years. “Amortization of route and customer acquisition costs and location contracts acquired” aggregates the non-cash amortization charges relating to upfront route and customer acquisition cost payments and location contracts acquired.

(2)

Stock-based compensation consists of options, restricted stock units and warrants.

(3)

Other expenses, net consists of (i) non-cash expenses including the remeasurement of contingent consideration liabilities, (ii) non-recurring expenses including expenses relating to lobbying efforts and legal expenses in Pennsylvania and lobbying efforts in Missouri, (iii) non-recurring expenses and (iv) non-recurring costs associated with COVID-19.

(4)

Calculated by excluding the impact of the non-GAAP adjustments from the current period tax provision calculations.

(5)

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 Accel has installed or acquired at least 500 gaming terminals in the jurisdiction, or when 24 months have elapsed from the date Accel first installs or acquires gaming terminals in the jurisdiction, whichever occurs first.