You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our unaudited condensed consolidated financial statements and the related notes and other financial information included in this Quarterly Report on Form 10-Q. This discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled "Risk Factors" included in our Annual Report on Form 10-K for the year endedDecember 31, 2021 . This discussion and analysis should also be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations", set forth in our Annual Report on Form 10-K for the year endedDecember 31, 2021 .
Company Overview
We believe we are a leading distributed gaming operator inthe United States on an Adjusted EBITDA basis, and a preferred partner for local business owners in theIllinois market. Our business consists of the installation, maintenance and operation of video gaming terminals ("VGTs"), redemption devices that disburse winnings and contain automated teller machine ("ATM") functionality, and other amusement devices in authorized non-casino locations such as restaurants, bars, taverns, convenience stores, liquor stores, truck stops, and grocery stores, which are referred to collectively as "licensed establishments." We also operate stand-alone ATMs in gaming and non-gaming locations. Accel has been licensed by the Illinois Gaming Board ("IGB") since 2012, received approval from theGeorgia Lottery Corporation as a Master Licensee inJuly 2020 , and holds a license from thePennsylvania Gaming Control Board sinceNovember 2020 . OnDecember 30, 2021 , one of the Company's consolidated subsidiaries acquired amusement and ATM operations inIowa and registered with theIowa Department of Inspections and Appeals to conduct operations inIowa . The Company is also subject to various other federal, state and local laws and regulations in addition to gaming regulations.
We operate 13,663 video gaming terminals across 2,565 locations in the
Our gaming-as-a-service platform provides local businesses with a turnkey, capital efficient gaming solution. We own all of our gaming equipment and manage the entire operating process for our licensed establishment partners. We also offer our licensed establishment partners gaming solutions that appeal to players who patronize those businesses. We devote significant resources to licensed establishment partner retention, and seek to provide prompt, personalized player service and support, which we believe is unparalleled among other distributed gaming operators. Dedicated relationship managers assist licensed establishment partners with regulatory applications and compliance onboarding, train licensed establishment partners on how to engage with players and potential players, monitor individual gaming areas for compliance, cleanliness and comfort and recommend potential changes to improve both player gaming experience and overall revenue for each licensed establishment. We also provide weekly gaming revenue reports to our licensed establishment partners and analyze and compare gaming results within individual licensed establishment partners. This information is used to determine an optimal selection of games, layouts and other ideas to generate foot traffic for our licensed establishment partners with the goal of generating increased gaming revenue. Further, our in-house collections and security personnel provide highly secure cash transportation and vault management services. Our best-in-class technicians ensure minimal downtime through proactive service and routine maintenance. As a result, Accel's voluntary contract renewal rate was approximately 99% for the three-year period endedDecember 31, 2021 . In addition to our gaming business, we also install, operate and service redemption devices that have ATM functionality, stand-alone ATMs and amusement devices, including jukeboxes, dartboards, pool tables, pinball machines and other related entertainment equipment. These operations provide a complementary source of lead generation for our gaming business by offering a "one-stop" source of additional equipment for its licensed establishment partners. If we are presented with appropriate opportunities, we may acquire other additional businesses, services, resources, or assets, including hospitality operations, that are accretive to our core gaming business. 24
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Impact of COVID-19
The COVID-19 outbreak and its related variants are having a significant impact on global markets as a result of government-mandated business closures, supply chain and production disruptions, workforce restrictions, travel restrictions, reduced consumer spending and sentiment, amongst other factors, which are, individually or in the aggregate, negatively affecting the financial performance, liquidity and cash flow projections of many companies inthe United States and abroad. A surge of COVID-19 infections occurred in the fall of 2020, as the virus spread in every geographical region (currently 11 regions) in theState of Illinois . In response, the IGB suspended all video gaming operations across the entire state ofIllinois starting at11:01 PM onThursday November 19, 2020 . Video gaming operations resumed in certain regions of the state beginning onJanuary 16, 2021 , and fully resumed in all regions onJanuary 23, 2021 . Even though video gaming operations resumed across all regions, certain regions still had government-imposed restrictions that, among other things, limited hours of operation and restricted the number of patrons allowed within the licensed establishments. Given the staggered reopening by region in January of 2021, the temporary shutdown impacted, on average, 18 of the 90 gaming days (or 20% of gaming days) during the three months endedMarch 31, 2021 . In light of these events and their effect on the Company's employees and licensed establishment partners, the Company took action to help mitigate the potential effects caused by the temporary cessation of operations by furloughing idle staff as appropriate and deferring certain payments to major vendors. As a result of these developments, the Company's revenues, results of operations and cash flows were materially affected for the three months endedMarch 31, 2021 . While COVID-19 infection rates and the related stress on the healthcare system remain low, it is possible that the IGB or theState of Illinois may order a future shutdown by region (currently 11 regions), or a complete suspension of video gaming in the state, or institute stay-at-home, closure or other similar orders or measures in the future in response to a resurgence of COVID-19, particularly in light of variant strains of the virus, or other events. Under the guidelines provided by theIllinois Department of Health and Governor's office, the IGB has been closely monitoringIllinois' COVID-19 related statistics including the positivity rate, hospital admissions, and hospital bed availability in each region. As such, there may be additional operational and financial impacts on the business from future resurgences of COVID-19 and its variant strains, which we cannot reasonably anticipate.
Components of Performance
Revenues
Net gaming. Net gaming revenue represents net cash received from gaming activities, which is the difference between gaming wins and losses. Net gaming revenue includes the amounts earned by the licensed establishments and is recognized at the time of gaming play.
Amusement. Amusement revenue represents amounts collected from amusement devices operated at various licensed establishments and is recognized at the point the amusement device is used. ATM fees and other revenue. ATM fees and other revenue represents fees charged for the withdrawal of funds from Accel's redemption devices and stand-alone ATMs and is recognized at the time of the ATM transaction.
Operating Expenses
Cost of revenue. Cost of revenue consists of (i) a 34% tax on net video gaming revenue that is payable to the IGB, (ii) an administrative fee (0.8513% currently) payable toScientific Games International , the third-party contracted by IGB to maintain the central system to which all VGTs acrossIllinois are connected, (iii) establishment revenue share, which is defined as 50% of gross gaming revenue after subtracting the tax and administrative fee, (iv) ATM and amusement commissions payable to locations, (v) ATM and amusement fees, and (vi) licenses and permits required for the operation of VGTs and other equipment. 25
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General and administrative. General and administrative expenses consist of operating expense and general and administrative ("G&A") expense. Operating expense includes payroll and related expense for service technicians, route technicians, route security, and preventative maintenance personnel. Operating expense also includes vehicle fuel and maintenance, and non-capitalizable parts expenses. Operating expenses are generally proportionate to the number of licensed establishments and VGTs. G&A expense includes payroll and related expense for account managers, business development managers, marketing, and other corporate personnel. In addition, G&A includes marketing, information technology, insurance, rent and professional fees. Depreciation and amortization of property and equipment. Depreciation is computed using the straight-line method over the estimated useful lives of the individual assets. Leasehold improvements are amortized over the shorter of the useful life or the lease. Amortization of route and customer acquisition costs and location contracts acquired. Route and customer acquisition costs consist of fees paid at the inception of contracts entered into with third parties and licensed video gaming establishments throughout theState of Illinois which allow Accel to install and operate video gaming terminals. The route and customer acquisition costs and route and customer acquisition costs payable are recorded at the net present value of the future payments using a discount rate equal to Accel's incremental borrowing rate associated with its long-term debt. Route and customer acquisition costs are amortized on a straight-line basis over 18 years, which is the expected estimated life of the contract, including expected renewals.
Location contracts acquired in a business combination are recorded at fair value and then amortized as an intangible asset on a straight-line basis over the expected useful life of 15 years.
Interest expense, net
Interest expense, net consists of interest on Accel's current and prior credit facilities, amortization of financing fees, and accretion of interest on route and customer acquisition costs payable. Interest on the current credit facility is payable monthly on unpaid balances at the variable per annum LIBOR rate plus an applicable margin, as defined under the terms of the credit facility, ranging from 1.75% to 2.75% depending on the first lien net leverage ratio. Interest expense, net also consists of interest income on convertible from Gold Rush that bore interest at the greater of 3% per annum or Accel's borrowing rate on its credit facility throughDecember 31, 2021 .
Income tax expense
Income tax expense consists mainly of taxes payable to federal, state and local authorities. Deferred income taxes are recognized for the tax consequences of temporary differences between the financial statement carrying amounts and the tax basis of the assets and liabilities. 26
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Results of Operations
The following table summarizes Accel's results of operations on a consolidated
basis for the three months ended
Three Months Ended (in thousands, except %'s)March 31 ,
Increase / (Decrease)
2022 2021 Change ($) Change (%) Revenues: Net gaming$ 188,462 $ 140,464 47,998 34.2 % Amusement 4,990 4,049 941 23.2 % ATM fees and other revenue 3,439 2,556 883 34.5 % Total net revenues 196,891 147,069 49,822 33.9 % Operating expenses: Cost of revenue (exclusive of depreciation and amortization expense shown below) 132,620 98,891 33,729 34.1 % General and administrative 31,119 24,475 6,644 27.1 % Depreciation and amortization of property and equipment 5,841 5,989 (148) (2.5) % Amortization of route and customer acquisition costs and location contracts acquired 3,548 6,106 (2,558) (41.9) % Other expenses, net 2,556 2,053 503 24.5 % Total operating expenses 175,684 137,514 38,170 27.8 % Operating income 21,207 9,555 11,652 121.9 % Interest expense, net 4,001 3,344 657 19.6 % (Gain) loss on change in fair value of contingent earnout shares (3,417) 2,797
(6,214) (222.2) %
Income before income tax expense 20,623 3,414 17,209 504.1 % Income tax expense 4,835 1,913 2,922 152.7 % Net income$ 15,788 $ 1,501 $ 14,287 951.8 % ` 27
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Revenues
Total revenues for the three months endedMarch 31, 2022 were$196.9 million , an increase of$49.8 million , or 33.9%, compared to the prior-year period. This increase was driven by an increase in net gaming revenue of$48.0 million , or 34.2%, an increase in amusement revenue of$0.9 million , or 23.2%, and an increase in ATM fees and other revenue of$0.9 million , or 34.5%. Increase in net gaming revenue was attributable to the prior year IGB-mandated shutdown ofIllinois video gaming due to the ongoing COVID-19 outbreak, which impacted 18 of the 90 gaming days (or 20% of gaming days) during the three months endedMarch 31, 2021 . The increase in net gaming revenues for the three months endedMarch 31, 2022 , also reflected an increase in gaming terminals and locations, as well as an increase in location hold-per-day.
Cost of revenue
Cost of revenue for the three months endedMarch 31, 2022 was$132.6 million , an increase of$33.7 million , or 34.1%, compared to the prior-year period due primarily to the previously mentioned IGB-mandated shutdown ofIllinois video gaming due to the ongoing COVID-19 outbreak in the prior-year period.
General and administrative
General and administrative expenses for the three months endedMarch 31, 2022 were$31.1 million , an increase of$6.6 million , or 27.1%, compared to the prior-year period. The increase was attributable to a reduction in our prior year monthly expenses during the previously mentioned IGB-mandated shutdown. General and administrative expenses for the three months endedMarch 31, 2022 also reflected higher payroll-related costs as we continued to grow our operations.
Depreciation and amortization of property and equipment
Depreciation and amortization of property and equipment for the three months endedMarch 31, 2022 was$5.8 million , a decrease of$0.1 million , or 2.5%, compared to the prior-year period due to us extending the useful lives of our gaming terminals and equipment from 10 years to 13 years. The impact of this change in estimate was a decrease in depreciation expense of$1.2 million for the three months endedMarch 31, 2022 . This decrease was partially offset by an increased number of licensed establishments and VGTs.
Amortization of route and customer acquisition costs and location contracts acquired
Amortization of route and customer acquisition costs and location contracts acquired for the three months endedMarch 31, 2022 was$3.5 million , a decrease of$2.6 million , or 41.9%, compared to the prior-year period due to us extending the useful lives of our route and customer acquisition costs from 12.4 years to 18 years and location contracts acquired from 10 to 15 years. The impact of these changes in estimate was a decrease in amortization expense of$2.7 million for the three months endedMarch 31, 2022 .
Other expenses, net
Other expenses, net for the three months endedMarch 31, 2022 were$2.6 million , an increase of$0.5 million , or 24.5%, compared to the prior-year period due to a$1.0 million loss associated with a legal settlement, partially offset by lower fair value adjustments associated with the revaluation of contingent consideration liabilities. 28
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Interest expense, net
Interest expense, net for the three months endedMarch 31, 2022 was$4.0 million , an increase of$0.7 million , or 19.6%, compared to the prior-year period primarily due to higher average interest rates and lower interest income, partially offset by a decrease in average outstanding debt. The weighted average interest rate was approximately 3.6% for the three months endedMarch 31, 2022 compared to 3.3% in the prior-year period.
(Gain) loss on change in fair value of contingent earnout shares
Gain on the change in fair value of contingent earnout shares for the three months endedMarch 31, 2022 was$3.4 million , compared to the prior-year period, which had a loss of$2.8 million . The changes in fair value are primarily due to the change in the market value of our A-1 common stock, which was the primary input to the valuation of the contingent earnout shares.
Income tax expense
Income tax expense for the three months endedMarch 31, 2022 was$4.8 million , an increase of$2.9 million , or 152.7%, compared to the prior-year period. The effective tax rate for the three months endedMarch 31, 2022 was 23.4% compared to 56.0% 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.
Key Business Metrics
Accel uses a variety of statistical data and comparative information commonly used in the gaming industry to monitor the performance of the business, none of which are prepared in accordance with GAAP, and therefore should not be viewed as indicators of operational performance. Accel's management uses this information for financial planning, strategic planning and employee compensation decisions. The key indicators include:
•Number of licensed establishments;
•Number of VGTs;
•Average remaining contract term (years); and
•Location hold-per-day.
Number of licensed establishments
The number of licensed establishments is calculated based on data provided by Scientific Games, a contractor of the IGB. Terminal operator portal data 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. Accel utilizes this metric to continually monitor growth from organic openings, purchased licensed establishments, and competitor conversions. Competitor conversions occur when a licensed establishment chooses to change terminal operators. InJanuary 2022 , the IGB implemented a new rule that required terminal operators to remove gaming equipment if there was no activity for more than 72 hours ("72-hour rule"). This rule applies to locations that are temporally closed for renovations, ownership changes, and seasonality. As a result, 30 licensed establishments were impacted by the 72-hour rule during the first quarter of 2022. This did not materially impact gaming revenue but reduced our reported number of licensed establishments. 29
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Number of video game terminals (VGTs)
The number of VGTs in operation is based on Scientific Games 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. Accel utilizes this metric to continually monitor growth from existing licensed establishments, organic openings, purchased licensed establishments, and competitor conversions.
As a result of the previously mentioned 72-hour rule, Accel removed approximately 150 VGTs during the first quarter of 2022. The removals did not materially impact gaming revenue but reduced our reported number of gaming terminals.
Average remaining contract term
Average remaining contract term is calculated by determining the average expiration date of all outstanding contracts with Accel's current licensed establishment partners, and then subtracting the applicable measurement date. The IGB limited the length of contracts entered into afterFebruary 2, 2018 to a maximum of eight years with no automatic renewals.
Location hold-per-day
Location hold-per-day is 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. The following table sets forth information with respect to Accel's licensed establishments, number of VGTs, and average remaining contract term as ofMarch 31 , respectively: As of March 31, Increase / (Decrease) 2022 2021 Change $ Change % Licensed establishments 2,565 2,470 95 3.8 % VGTs 13,663 12,720 943 7.4 %
Average remaining contract term
(years) 7.0 6.7
0.3 4.5 %
The following table sets forth information with respect to Accel's location
hold-per-day for the three months ended
March 31 ,
Increase / (Decrease)
2022 2021 Change $ Change %
Location hold-per-day - for the
three months ended (1)$ 811 $ 784 $ 27 3.4 % (1) Location hold-per-day for the three months endedMarch 31, 2021 is computed based on 72-eligible days of gaming (excludes 18 non-gaming days due to the IGB mandated COVID-19 shutdown). Non-GAAP Financial Measures Adjusted EBITDA and Adjusted net income are non-GAAP financial measures and are key metrics used to monitor ongoing core operations. Management of Accel believes Adjusted EBITDA and Adjusted net income enhance the understanding of Accel's underlying drivers of profitability and trends in Accel's business and facilitate company-to-company and period-to-period comparisons, because these non-GAAP financial measures exclude the effects of certain non-cash items or represent certain nonrecurring items that are unrelated to core performance. Management of Accel also believe that these non-GAAP financial measures are used by investors, analysts and other interested parties as measures of financial performance and to evaluate Accel's ability to fund capital expenditures, service debt obligations and meet working capital requirements. 30
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Adjusted net income and Adjusted EBITDA
Three Months Ended (in thousands) March 31, 2022 2021 Net income$ 15,788 $ 1,501 Adjustments:
Amortization of route and customer acquisition costs and
location contracts acquired (1)
3,548 6,106
Stock-based compensation (2)
1,605 1,593
(Gain) loss on change in fair value of contingent earnout
shares (3) (3,417) 2,797 Other expenses, net (4) 2,556 2,053 Tax effect of adjustments (5)
(2,475) (2,993)
Adjusted net income
17,605 11,057
Depreciation and amortization of property and equipment 5,841 5,989 Interest expense, net 4,001 3,344 Emerging markets (6) 485 517 Income tax expense 7,310 4,906 Adjusted EBITDA$ 35,242 $ 25,813 (1) Amortization of route and customer acquisition costs and location contracts acquired 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 15 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) (Gain) loss on change in fair value of contingent earnout shares represents a non-cash fair value adjustment at each reporting period end related to the value of these contingent shares. Upon achieving such contingency, shares of Class A-2 common stock convert to Class A-1 common stock resulting in a non-cash settlement of the obligation. (4) Other expenses, net consists of (i) non-cash expenses including the remeasurement of contingent consideration liabilities, (ii) non-recurring expenses relating to lobbying efforts and legal expenses inPennsylvania and lobbying efforts inMissouri , (iii) non-recurring costs associated with COVID-19 and (iv) other non-recurring expenses. (5) Calculated by excluding the impact of the non-GAAP adjustments from the current period tax provision calculations. (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 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. Adjusted EBITDA for the three months endedMarch 31, 2022 , was$35.2 million , an increase of$9.4 million , or 36.5%, compared to the prior-year period. The increase in performance for the three months ended was attributable to an increase in the number of licensed establishments, VGTs, and location hold-per-day, and the absence of the previously mentioned IGB-mandated shutdown ofIllinois video gaming due to the ongoing COVID-19 outbreak that had a significant impact on our performance in the prior-year period. 31
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Liquidity and Capital Resources
In order to maintain sufficient liquidity, we review our cash flow projections and available funds with our Board of Directors to consider modifying our capital structure and seeking additional sources of liquidity, if needed. The availability of additional liquidity options will depend on the economic and financial environment, our creditworthiness, our historical and projected financial and operating performance, and our continued compliance with financial covenants. As a result of possible future economic, financial and operating declines, possible declines in our creditworthiness and potential non-compliance with financial covenants, we may have less liquidity than anticipated, fewer sources of liquidity than anticipated, less attractive financing terms and less flexibility in determining when and how to use the liquidity that is available. We believe that our cash and cash equivalents, cash flows from operations and borrowing availability under our senior secured credit facility 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, servicing outstanding indebtedness, and funding our Board of Directors approved share repurchase program and near term acquisitions. As ofMarch 31, 2022 , Accel had$194.9 million in cash and cash equivalents.
Senior Secured Credit Facility
OnNovember 13, 2019 , we entered into a credit agreement (the "Credit Agreement") as borrower, with Accel and our wholly-owned domestic subsidiaries, as guarantors, the banks, financial institutions and other lending institutions from time to time party thereto, as lenders, the other parties from time to time party thereto andCapital One, National Association , as administrative agent (in such capacity, the "Agent"), collateral agent, issuing bank and swingline lender, providing for a: •$100.0 million revolving credit facility, including a letter of credit facility with a$10.0 million sublimit and a swing line facility with a$10.0 million sublimit,
•$240.0 million initial term loan facility and
•$125.0 million additional term loan facility.
The additional term loan facility was available for borrowings until
Given the uncertainty of COVID-19 and the resulting potential impact to the gaming industry and our future assumptions, as well as to provide additional financial flexibility, we and the other parties thereto amended the Credit Agreement onAugust 4, 2020 to provide a waiver of financial covenant breach for the periods endedSeptember 30, 2020 throughMarch 31, 2021 of the First Lien Net Leverage Ratio and Fixed Charge Coverage Ratio (each as defined under the Credit Agreement). The amendment also raised the floor for the adjusted LIBOR rate to 0.50% and the floor for the Base Rate to 1.50%. We incurred costs of$0.4 million associated with the amendment of the Credit Agreement, of which$0.3 million was capitalized and will be amortized over the remaining life of the facility. The waivers of financial covenant breach were never utilized as we remained in compliance with all debt covenants during these periods. 32
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On
• an increase in the amount of the revolving credit facility from
•a
•a new
The maturity date of the Credit Agreement was extended to
As of
The obligations under the Credit Agreement are guaranteed by Accel and our wholly-owned domestic subsidiaries, subject to certain exceptions (collectively, the "Guarantors"). The obligations under the Credit Agreement are secured by substantially all of assets of the Guarantors, subject to certain exceptions. Certain future-formed or acquired wholly-owned domestic subsidiaries by us will also be required to guarantee the Credit Agreement and grant a security interest in substantially all of our assets (subject to certain exceptions) to secure the obligations under the Credit Agreement. Borrowings under the Credit Agreement bear interest, at Accel's option, at a rate per annum equal to either (a) the adjusted LIBOR rate ("LIBOR") (which cannot be less than 0.5%) for interest periods of 1, 2, 3 or 6 months (or if consented to by (i) each applicable Lender, 12 months or any period shorter than 1 month or (ii) the Agent, a shorter period necessary to ensure that the end of the relevant interest period would coincide with any required amortization payment ) plus the applicable LIBOR margin or (b) the alternative base rate ("ABR") plus the applicable ABR margin. ABR is a fluctuating rate per annum equal to the highest of (i) the Federal Funds Effective Rate plus 1/2 of 1.0%, (ii) the prime rate announced from time to time byCapital One, National Association and (iii) LIBOR for a 1-month Interest Period on such day plus 1.0%. The Credit Agreement also includes provisions for determining a replacement rate when LIBOR is no longer available. As ofMarch 31, 2022 , the weighted-average interest rate was approximately 3.6%. Interest is payable quarterly in arrears for ABR loans, at the end of the applicable interest period for LIBOR loans (but not less frequently than quarterly) and upon the prepayment or maturity of the underlying loans. Accel is required to pay a commitment fee quarterly in arrears in respect of unused commitments under the revolving credit facility and the additional term loan facility. The applicable LIBOR and ABR margins and the commitment fee rate are calculated based upon the first lien net leverage ratio of Accel and its restricted subsidiaries on a consolidated basis, as defined in the Credit Agreement. The revolving loans and term loans bear interest at either (a) ABR (150 bps floor) plus a margin of 1.75% or (b) LIBOR (50bps floor) plus a margin up to 2.75%, at our option. The term loans and, once drawn, the additional term loans will amortize at an annual rate equal to approximately 5.00% per annum. Upon the consummation of certain non-ordinary course asset sales, we may be required to apply the net cash proceeds thereof to prepay outstanding term loans and additional term loans. The loans under the Credit Agreement may be prepaid without premium or penalty, subject to customary LIBOR "breakage" costs.
The Credit Agreement contains certain customary affirmative and negative covenants and events of default, and requires Accel and certain of its affiliates obligated under the Credit Agreement to make customary representations and warranties in connection with credit extensions thereunder.
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In addition, the Credit Agreement requires Accel to maintain (a) a ratio of consolidated first lien net debt to consolidated EBITDA no greater than 4.50 to 1.00 and (b) a ratio of consolidated EBITDA to consolidated fixed charges no less than 1.20 to 1.00, in each case, tested as of the last day of each full fiscal quarter ending after the Closing Date and determined on the basis of the four most recently ended fiscal quarters of Accel for which financial statements have been delivered pursuant to the Credit Agreement, subject to customary "equity cure" rights. If an event of default (as such term is defined in the Credit Agreement) occurs, the lenders would be entitled to take various actions, including the acceleration of amounts due under the Credit Agreement, termination of the lenders' commitments thereunder, foreclosure on collateral, and all other remedial actions available to a secured creditor. The failure to pay certain amounts owing under the Credit Agreement may result in an increase in the interest rate applicable thereto. We were in compliance with all debt covenants as ofMarch 31, 2022 . Given our assumptions about the future impact of COVID-19 and its variant strains on the gaming industry, which could be materially different due to the inherent uncertainties of future restrictions on the industry, we expect to meet our cash obligations as well as remain in compliance with the debt covenants in our credit facility for the next 12 months.
Interest rate caplets
The Company manages its exposure to some of its interest rate risk through the use of interest rate caplets, which are derivative financial instruments. OnJanuary 12, 2022 , we hedged the variability of the cash flows attributable to the changes in the 1-month LIBOR interest rate on the first$300 million of the term loan under the Credit Agreement by entering into a 4-year series of 48 deferred premium caplets ("caplets"). The caplets mature at the end of each month and protect the Company if interest rates exceed 2% of 1-month LIBOR. The maturing dates of these caplets coincide with the timing of our interest payments and each caplet is expected to be highly effective at offsetting changes in interest payment cash flows. The aggregate premium for these caplets was$3.9 million , which was the initial fair value of the caplets recorded in our financial statements, and was financed as additional debt.
Cash Flows
The following table summarizes Accel's net cash provided by or used in operating activities, investing activities and financing activities for the periods indicated and should be read in conjunction with our condensed consolidated financial statements and the notes thereto included in this filing:
Three Months Ended (in thousands)March 31, 2022 2021
Net cash provided by operating activities$ 22,061
Net cash used in investing activities (6,387)
(2,462)
Net cash (used in) provided by financing activities (19,562)
19,103
Net cash provided by operating activities
For the three months endedMarch 31, 2022 , net cash provided by operating activities was$22.1 million , an increase of$0.5 million over the comparable period. In addition to our increase in net income, we also experienced an increase in our deferred income taxes, partially offset by the adjustment for gains on the remeasurement of contingent earnout shares in the current period compared to losses in the prior period, as well as higher payments on consideration payable. 34
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Net cash used in investing activities
For the three months endedMarch 31, 2022 , net cash used in investing activities was$6.4 million , an increase of$3.9 million over the comparable period and was primarily attributable to more cash used for the purchases of property and equipment.
Net cash (used in) provided by financing activities
For the three months endedMarch 31, 2022 , net cash used in financing activities was$19.6 million , compared to cash provided by financing activities of$19.1 million in the prior-year period. The higher use of cash reflects repurchases of our Class A-1 common stock of$13.9 million under our share repurchase program and the absence of$27.0 million in borrowings on our credit facility that occurred in the prior-year period.
Critical Accounting Policies and Estimates
In preparing our condensed consolidated financial statements, we applied the same critical accounting policies as described in our Annual Report on Form 10-K for the year endedDecember 31, 2021 that affect judgments and estimates of amounts recorded for certain assets, liabilities, revenues, and expenses.
Seasonality
Accel's results of operations can fluctuate due to seasonal trends and other factors. For example, the gross revenue per machine per day is typically lower in the summer when players will typically spend less time indoors at licensed establishment partners, and higher in cold weather between February and April, when players will typically spend more time indoors at licensed establishment partners. Holidays, vacation seasons, and sporting events may also cause Accel's results to fluctuate.
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