[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents the company's unaudited condensed consolidated financial statements, management's discussion and analysis, and disclosures on market risk and internal controls [ITEM 1. FINANCIAL STATEMENTS](index=3&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) This section presents the unaudited condensed consolidated financial statements for Accel Entertainment, Inc., including the statements of operations and comprehensive income, balance sheets, statements of stockholders' equity, and statements of cash flows, along with detailed notes explaining significant accounting policies, financial instruments, and other relevant disclosures for the periods ended September 30, 2022 and 2021 [Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited)](index=3&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income%20(Unaudited)) This statement details Accel Entertainment's revenues, expenses, operating income, and net income for the three and nine months ended September 30, 2022 and 2021, highlighting significant growth in profitability Three Months Ended September 30, 2022 vs. 2021 (in thousands) | Metric | 2022 | 2021 | Change ($) | Change (%) | | :--------------------------------------- | :----- | :----- | :--------- | :--------- | | Total Net Revenues | $266,967 | $193,351 | $73,616 | 38.1% | | Total Operating Expenses | $243,728 | $174,704 | $69,024 | 39.5% | | Operating Income | $23,239 | $18,647 | $4,592 | 24.6% | | Income Before Income Tax Expense | $27,358 | $14,743 | $12,615 | 85.6% | | Net Income | $22,444 | $10,807 | $11,637 | 107.7% | | Basic EPS | $0.25 | $0.11 | $0.14 | 127.3% | | Diluted EPS | $0.25 | $0.11 | $0.14 | 127.3% | | Comprehensive Income | $28,369 | $10,492 | $17,877 | 170.4% | Nine Months Ended September 30, 2022 vs. 2021 (in thousands) | Metric | 2022 | 2021 | Change ($) | Change (%) | | :--------------------------------------- | :----- | :----- | :--------- | :--------- | | Total Net Revenues | $691,727 | $542,394 | $149,333 | 27.5% | | Total Operating Expenses | $619,966 | $489,265 | $130,701 | 26.7% | | Operating Income | $71,761 | $53,129 | $18,632 | 35.1% | | Income Before Income Tax Expense | $77,227 | $36,526 | $40,701 | 111.4% | | Net Income | $60,696 | $24,753 | $35,943 | 145.2% | | Basic EPS | $0.66 | $0.26 | $0.40 | 153.8% | | Diluted EPS | $0.66 | $0.26 | $0.40 | 153.8% | | Comprehensive Income | $73,392 | $30,111 | $43,281 | 143.7% | [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This statement presents Accel Entertainment's financial position, including assets, liabilities, and stockholders' equity, as of September 30, 2022, compared to December 31, 2021, reflecting growth in total assets and liabilities As of September 30, 2022 vs. December 31, 2021 (in thousands) | Metric | Sep 30, 2022 | Dec 31, 2021 | Change ($) | Change (%) | | :--------------------------------------- | :----------- | :----------- | :--------- | :--------- | | Total Current Assets | $283,707 | $247,995 | $35,712 | 14.4% | | Total Assets | $838,349 | $616,073 | $222,276 | 36.1% | | Total Current Liabilities | $92,680 | $71,835 | $20,845 | 29.0% | | Total Long-Term Liabilities | $564,787 | $385,777 | $179,010 | 46.4% | | Total Stockholders' Equity | $180,882 | $158,461 | $22,421 | 14.1% | [Condensed Consolidated Statements of Stockholders' Equity (Unaudited)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity%20(Unaudited)) This statement outlines changes in Accel Entertainment's stockholders' equity from January 1, 2022, to September 30, 2022, detailing impacts from stock repurchases, compensation, and net income Stockholders' Equity Changes (January 1, 2022 to September 30, 2022, in thousands) | Item | Amount | | :--------------------------------------- | :----- | | Balance, January 1, 2022 | $158,461 | | Repurchase of common stock | $(61,918) | | Stock-based compensation | $4,966 | | Exercise of stock-based awards | $407 | | Reissuance of treasury stock in business combination | $5,584 | | Unrealized gain on interest rate caplets | $12,696 | | Net income | $60,696 | | Balance, September 30, 2022 | $180,882 | [Condensed Consolidated Statements of Cash Flows (Unaudited)](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20(Unaudited)) This statement summarizes Accel Entertainment's cash flows from operating, investing, and financing activities for the nine months ended September 30, 2022 and 2021, showing significant investing and financing shifts Nine Months Ended September 30, 2022 vs. 2021 (in thousands) | Cash Flow Activity | 2022 | 2021 | Change ($) | | :--------------------------------------- | :----- | :----- | :--------- | | Net Cash Provided by Operating Activities | $78,250 | $80,262 | $(2,012) | | Net Cash Used in Investing Activities | $(168,871) | $(21,220) | $(147,651) | | Net Cash Provided by (Used in) Financing Activities | $103,898 | $(13,610) | $117,508 | | Net Increase in Cash and Cash Equivalents | $13,277 | $45,432 | $(32,155) | | Cash and Cash Equivalents, End of Period | $212,063 | $179,883 | $32,180 | [Notes to the Condensed Consolidated Financial Statements (Unaudited)](index=9&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements, covering the company's business, accounting policies, financial instrument valuations, debt, acquisitions, equity, and various commitments and contingencies [Note 1. Description of Business](index=9&type=section&id=Note%201.%20Description%20of%20Business) Accel Entertainment, Inc. is a leading distributed gaming operator in the U.S., licensed in Illinois, Georgia, Pennsylvania, Iowa, Montana, Nevada, and Nebraska. The company installs and operates gaming terminals, ATMs, and amusement machines in non-casino locations. It also manufactures gaming terminals through its subsidiary, Century Gaming, Inc., acquired in June 2022. The company is an emerging growth company (EGC) and has elected an extended transition period for new accounting standards, expecting to remain an EGC until December 31, 2022 - Accel Entertainment, Inc. is a leading distributed gaming operator in the United States, licensed in multiple states including Illinois, Georgia, Pennsylvania, Iowa, Montana, Nevada, and Nebraska[13](index=13&type=chunk) - The company's operations include installing and operating gaming terminals, redemption terminals with ATM functionality, and amusement equipment in licensed video gaming locations[13](index=13&type=chunk) - Accel acquired Century Gaming, Inc. on June 1, 2022, expanding its presence into Montana and Nevada gaming markets and adding gaming terminal manufacturing capabilities[13](index=13&type=chunk) - The company is an emerging growth company (EGC) and has elected an extended transition period for complying with new or revised financial accounting standards, expecting to remain an EGC until December 31, 2022[14](index=14&type=chunk) [Note 2. Summary of Significant Accounting Policies](index=10&type=section&id=Note%202.%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines the company's accounting policies, including the basis of presentation, use of estimates, and recent changes in accounting estimates. Notably, in Q4 2021, the company extended the useful lives of gaming terminals (from 10 to 13 years), route and customer acquisition costs (from 12.4 to 18 years), and location contracts (from 10 to 15 years), reflecting longer asset utility and strong partner relationships. These changes significantly decreased depreciation and amortization expenses and increased net income and EPS for the current periods - The company extended the useful lives of its gaming terminals and equipment from **10 years to 13 years** in Q4 2021, reflecting longer-than-estimated equipment life[21](index=21&type=chunk) - The amortization period for route and customer acquisition costs was extended from **12.4 years to 18 years**, and for location contracts from **10 years to 15 years**, due to strong contract renewal rates[23](index=23&type=chunk) Impact of Changes in Accounting Estimates (in thousands, except per share amounts) | Metric | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2022 | | :--------------------------------------- | :------------------------------ | :----------------------------- | | Decrease to depreciation expense | $1,228 | $3,685 | | Decrease to amortization expense | $2,770 | $8,215 | | Increase to net income | $2,859 | $8,511 | | Increase to net income per share | $0.03 | $0.09 | - Revenue is disaggregated by type (gaming terminals, amusements, ATMs, manufacturing) and by primary states of operation (Illinois, Nevada, Montana, Other)[27](index=27&type=chunk)[31](index=31&type=chunk)[34](index=34&type=chunk) [Note 3. Inventories](index=13&type=section&id=Note%203.%20Inventories) Inventories, consisting of raw materials, manufacturing supplies, and finished products, totaled $6.873 million as of September 30, 2022. No valuation allowance was deemed necessary Inventories as of September 30, 2022 (in thousands) | Category | Amount | | :--------------------------------------- | :----- | | Raw materials and manufacturing supplies | $4,990 | | Finished products | $1,883 | | Total Inventories | $6,873 | - No inventory valuation allowance was determined to be necessary as of September 30, 2022[42](index=42&type=chunk) [Note 4. Investment in Convertible Notes](index=13&type=section&id=Note%204.%20Investment%20in%20Convertible%20Notes) The company's $32.1 million investment in Gold Rush Amusements, Inc. convertible notes is currently in default, as the Illinois Gaming Board (IGB) denied the transfer of common stock despite Accel's conversion rights. Accel has filed a lawsuit against Gold Rush for breach of contract and is pursuing judicial review of the IGB's decision. Gold Rush has also filed a countersuit. The notes are classified as current assets at fair value, with unrealized gains/losses recognized in other comprehensive income - The company's **$32.1 million investment** in Gold Rush convertible notes is deemed in default due to the IGB's denial of common stock transfer, despite Accel's conversion rights[47](index=47&type=chunk) - Accel has filed a lawsuit against Gold Rush for breach of contract and is seeking judicial review of the IGB's decision; Gold Rush has filed a countersuit[45](index=45&type=chunk)[46](index=46&type=chunk) - The convertible notes are accounted for as available-for-sale debt securities at fair value, with the entire **$32.1 million** classified as current on the balance sheet[47](index=47&type=chunk) - The company recognized an unrealized loss of **$0.3 million** for the three months ended September 30, 2021, and an unrecognized gain of **$5.4 million** for the nine months ended September 30, 2021, related to the valuation of these notes[47](index=47&type=chunk) [Note 5. Property and Equipment](index=14&type=section&id=Note%205.%20Property%20and%20Equipment) Net property and equipment increased to $206.767 million as of September 30, 2022, from $152.251 million at December 31, 2021. This increase is primarily due to acquisitions, partially offset by a change in accounting estimate that extended the useful lives of gaming terminals and equipment, reducing depreciation expense Property and Equipment, Net (in thousands) | Category | Sep 30, 2022 | Dec 31, 2021 | | :--------------------------------------- | :----------- | :----------- | | Total Property and Equipment (Cost) | $366,071 | $291,740 | | Less: Accumulated Depreciation and Amortization | $(159,304) | $(139,489) | | Property and Equipment, Net | $206,767 | $152,251 | Depreciation and Amortization of Property and Equipment (in thousands) | Period | 2022 | 2021 | | :--------------------------------------- | :----- | :----- | | Three Months Ended Sep 30 | $8,136 | $6,518 | | Nine Months Ended Sep 30 | $20,575 | $18,820 | - The increase in depreciation expense in 2022 is primarily due to acquisitions, partially offset by the extension of useful lives for gaming terminals and equipment from **10 to 13 years** in Q4 2021[50](index=50&type=chunk) [Note 6. Route and Customer Acquisition Costs](index=15&type=section&id=Note%206.%20Route%20and%20Customer%20Acquisition%20Costs) Route and customer acquisition costs, net, increased to $17.769 million as of September 30, 2022, from $15.913 million at December 31, 2021. Amortization expense for these costs decreased in 2022 due to the extension of the amortization period from 12.4 years to 18 years, reflecting strong partner relationships Route and Customer Acquisition Costs, Net (in thousands) | Category | Sep 30, 2022 | Dec 31, 2021 | | :--------------------------------------- | :----------- | :----------- | | Cost | $31,198 | $28,902 | | Accumulated Amortization | $(13,429) | $(12,989) | | Route and Customer Acquisition Costs, Net | $17,769 | $15,913 | Amortization Expense of Route and Customer Acquisition Costs (in thousands) | Period | 2022 | 2021 | | :--------------------------------------- | :----- | :----- | | Three Months Ended Sep 30 | $0.3 million | $0.5 million | | Nine Months Ended Sep 30 | $0.9 million | $1.4 million | - Amortization expense was lower in 2022 due to the extension of the amortization period from **12.4 years to 18 years** in Q4 2021, reflecting high contract renewal rates[52](index=52&type=chunk) [Note 7. Location Contracts Acquired](index=15&type=section&id=Note%207.%20Location%20Contracts%20Acquired) Location contracts acquired, net, increased to $189.382 million as of September 30, 2022, from $150.672 million at December 31, 2021. Amortization expense for these contracts decreased in 2022 due to the extension of the amortization period from 10 years to 15 years, partially offset by an increase in newly acquired contracts Location Contracts Acquired, Net (in thousands) | Category | Sep 30, 2022 | Dec 31, 2021 | | :--------------------------------------- | :----------- | :----------- | | Cost | $278,560 | $229,287 | | Accumulated Amortization | $(89,178) | $(78,615) | | Location Contracts Acquired, Net | $189,382 | $150,672 | Amortization Expense of Location Contracts Acquired (in thousands) | Period | 2022 | 2021 | | :--------------------------------------- | :----- | :----- | | Three Months Ended Sep 30 | $4.0 million | $5.7 million | | Nine Months Ended Sep 30 | $10.6 million | $17.1 million | - Amortization expense was lower in 2022 due to the extension of the amortization period from **10 years to 15 years** in Q4 2021, partially offset by an increase in location contracts acquired[57](index=57&type=chunk) [Note 8. Goodwill and Other intangible assets](index=16&type=section&id=Note%208.%20Goodwill%20and%20Other%20intangible%20assets) Goodwill increased significantly to $99.5 million as of September 30, 2022, primarily due to the $53.3 million goodwill recognized from the Century Gaming acquisition on June 1, 2022. Other intangible assets, totaling $23.6 million, also resulted from the Century acquisition and are amortized over 7 to 20 years Goodwill Roll Forward (in thousands) | Item | Amount | | :--------------------------------------- | :----- | | Goodwill balance as of January 1, 2022 | $46,199 | | Addition to goodwill for acquisition of Century | $53,291 | | Goodwill balance as of September 30, 2022 | $99,490 | - The Century acquisition resulted in **$53.3 million in goodwill**, reflecting the maturity and quality of Century's operations, industry, and workforce[58](index=58&type=chunk)[83](index=83&type=chunk) - Other intangible assets, net, totaled **$23.6 million** as of September 30, 2022, consisting of definite-lived trade names, customer relationships, and software applications from the Century acquisition, amortized over **7 to 20 years**[60](index=60&type=chunk) [Note 9. Debt](index=16&type=section&id=Note%209.%20Debt) Total debt, net of current maturities, increased to $497.976 million as of September 30, 2022, from $324.022 million at December 31, 2021, primarily due to increased borrowings under the Senior Secured Credit Facility to finance acquisitions. The company entered into Amendment No. 2 in October 2021, increasing the revolving credit facility to $150 million and establishing a $400 million delayed draw term loan facility, extending maturity to October 2026. The weighted-average interest rate was approximately 3.7% as of September 30, 2022, and the company was in compliance with all debt covenants Debt, Net of Current Maturities (in thousands) | Category | Sep 30, 2022 | Dec 31, 2021 | | :--------------------------------------- | :----------- | :----------- | | Total debt on credit facility | $525,000 | $350,000 | | Total debt, net of debt issuance costs | $521,439 | $341,522 | | Total debt, net of current maturities | $497,976 | $324,022 | - Amendment No. 2 to the Credit Agreement (October 2021) increased the revolving credit facility to **$150 million** and added a **$400 million** delayed draw term loan facility, extending the maturity date to October 22, 2026[65](index=65&type=chunk)[66](index=66&type=chunk) - As of September 30, 2022, approximately **$355 million** of availability remained under the Credit Agreement[66](index=66&type=chunk) - The weighted-average interest rate was approximately **3.7%** as of September 30, 2022, and the company was in compliance with all debt covenants[69](index=69&type=chunk)[74](index=74&type=chunk) [Note 10. Business and Asset Acquisitions](index=19&type=section&id=Note%2010.%20Business%20and%20Asset%20Acquisitions) In 2022, Accel completed several acquisitions, including Century Gaming, Inc. ($164.3 million), VVS, Inc. ($12 million), and River City Amusement Company ($2.8 million), significantly expanding its operations in Montana, Nevada, Nebraska, Iowa, and South Dakota. These acquisitions contributed $81.6 million in revenue and $2.1 million in net income for Century alone during the nine months ended September 30, 2022. The company also provided pro forma results reflecting these acquisitions as if they occurred earlier, showing increased revenues and net income - On June 1, 2022, Accel acquired Century Gaming, Inc. for an aggregate purchase consideration of **$164.3 million**, including cash and stock, expanding into Montana and Nevada and adding manufacturing capabilities[79](index=79&type=chunk)[80](index=80&type=chunk) - The Century acquisition resulted in **$53.3 million in goodwill** and **$24.4 million in other intangible assets**[83](index=83&type=chunk)[84](index=84&type=chunk) - Century's acquired assets generated **$81.6 million in revenues** and **$2.1 million in net income** for the nine months ended September 30, 2022[85](index=85&type=chunk) - Other 2022 acquisitions include VVS, Inc. (**$12 million**) and River City Amusement Company (**$2.8 million**), further expanding into Nebraska, Iowa, and South Dakota[77](index=77&type=chunk)[78](index=78&type=chunk) Unaudited Pro Forma Consolidated Financial Information (in thousands) | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Revenues | $268,131 | $261,002 | $808,125 | $758,794 | | Net income | $22,839 | $12,875 | $63,470 | $36,977 | [Note 11. Contingent Earnout Share Liability](index=22&type=section&id=Note%2011.%20Contingent%20Earnout%20Share%20Liability) The company has a contingent earnout share liability related to 5,000,000 shares of Class A-2 Common Stock, convertible to Class A-1 Common Stock upon achieving specific LTM EBITDA or stock price targets across three tranches. The LTM EBITDA thresholds for Tranches II and III were increased in November 2022 by the board of directors to reflect anticipated effects of acquisitions. Tranche I conditions were met in January 2020, leading to the conversion of 1,666,636 shares - **5,000,000 shares** of Class A-2 Common Stock are subject to conversion into Class A-1 Common Stock upon meeting LTM EBITDA or stock price targets across three tranches[94](index=94&type=chunk) - On November 2, 2022, the LTM EBITDA thresholds for Tranches II and III were increased by the board to account for the anticipated effect of acquisitions[97](index=97&type=chunk)[160](index=160&type=chunk) - Tranche I's market condition was satisfied on January 14, 2020, resulting in the conversion of **1,666,636 shares**[98](index=98&type=chunk) [Note 12. Warrant Liability](index=23&type=section&id=Note%2012.%20Warrant%20Liability) The company had Private Placement Warrants and Public Warrants, with most Public Warrants redeemed in July 2020 for Class A-1 Common Stock, leading to their delisting. An exchange offer in August 2020 also converted most Private Placement Warrants. As of September 30, 2022, 5,144 warrants remain outstanding - In July 2020, the company redeemed Public Warrants, exchanging them for **3,784,416 shares** of Class A-1 Common Stock, leading to their delisting from the NYSE[102](index=102&type=chunk) - An exchange offer in August 2020 resulted in the conversion of **7,189,990 Private Placement Warrants** into **1,797,474 shares** of Class A-1 Common Stock[106](index=106&type=chunk) - As of September 30, 2022, only **5,144 warrants** remain outstanding[106](index=106&type=chunk) [Note 13. Fair Value Measurements](index=24&type=section&id=Note%2013.%20Fair%20Value%20Measurements) The company measures certain assets and liabilities at fair value using a three-level hierarchy. Investment in convertible notes ($32.065 million) and contingent consideration ($11.486 million) are Level 3 measurements due to unobservable inputs. Interest rate caplets ($20.941 million) and contingent earnout shares ($23.334 million) are Level 2 measurements, relying on observable inputs like LIBOR forward curves and the company's stock price, respectively Assets Measured at Fair Value (September 30, 2022, in thousands) | Asset | Total Fair Value | Level 1 | Level 2 | Level 3 | | :--------------------------------------- | :--------------- | :------ | :------ | :------ | | Investment in convertible notes | $32,065 | $— | $— | $32,065 | | Interest rate caplets | $20,941 | $— | $20,941 | $— | | Total | $53,006 | $— | $20,941 | $32,065 | Liabilities Measured at Fair Value (September 30, 2022, in thousands) | Liability | Total Fair Value | Level 1 | Level 2 | Level 3 | | :--------------------------------------- | :--------------- | :------ | :------ | :------ | | Contingent consideration | $11,486 | $— | $— | $11,486 | | Contingent earnout shares | $23,334 | $— | $23,334 | $— | | Warrants | $13 | $— | $13 | $— | | Total | $34,833 | $— | $23,347 | $11,486 | - Investment in convertible notes is a **Level 3 measurement**, valued at principal plus accrued interest, given the IGB's denial of stock transfer and ongoing legal remedies[114](index=114&type=chunk) - Interest rate caplets are **Level 2**, valued using observable LIBOR forward interest rate curves[115](index=115&type=chunk) - Contingent earnout shares are **Level 2**, valued based on the market price of Class A-1 Common Stock and an estimate of conversion timing[120](index=120&type=chunk) [Note 14. Stockholders' Equity](index=27&type=section&id=Note%2014.%20Stockholders%27%20Equity) The company's Class A-1 Common Stock holders have voting rights and are entitled to dividends. A share repurchase program of up to $200 million was approved in November 2021, under which 6,380,815 shares totaling $70.9 million have been repurchased as of September 30, 2022. The Inflation Reduction Act of 2022, imposing a 1% excise tax on stock repurchases from January 1, 2023, may impact this program - The Board of Directors approved a share repurchase program of up to **$200 million** of Class A-1 Common Stock on November 22, 2021[124](index=124&type=chunk) - As of September 30, 2022, the company repurchased **6,380,815 shares** at a total cost of **$70.9 million**, with **$61.9 million** of repurchases occurring in the nine months ended September 30, 2022[124](index=124&type=chunk) - The Inflation Reduction Act of 2022, effective January 1, 2023, imposes a **1% non-deductible excise tax** on stock repurchases, which may affect the program[125](index=125&type=chunk) [Note 15. Stock-based Compensation](index=27&type=section&id=Note%2015.%20Stock-based%20Compensation) Stock-based compensation expense for the three and nine months ended September 30, 2022, was $1.1 million and $5.0 million, respectively, an increase from the prior year. The company granted stock options and restricted stock units (RSUs) to officers, employees, and board members, with vesting periods typically over 4 years Stock-based Compensation Expense (in thousands) | Period | 2022 | 2021 | | :--------------------------------------- | :----- | :----- | | Three Months Ended Sep 30 | $1,100 | $1,000 | | Nine Months Ended Sep 30 | $5,000 | $4,700 | - During the first three quarters of 2022, the company granted **275,881 stock options** and **507,600 RSUs** to eligible officers, employees, and board members, with an estimated grant date fair value of **$8.5 million**[127](index=127&type=chunk)[128](index=128&type=chunk)[129](index=129&type=chunk) [Note 16. Income Taxes](index=28&type=section&id=Note%2016.%20Income%20Taxes) Income tax expense for the three and nine months ended September 30, 2022, was $4.9 million and $16.5 million, respectively, with effective tax rates of 18% and 21%. These rates are lower than the prior year (27% and 32%) primarily due to the non-taxable change in the fair value of contingent earnout shares Income Tax Expense and Effective Tax Rate | Period | Income Tax Expense (in thousands) | Effective Tax Rate | | :--------------------------------------- | :------------------------------ | :----------------- | | Three Months Ended Sep 30, 2022 | $4,914 | 18% | | Three Months Ended Sep 30, 2021 | $3,936 | 27% | | Nine Months Ended Sep 30, 2022 | $16,531 | 21% | | Nine Months Ended Sep 30, 2021 | $11,773 | 32% | - The primary driver for fluctuations in the effective tax rate year over year is the change in the fair value of contingent earnout shares, which does not create tax expense[133](index=133&type=chunk) [Note 17. Commitments and Contingencies](index=28&type=section&id=Note%2017.%20Commitments%20and%20Contingencies) The company is involved in various legal proceedings, including disputes with J&J Ventures Gaming over location contracts, lawsuits with Jason Rowell regarding non-compete agreements and equity interests, and an IGB disciplinary complaint seeking a $5 million fine. Accel also has ongoing litigation with Gold Rush concerning convertible notes and an enforcement action from an Illinois municipality for an alleged tax violation. A legal liability of $1.2 million was recorded for the nine months ended September 30, 2022, with $1.6 million paid in settlements - Accel is involved in ongoing litigation with J&J Ventures Gaming regarding the validity of location agreements, with the IGB largely ruling in Accel's favor, but J&J has filed a new lawsuit[140](index=140&type=chunk)[141](index=141&type=chunk) - The company is litigating with Jason Rowell over breaches of his non-compete agreement and his claims for alleged equity interests[142](index=142&type=chunk) - An IGB disciplinary complaint from December 2020 seeks a **$5 million fine** for alleged violations of the Video Gaming Act[144](index=144&type=chunk) - Accel filed a lawsuit against Gold Rush regarding convertible notes, and Gold Rush filed a countersuit alleging tortious interference[145](index=145&type=chunk)[147](index=147&type=chunk) - A legal liability of **$1.2 million** was recorded for the nine months ended September 30, 2022, with **$1.6 million** paid in legal settlements[151](index=151&type=chunk) [Note 18. Related-Party Transactions](index=30&type=section&id=Note%2018.%20Related-Party%20Transactions) The company has consideration payable to sellers of acquired businesses (Fair Share Gaming, G3 Gaming, Tom's Amusements, AVG) who subsequently became employees. Payments to these related parties totaled $1.5 million for Fair Share and $1.4 million for Tom's Amusements during the nine months ended September 30, 2022. Legal counsel Much Shelist, P.C., a related party, was paid $0.2 million for services in the same period Consideration Payable to Related Parties (in thousands) | Seller | Sep 30, 2022 | Dec 31, 2021 | | :--------------------------------------- | :----------- | :----------- | | Fair Share Gaming | $1,200 | $2,400 | | G3 Gaming | $400 | $400 | | Tom's Amusements | $100 | $1,500 | | AVG | $400 | $400 | - Payments to Fair Share seller were **$1.5 million** and to Tom's Amusements seller were **$1.4 million** during the nine months ended September 30, 2022[153](index=153&type=chunk)[155](index=155&type=chunk) - Accel paid Much Shelist, P.C., a related-party legal counsel, **$0.2 million** for services during the nine months ended September 30, 2022[157](index=157&type=chunk) [Note 19. Earnings Per Share](index=31&type=section&id=Note%2019.%20Earnings%20Per%20Share) Basic and diluted EPS for the three months ended September 30, 2022, were $0.25, up from $0.11 in the prior year. For the nine months, EPS was $0.66, up from $0.26. The increase is driven by higher net income. Anti-dilutive stock-based awards, contingent earnout shares, and warrants were excluded from diluted EPS calculations Earnings Per Share (EPS) (in thousands, except per share amounts) | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net income | $22,444 | $10,807 | $60,696 | $24,753 | | Basic EPS | $0.25 | $0.11 | $0.66 | $0.26 | | Diluted EPS | $0.25 | $0.11 | $0.66 | $0.26 | | Basic weighted average shares outstanding | 89,992 | 94,004 | 91,299 | 93,607 | | Diluted weighted average shares outstanding | 90,528 | 94,728 | 91,945 | 94,469 | - Anti-dilutive stock-based awards, contingent earnout shares, and warrants totaling **5,178,908 shares** (2022) and **5,007,024 shares** (2021) were excluded from diluted EPS calculations[159](index=159&type=chunk) [Note 20. Subsequent Events](index=31&type=section&id=Note%2020.%20Subsequent%20Events) Subsequent to the reporting period, on November 2, 2022, a disinterested committee of the Board of Directors approved an increase to the LTM EBITDA thresholds for Tranches II and III of the Class A-2 Common Stock contingent earnout shares, reflecting anticipated effects of acquisitions - On November 2, 2022, the LTM EBITDA thresholds for Tranches II and III of the Class A-2 Common Stock contingent earnout shares were increased by the board, as detailed in Note 11[160](index=160&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=32&type=section&id=ITEM%202.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section provides management's perspective on Accel Entertainment's financial condition and operational results, highlighting significant revenue growth driven by acquisitions and recovery from COVID-19 impacts. It details the company's business model, the effects of macroeconomic factors, the integration of Century Gaming, key performance drivers, and liquidity management, including debt and share repurchase activities [Company Overview](index=32&type=section&id=Company%20Overview) Accel Entertainment is a leading distributed gaming operator in the U.S., providing a 'gaming-as-a-service' platform to local businesses. The company installs, maintains, and operates gaming terminals, ATMs, and amusement devices in non-casino locations across multiple states. It emphasizes strong location partner relationships, evidenced by a 99% voluntary contract renewal rate, and seeks accretive acquisitions to expand its core gaming business - Accel is a leading distributed gaming operator, providing a 'gaming-as-a-service' platform including gaming terminals, redemption devices with ATM functionality, and other amusement devices[163](index=163&type=chunk)[164](index=164&type=chunk)[165](index=165&type=chunk) - The company operates in Illinois, Georgia, Pennsylvania, Iowa, Montana, Nevada, and Nebraska, with recent expansion through acquisitions like Century Gaming, Inc[163](index=163&type=chunk) - Accel maintains a high voluntary contract renewal rate of approximately **99%** for the three-year period ended December 31, 2021, attributed to strong partner retention and service[164](index=164&type=chunk) [Impact of COVID-19 and Other Macroeconomic Factors](index=33&type=section&id=Impact%20of%20COVID-19%20and%20Other%20Macroeconomic%20Factors) The COVID-19 pandemic significantly impacted the company's operations in 2020 and 2021, particularly due to IGB-mandated shutdowns in Illinois. While operations have resumed, future variants could lead to new restrictions. Additionally, rising interest rates and persistent inflation pose risks of economic recession, potentially affecting consumer disposable income and increasing operating costs, though no material impacts have been observed to date - COVID-19 outbreaks led to IGB-mandated shutdowns of video gaming in Illinois, impacting **18 of 273 gaming days (7%)** during the nine months ended September 30, 2021[168](index=168&type=chunk) - The company's revenues, results of operations, and cash flows were materially affected for the nine months ended September 30, 2021, due to COVID-19[169](index=169&type=chunk) - Ongoing interest rate increases and persistent inflation may increase the risk of an economic recession, potentially impacting location partners, player disposable incomes, and increasing operating costs like fuel[171](index=171&type=chunk) [Century Acquisition](index=33&type=section&id=Century%20Acquisition) On June 1, 2022, Accel completed the acquisition of Century Gaming, Inc. for $164.3 million, financed through cash and stock. This acquisition significantly expanded Accel's presence in Montana and Nevada and added gaming terminal manufacturing capabilities. Century's results are included in Accel's consolidated financial statements from the acquisition date - Accel acquired Century Gaming, Inc. on June 1, 2022, for an aggregate purchase consideration of **$164.3 million**[172](index=172&type=chunk) - The acquisition was financed by a cash payment of **$45.5 million**, repayment of **$113.2 million** of Century's debt, and the issuance of **515,622 shares** of Accel's Class A-1 common stock valued at **$5.6 million**[172](index=172&type=chunk) - Century's financial results are included in Accel's consolidated financial statements from the date of acquisition, contributing to the company's expanded operations in Montana and Nevada[173](index=173&type=chunk) [Components of Performance](index=34&type=section&id=Components%20of%20Performance) This section defines the company's revenue streams, including net gaming, amusement, manufacturing, and ATM fees, and outlines its operating expenses such as cost of revenue, general and administrative, depreciation and amortization, and other expenses. It also describes interest expense and income tax expense, providing context for the financial results - Revenue streams include net gaming (difference between gaming wins and losses), amusement (from amusement devices), manufacturing (sales of gaming terminals by Grand Vision Gaming), and ATM fees and other revenue[174](index=174&type=chunk)[175](index=175&type=chunk) - Cost of revenue includes taxes on net video gaming revenue, licenses, location revenue share, ATM/amusement commissions, and costs associated with gaming terminal sales[176](index=176&type=chunk) - General and administrative expenses cover payroll for service/route technicians, security, preventative maintenance, vehicle costs, marketing, IT, insurance, rent, and professional fees[177](index=177&type=chunk) - Amortization of intangible assets includes route and customer acquisition costs (amortized over **18 years**) and location contracts acquired in business combinations (amortized over **15 years**), as well as other intangible assets (**7-20 years**)[178](index=178&type=chunk)[179](index=179&type=chunk) - Interest expense, net, includes interest on credit facilities, amortization of financing fees, accretion of interest on acquisition costs payable, and interest income on convertible notes, partially offset by gains from interest rate caplets[180](index=180&type=chunk)[181](index=181&type=chunk) [Results of Operations](index=35&type=section&id=Results%20of%20Operations) Accel reported significant financial growth for both the three and nine months ended September 30, 2022, primarily driven by the Century Gaming acquisition and the absence of prior-year COVID-19 related shutdowns. Total net revenues increased by 38.1% and 27.5% for the three and nine-month periods, respectively, while net income surged by 107.7% and 145.2%. Operating expenses also rose due to increased operations, but operating income and income before tax saw substantial gains [Three Months Ended September 30, 2022 and 2021](index=35&type=section&id=Three%20Months%20Ended%20September%2030%2C%202022%20and%202021) For the three months ended September 30, 2022, total net revenues increased by $73.6 million (38.1%) to $267.0 million, primarily from net gaming revenue and the Century acquisition. Net income more than doubled to $22.4 million, up 107.7%. Operating expenses rose by 39.5%, driven by higher revenue and acquisition costs, while interest expense increased significantly due to higher debt and interest rates Key Financial Highlights (Three Months Ended September 30, in thousands) | Metric | 2022 | 2021 | Change ($) | Change (%) | | :--------------------------------------- | :----- | :----- | :--------- | :--------- | | Total Net Revenues | $266,967 | $193,351 | $73,616 | 38.1% | | Net Gaming Revenue | $255,606 | $186,017 | $69,589 | 37.4% | | Manufacturing Revenue | $2,489 | $— | $2,489 | N/A | | Total Operating Expenses | $243,728 | $174,704 | $69,024 | 39.5% | | Operating Income | $23,239 | $18,647 | $4,592 | 24.6% | | Interest Expense, Net | $6,239 | $3,016 | $3,223 | 106.9% | | Net Income | $22,444 | $10,807 | $11,637 | 107.7% | Net Revenues by State (Three Months Ended September 30, in thousands) | State | 2022 | 2021 | | :--------------------------------------- | :----- | :----- | | Illinois | $200,914 | $192,205 | | Nevada | $28,439 | $— | | Montana | $33,456 | $— | | Other | $4,158 | $1,146 | | Total Net Revenues | $266,967 | $193,351 | - General and administrative expenses increased by **$11.7 million (41.9%)** due to Century acquisition operating costs, higher payroll, fleet-related costs, and marketing expenses[188](index=188&type=chunk) - Amortization of intangible assets decreased by **$1.1 million (17.1%)** due to extended useful lives of route and customer acquisition costs and location contracts, partially offset by new intangible assets from Century[189](index=189&type=chunk) - A gain of **$10.4 million** on contingent earnout shares was recognized, compared to a **$0.9 million loss** in the prior year, driven by changes in Class A-1 common stock market value[193](index=193&type=chunk) [Nine Months Ended September 30, 2022 and 2021](index=38&type=section&id=Nine%20Months%20Ended%20September%2030%2C%202022%20and%202021) For the nine months ended September 30, 2022, total net revenues grew by $149.3 million (27.5%) to $691.7 million, primarily from increased gaming terminals and locations due to the Century acquisition and the absence of prior-year COVID-19 shutdowns. Net income surged by 145.2% to $60.7 million. Operating expenses increased by 26.7%, while interest expense rose by 44.1% due to higher debt and interest rates Key Financial Highlights (Nine Months Ended September 30, in thousands) | Metric | 2022 | 2021 | Change ($) | Change (%) | | :--------------------------------------- | :----- | :----- | :--------- | :--------- | | Total Net Revenues | $691,727 | $542,394 | $149,333 | 27.5% | | Net Gaming Revenue | $662,491 | $520,915 | $141,576 | 27.2% | | Manufacturing Revenue | $3,408 | $— | $3,408 | N/A | | Total Operating Expenses | $619,966 | $489,265 | $130,701 | 26.7% | | Operating Income | $71,761 | $53,129 | $18,632 | 35.1% | | Interest Expense, Net | $14,031 | $9,736 | $4,295 | 44.1% | | Net Income | $60,696 | $24,753 | $35,943 | 145.2% | Net Revenues by State (Nine Months Ended September 30, in thousands) | State | 2022 | 2021 | | :--------------------------------------- | :----- | :----- | | Illinois | $601,735 | $539,211 | | Nevada | $37,359 | $— | | Montana | $44,282 | $— | | All other | $8,351 | $3,183 | | Total Net Revenues | $691,727 | $542,394 | - General and administrative expenses increased by **$25.0 million (31.8%)** due to additional operating costs from Century, higher payroll, fleet-related costs, and marketing expenses, and a reduction in prior-year expenses during the IGB-mandated shutdown[199](index=199&type=chunk) - Amortization of intangible assets decreased by **$6.2 million (33.6%)** due to extended useful lives of route and customer acquisition costs and location contracts, partially offset by new intangible assets from Century[200](index=200&type=chunk) - A gain of **$19.5 million** on contingent earnout shares was recognized, compared to a **$6.9 million loss** in the prior year, driven by changes in Class A-1 common stock market value[203](index=203&type=chunk) [Key Business Metrics](index=40&type=section&id=Key%20Business%20Metrics) The company monitors performance using key metrics such as the number of locations and gaming terminals. As of September 30, 2022, total locations increased to 3,517 (from 2,549 in 2021) and total gaming terminals to 22,429 (from 13,384 in 2021), primarily due to the Century acquisition. The IGB's 72-hour rule for equipment removal impacted reported numbers but not materially gaming revenue Number of Primary Locations | State | Sep 30, 2022 | Sep 30, 2021 | Change ($) | Change (%) | | :--------------------------------------- | :----------- | :----------- | :--------- | :--------- | | Illinois | 2,596 | 2,549 | 47 | 1.8% | | Montana | 586 | — | N/A | N/A | | Nevada | 335 | — | N/A | N/A | | Total Locations | 3,517 | 2,549 | 968 | 37.9% | Number of Gaming Terminals | State | Sep 30, 2022 | Sep 30, 2021 | Change ($) | Change (%) | | :--------------------------------------- | :----------- | :----------- | :--------- | :--------- | | Illinois | 14,033 | 13,384 | 649 | 4.8% | | Montana | 5,782 | — | N/A | N/A | | Nevada | 2,614 | — | N/A | N/A | | Total Gaming Terminals | 22,429 | 13,384 | 9,045 | 67.6% | - The increase in locations and gaming terminals is primarily due to the Century acquisition[205](index=205&type=chunk)[209](index=209&type=chunk) - The IGB's 72-hour rule, enforced in January 2022, accelerated equipment removals from inactive locations, reducing reported numbers but not materially impacting gaming revenue[206](index=206&type=chunk)[210](index=210&type=chunk) [Non-GAAP Financial Measures](index=41&type=section&id=Non-GAAP%20Financial%20Measures) Adjusted EBITDA and Adjusted net income are non-GAAP financial measures used by management to monitor core operations, evaluate profitability, and assess the ability to fund capital expenditures and service debt. For the three months ended September 30, 2022, Adjusted EBITDA increased by 9% to $41.1 million, and for the nine months, it increased by 12% to $119.1 million, driven by acquisitions and the absence of prior-year COVID-19 shutdowns - Adjusted EBITDA and Adjusted net income are key non-GAAP metrics used to monitor core operations, profitability, and financial capacity[211](index=211&type=chunk) Adjusted EBITDA and Adjusted Net Income (in thousands) | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net income | $22,444 | $10,807 | $60,696 | $24,753 | | Adjusted net income | $18,932 | $17,317 | $59,053 | $54,106 | | Adjusted EBITDA | $41,125 | $37,631 | $119,083 | $106,427 | - Adjusted EBITDA increased by **9%** for the three months and **12%** for the nine months ended September 30, 2022, primarily due to the Century acquisition and the absence of prior-year COVID-19 shutdowns[214](index=214&type=chunk) [Liquidity and Capital Resources](index=43&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains sufficient liquidity through cash, cash flows from operations, and its senior secured credit facility, which was amended in October 2021 to increase borrowing capacity and extend maturity. Net cash provided by operating activities decreased slightly, while net cash used in investing activities significantly increased due to acquisitions. Net cash provided by financing activities also increased due to borrowings for acquisitions, partially offset by share repurchases. The company uses interest rate caplets to manage interest rate risk and expects to meet its capital requirements and debt covenants for the next twelve months - The company believes its cash and cash equivalents (**$212.1 million** as of September 30, 2022), cash flows from operations, and borrowing availability under its senior secured credit facility are sufficient for the next twelve months[216](index=216&type=chunk) - The Senior Secured Credit Facility was amended in October 2021, increasing the revolving credit facility to **$150 million** and adding a **$400 million** delayed draw term loan facility, extending maturity to October 2026[220](index=220&type=chunk)[221](index=221&type=chunk)[222](index=222&type=chunk) - As of September 30, 2022, approximately **$355 million** of availability remained under the Credit Agreement, and the company was in compliance with all debt covenants[222](index=222&type=chunk)[230](index=230&type=chunk) - The company uses interest rate caplets to hedge against LIBOR interest rate variability on **$300 million** of its term loan, realizing a **$0.2 million gain** in Q3 2022 as LIBOR exceeded 2%[231](index=231&type=chunk) Cash Flow Summary (Nine Months Ended September 30, in thousands) | Activity | 2022 | 2021 | | :--------------------------------------- | :----- | :----- | | Net cash provided by operating activities | $78,250 | $80,262 | | Net cash used in investing activities | $(168,871) | $(21,220) | | Net cash provided by (used in) financing activities | $103,898 | $(13,610) | - Net cash used in investing activities increased significantly by **$147.7 million** due to higher business and asset acquisitions and property and equipment purchases[235](index=235&type=chunk) - Net cash provided by financing activities increased by **$117.5 million** due to increased borrowings for acquisitions, partially offset by **$61.9 million** in common stock repurchases[236](index=236&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=47&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) Accel's primary market risk exposure is to interest rate fluctuations, particularly on its $525.0 million floating-rate debt under the senior secured credit facility. A 1.0% increase in interest rates would negatively impact annual earnings and cash flows by approximately $2.3 million. This risk is partially mitigated by interest rate caplets hedging the first $300 million of the term loan - Accel's primary market risk is interest rate risk, with **$525.0 million** in floating-rate debt under its senior secured credit facility as of September 30, 2022[241](index=241&type=chunk) - A **1.0% increase** in interest rates would negatively impact annual earnings and cash flows by approximately **$2.3 million**[241](index=241&type=chunk) - Interest rate caplets hedge the variability of the 1-month LIBOR interest rate on the first **$300 million** of the term loan, partially mitigating exposure to higher interest rates[241](index=241&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=47&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) As of September 30, 2022, the company's CEO and CFO concluded that disclosure controls and procedures were not effective due to previously identified material weaknesses in internal control over financial reporting. Despite these weaknesses, management believes the condensed consolidated financial statements fairly present the company's financial position, results of operations, and cash flows - The CEO and CFO concluded that disclosure controls and procedures were **not effective** as of September 30, 2022, due to previously identified material weaknesses[243](index=243&type=chunk) - No material changes occurred in internal control over financial reporting during the quarter ended September 30, 2022, other than the previously disclosed material weaknesses[245](index=245&type=chunk) - Management believes that the condensed consolidated financial statements fairly present the company's financial condition, results of operations, and cash flows, notwithstanding the identified material weaknesses[244](index=244&type=chunk) [PART II. OTHER INFORMATION](index=48&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section details legal proceedings, risk factors, equity security sales, and other required disclosures [ITEM 1. LEGAL PROCEEDINGS](index=48&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) Accel is involved in various legal proceedings, including disputes over location contracts with J&J Ventures Gaming, lawsuits with Jason Rowell concerning non-compete agreements and equity interests, and an IGB disciplinary complaint seeking a $5 million fine. The company also has ongoing litigation with Gold Rush regarding convertible notes and an enforcement action from an Illinois municipality for an alleged tax violation. A legal liability of $1.2 million was recorded for the nine months ended September 30, 2022, with $1.6 million paid in settlements - Accel is involved in ongoing litigation with J&J Ventures Gaming over the validity of location agreements, with the IGB largely ruling in Accel's favor, but J&J has filed a new lawsuit[251](index=251&type=chunk)[252](index=252&type=chunk) - The company is litigating with Jason Rowell over breaches of his non-compete agreement and his claims for alleged equity interests[254](index=254&type=chunk) - An IGB disciplinary complaint from December 2020 seeks a **$5 million fine** for alleged violations of the Video Gaming Act[256](index=256&type=chunk) - Accel filed a lawsuit against Gold Rush regarding convertible notes, and Gold Rush filed a countersuit alleging tortious interference[257](index=257&type=chunk) - A legal liability of **$1.2 million** was recorded for the nine months ended September 30, 2022, with **$1.6 million** paid in legal settlements[261](index=261&type=chunk) [ITEM 1A. RISK FACTORS](index=50&type=section&id=ITEM%201A.%20RISK%20FACTORS) Accel faces various risks, including challenges in obtaining and maintaining gaming licenses across multiple jurisdictions, potential adverse effects from unfavorable economic conditions or decreased discretionary spending, and difficulties in expanding into new markets. The company's geographic concentration in Illinois and other newer markets exposes it to local regulatory and economic changes. Furthermore, the successful integration of the Century Acquisition is crucial, and failure to do so could materially impact business. Holders of common stock are also subject to gaming regulations, with potential unsuitability findings impacting ownership - Accel's ability to operate and expand is highly dependent on obtaining and maintaining required gaming licenses and approvals, which are subject to extensive governmental regulation and suitability reviews[264](index=264&type=chunk)[265](index=265&type=chunk)[266](index=266&type=chunk) - Unfavorable economic conditions, such as recession, inflation, rising interest rates, or decreased discretionary spending (e.g., due to COVID-19 variants), could adversely affect Accel's business by reducing player activity and impacting location partners[270](index=270&type=chunk)[271](index=271&type=chunk)[272](index=272&type=chunk) - The company's revenue growth depends on successful expansion into new markets (e.g., Pennsylvania, Georgia, Iowa, Montana, Nevada, Nebraska), where it faces entrenched competitors and unproven market appeal[273](index=273&type=chunk)[276](index=276&type=chunk) - Accel's business is geographically concentrated, primarily in Illinois, making it vulnerable to local economic, regulatory, and competitive changes[277](index=277&type=chunk)[278](index=278&type=chunk) - Failure to successfully integrate the Century Gaming acquisition could materially adversely affect Accel's business due to operational, technological, and personnel-related challenges[279](index=279&type=chunk)[280](index=280&type=chunk)[283](index=283&type=chunk) - Holders of common stock are subject to gaming regulations, and a finding of unsuitability by a gaming authority could prevent them from beneficially owning common stock[291](index=291&type=chunk)[293](index=293&type=chunk) [ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=55&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) The company's Board of Directors approved a share repurchase program of up to $200 million of Class A-1 common stock in November 2021. As of September 30, 2022, 6,380,815 shares have been repurchased for $70.9 million. The Inflation Reduction Act of 2022, imposing a 1% excise tax on stock repurchases from January 1, 2023, may affect this program - The Board of Directors approved a share repurchase program of up to **$200 million** of Class A-1 common stock on November 22, 2021[294](index=294&type=chunk) Share Repurchase Program (Third Quarter 2022) | Period | Total Shares Purchased | Average Price Paid Per Share | Cumulative Shares Purchased | Maximum Approximate Dollar Value Remaining (in millions) | | :--------------------------------------- | :--------------------- | :--------------------------- | :-------------------------- | :------------------------------------------------------- | | July 2022 | 679,329 | $11.19 | 4,795,037 | $144.0 | | August 2022 | 744,778 | $10.06 | 5,539,815 | $136.5 | | September 2022 | 841,000 | $8.79 | 6,380,815 | $129.1 | | Total (Q3 2022) | 2,265,107 | | | | - The Inflation Reduction Act of 2022, effective January 1, 2023, imposes a **1% non-deductible excise tax** on stock repurchases, which may affect the program[295](index=295&type=chunk) [ITEM 3. DEFAULTS UPON SENIOR SECURITIES](index=55&type=section&id=ITEM%203.%20DEFAULTS%20UPON%20SENIOR%20SECURITIES) There were no defaults upon senior securities during the reporting period [ITEM 4. MINE SAFETY DISCLOSURES](index=55&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This item is not applicable to the company [ITEM 6. EXHIBITS](index=56&type=section&id=ITEM%206.%20EXHIBITS) This section lists the exhibits filed with the Form 10-Q, including a separation agreement, certifications of the Principal Executive and Financial Officers, XBRL instance documents, and the cover page in Inline XBRL format - Exhibits include a separation agreement, certifications (31.1, 31.2, 32.1, 32.2), and various XBRL documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104)[298](index=298&type=chunk) [SIGNATURES](index=57&type=section&id=SIGNATURES) The report is duly signed on behalf of Accel Entertainment, Inc. by Mathew Ellis, Chief Financial Officer, on November 8, 2022 - The report was signed by Mathew Ellis, Chief Financial Officer, on November 8, 2022[300](index=300&type=chunk)

```markdown PART I. FINANCIAL INFORMATION [Financial Statements](index=3&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) Presents Accel Entertainment, Inc.'s unaudited condensed consolidated financial statements, covering operations, balance sheets, and cash flows [Notes to the Condensed Consolidated Financial Statements (Unaudited)](index=8&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements%20%28Unaudited%29) Detailed notes explain business operations, accounting policies, Century Gaming acquisition, debt facilities, and legal contingencies - The company operates as a terminal operator in various US jurisdictions, including Illinois, Georgia, Pennsylvania, Iowa, Montana, and Nevada. A significant event was the acquisition of Century Gaming, Inc. on June 1, 2022, expanding operations into Montana and Nevada and adding manufacturing capabilities[12](index=12&type=chunk) - In Q4 2021, the company changed its accounting estimates, extending the useful lives of gaming terminals (**10 to 13 years**), route/customer acquisition costs (**12.4 to 18 years**), and location contracts (**10 to 15 years**). This change decreased depreciation and amortization expense in 2022[23](index=23&type=chunk)[24](index=24&type=chunk)[29](index=29&type=chunk) - The company is in a legal dispute with Gold Rush Amusements, Inc. after the Illinois Gaming Board (IGB) denied the transfer of Gold Rush common stock to Accel following Accel's exercise of its conversion rights on convertible notes. Both parties have filed lawsuits against each other[42](index=42&type=chunk)[46](index=46&type=chunk)[47](index=47&type=chunk) - On June 1, 2022, the company acquired Century Gaming for aggregate consideration of **$164.3 million**, resulting in **$53.3 million** of goodwill. The acquisition added **$21.1 million** in revenue and **$1.0 million** in net income for the month of June 2022[77](index=77&type=chunk)[78](index=78&type=chunk)[83](index=83&type=chunk) - The company is involved in several legal proceedings, including a dispute with J&J Ventures Gaming, lawsuits with Gold Rush, and a disciplinary complaint from the IGB seeking a **$5 million** fine. A loss of **$1.0 million** was recorded for legal liabilities in the first six months of 2022[130](index=130&type=chunk)[139](index=139&type=chunk)[140](index=140&type=chunk) Condensed Consolidated Statements of Operations (Unaudited) | (In thousands, except per share amounts) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | **Total net revenues** | $227,869 | $201,974 | $424,760 | $349,043 | | **Operating income** | $27,315 | $24,927 | $48,522 | $34,482 | | **Net income** | $22,464 | $12,445 | $38,252 | $13,946 | | **Diluted EPS** | $0.24 | $0.13 | $0.41 | $0.15 | Condensed Consolidated Balance Sheets (Unaudited) | (In thousands) | June 30, 2022 (Unaudited) | December 31, 2021 | | :--- | :--- | :--- | | **Total current assets** | $288,001 | $247,995 | | **Total assets** | $816,579 | $616,073 | | **Total current liabilities** | $85,997 | $71,835 | | **Total liabilities** | $642,704 | $457,612 | | **Total stockholders' equity** | $173,875 | $158,461 | Condensed Consolidated Statements of Cash Flows (Unaudited) | (In thousands) | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | **Net cash provided by operating activities** | $41,211 | $54,158 | | **Net cash used in investing activities** | ($137,267) | ($13,758) | | **Net cash provided by financing activities** | $117,438 | $3,657 | | **Net increase in cash and cash equivalents** | $21,382 | $44,057 | | **Cash and cash equivalents, end of period** | $220,168 | $178,508 | [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=30&type=section&id=ITEM%202.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Management discusses financial performance, revenue growth from Century acquisition, key business metrics, liquidity, and non-GAAP measures [Results of Operations](index=33&type=section&id=Results%20of%20Operations) Revenues and net income significantly increased for Q2 and six-month periods, driven by the Century acquisition and accounting changes Results of Operations Comparison - Three Months Ended June 30 | (in thousands) | 2022 | 2021 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | **Total net revenues** | $227,869 | $201,974 | $25,895 | 12.8% | | **Operating income** | $27,315 | $24,927 | $2,388 | 9.6% | | **Net income** | $22,464 | $12,445 | $10,019 | 80.5% | Results of Operations Comparison - Six Months Ended June 30 | (in thousands) | 2022 | 2021 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | **Total net revenues** | $424,760 | $349,043 | $75,717 | 21.7% | | **Operating income** | $48,522 | $34,482 | $14,040 | 40.7% | | **Net income** | $38,252 | $13,946 | $24,306 | 174.3% | - Amortization expense decreased by **42.0%** for the three-month period and **41.9%** for the six-month period, primarily due to extending the useful lives of route/customer acquisition costs and location contracts in Q4 2021[182](index=182&type=chunk)[196](index=196&type=chunk) - A gain on the change in fair value of contingent earnout shares of **$5.7 million** in Q2 2022 (compared to a **$3.2 million** loss in Q2 2021) was primarily due to the change in the market value of the company's Class A-1 common stock[186](index=186&type=chunk) [Key Business Metrics](index=38&type=section&id=Key%20Business%20Metrics) Key metrics include total locations and gaming terminals, significantly increased by the Century acquisition, with some metrics no longer reported Number of Locations by State | State | As of June 30, 2022 | As of June 30, 2021 | | :--- | :--- | :--- | | Illinois | 2,572 | 2,527 | | Montana | 585 | — | | Nevada | 332 | — | | **Total** | **3,489** | **2,527** | Number of Gaming Terminals by State | State | As of June 30, 2022 | As of June 30, 2021 | | :--- | :--- | :--- | | Illinois | 13,801 | 13,177 | | Montana | 5,742 | — | | Nevada | 2,585 | — | | **Total** | **22,128** | **13,177** | - The company no longer reports average remaining contract term and location hold-per-day as key metrics due to significant operational expansion and entry into new markets from the Century acquisition[201](index=201&type=chunk) [Non-GAAP Financial Measures](index=39&type=section&id=Non-GAAP%20Financial%20Measures) Adjusted EBITDA and Adjusted Net Income are key non-GAAP metrics, with Adjusted EBITDA increasing **13.3%** to **$78.0 million** for the six months Adjusted EBITDA Reconciliation | (in thousands) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | **Net income** | $22,464 | $12,445 | $38,252 | $13,946 | | **Adjusted EBITDA** | $42,716 | $42,983 | $77,958 | $68,796 | [Liquidity and Capital Resources](index=41&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains strong liquidity with **$220.2 million** cash, supported by an amended credit facility with **$381 million** available - The company had **$220.2 million** in cash and cash equivalents as of June 30, 2022[213](index=213&type=chunk) - The Credit Agreement was amended to increase the revolving credit facility to **$150.0 million** and add a new **$400.0 million** delayed draw term loan facility, extending the maturity to October 2026[218](index=218&type=chunk)[219](index=219&type=chunk) - As of June 30, 2022, there was approximately **$381 million** of availability under the Credit Agreement[219](index=219&type=chunk) - Net cash from financing activities increased to **$117.4 million** for the six months ended June 30, 2022, up from **$3.7 million** in the prior year, mainly due to borrowings for acquisitions, partially offset by **$36.9 million** in share repurchases[231](index=231&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=44&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The company's primary market risk is interest rate fluctuations on its **$505.9 million** floating-rate debt, hedged by interest rate caplets - The company is exposed to interest rate risk on **$505.9 million** of borrowings under its senior secured credit facility as of June 30, 2022[236](index=236&type=chunk) - To hedge against rising interest rates, the company entered into a 4-year series of interest rate caplets on January 12, 2022, which protect the company if the 1-month LIBOR exceeds **2%** on the first **$300 million** of its term loan[236](index=236&type=chunk) [Controls and Procedures](index=45&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) Disclosure controls and procedures were deemed ineffective due to material weaknesses, though financial statements are believed to be fairly presented - The CEO and CFO concluded that disclosure controls and procedures were not effective as of June 30, 2022, due to previously identified material weaknesses[237](index=237&type=chunk) - Notwithstanding the material weaknesses, management believes the condensed consolidated financial statements included in the Form 10-Q are fairly presented in all material respects[238](index=238&type=chunk) PART II. OTHER INFORMATION [Legal Proceedings](index=46&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) The company is involved in several legal proceedings, including disputes with J&J Ventures Gaming and Gold Rush, and an IGB disciplinary complaint - The company is in a dispute with J&J Ventures Gaming, LLC over contractual rights to **10** licensed establishments dating back to 2012. The matter has involved various courts and petitions with the IGB[242](index=242&type=chunk)[243](index=243&type=chunk)[244](index=244&type=chunk) - The company received a disciplinary complaint from the IGB in December 2020 alleging violations of the Video Gaming Act, with the IGB seeking a **$5 million** fine. Both parties filed motions for summary judgment in July 2022[250](index=250&type=chunk) - The company and Gold Rush have filed lawsuits against each other in 2022 related to Accel's convertible notes and the IGB's denial of the stock transfer[251](index=251&type=chunk) [Risk Factors](index=47&type=section&id=ITEM%201A.%20RISK%20FACTORS) Key risks include extensive government regulation, consumer spending reliance, new market expansion, geographic concentration, and Century acquisition integration - The business is subject to extensive and evolving government regulation, and failure to obtain or maintain required licenses in jurisdictions like Illinois, Montana, and Nevada could adversely affect operations and growth[255](index=255&type=chunk)[258](index=258&type=chunk)[259](index=259&type=chunk) - Revenue is dependent on players' disposable income, which can be negatively impacted by unfavorable economic conditions, inflation, public health issues like COVID-19, or other uncertainties[263](index=263&type=chunk)[265](index=265&type=chunk) - The business is geographically concentrated, primarily in Illinois, making it vulnerable to local economic conditions, regulatory changes, and competition. Similar risks exist in its newer markets like Montana and Nevada[269](index=269&type=chunk)[270](index=270&type=chunk) - There are significant risks associated with integrating the Century acquisition, including challenges with systems, personnel, and business cultures, which could divert management attention and lead to unanticipated expenses[271](index=271&type=chunk)[272](index=272&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=53&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) Details share repurchase activity under the **$200 million** program, with **$151.6 million** remaining for future repurchases Issuer Purchase of Equity Securities (Q2 2022) | Period | Total number of shares purchased | Average price paid per share | Maximum approximate dollar value of shares that may yet be purchased under the program (in millions) | | :--- | :--- | :--- | :--- | | April 2022 | 485,194 | $12.19 | $171.2 | | May 2022 | 697,481 | $10.64 | $163.7 | | June 2022 | 1,143,738 | $10.63 | $151.6 | | **Total** | **2,326,413** | | | [Defaults Upon Senior Securities](index=53&type=section&id=ITEM%203.%20DEFAULTS%20UPON%20SENIOR%20SECURITIES) None reported [Mine Safety Disclosures](index=53&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) Not applicable [Exhibits](index=54&type=section&id=ITEM%206.%20EXHIBITS) Lists exhibits filed with Form 10-Q, including CEO/CFO certifications and XBRL data files ```

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents the company's financial statements, management's analysis, market risk disclosures, and internal controls [Financial Statements](index=3&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) 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](index=3&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income) 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](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) 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](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity) 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](index=6&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) 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](index=8&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) 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](index=11&type=chunk) - 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](index=18&type=chunk)[19](index=19&type=chunk) - The company has a pending acquisition of Century Gaming, Inc. for **$140 million** in cash and stock, expected to close in Q2 2022[62](index=62&type=chunk) - 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](index=32&type=chunk)[33](index=33&type=chunk) - The company received a disciplinary complaint from the IGB seeking a **$5 million** fine, which the company is vigorously defending[112](index=112&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=ITEM%202.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) 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](index=148&type=chunk) | 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](index=166&type=chunk) - 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](index=169&type=chunk)[175](index=175&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=37&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) 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](index=192&type=chunk) - 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](index=192&type=chunk) [Controls and Procedures](index=38&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) 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](index=195&type=chunk) - 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](index=196&type=chunk) [PART II. OTHER INFORMATION](index=39&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section covers legal proceedings, risk factors, equity sales, and other disclosures [Legal Proceedings](index=39&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) 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](index=200&type=chunk) - 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](index=208&type=chunk) - On March 9, 2022, the company filed a lawsuit against Gold Rush for breach of contract related to convertible notes[209](index=209&type=chunk) - 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](index=212&type=chunk) [Risk Factors](index=40&type=section&id=ITEM%201A.%20RISK%20FACTORS) 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](index=213&type=chunk) [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](index=41&type=section&id=ITEM%203.%20DEFAULTS%20UPON%20SENIOR%20SECURITIES) No defaults upon senior securities were reported - No defaults upon senior securities were reported[216](index=216&type=chunk) [Mine Safety Disclosures](index=41&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This item is not applicable to the company - This item is not applicable to the company[217](index=217&type=chunk) [Exhibits](index=42&type=section&id=ITEM%206.%20EXHIBITS) 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](index=219&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 2021 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to ______ Commission File Number 001-38136 Accel Entertainment, Inc. (Exact Name of Registrant as Specified in Its Charter) Delaware 98-1350261 (State or Other Jurisd ...

PART I. FINANCIAL INFORMATION [ITEM 1. FINANCIAL STATEMENTS](index=4&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) Presents unaudited consolidated financial statements and notes for periods ended June 30, 2021 and 2020 [Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income%20%28Loss%29) Details the company's unaudited condensed consolidated statements of operations and comprehensive income (loss) for the specified periods Three Months Ended June 30, 2021 vs 2020 (in thousands, except per share amounts) | Metric | 2021 | 2020 (As Restated) | Change ($) | Change (%) | | :-------------------------------------------------------------------------------------------------------------------------------------- | :----- | :----------------- | :--------- | :--------- | | Total Net Revenues | $201,974 | $379 | $201,595 | 53,191.3% | | Operating Income (Loss) | $24,927 | $(23,840) | $48,767 | (204.6)% | | Net Income (Loss) | $12,445 | $(46,768) | $59,213 | (126.6)% | | Basic EPS | $0.13 | $(0.60) | $0.73 | (121.7)% | | Diluted EPS | $0.13 | $(0.60) | $0.73 | (121.7)% | Six Months Ended June 30, 2021 vs 2020 (in thousands, except per share amounts) | Metric | 2021 | 2020 (As Restated) | Change ($) | Change (%) | | :-------------------------------------------------------------------------------------------------------------------------------------- | :----- | :----------------- | :--------- | :--------- | | Total Net Revenues | $349,043 | $106,843 | $242,200 | 226.7% | | Operating Income (Loss) | $34,482 | $(21,696) | $56,178 | (258.9)% | | Net Income (Loss) | $13,946 | $1,275 | $12,671 | 993.8% | | Basic EPS | $0.15 | $0.02 | $0.13 | 650.0% | | Diluted EPS | $0.15 | $0.01 | $0.14 | 1400.0% | [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Presents the company's unaudited condensed consolidated balance sheets as of June 30, 2021, and December 31, 2020 Balance Sheet Highlights (in thousands) | Metric | June 30, 2021 (Unaudited) | December 31, 2020 (As Restated) | Change ($) | Change (%) | | :--------------------------- | :-------------------------- | :------------------------------ | :--------- | :--------- | | Cash and cash equivalents | $178,508 | $134,451 | $44,057 | 32.8% | | Total current assets | $195,811 | $151,984 | $43,827 | 28.8% | | Total assets | $600,848 | $560,241 | $40,607 | 7.2% | | Total current liabilities | $58,008 | $52,390 | $5,618 | 10.7% | | Total long-term liabilities | $390,924 | $379,980 | $10,944 | 2.9% | | Total stockholders' equity | $151,916 | $127,871 | $24,045 | 18.8% | [Condensed Consolidated Statements of Stockholders' Equity (Deficit)](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity%20%28Deficit%29) Outlines changes in stockholders' equity for the six months ended June 30, 2021, and 2020 - **Stockholders' equity** increased from **$127,871 thousand** on January 1, 2021, to **$151,916 thousand** on June 30, 2021. This increase was primarily driven by **net income** of **$13,946 thousand**, **stock-based compensation** of **$3,741 thousand**, and **unrealized gains** on investment in convertible notes of **$5,673 thousand**[15](index=15&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Presents the company's unaudited condensed consolidated statements of cash flows for the six months ended June 30, 2021, and 2020 Cash Flow Summary (Six Months Ended June 30, in thousands) | Activity | 2021 | 2020 (As Restated) | Change ($) | | :------------------------------------------ | :----- | :----------------- | :--------- | | Net cash provided by (used in) operating activities | $54,158 | $(17,284) | $71,442 | | Net cash used in investing activities | $(13,758) | $(4,002) | $(9,756) | | Net cash provided by financing activities | $3,657 | $44,717 | $(41,060) | | Net increase in cash and cash equivalents | $44,057 | $23,431 | $20,626 | | Cash and cash equivalents, end of period | $178,508 | $148,834 | $29,674 | Supplemental Noncash Investing and Financing Activities (Six Months Ended June 30, in thousands) | Activity | 2021 | 2020 | | :---------------------------------------------------------------- | :----- | :----- | | Purchases of property and equipment in accounts payable and accrued liabilities | $2,608 | $10,586 | | Conversion of contingent earnout shares | $0 | $19,160 | | Acquisition of businesses and assets (Total identifiable net assets acquired) | $3,334 | $0 | [Note 1. Description of Business](index=10&type=section&id=Note%201.%20Description%20of%20Business) Describes Accel Entertainment's business operations, including its gaming terminals and locations, and the impact of COVID-19 shutdowns - Accel Entertainment, Inc. operates **video gaming terminals (VGTs)**, redemption terminals (with ATM functionality), and amusement equipment in licensed locations, primarily in Illinois, and also holds licenses in Georgia and Pennsylvania[25](index=25&type=chunk) Illinois Operations Overview | Metric | June 30, 2021 | June 30, 2020 | | :--------------------------- | :------------ | :------------ | | Video Gaming Terminals (VGTs) | 13,177 | 11,108 | | Locations | 2,527 | 2,335 | - The company's financial results were **materially affected** by IGB-mandated COVID-19 shutdowns: a full shutdown from March 16 to June 30, 2020, and a staggered shutdown from November 19, 2020, to January 2021. Mitigation efforts included **employee** furloughs and deferred vendor payments[27](index=27&type=chunk)[28](index=28&type=chunk) [Note 2. Summary of Significant Accounting Policies](index=11&type=section&id=Note%202.%20Summary%20of%20Significant%20Accounting%20Policies) Summarizes the significant accounting policies applied in the condensed consolidated financial statements, including restatements and new accounting standards - The condensed consolidated financial statements are prepared in conformity with U.S. GAAP and SEC rules, applying consistent accounting policies as described in the Annual Report on Form 10-K[30](index=30&type=chunk) - Prior periods (June 30, 2020, and December 31, 2020) were restated as detailed in the Form 10-K[31](index=31&type=chunk) - The company early adopted ASU No. 2019-12 (Simplifying the Accounting for Income Taxes) in the second quarter of 2020, effective January 1, 2020, with **no material impact** on financial statements[32](index=32&type=chunk) - The company operates as a **single operating segment** and is assessing the impact of ASU No. 2016-02 (Leases), which will be effective for its fiscal year beginning after December 15, 2021, due to its Emerging Growth Company (EGC) status[35](index=35&type=chunk)[36](index=36&type=chunk) [Note 3. Investment in Convertible Notes](index=12&type=section&id=Note%203.%20Investment%20in%20Convertible%20Notes) Details the company's investment in convertible promissory notes, including terms, amendments, and subsequent conversion events - The company holds **$30.0 million** in convertible promissory notes from another terminal operator, bearing **3% interest** per annum, with options to convert to common stock[38](index=38&type=chunk) - Amendments in July 2020 and March 2021 extended the maturity dates and payback periods for these notes[39](index=39&type=chunk)[40](index=40&type=chunk) - An **unrealized gain** of **$5.2 million** (three months) and **$5.7 million** (six months), net of taxes, was recognized within comprehensive income for the period ended June 30, 2021[40](index=40&type=chunk) - Subsequent to the reporting period, on July 30, 2021, the company exercised its rights to convert the entire fair value and accrued interest of **$39.7 million** into common stock of the terminal operator[41](index=41&type=chunk)[125](index=125&type=chunk) [Note 4. Property and Equipment](index=13&type=section&id=Note%204.%20Property%20and%20Equipment) Provides details on the company's property and equipment, net, and associated depreciation and amortization expenses Property and Equipment, Net (in thousands) | Metric | June 30, 2021 | December 31, 2020 | | :--------------------------- | :------------ | :---------------- | | Property and equipment, net | $144,688 | $143,565 | Depreciation and Amortization Expense of Property and Equipment (in thousands) | Period | 2021 | 2020 | | :--------------------------- | :----- | :----- | | Three months ended June 30 | $6,313 | $5,071 | | Six months ended June 30 | $12,302 | $9,938 | [Note 5. Route and Customer Acquisition Costs](index=13&type=section&id=Note%205.%20Route%20and%20Customer%20Acquisition%20Costs) Outlines the company's route and customer acquisition costs, net, and related amortization expenses Route and Customer Acquisition Costs, Net (in thousands) | Metric | June 30, 2021 | December 31, 2020 | | :---------------------------------- | :------------ | :---------------- | | Route and customer acquisition costs, net | $15,555 | $15,251 | - Gross payments due on contracts were approximately **$6.4 million** as of both June 30, 2021, and December 31, 2020[44](index=44&type=chunk) Amortization Expense of Route and Customer Acquisition Costs (in thousands) | Period | 2021 | 2020 | | :--------------------------- | :----- | :----- | | Three months ended June 30 | $500 | $500 | | Six months ended June 30 | $900 | $900 | [Note 6. Location Contracts Acquired](index=14&type=section&id=Note%206.%20Location%20Contracts%20Acquired) Details the company's location contracts acquired, net, and associated amortization expenses Location Contracts Acquired, Net (in thousands) | Metric | June 30, 2021 | December 31, 2020 | | :--------------------------- | :------------ | :---------------- | | Location contracts acquired, net | $158,051 | $167,734 | Amortization Expense of Location Contracts Acquired (in thousands) | Period | 2021 | 2020 | | :--------------------------- | :----- | :----- | | Three months ended June 30 | $5,700 | $5,100 | | Six months ended June 30 | $11,300 | $10,200 | [Note 7. Goodwill](index=14&type=section&id=Note%207.%20Goodwill) Reports the company's goodwill balance and its tax-deductible portion as of the reporting dates - **Goodwill remained at** **$45.8 million** as of June 30, 2021, and December 31, 2020, with **$35.8 million** deductible for tax purposes as of June 30, 2021[49](index=49&type=chunk) [Note 8. Debt](index=14&type=section&id=Note%208.%20Debt) Provides a summary of the company's debt, including credit facilities, term loans, and compliance with covenants Debt Summary (in thousands) | Metric | June 30, 2021 | December 31, 2020 | | :---------------------------------- | :------------ | :---------------- | | Revolving credit facility | $13,000 | $0 | | Term Loan | $222,000 | $228,000 | | Delayed Draw Term Loan (DDTL) | $116,437 | $119,562 | | Total debt, net of current maturities | $326,775 | $321,891 | - Approximately **$87.0 million** of availability remained under the Credit Agreement as of June 30, 2021[54](index=54&type=chunk) - The weighted-average **interest rate** was approximately **3.3%** as of June 30, 2021[56](index=56&type=chunk) - The company was **in compliance** with all debt covenants as of June 30, 2021, and expects to remain **in compliance** for the next **12 months**. The Credit Agreement was amended in August 2020 to waive financial covenant breaches for certain periods due to COVID-19[61](index=61&type=chunk) [Note 9. Business and Asset Acquisitions](index=16&type=section&id=Note%209.%20Business%20and%20Asset%20Acquisitions) Details the company's business and asset acquisitions, including the Century Gaming and Island Games transactions - On March 2, 2021, the company announced an agreement to acquire Century Gaming, Inc., Montana's largest gaming operator and a Nevada leader, for **$140 million** (cash and stock), expected to close in H1 2022[62](index=62&type=chunk) - On May 20, 2021, the company acquired Island Games, Inc., a Georgia amusement operator, adding **30 Class B locations** and **89 terminals** for approximately **$2.9 million** in cash[63](index=63&type=chunk) - In 2020, the company acquired American Video Gaming (AVG) for **$32.0 million**, adding **267 VGTs** in **49 Illinois locations**, and Tom's Amusements for **$3.6 million**, expanding into Georgia[64](index=64&type=chunk)[68](index=68&type=chunk) Consideration Payable (in thousands) | Category | June 30, 2021 | December 31, 2020 | | :--------- | :------------ | :---------------- | | Current | $6,646 | $3,013 | | Long-Term | $19,102 | $20,943 | | Total | $25,748 | $23,956 | [Note 10. Contingent Earnout Share Liability](index=18&type=section&id=Note%2010.%20Contingent%20Earnout%20Share%20Liability) Explains the company's contingent earnout share liability, including conversion conditions and tranches - The company has a contingent earnout share liability for **5,000,000 shares** of **Class A-2 Common Stock**, convertible into **Class A-1 Common Stock** upon meeting specific LTM EBITDA or **Class A-1 stock price** targets across **three tranches**[76](index=76&type=chunk)[78](index=78&type=chunk) - Tranche I conditions were satisfied on January 14, 2020, leading to the conversion of **1,666,636 shares** of **Class A-2 Common Stock** into **Class A-1 Common Stock**[79](index=79&type=chunk) [Note 11. Warrant Liability](index=19&type=section&id=Note%2011.%20Warrant%20Liability) Details the company's warrant liabilities, including private placement and public warrants, exchange offers, and delisting events - The company had Private Placement Warrants (**7,333,326 issued**) and Public Warrants (**15,000,000 issued**), both with an exercise price of **$11.50 per share**[80](index=80&type=chunk)[81](index=81&type=chunk) - In July 2020, the company commenced an exchange offer, leading to the redemption of substantially all Public Warrants (**3,784,416 Class A-1 shares issued**) and Private Placement Warrants (**1,797,474 Class A-1 shares issued**)[81](index=81&type=chunk)[82](index=82&type=chunk)[83](index=83&type=chunk) - The Public Warrants were delisted from the NYSE on July 22, 2020, due to failure to comply with the continued listing standard of maintaining at least **100 public holders**[82](index=82&type=chunk) [Note 12. Fair Value Measurements](index=20&type=section&id=Note%2012.%20Fair%20Value%20Measurements) Explains the company's fair value measurements, including the three-level hierarchy and valuation methods for assets and liabilities - The company classifies fair value measurements into a three-level hierarchy based on the observability of inputs: Level 1 (active markets), Level 2 (observable inputs), and Level 3 (unobservable inputs requiring significant judgment)[85](index=85&type=chunk)[86](index=86&type=chunk) Assets Measured at Fair Value (June 30, 2021, in thousands) | Asset | Fair Value | Fair Value Hierarchy Level | | :---------------------------- | :--------- | :------------------------- | | Investment in convertible notes | $38,063 | Level 3 | Liabilities Measured at Fair Value (June 30, 2021, in thousands) | Liability | Fair Value | Fair Value Hierarchy Level | | :---------------------------- | :--------- | :------------------------- | | Contingent consideration | $19,504 | Level 3 | | Contingent earnout shares | $39,049 | Level 2 | | Warrants | $13 | Level 2 | - Valuation methods include a binomial lattice model for convertible notes (Level 3), discounted cash flow analysis for contingent consideration (Level 3), market price of **A-1 Common Stock** for contingent earnout shares (Level 2), and Black-Scholes option-pricing model for Private Placement Warrants (Level 2)[89](index=89&type=chunk)[96](index=96&type=chunk)[97](index=97&type=chunk)[98](index=98&type=chunk) [Note 13. Stockholders' Equity](index=23&type=section&id=Note%2013.%20Stockholders%27%20Equity) Details the rights of Class A-1 Common Stock holders and the proceeds from the September 2020 public offering - **Holders of Class A-1 Common Stock** are entitled to **one vote per share** and receive dividends or other distributions[101](index=101&type=chunk) - In September 2020, the company completed a public offering of **8,000,000 shares** of **Class A-1 Common Stock** at **$10.50 per share**, generating **$79.2 million** in net proceeds. An additional **1,133,015 shares** were purchased by underwriters in October 2020, yielding **$11.2 million** in net proceeds, for a total of approximately **$90.4 million**[102](index=102&type=chunk) [Note 14. Stock-based Compensation](index=23&type=section&id=Note%2014.%20Stock-based%20Compensation) Reports stock option and restricted stock unit grants, along with the associated stock-based compensation expense - In Q1 2021, the company granted **0.2 million stock options** and **0.4 million restricted stock units (RSUs)** with an estimated fair value of **$5.6 million**. In Q2 2021, an additional **24 thousand stock options** and **41 thousand RSUs** were granted, valued at **$0.7 million**[103](index=103&type=chunk)[104](index=104&type=chunk) Stock-based Compensation Expense (in thousands) | Period | 2021 | 2020 | | :--------------------------- | :----- | :----- | | Three months ended June 30 | $2,100 | $1,300 | | Six months ended June 30 | $3,700 | $2,400 | [Note 15. Income Taxes](index=23&type=section&id=Note%2015.%20Income%20Taxes) Presents income tax expense (benefit) and effective income tax rates, explaining variations due to adjustments and discrete items Income Tax Expense (Benefit) (in thousands) | Period | 2021 | 2020 | | :--------------------------- | :----- | :----- | | Three months ended June 30 | $5,924 | $(5,055) | | Six months ended June 30 | $7,837 | $(5,194) | Effective Income Tax Rate | Period | 2021 | 2020 | | :--------------------------- | :--- | :--- | | Three months ended June 30 | 32.2% | 9.8% | | Six months ended June 30 | 36.0% | 132.5% | - The effective tax **rate** varied due to permanent tax adjustments and discrete items, such as the revaluation of contingent earnout shares and warrants in 2020. The company recorded a **$1.1 million** receivable under the CARES Act[106](index=106&type=chunk)[107](index=107&type=chunk) [Note 16. Commitments and Contingencies](index=24&type=section&id=Note%2016.%20Commitments%20and%20Contingencies) Details the company's legal commitments and contingencies, including ongoing litigations and a disciplinary complaint from the IGB - The company is involved in a series of litigated matters with J&J Ventures Gaming, LLC regarding exclusive rights to operate VGTs in certain establishments. The IGB recently adjudicated largely in Accel's favor, but J&J has filed a new lawsuit[108](index=108&type=chunk)[109](index=109&type=chunk)[110](index=110&type=chunk)[111](index=111&type=chunk)[112](index=112&type=chunk)[113](index=113&type=chunk) - Accel is also involved in lawsuits with Jason Rowell concerning breaches of his non-compete agreement and his claims for certain equity interests[114](index=114&type=chunk) - A lawsuit from Illinois Gaming Investors, LLC, filed in July 2019, alleges non-competition agreement violations and wrongful solicitation, seeking **$10 million** in damages[115](index=115&type=chunk) - The company received a disciplinary complaint from the IGB in December 2020, alleging Video Gaming Act violations and seeking a **$5 million** fine. Accel intends to vigorously defend against these allegations[116](index=116&type=chunk) - Management believes the outcome of these matters will not have a **material adverse effect** on the company's financial position or results of operations, and no reserves have been established as losses are not probable or reasonably estimable[108](index=108&type=chunk)[114](index=114&type=chunk)[115](index=115&type=chunk)[116](index=116&type=chunk) [Note 17. Related-Party Transactions](index=26&type=section&id=Note%2017.%20Related-Party%20Transactions) Reports on various related-party transactions, including consideration payable for acquisitions and legal/underwriting fees - Consideration payable to sellers of acquired businesses who became **employees** included **$2.2 million** for Fair Share Gaming, **$0.5 million** for G3 Gaming, **$1.5 million** for Tom's Amusements, and **$2.4 million** for AVG as of June 30, 2021[119](index=119&type=chunk) - The company paid Much Shelist, P.C., a legal counsel firm with a related party to management, **$0.1 million** for both the six months ended June 30, 2021, and 2020[120](index=120&type=chunk) - The Raine Group, which employs a company director, received **$0.2 million** in underwriting fees for the September 2020 public offering[121](index=121&type=chunk) [Note 18. Earnings Per Share](index=26&type=section&id=Note%2018.%20Earnings%20Per%20Share) Presents basic and diluted earnings per share, along with details on weighted average shares outstanding and anti-dilutive exclusions Earnings Per Share (Three Months Ended June 30) | Metric | 2021 | 2020 (As Restated) | | :--------- | :--- | :----------------- | | Basic EPS | $0.13 | $(0.60) | | Diluted EPS | $0.13 | $(0.60) | Earnings Per Share (Six Months Ended June 30) | Metric | 2021 | 2020 (As Restated) | | :--------- | :--- | :----------------- | | Basic EPS | $0.15 | $0.02 | | Diluted EPS | $0.15 | $0.01 | - Diluted weighted average **shares outstanding** for the six months ended June 30, 2021, were **94,382 thousand**, compared to **79,079 thousand** in the prior year. Anti-dilutive stock-based awards, contingent earnout shares, and warrants totaling **5,078,745** were excluded from diluted EPS calculations for the six months ended June 30, 2021[123](index=123&type=chunk)[124](index=124&type=chunk) [Note 19. Subsequent Events](index=27&type=section&id=Note%2019.%20Subsequent%20Events) Reports significant events occurring after the reporting period, specifically the conversion of convertible promissory notes - On July 30, 2021, the company exercised its rights under **$30.0 million** aggregate principal amount of convertible promissory notes to convert the entire fair value and accrued interest of **$39.7 million** into common stock of the terminal operator[125](index=125&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=28&type=section&id=ITEM%202.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Analyzes financial condition, operations, COVID-19 recovery, key drivers, metrics, non-GAAP measures, and liquidity for the period [Company Overview](index=28&type=section&id=Company%20Overview) Provides an overview of Accel Entertainment's business as a leading distributed gaming operator in the U.S - Accel Entertainment is a leading distributed gaming operator in the U.S., providing **video gaming terminals (VGTs)**, redemption devices with ATM functionality, and amusement devices to non-casino locations, primarily in Illinois, Georgia, and Pennsylvania[128](index=128&type=chunk) - As of June 30, 2021, the company operated **13,177 VGTs** across **2,527 locations** in Illinois[128](index=128&type=chunk) - The company offers a 'gaming-as-a-service' platform, emphasizing partner retention, personalized player service, game optimization, and secure cash management, complemented by stand-alone ATMs and amusement devices[129](index=129&type=chunk)[130](index=130&type=chunk) [Impact of COVID-19](index=28&type=section&id=Impact%20of%20COVID-19) Discusses the significant impact of COVID-19 mandated shutdowns on the company's operations, revenues, and mitigation efforts - The COVID-19 pandemic led to IGB-mandated shutdowns of Illinois VGTs from March 16 to June 30, 2020 (impacting **58% of H1 2020 gaming days**), and again from November 19, 2020, to January 2021 (impacting **10% of H1 2021 gaming days**)[132](index=132&type=chunk)[133](index=133&type=chunk) - In response, the company borrowed **$65 million**, reduced monthly cash expenses, furloughed approximately **90% of employees**, and deferred vendor payments[132](index=132&type=chunk)[133](index=133&type=chunk) - These shutdowns **materially affected** revenues, results of operations, and cash flows, with a continued risk of future shutdowns or restrictions due to variant strains[134](index=134&type=chunk)[135](index=135&type=chunk) [Components of Performance](index=29&type=section&id=Components%20of%20Performance) Explains the company's revenue streams, cost of revenue components, and operating expenses - Revenue streams include net gaming (net cash from gaming activities), amusement (from devices), and ATM fees (from redemption devices and stand-alone ATMs)[136](index=136&type=chunk) - **Cost of revenue** consists of a **34% Illinois gaming tax** (increased from **33%** on July 1, 2020), an administrative fee to Scientific Games, establishment revenue share (**50% of gross gaming revenue** after tax/fee), and ATM/amusement commissions[137](index=137&type=chunk)[138](index=138&type=chunk) - Operating expenses include general and administrative costs (payroll, marketing, IT, insurance, rent, professional fees), depreciation and amortization of property and equipment, and amortization of route and customer acquisition costs and location contracts acquired[138](index=138&type=chunk)[139](index=139&type=chunk)[140](index=140&type=chunk)[141](index=141&type=chunk) - **Interest expense, net**, covers interest on credit facilities, amortization of financing fees, accretion of interest on payables, and interest income on convertible notes[142](index=142&type=chunk) [Results of Operations - Three Months Ended June 30, 2021 and 2020](index=31&type=section&id=Results%20of%20Operations%20-%20Three%20Months%20Ended%20June%2030%2C%202021%20and%202020) Analyzes the company's financial performance for the three months ended June 30, 2021, compared to 2020 - **Total net revenues** increased by **$201.6 million** (**53,191.3%**) to **$202.0 million**, primarily due to the absence of the IGB-mandated COVID-19 shutdown in Q2 2020 and increased gaming terminals, locations, and location hold-per-day[148](index=148&type=chunk) - **Cost of revenue** increased by **$135.2 million** (**25,517.4%**) to **$135.8 million**, reflecting increased gaming activity and the Illinois gaming tax increase from **33% to 34%** effective July 1, 2020[149](index=149&type=chunk) - General and administrative expenses increased by **$16.2 million** (**163.2%**) to **$26.1 million**, due to reduced expenses during the prior year's shutdown and higher non-variable payroll-related costs and **stock-based compensation**[150](index=150&type=chunk) - **Operating income** swung from a loss of **$(23.8) million** in 2020 to an **income of $24.9 million** in 2021, and **net income** swung from a loss of **$(46.8) million** to an **income of $12.4 million**[146](index=146&type=chunk) - **Interest expense, net**, increased by **$0.9 million** (**35.6%**) to **$3.4 million** due to higher **interest rates** (**3.3% vs 2.7%**), partially offset by a decrease in average outstanding debt[154](index=154&type=chunk) - Loss on change in fair value of contingent earnout shares decreased by **$4.0 million** (**55.6%**) to **$3.2 million**, primarily due to changes in the market value of **Class A-1 Common Stock**. Loss on change in fair value of warrants decreased by **$18.3 million** (**100%**) to **$0**, as substantially all warrants were redeemed in Q3 2020[154](index=154&type=chunk)[155](index=155&type=chunk) - Income tax expense swung from a benefit of **$(5.1) million** in 2020 to an expense of **$5.9 million** in 2021, with effective tax rates of **32.2%** (2021) vs **9.8%** (2020)[156](index=156&type=chunk) [Results of Operations - Six Months Ended June 30, 2021 and 2020](index=34&type=section&id=Results%20of%20Operations%20-%20Six%20Months%20Ended%20June%2030%2C%202021%20and%202020) Analyzes the company's financial performance for the six months ended June 30, 2021, compared to 2020 - **Total net revenues** increased by **$242.2 million** (**226.7%**) to **$349.0 million**, driven by the recovery from the IGB-mandated COVID-19 shutdown in H1 2020 (which impacted **58% of gaming days**) and growth in gaming terminals, locations, and location hold-per-day[161](index=161&type=chunk) - **Cost of revenue** increased by **$163.4 million** (**229.4%**) to **$234.7 million**, reflecting increased gaming activity and the Illinois gaming tax increase[162](index=162&type=chunk) - General and administrative expenses increased by **$18.7 million** (**58.6%**) to **$50.6 million**, due to reduced expenses during the prior year's shutdown and higher payroll-related costs and **stock-based compensation**[163](index=163&type=chunk) - **Operating income** swung from a loss of **$(21.7) million** in 2020 to an **income of $34.5 million** in 2021, and **net income** increased by **$12.7 million** (**993.8%**) to **$13.9 million**[159](index=159&type=chunk) - **Interest expense, net**, remained flat at **$6.7 million**, with a weighted average **interest rate** of approximately **3.3%** for both periods[167](index=167&type=chunk) - Loss on change in fair value of contingent earnout shares increased by **$16.2 million** (**158.4%**) to **$6.0 million**, due to changes in the market value of **Class A-1 Common Stock**. Gain on change in fair value of warrants decreased by **$14.3 million** (**100%**) to **$0**, as substantially all warrants were redeemed in Q3 2020[167](index=167&type=chunk) - Income tax expense swung from a benefit of **$(5.2) million** in 2020 to an expense of **$7.8 million** in 2021, with effective tax rates of **36.0%** (2021) vs **132.5%** (2020)[168](index=168&type=chunk) [Key Business Metrics](index=36&type=section&id=Key%20Business%20Metrics) Presents key non-GAAP operational metrics used to assess business performance, including licensed establishments and VGTs - The company monitors non-GAAP metrics such as licensed establishments, VGTs, average remaining contract term, and location hold-per-day to assess business performance[169](index=169&type=chunk) Operational Metrics (as of June 30) | Metric | 2021 | 2020 | Change | Change (%) | | :---------------------------------- | :--- | :--- | :----- | :--------- | | Licensed establishments | 2,527 | 2,335 | 192 | 8.2% | | Video gaming terminals (VGTs) | 13,177 | 11,108 | 2,069 | 18.6% | | Average remaining contract term (years) | 6.8 | 6.8 | 0 | 0% | Location Hold-Per-Day | Period | 2021 | 2020 | | :----------------------------------- | :--- | :--- | | Three months ended June 30 | $855 | $0 (1) | | Six months ended June 30 | $824 | $572 | (1) No gaming days for the three months ended June 30, 2020, due to IGB-mandated COVID-19 shutdown[176](index=176&type=chunk)[175](index=175&type=chunk) [Non-GAAP Financial Measures](index=37&type=section&id=Non-GAAP%20Financial%20Measures) Discusses the use of non-GAAP financial measures like Adjusted EBITDA and Adjusted net income for performance monitoring - **Adjusted EBITDA** and **Adjusted net income** are non-GAAP financial measures used to monitor core operations, profitability, and financial capacity, excluding certain non-cash or non-recurring items[177](index=177&type=chunk) Adjusted EBITDA (in thousands) | Period | 2021 | 2020 | | :--------------------------- | :----- | :----- | | Three months ended June 30 | $42,983 | $(8,745) | | Six months ended June 30 | $68,796 | $6,095 | - **Adjusted EBITDA** for the three months ended June 30, 2021, increased by **$51.7 million**, and for the six months, it increased by **$62.7 million** (**1,028.7%**), primarily due to recovery from the IGB-mandated COVID-19 shutdown[180](index=180&type=chunk) [Liquidity and Capital Resources](index=38&type=section&id=Liquidity%20and%20Capital%20Resources) Assesses the company's liquidity and capital resources, including cash, credit facility availability, and debt covenant compliance - The company believes its **cash and cash equivalents**, cash flows from operations, and borrowing availability under its senior secured credit facility will be sufficient to meet capital requirements for the next **twelve months**[181](index=181&type=chunk) - As of June 30, 2021, the company had **$178.5 million** in **cash and cash equivalents** and approximately **$87.0 million** of availability under its **$100.0 million** revolving credit facility[181](index=181&type=chunk)[183](index=183&type=chunk) - The company was **in compliance** with all debt covenants as of June 30, 2021, and expects to remain **in compliance** for the next **12 months**. The Credit Agreement was amended in August 2020 to waive financial covenant breaches for certain periods due to COVID-19[191](index=191&type=chunk) Net Cash Provided by (Used in) Activities (Six Months Ended June 30, in thousands) | Activity | 2021 | 2020 (As Restated) | | :------------------------------------------ | :----- | :----------------- | | Net cash provided by (used in) operating activities | $54,158 | $(17,284) | | Net cash used in investing activities | $(13,758) | $(4,002) | | Net cash provided by financing activities | $3,657 | $44,717 | [Critical Accounting Policies and Estimates](index=41&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) States that the company applied consistent critical accounting policies and estimates as described in its Annual Report on Form 10-K - The company applied the same critical accounting policies and estimates as described in its Annual Report on Form 10-K, which affect judgments and estimates of amounts recorded for certain assets, liabilities, revenues, and expenses[197](index=197&type=chunk) [Seasonality](index=41&type=section&id=Seasonality) Explains how seasonal trends, holidays, and sporting events can cause fluctuations in the company's operating results - The company's results of operations can fluctuate due to seasonal trends, with gross revenue per machine per day typically lower in the summer and higher in colder weather (February to April). Holidays, vacation seasons, and sporting events also cause fluctuations[198](index=198&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=42&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) Outlines the company's market risk exposure, primarily focusing on interest rate risk from floating-rate debt [Interest rate risk](index=42&type=section&id=Interest%20rate%20risk) Details the company's exposure to interest rate risk due to its floating-rate debt under the senior secured credit facility - The company is exposed to **interest rate risk** due to its **$351.4 million** in floating-rate debt under its senior secured credit facility as of June 30, 2021[201](index=201&type=chunk) - A **1.0%** (**100 basis points**) increase in underlying **interest rates** would negatively impact the company's future earnings and cash flows by approximately **$3.5 million** annually[201](index=201&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=42&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) Evaluates disclosure controls and procedures, noting material weaknesses but affirming fair financial statement presentation [Evaluation of Disclosure Controls and Procedures](index=42&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) Assesses the effectiveness of disclosure controls and procedures, noting identified material weaknesses - The CEO and CFO concluded that the company's disclosure controls and procedures were **not effective** as of June 30, 2021, due to previously identified **material weaknesses**[202](index=202&type=chunk) - Notwithstanding the identified **material weaknesses**, management believes the condensed consolidated financial statements **fairly present** the company's financial condition, results of operations, and cash flows[203](index=203&type=chunk) [Changes in Internal Control Over Financial Reporting](index=42&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) Reports on any changes in internal control over financial reporting during the quarter ended June 30, 2021 - There were **no changes** during the quarter ended June 30, 2021, in the company's internal control over financial reporting that materially affected, or are reasonably likely to materially affect, its internal control over financial reporting, other than the **material weaknesses** previously identified[204](index=204&type=chunk) PART II. OTHER INFORMATION [ITEM 1. LEGAL PROCEEDINGS](index=43&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) Details legal proceedings and claims, including location disputes, non-compete issues, and IGB complaints - The company is involved in a series of litigated matters with J&J Ventures Gaming, LLC, stemming from claims that Accel wrongly contracted with **10 licensed establishments** in 2012. The IGB recently adjudicated largely in Accel's favor, but J&J has filed a new lawsuit[206](index=206&type=chunk)[207](index=207&type=chunk)[208](index=208&type=chunk)[209](index=209&type=chunk)[210](index=210&type=chunk) - Accel filed a lawsuit against Jason Rowell in October 2019 for breaches of his non-compete agreement, while Mr. Rowell filed a lawsuit against Accel in November 2019 alleging entitlement to certain equity interests[213](index=213&type=chunk) - Illinois Gaming Investors, LLC filed a lawsuit in July 2019, alleging a current employee violated a non-competition agreement and, with Accel, wrongfully solicited licensed video gaming locations, seeking **$10 million** in damages[214](index=214&type=chunk) - The company received a disciplinary complaint from the IGB in December 2020, alleging Video Gaming Act violations and seeking a **$5 million** fine. Accel intends to vigorously defend against these allegations[215](index=215&type=chunk) - Management believes the outcome of these legal matters will not have a **material adverse effect** on the company's financial position or results of operations, and no reserves have been accrued as losses are not probable or reasonably estimable[206](index=206&type=chunk)[213](index=213&type=chunk)[214](index=214&type=chunk)[215](index=215&type=chunk) [ITEM 1A. RISK FACTORS](index=44&type=section&id=ITEM%201A.%20RISK%20FACTORS) Advises investors to consider common stock investment risks, referencing detailed risk factors in the Annual Report on Form 10-K - An investment in the company's common stock involves a **high degree of risk**. Investors should carefully consider the risk factors described in Part I - Item 1A. Risk Factors in the company's Annual Report on Form 10-K for the year ended December 31, 2020[216](index=216&type=chunk) - These identified risks and uncertainties, along with other unknown or currently immaterial risks, could **materially adversely affect** the company's business, financial condition, or results of operations, potentially leading to a decline in the trading price of its common stock[216](index=216&type=chunk) [ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=44&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) Reports no unregistered sales of equity securities or use of proceeds for the period - **None**[217](index=217&type=chunk) [ITEM 3. DEFAULTS UPON SENIOR SECURITIES](index=44&type=section&id=ITEM%203.%20DEFAULTS%20UPON%20SENIOR%20SECURITIES) Indicates no defaults upon senior securities for the period - **None**[217](index=217&type=chunk) [ITEM 4. MINE SAFETY DISCLOSURES](index=44&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) Clarifies that mine safety disclosures are not applicable to the company's operations - **Not applicable**[217](index=217&type=chunk) [ITEM 6. EXHIBITS](index=45&type=section&id=ITEM%206.%20EXHIBITS) Lists all exhibits filed as part of the Quarterly Report on Form 10-Q, including certifications and XBRL documents - The exhibits include certifications of the Principal Executive Officer and Principal Financial Officer (**31.1, 31.2, 32.1, 32.2**), various XBRL Taxonomy Extension Documents (**101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE**), and the Cover Page Inline XBRL File (**104**)[219](index=219&type=chunk) [SIGNATURES](index=46&type=section&id=SIGNATURES) Formally concludes the report with the required signature, confirming submission on behalf of Accel Entertainment, Inc - The report was signed on behalf of Accel Entertainment, Inc. by Brian Carroll, Chief Financial Officer, on August 4, 2021[221](index=221&type=chunk)

PART I. FINANCIAL INFORMATION [Financial Statements](index=3&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) The financial statements reflect a strong Q3 2020 recovery in revenue and net income, despite a year-to-date net loss due to COVID-19 impacts [Condensed Consolidated Statements of Operations](index=3&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) The statements of operations show a strong Q3 2020 recovery in revenue and net income, contrasting with a nine-month net loss due to COVID-19 impacts Three Months Ended Sep 30, 2020 vs 2019 | Financial Metric | Three Months Ended Sep 30, 2020 ($) | Three Months Ended Sep 30, 2019 ($) | Nine Months Ended Sep 30, 2020 ($) | Nine Months Ended Sep 30, 2019 ($) | | :--- | :--- | :--- | :--- | :--- | | **Total net revenues** | $136.3M | $101.3M | $241.9M | $303.0M | | **Operating income (loss)** | $9.0M | $1.0M | $(12.7)M | $19.0M | | **Net income (loss)** | $12.1M | $(1.6)M | $(11.1)M | $6.7M | | **Diluted EPS** | $0.14 | $(0.03) | $(0.14) | $0.11 | - The company experienced a strong recovery in Q3 2020 with a **34.6% YoY increase in revenue**, leading to a **net income of $12.1 million**[4](index=4&type=chunk) - However, the nine-month results reflect the severe impact of the COVID-19 shutdown, with **revenue down 20.1% YoY** and a resulting **net loss of $11.1 million**[4](index=4&type=chunk) [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheets show increased total assets and a significant improvement in stockholders' equity, driven by capital raising activities Balance Sheet Item | Balance Sheet Item | September 30, 2020 (Unaudited) ($) | December 31, 2019 ($) | | :--- | :--- | :--- | | **Cash and cash equivalents** | $179.1M | $125.4M | | **Total current assets** | $209.7M | $151.5M | | **Total assets** | $564.6M | $509.3M | | **Total current liabilities** | $52.6M | $54.9M | | **Total liabilities** | $406.6M | $423.8M | | **Total stockholders' equity** | $158.0M | $85.5M | - The company's **cash position improved significantly to $179.1 million** by the end of Q3 2020[6](index=6&type=chunk) - **Total stockholders' equity nearly doubled** from year-end 2019, primarily due to capital raising activities[6](index=6&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) The cash flow statements indicate a significant decrease in operating cash flow year-over-year, offset by substantial cash inflows from financing Cash Flow Activity | Cash Flow Activity | Nine Months Ended Sep 30, 2020 ($) | Nine Months Ended Sep 30, 2019 ($) | | :--- | :--- | :--- | | **Net cash provided by operating activities** | $4.1M | $45.7M | | **Net cash used in investing activities** | $(23.1)M | $(126.3)M | | **Net cash provided by financing activities** | $72.7M | $99.6M | | **Net increase in cash and cash equivalents** | $53.7M | $19.0M | - Cash from operations for the first nine months of 2020 plummeted to **$4.1 million** from **$45.7 million** in the prior year period, reflecting the impact of the COVID-19 shutdown[10](index=10&type=chunk) - The company bolstered its cash position through financing activities, including **net proceeds of $78.7 million from a common stock issuance** and drawing on its credit facility[10](index=10&type=chunk) [Notes to the Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) The notes detail the material impact of the COVID-19 shutdown, recent acquisitions, capital raising, and changes in accounting estimates - Due to the COVID-19 outbreak, the Illinois Gaming Board (IGB) shut down all video gaming terminals (VGTs) from March 16, 2020, through June 30, 2020, impacting **39% of gaming days** in the first nine months of the year, materially affecting revenues, results of operations, and cash flows[17](index=17&type=chunk) - On July 22, 2020, the Company acquired Tom's Amusement Company, Inc., a Georgia-based operator, for a total purchase price of **$3.6 million**, marking its entry into the Georgia market[65](index=65&type=chunk) - In September 2020, the Company completed a public offering of **8,000,000 shares of Class A-1 common stock**, receiving net proceeds of approximately **$78.7 million**[92](index=92&type=chunk) - The company changed its estimate for the useful lives of its video gaming terminals and equipment from 7 to 10 years, which decreased depreciation expense by **$1.9 million in Q3 2020** and **$6.4 million for the nine-month period**[28](index=28&type=chunk)[210](index=210&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=26&type=section&id=ITEM%202.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Management discusses the significant impact of COVID-19 on operations and financial performance, highlighting the Q3 recovery, liquidity, and key business metrics [Impact of COVID-19](index=26&type=section&id=Impact%20of%20COVID-19) This section details the operational disruptions caused by the COVID-19 shutdown and the company's mitigating actions to preserve financial flexibility - The Illinois Gaming Board (IGB) mandated a shutdown of all VGTs from March 16, 2020, to June 30, 2020, which impacted **106 of 274 gaming days (39%)** in the first nine months of 2020[140](index=140&type=chunk) - In response to the shutdown, the company took mitigating actions including furloughing **90% of employees**, deferring vendor payments, and drawing **$65 million** on its delayed draw term loan to preserve financial flexibility[140](index=140&type=chunk) - The company incurred non-recurring expenses of **$2.1 million** for the nine months ended September 30, 2020, to provide benefits for furloughed employees, and spent **$1.9 million** on capital costs for IGB-mandated VGT spacers to promote social distancing[144](index=144&type=chunk) [Results of Operations](index=30&type=section&id=Results%20of%20Operations) This section analyzes the company's revenue, operating income, and net income performance for both the third quarter and nine-month periods, highlighting COVID-19 impact and recovery Three Months Ended September 30, 2020 vs 2019 | Metric | Q3 2020 ($) | Q3 2019 ($) | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | **Total Revenues** | $136.3M | $101.3M | +$35.0M | +34.6% | | **Operating Income** | $9.0M | $1.0M | +$8.0M | +782.5% | | **Net Income (Loss)** | $12.1M | $(1.6)M | +$13.7M | N/A | Nine Months Ended September 30, 2020 vs 2019 | Metric | YTD 2020 ($) | YTD 2019 ($) | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | **Total Revenues** | $241.9M | $303.0M | -$61.0M | -20.1% | | **Operating (Loss) Income** | $(12.7)M | $19.0M | -$31.7M | -166.9% | | **Net (Loss) Income** | $(11.1)M | $6.7M | -$17.8M | -265.0% | - The Q3 2020 revenue increase was driven by a **$31.6 million rise in net video gaming revenue**, partly attributable to the acquisition of Grand River Jackpot and organic growth in locations and VGTs[160](index=160&type=chunk) - The decrease in nine-month revenue was primarily due to the temporary shutdown of Illinois video gaming, which was partially offset by contributions from the Grand River Jackpot acquisition[171](index=171&type=chunk) [Key Business Metrics and Non-GAAP Financial Measures](index=35&type=section&id=Key%20Business%20Metrics%20and%20Non-GAAP%20Financial%20Measures) This section presents key operational metrics and non-GAAP financial measures like Adjusted EBITDA, illustrating business growth and financial performance Operational Metrics as of September 30 | Metric | 2020 | 2019 | Change (%) | | :--- | :--- | :--- | :--- | | **Licensed establishments** | 2,363 | 2,290 | +3.2% | | **Video gaming terminals** | 11,597 | 10,346 | +12.1% | Adjusted EBITDA (Non-GAAP) | Period | 2020 ($) | 2019 ($) | Change (%) | | :--- | :--- | :--- | :--- | | **Three Months Ended Sep 30** | $23.1M | $18.1M | +27.4% | | **Nine Months Ended Sep 30** | $29.2M | $58.8M | -50.4% | [Liquidity and Capital Resources](index=37&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's cash position, debt levels, and credit facility availability, highlighting actions taken to maintain financial flexibility - As of September 30, 2020, the company had **$179.1 million in cash and cash equivalents** and approximately **$95.0 million of availability** under its Credit Agreement[190](index=190&type=chunk)[193](index=193&type=chunk) - Total debt outstanding as of September 30, 2020, was **$357.1 million** under its 2019 Senior Secured Credit Facility[51](index=51&type=chunk)[272](index=272&type=chunk) - To provide financial flexibility during the COVID-19 uncertainty, the company amended its Credit Agreement on August 4, 2020, to provide a waiver of financial covenant breaches for the periods from September 30, 2020, through March 31, 2021[61](index=61&type=chunk)[203](index=203&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=41&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The company's primary market risk is interest rate exposure on its variable-rate debt, with a 1% increase impacting annual interest expense by **$3.6 million** - The company is exposed to interest rate risk on its **$357.1 million of borrowings** under its senior secured credit facility[217](index=217&type=chunk) - A hypothetical **1.0% (100 basis points) increase** in underlying interest rates would increase annual interest expense by approximately **$3.6 million**[217](index=217&type=chunk) [Controls and Procedures](index=42&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) Management concluded that disclosure controls and procedures were not effective as of September 30, 2020, due to previously identified material weaknesses - Management concluded that disclosure controls and procedures were **not effective** as of September 30, 2020[220](index=220&type=chunk) - The ineffectiveness is due to material weaknesses previously identified in the Annual Report on Form 10-K for the year ended December 31, 2019, which were still present[220](index=220&type=chunk)[222](index=222&type=chunk) PART II. OTHER INFORMATION [Legal Proceedings](index=43&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) The company is involved in various legal proceedings, notably ongoing litigation with J&J Ventures Gaming, LLC, currently pending before the Illinois Gaming Board - Accel is involved in a series of related litigated matters with J&J Ventures Gaming, LLC ("J&J") over claims that Accel wrongly contracted with **10 licensed establishments** in 2012[225](index=225&type=chunk) - The Supreme Court of Illinois determined that the Illinois Gaming Board (IGB) has exclusive jurisdiction to decide the validity of the disputed agreements, with petitions from both Accel and J&J remaining pending[121](index=121&type=chunk)[228](index=228&type=chunk)[229](index=229&type=chunk) - The company is also involved in litigation with a former employee, Jason Rowell, over breaches of a non-compete agreement and alleged entitlement to equity interests[123](index=123&type=chunk)[231](index=231&type=chunk) [Risk Factors](index=44&type=section&id=ITEM%201A.%20RISK%20FACTORS) The company highlights significant risks including the ongoing impact of COVID-19, regulatory complexities, geographic concentration in Illinois, and intense competition - The COVID-19 pandemic has had, and could continue to have, an adverse impact on business, with the possibility of future regional or statewide shutdowns of gaming operations[235](index=235&type=chunk)[240](index=240&type=chunk) - The business is subject to extensive and evolving government regulation, and difficulties or failures in obtaining or maintaining required licenses could adversely affect operations and growth[245](index=245&type=chunk)[263](index=263&type=chunk) - The business is geographically concentrated in Illinois, making it vulnerable to local economic conditions, regulatory changes, and other regional risks[257](index=257&type=chunk) - Significant ownership by TPG, Clairvest, and the Rubenstein Family means they may have interests that differ from other stockholders and can exert substantial influence over the company[274](index=274&type=chunk)[278](index=278&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=52&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS.) In September 2020, the company completed a follow-on public offering of **8,000,000 shares** of common stock, raising **$78.7 million** in net proceeds - In September 2020, the company completed a follow-on public offering of **8,000,000 shares of common stock**, raising **$78.7 million in net proceeds**[283](index=283&type=chunk) [Defaults Upon Senior Securities](index=52&type=section&id=ITEM%203.%20DEFAULTS%20UPON%20SENIOR%20SECURITIES) The company reports no defaults upon senior securities - The company reports no defaults upon senior securities[284](index=284&type=chunk) [Exhibits](index=53&type=section&id=ITEM%206.%20EXHIBITS) This section lists the exhibits filed with the Form 10-Q, including amendments to credit and employment agreements, and officer certifications - Exhibits filed include amendments to credit and employment agreements, as well as Sarbanes-Oxley certifications[286](index=286&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended June 30, 2020 Commission File Number 001-38136 Accel Entertainment, Inc. (Exact Name of Registrant as Specified in Its Charter) | --- | --- | |----------------------------------------------------------------|--------------------------------------| | Delaware | 98-1350261 | | (State or Other Jurisdiction of Inc ...