Accel Entertainment, Inc. (NYSE:ACEL) Q3 2023 Earnings Conference Call November 7, 2023 5:30 PM ET Company Participants Derek Harmer - General Counsel, Chief Compliance Officer & Secretary Andrew Rubenstein - Co-Founder, President, CEO & Director Mathew Ellis - CFO Conference Call Participants Steven Pizzella - Deutsche Bank Samir Ghafir - Macquarie Research Gregory Gibas - Northland Capital Markets Operator Good afternoon, and thank you for attending today's Accel Entertainment third quarter earnings call. ...

PART I. FINANCIAL INFORMATION [Financial Statements](index=3&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) This section presents the unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2023, covering operations, balance sheets, and cash flows [Condensed Consolidated Statements of Operations and Comprehensive Income](index=3&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income) For Q3 2023, total net revenues grew 7.7% to **$287.5 million**, but net income declined 53.4% to **$10.5 million**, primarily due to a loss on contingent earnout shares and higher interest expenses Consolidated Statements of Operations Highlights (in thousands, except per share amounts) | Metric | Q3 2023 | Q3 2022 | YoY Change | Nine Months 2023 | Nine Months 2022 | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | **Total Net Revenues** | $287,497 | $266,967 | 7.7% | $873,352 | $691,727 | 26.3% | | **Operating Income** | $25,120 | $23,239 | 8.1% | $81,956 | $71,761 | 14.2% | | **Net Income** | $10,450 | $22,444 | (53.4%) | $29,615 | $60,696 | (51.2%) | | **Diluted EPS** | $0.12 | $0.25 | (52.0%) | $0.34 | $0.66 | (48.5%) | [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of September 30, 2023, total assets increased slightly to **$871.4 million**, while total liabilities decreased to **$672.6 million**, and stockholders' equity grew to **$198.8 million** Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | Sep 30, 2023 (Unaudited) | Dec 31, 2022 | | :--- | :--- | :--- | | **Cash and cash equivalents** | $230,388 | $224,113 | | **Total current assets** | $282,650 | $299,212 | | **Total assets** | $871,408 | $862,769 | | **Total current liabilities** | $92,217 | $89,905 | | **Total debt, net of current maturities** | $484,004 | $518,566 | | **Total liabilities** | $672,634 | $684,179 | | **Total stockholders' equity** | $198,774 | $178,590 | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the nine months ended September 30, 2023, net cash from operations increased to **$92.0 million**, while investing activities used less cash, and financing activities reversed to a net use Consolidated Statements of Cash Flows Summary (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | **Net cash provided by operating activities** | $92,007 | $78,250 | | **Net cash used in investing activities** | $(35,404) | $(168,871) | | **Net cash (used in) provided by financing activities** | $(50,328) | $103,898 | | **Net increase in cash and cash equivalents** | $6,275 | $13,277 | [Notes to the Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) The notes provide detailed information on business operations, accounting policies, acquisitions, debt, and legal contingencies, including revenue disaggregation and share repurchase program details - The company's business primarily consists of installing, maintaining, and operating gaming terminals and ATMs in non-casino locations like restaurants, bars, and convenience stores across several states including Illinois, Montana, and Nevada[19](index=19&type=chunk) Net Revenues by State (in thousands) | State | Q3 2023 | Q3 2022 | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | :--- | :--- | | **Illinois** | $212,113 | $200,914 | $647,903 | $601,735 | | **Montana** | $39,362 | $33,456 | $115,088 | $44,282 | | **Nevada** | $28,003 | $28,439 | $87,833 | $37,359 | | **Other** | $8,019 | $4,158 | $22,528 | $8,351 | - In May 2023, the company settled its dispute with Gold Rush Amusements, receiving **$32.5 million**, which resolved all outstanding obligations under the convertible notes[33](index=33&type=chunk) - The company's Board of Directors approved a **$200 million** share repurchase program, under which **10,010,374 shares** totaling **$103.6 million** were acquired as of September 30, 2023[103](index=103&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=28&type=section&id=ITEM%202.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Management discusses the company's financial results, highlighting a 26.3% year-over-year revenue increase for the first nine months of 2023, despite a significant decline in net income due to non-cash charges and higher interest expenses [Results of Operations](index=31&type=section&id=Results%20of%20Operations) For Q3 2023, revenues increased 7.7% to **$287.5 million**, but net income fell 53.4% to **$10.5 million**, primarily due to a loss on contingent earnout shares and increased net interest expense Q3 2023 vs Q3 2022 Performance (in thousands) | Metric | Q3 2023 | Q3 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | **Total net revenues** | $287,497 | $266,967 | $20,530 | 7.7% | | **Operating income** | $25,120 | $23,239 | $1,881 | 8.1% | | **Net income** | $10,450 | $22,444 | $(11,994) | (53.4)% | Nine Months 2023 vs 2022 Performance (in thousands) | Metric | Nine Months 2023 | Nine Months 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | **Total net revenues** | $873,352 | $691,727 | $181,625 | 26.3% | | **Operating income** | $81,956 | $71,761 | $10,195 | 14.2% | | **Net income** | $29,615 | $60,696 | $(31,081) | (51.2)% | - The increase in general and administrative expenses for the nine months ended Sep 30, 2023, was driven by higher payroll costs, parts and repair expense, stock-based compensation, and a **$1.1 million** settlement with the Illinois Gaming Board (IGB)[168](index=168&type=chunk) [Key Business Metrics](index=36&type=section&id=Key%20Business%20Metrics) The company's growth is monitored through the number of locations and gaming terminals, which increased by 4.8% and 7.1% respectively year-over-year as of September 30, 2023 Number of Locations by State | State | As of Sep 30, 2023 | As of Sep 30, 2022 | YoY Change (%) | | :--- | :--- | :--- | :--- | | **Illinois** | 2,724 | 2,596 | 4.9% | | **Montana** | 611 | 586 | 4.3% | | **Nevada** | 352 | 335 | 5.1% | | **Total locations** | 3,687 | 3,517 | 4.8% | Number of Gaming Terminals by State | State | As of Sep 30, 2023 | As of Sep 30, 2022 | YoY Change (%) | | :--- | :--- | :--- | :--- | | **Illinois** | 15,020 | 14,033 | 7.0% | | **Montana** | 6,252 | 5,782 | 8.1% | | **Nevada** | 2,744 | 2,614 | 5.0% | | **Total gaming terminals** | 24,016 | 22,429 | 7.1% | [Non-GAAP Financial Measures](index=37&type=section&id=Non-GAAP%20Financial%20Measures) Adjusted EBITDA, a non-GAAP measure, increased by 7.3% to **$44.1 million** for Q3 2023 and by 14.9% to **$136.9 million** for the nine-month period, reflecting growth in locations and terminals Adjusted EBITDA Reconciliation (in thousands) | Metric | Q3 2023 | Q3 2022 | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | :--- | :--- | | **Net Income** | $10,450 | $22,444 | $29,615 | $60,696 | | **Adjusted EBITDA** | $44,138 | $41,125 | $136,869 | $119,083 | [Liquidity and Capital Resources](index=38&type=section&id=Liquidity%20and%20Capital%20Resources) The company ended Q3 2023 with **$230.4 million** in cash and cash equivalents, believing existing cash, operating cash flows, and borrowing availability are sufficient for future capital requirements - As of September 30, 2023, the company had **$230.4 million** in cash and cash equivalents[185](index=185&type=chunk) - In June 2023, the company drew **$100 million** on its delayed draw term loan facility, with **$342 million** remaining available under the Credit Agreement as of September 30, 2023[189](index=189&type=chunk) - The company was in compliance with all debt covenants as of September 30, 2023, and expects to remain so for the next 12 months[195](index=195&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=42&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The company's primary market risk is interest rate fluctuations on its **$515.5 million** floating-rate debt, which it mitigates using interest rate caplets to hedge cash flow variability - The company is exposed to interest rate risk on its **$515.5 million** of floating-rate debt, where a **1.0%** increase would raise annual interest expense by approximately **$2.2 million**[208](index=208&type=chunk) - To manage interest rate risk, the company uses a 4-year series of interest rate caplets to hedge cash flow variability on the first **$300 million** of its term loan, protecting against the 1-month LIBOR/SOFR rate exceeding **2%**[208](index=208&type=chunk) [Controls and Procedures](index=42&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) Management concluded that previously identified material weaknesses in internal controls persisted as of September 30, 2023, rendering disclosure controls ineffective, yet the financial statements are fairly presented - The CEO and CFO concluded that material weaknesses identified in the 2022 Form 10-K were still present as of September 30, 2023, rendering disclosure controls and procedures ineffective[210](index=210&type=chunk) - Notwithstanding the material weaknesses, management asserts that the condensed consolidated financial statements in this Form 10-Q are fairly presented in all material respects[211](index=211&type=chunk) PART II. OTHER INFORMATION [Legal Proceedings](index=43&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) The company is involved in various legal matters, including a **$1.1 million** settlement with the Illinois Gaming Board in Q3 2023 and ongoing disputes with competitors over contractual rights - On July 6, 2023, the company entered into a settlement agreement with the IGB for **$1.1 million** to resolve a disciplinary complaint, which was paid in Q3 2023[121](index=121&type=chunk) - The company remains involved in a series of litigated matters with J&J Ventures Gaming, LLC, stemming from claims of tortious interference with contracts dating back to 2012[112](index=112&type=chunk)[114](index=114&type=chunk) [Risk Factors](index=43&type=section&id=ITEM%201A.%20RISK%20FACTORS) The company highlights key business risks, emphasizing that unfavorable economic conditions and instability in the financial services industry could adversely affect revenue and operations - Unfavorable economic conditions, including recession, inflation, and rising interest rates, pose a significant risk by potentially reducing players' disposable income and gaming activity, adversely affecting revenue[217](index=217&type=chunk)[219](index=219&type=chunk) - Instability in the U.S. and global banking systems could lead to less favorable financing terms, tighter credit access, and potential financial distress for location partners, negatively impacting operations[218](index=218&type=chunk)[222](index=222&type=chunk) [Issuer Purchases of Equity Securities](index=44&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%2C%20USE%20OF%20PROCEEDS%2C%20AND%20ISSUER%20PURCHASES%20OF%20EQUITY%20SECURITIES) Under its **$200 million** share repurchase program, the company bought back **301,199 shares** of Class A-1 common stock in Q3 2023 at an average price of **$11.10** per share, with **$96.4 million** remaining available Share Repurchases in Q3 2023 | Period | Total Shares Purchased | Average Price Paid per Share | Max. Value Remaining for Purchase (in millions) | | :--- | :--- | :--- | :--- | | **July 2023** | — | $— | $99.7 | | **August 2023** | — | $— | $99.7 | | **September 2023** | 301,199 | $11.10 | $96.4 | | **Total Q3** | **301,199** | **$11.10** | | - The share repurchase program, approved in November 2021, authorizes up to **$200 million** in repurchases of Class A-1 common stock[224](index=224&type=chunk)

Second Quarter 2023 Earnings Presentation Important Information Forward-Looking Statements This presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, contained in this presentation are forward-looking statements, including, but not limited to, any statements regarding our estimates of number of gaming terminals, ...

Accel Entertainment, Inc. (NYSE:ACEL) Q2 2023 Earnings Conference Call August 3, 2023 5:30 PM ET Company Participants Derek Harmer - General Counsel and Chief Compliance Officer Andrew Rubenstein - CEO Mathew Ellis - CFO Conference Call Participants Steve Pizzella - Deutsche Bank Chad Beynon - Macquarie Greg Gibas - Northland Operator Good afternoon. Thank you for attending the Accel Entertainment's Second Quarter 2023 Earnings Call. My name is Matt, and I'll be your moderator for today's call. [Operator In ...

PART I. FINANCIAL INFORMATION [Financial Statements](index=3&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) The company's financial statements for the period ended June 30, 2023, show a significant increase in total net revenues to $585.9 million for the six-month period, up 37.9% year-over-year, largely driven by the acquisition of Century Gaming, though net income decreased by 49.9% to $19.2 million for the same period, impacted by higher operating expenses, increased interest expense, and a loss on the change in fair value of contingent earnout shares, while the balance sheet remains stable with total assets at $863.3 million and cash flow from operations increased to $63.8 million for the first six months of 2023 [Condensed Consolidated Statements of Operations and Comprehensive Income](index=3&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income) For the three months ended June 30, 2023, total net revenues increased 28.4% YoY to $292.6 million, while net income decreased 55.6% to $10.0 million, and for the six-month period, revenues grew 37.9% to $585.9 million, but net income fell 49.9% to $19.2 million, primarily driven by higher operating costs, a significant increase in interest expense, and a loss on the change in fair value of contingent earnout shares, which contrasted with a gain in the prior year Condensed Consolidated Statements of Operations (Unaudited, In thousands) | Financial Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | **Total net revenues** | **$292,647** | **$227,869** | **$585,855** | **$424,760** | | Operating income | $29,164 | $27,315 | $56,836 | $48,522 | | **Net income** | **$9,983** | **$22,464** | **$19,165** | **$38,252** | | Diluted EPS | $0.11 | $0.24 | $0.22 | $0.41 | [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of June 30, 2023, the company's balance sheet shows total assets of $863.3 million, a slight increase from $862.8 million at year-end 2022, with cash and cash equivalents increasing to $233.4 million, while total liabilities decreased slightly to $674.5 million, primarily due to a reduction in long-term debt, and total stockholders' equity grew to $188.7 million from $178.6 million at the end of 2022 Condensed Consolidated Balance Sheet Highlights (Unaudited, In thousands) | Account | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $233,434 | $224,113 | | Total current assets | $280,911 | $299,212 | | Property and equipment, net | $235,682 | $211,844 | | Goodwill | $101,554 | $100,707 | | **Total assets** | **$863,294** | **$862,769** | | **Liabilities & Equity** | | | | Total current liabilities | $92,752 | $89,905 | | Debt, net of current maturities | $489,721 | $518,566 | | Total liabilities | $674,546 | $684,179 | | **Total stockholders' equity** | **$188,748** | **$178,590** | [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the six months ended June 30, 2023, net cash provided by operating activities increased significantly to $63.8 million from $41.2 million in the prior-year period, net cash used in investing activities decreased sharply to $16.2 million from $137.3 million, mainly due to lower acquisition spending compared to the Century acquisition in 2022, and net cash used in financing activities was $38.3 million, a reversal from $117.4 million provided in the prior year, reflecting lower debt proceeds and continued share repurchases Condensed Consolidated Statements of Cash Flows (Unaudited, In thousands) | Cash Flow Activity | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $63,845 | $41,211 | | Net cash used in investing activities | ($16,245) | ($137,267) | | Net cash (used in) provided by financing activities | ($38,279) | $117,438 | | **Net increase in cash and cash equivalents** | **$9,321** | **$21,382** | [Notes to the Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) The notes detail the company's accounting policies and provide further information on financial statement items, including its business as a distributed gaming operator in seven states, the settlement of the Gold Rush convertible notes for **$32.5 million**, recent business acquisitions including Rendezvous and IGE, a pending acquisition in Louisiana, details of the **$518.2 million** in outstanding debt, and a **$1.1 million** settlement with the Illinois Gaming Board (IGB) - The company operates as a distributed gaming operator in Illinois, Montana, Nevada, Georgia, Nebraska, Iowa, and Pennsylvania[15](index=15&type=chunk) - On May 31, 2023, the company settled its dispute with Gold Rush Amusements, receiving **$32.5 million** and resolving all outstanding obligations under the convertible notes[29](index=29&type=chunk) - In 2023, the company acquired Rendezvous Casino in Montana for **$2.6 million** and certain assets of Illinois Gaming Entertainment for **$1.5 million**, with a pending acquisition of a Louisiana operator also underway[54](index=54&type=chunk)[55](index=55&type=chunk)[56](index=56&type=chunk) - On July 6, 2023, the company entered into a settlement agreement with the Illinois Gaming Board (IGB) for **$1.1 million** related to a 2020 disciplinary complaint[115](index=115&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 attributes the **28.4% revenue growth** for Q2 2023 primarily to the full-quarter impact of the Century Gaming acquisition and organic growth in locations and gaming terminals, despite net income declining due to increased costs, higher interest rates on debt, and non-cash charges related to contingent earnout shares, while the company maintains strong liquidity with **$233.4 million** in cash and **$342 million** available under its credit facility, with key metrics showing a **4.8% increase** in locations and a **7.4% increase** in gaming terminals year-over-year [Results of Operations](index=29&type=section&id=Results%20of%20Operations) For Q2 2023, revenues rose **28.4% YoY** to **$292.6 million**, driven by a **27.1% increase** in net gaming revenue, with operating income growing modestly by **6.8%** to **$29.2 million**, while net income fell **55.6%** to **$10.0 million**, and for the six-month period, revenues increased **37.9%** to **$585.9 million**, with operating income up **17.1%** to **$56.8 million**, while net income decreased **49.9%** to **$19.2 million**, largely fueled by the Century acquisition which expanded operations in Montana and Nevada Q2 2023 vs Q2 2022 Performance (In thousands) | Metric | Q2 2023 | Q2 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total net revenues | $292,647 | $227,869 | $64,778 | 28.4% | | Operating income | $29,164 | $27,315 | $1,849 | 6.8% | | Net income | $9,983 | $22,464 | ($12,481) | (55.6)% | H1 2023 vs H1 2022 Performance (In thousands) | Metric | H1 2023 | H1 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total net revenues | $585,855 | $424,760 | $161,095 | 37.9% | | Operating income | $56,836 | $48,522 | $8,314 | 17.1% | | Net income | $19,165 | $38,252 | ($19,087) | (49.9)% | - The increase in revenues for both the three and six-month periods was primarily driven by higher net gaming revenue attributable to an increase in gaming terminals and locations, largely due to the acquisition of Century[146](index=146&type=chunk)[158](index=158&type=chunk) [Key Business Metrics](index=34&type=section&id=Key%20Business%20Metrics) As of June 30, 2023, the company operated in **3,655 locations**, a **4.8% increase** from the prior year, with the total number of gaming terminals growing by **7.4%** to **23,759**, and growth observed across all primary markets: Illinois, Montana, and Nevada Number of Locations by State | State | As of June 30, 2023 | As of June 30, 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Illinois | 2,690 | 2,572 | 4.6% | | Montana | 610 | 585 | 4.3% | | Nevada | 355 | 332 | 6.9% | | **Total** | **3,655** | **3,489** | **4.8%** | Number of Gaming Terminals by State | State | As of June 30, 2023 | As of June 30, 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Illinois | 14,767 | 13,801 | 7.0% | | Montana | 6,210 | 5,742 | 8.2% | | Nevada | 2,782 | 2,585 | 7.6% | | **Total** | **23,759** | **22,128** | **7.4%** | [Non-GAAP Financial Measures](index=35&type=section&id=Non-GAAP%20Financial%20Measures) Adjusted EBITDA for Q2 2023 was **$46.6 million**, a **9.1% increase** from **$42.7 million** in Q2 2022, and for the six months ended June 30, 2023, Adjusted EBITDA grew **18.9%** to **$92.7 million**, reflecting the increase in locations and gaming terminals, primarily from the Century acquisition Adjusted EBITDA Reconciliation (In thousands) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net income | $9,983 | $22,464 | $19,165 | $38,252 | | **Adjusted EBITDA** | **$46,612** | **$42,716** | **$92,730** | **$77,958** | [Liquidity and Capital Resources](index=36&type=section&id=Liquidity%20and%20Capital%20Resources) The company believes its **$233.4 million** in cash, operating cash flows, and borrowing availability will be sufficient for capital requirements over the next twelve months, with total debt under the Senior Secured Credit Facility at **$521.1 million** as of June 30, 2023, and **$342 million** of availability remaining, and in June 2023, the credit agreement was amended to replace LIBOR with SOFR as the reference interest rate - As of June 30, 2023, the company had **$233.4 million** in cash and cash equivalents[177](index=177&type=chunk) - The company was in compliance with all debt covenants as of June 30, 2023, and had **$342 million** of availability under its Credit Agreement[182](index=182&type=chunk)[189](index=189&type=chunk) - In June 2023, the Credit Agreement was amended to replace the LIBOR interest rate with the Secured Overnight Financing Rate (SOFR)[182](index=182&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=39&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The company's primary market risk exposure is to interest rate fluctuations on its **$521.1 million** of floating-rate debt, where a **100 basis point (1.0%) increase** in interest rates would increase annual interest expense by approximately **$2.2 million**, a risk partially mitigated by interest rate caplets hedging the first **$300 million** of the term loan - The company is exposed to interest rate risk on its **$521.1 million** of borrowings under its senior secured credit facility[200](index=200&type=chunk) - A **1.0% (100 basis points)** increase in interest rates would increase annual interest expense by approximately **$2.2 million**[200](index=200&type=chunk) - To mitigate risk, the company uses interest rate caplets to hedge the variability of cash flows on the first **$300 million** of its term loan[200](index=200&type=chunk) [Controls and Procedures](index=40&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) Management, including the CEO and CFO, concluded that as of June 30, 2023, the company's disclosure controls and procedures were not effective, based on the continued presence of material weaknesses previously identified in the 2022 Annual Report on Form 10-K, despite management's belief that the financial statements are fairly presented - The CEO and CFO concluded that disclosure controls and procedures were not effective as of June 30, 2023[202](index=202&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, 2022, which were still present[202](index=202&type=chunk) PART II. OTHER INFORMATION [Legal Proceedings](index=41&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) The company is involved in various legal proceedings in the ordinary course of business, with a notable recent development being the July 6, 2023 settlement with the Illinois Gaming Board (IGB) for **$1.1 million** regarding a 2020 disciplinary complaint, and other ongoing matters include disputes with competitors over contractual rights and challenges to municipal taxes - On July 6, 2023, the company and the IGB entered into a settlement agreement for **$1.1 million** to resolve a disciplinary complaint from December 2020, with the amount paid in Q3 2023[115](index=115&type=chunk) - The company is involved in ongoing litigation with J&J Ventures Gaming, LLC over contractual rights to certain licensed establishments dating back to 2012[106](index=106&type=chunk)[108](index=108&type=chunk) [Risk Factors](index=41&type=section&id=ITEM%201A.%20RISK%20FACTORS) The company highlights updated risks related to unfavorable macroeconomic conditions and instability in the financial services industry, where a recession, inflation, or rising interest rates could reduce players' disposable income and harm business, and instability in the banking sector could make it more difficult for the company to obtain financing on favorable terms - Unfavorable economic conditions, such as recession, inflation, and rising interest rates, could reduce players' disposable income and gaming activity, adversely affecting revenue[210](index=210&type=chunk)[211](index=211&type=chunk) - Adverse developments in the financial services industry, such as bank failures, could lead to market-wide credit and liquidity problems, potentially making it more difficult for Accel to obtain financing on favorable terms[213](index=213&type=chunk)[214](index=214&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=42&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) Under its **$200 million** share repurchase program, the company repurchased **887,174 shares** of its Class A-1 common stock during the second quarter of 2023 for a total cost of approximately **$8.1 million**, with approximately **$99.7 million** remaining available for future repurchases as of June 30, 2023 Share Repurchases in Q2 2023 | Period | Total Shares Purchased | Average Price Paid per Share | Approx. Value Remaining in Program (millions) | | :--- | :--- | :--- | :--- | | April 2023 | 481,515 | $8.96 | $103.5 | | May 2023 | 311,442 | $9.26 | $100.6 | | June 2023 | 94,217 | $9.66 | $99.7 | | **Total** | **887,174** | **$9.14** | | - The company has a board-approved share repurchase program for up to **$200 million** of its Class A-1 common stock[215](index=215&type=chunk) [Other Information](index=43&type=section&id=ITEM%205.%20OTHER%20INFORMATION) On May 18, 2023, CEO and President Andrew Rubenstein entered into a pre-arranged Rule 10b5-1 stock sale plan, allowing for the potential sale of up to **750,000 shares** of Class A-1 common stock between August 16, 2023, and April 1, 2024, subject to certain minimum price thresholds - CEO Andrew Rubenstein established a Rule 10b5-1 trading plan for the potential sale of up to **750,000 shares** of Class A-1 common stock[220](index=220&type=chunk) - The sales are scheduled to occur between August 16, 2023, and April 1, 2024, provided the stock price meets specified minimum thresholds[220](index=220&type=chunk)

First Quarter 2023 Earnings Presentation Important Information Forward-Looking Statements This presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, contained in this presentation are forward-looking statements, including, but not limited to, any statements regarding our estimates of number of gaming terminals, l ...

[Part I: Financial Information](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Financial Statements](index=3&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) This section presents the unaudited condensed consolidated financial statements for Accel Entertainment, Inc. for the quarter ended March 31, 2023, including statements of operations, balance sheets, stockholders' equity, and cash flows, along with detailed notes explaining accounting policies and significant events [Condensed Consolidated Statements of Operations and Comprehensive Income](index=3&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income) For the three months ended March 31, 2023, total net revenues increased by 48.9% year-over-year to $293.2 million, primarily driven by the acquisition of Century, while net income decreased by 41.8% to $9.2 million from $15.8 million in the prior-year period, impacted by higher operating costs, increased interest expense, and a $4.6 million loss on the change in fair value of contingent earnout shares, compared to a $3.4 million gain in Q1 2022, with diluted earnings per share falling to $0.11 from $0.17 Q1 2023 vs Q1 2022 Statement of Operations (in thousands, except EPS) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Change (%) | | :--- | :--- | :--- | :--- | | **Total Net Revenues** | $293,208 | $196,891 | 48.9% | | **Operating Income** | $27,672 | $21,207 | 30.5% | | **Net Income** | $9,182 | $15,788 | (41.8)% | | **Diluted EPS** | $0.11 | $0.17 | (35.3)% | - The significant decrease in net income was largely driven by a loss on the change in fair value of contingent earnout shares of **$4.6 million** in Q1 2023, compared to a gain of **$3.4 million** in Q1 2022[5](index=5&type=chunk) [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of March 31, 2023, the company's total assets increased slightly to $870.3 million from $862.8 million at year-end 2022, with key assets including $228.5 million in cash and cash equivalents, $225.8 million in net property and equipment, and $101.6 million in goodwill, while total liabilities remained stable at $687.8 million, with total debt (net of current maturities) at $514.1 million, and total stockholders' equity grew to $182.5 million Balance Sheet Summary (in thousands) | Account | March 31, 2023 (Unaudited) | December 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $228,529 | $224,113 | | Total assets | $870,328 | $862,769 | | Total debt, net of current maturities | $514,146 | $518,566 | | Total liabilities | $687,842 | $684,179 | | Total stockholders' equity | $182,486 | $178,590 | [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the first three months of 2023, net cash provided by operating activities increased significantly to $38.0 million from $22.1 million in the prior-year period, mainly due to favorable working capital changes, while net cash used in investing activities rose to $23.6 million, driven by higher purchases of property and equipment, and net cash used in financing activities decreased to $10.0 million from $19.6 million, primarily due to reduced share repurchases Cash Flow Summary for Three Months Ended March 31 (in thousands) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $37,983 | $22,061 | | Net cash used in investing activities | $(23,585) | $(6,387) | | Net cash used in financing activities | $(9,982) | $(19,562) | | **Net increase (decrease) in cash** | **$4,416** | **$(3,888)** | [Notes to the Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) The notes detail the company's business operations, accounting policies, and specifics behind the financial statements, including the impact of the Century Gaming acquisition in June 2022, which expanded operations into Montana and Nevada, and provide details on acquisitions, debt facilities, legal contingencies, and the ongoing $200 million share repurchase program - The company is a leading distributed gaming operator in the U.S., with operations expanded into **Montana** and **Nevada** following the acquisition of Century Gaming, Inc. in June 2022[16](index=16&type=chunk)[17](index=17&type=chunk) Net Revenues by State for Three Months Ended March 31 (in thousands) | State | 2023 | 2022 | | :--- | :--- | :--- | | Illinois | $219,843 | $194,859 | | Montana | $36,451 | $— | | Nevada | $29,961 | $— | | Other | $6,953 | $2,032 | | **Total** | **$293,208** | **$196,891** | - The company is involved in several legal proceedings, including a dispute with Gold Rush over convertible notes, litigation with J&J Ventures Gaming, and a disciplinary complaint from the Illinois Gaming Board (IGB) seeking a **$5 million** fine[96](index=96&type=chunk)[103](index=103&type=chunk)[104](index=104&type=chunk) - Under its **$200 million** share repurchase program, the company bought back **476,718 shares** for **$4.2 million** during the first quarter of 2023, and as of March 31, 2023, a total of **8.8 million shares** have been repurchased for **$92.2 million** under the plan[89](index=89&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%20%28MD%26A%29) Management attributes the 48.9% year-over-year revenue growth in Q1 2023 primarily to the acquisition of Century Gaming, with increased operating expenses driven by Century's integration, higher payroll costs, and increased professional fees, while interest expense rose 97.2% due to higher average debt and interest rates, Adjusted EBITDA increased 30.9% to $46.1 million, and the company maintains a strong liquidity position with $228.5 million in cash and believes it has sufficient capital for the next twelve months - The acquisition of Century Gaming, Inc. on June 1, 2022, for **$164.3 million** is the primary driver of increased revenues and expenses in the first quarter of 2023[120](index=120&type=chunk) Key Business Metrics as of March 31 | Metric | 2023 | 2022 | Change (%) | | :--- | :--- | :--- | :--- | | **Total Locations** | 3,628 | 2,565 | 41.4% | | **Total Gaming Terminals** | 23,497 | 13,663 | 72.0% | Non-GAAP Financial Measures for Three Months Ended March 31 (in thousands) | Metric | 2023 | 2022 | Change (%) | | :--- | :--- | :--- | :--- | | **Adjusted Net Income** | $21,064 | $17,605 | 19.6% | | **Adjusted EBITDA** | $46,118 | $35,242 | 30.9% | - The company believes its cash on hand of **$228.5 million**, cash flows from operations, and borrowing availability under its credit facility are sufficient to meet capital requirements for the next twelve months[154](index=154&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's primary market risk exposure is to interest rate fluctuations on its $540.8 million of borrowings under its senior secured credit facility, which it mitigates through interest rate caplets hedging the first $300 million of its term loan if the 1-month LIBOR rate exceeds 2%, where a hypothetical 1% increase in interest rates would increase annual interest expense by approximately $2.4 million on the outstanding floating-rate debt - The company's main market risk is interest rate risk on its **$540.8 million** of floating-rate debt as of March 31, 2023[176](index=176&type=chunk) - To manage interest rate risk, the company uses interest rate caplets to hedge the first **$300 million** of its term loan against the 1-month LIBOR rate rising above **2%**[176](index=176&type=chunk) [Controls and Procedures](index=38&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) Management, including the CEO and CFO, concluded that as of March 31, 2023, the company's disclosure controls and procedures were **not effective** due to previously identified **material weaknesses** in the Annual Report on Form 10-K for the year ended December 31, 2022, though management believes the condensed consolidated financial statements in this report are fairly presented in all material respects - The CEO and CFO concluded that disclosure controls and procedures were **not effective** as of March 31, 2023, due to previously identified **material weaknesses**[179](index=179&type=chunk) - Notwithstanding the material weaknesses, management asserts that the financial statements included in the Form 10-Q are fairly presented in all material respects[180](index=180&type=chunk) [Part II: Other Information](index=39&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Legal Proceedings](index=39&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) This section incorporates by reference the information on legal matters discussed in Note 16, "Commitments and Contingencies," of the condensed consolidated financial statements, covering key legal issues including disputes with J&J Ventures, Gold Rush, and a disciplinary complaint from the Illinois Gaming Board - Information regarding legal proceedings is detailed in Note 16 of the financial statements[183](index=183&type=chunk) [Risk Factors](index=39&type=section&id=ITEM%201A.%20RISK%20FACTORS) The company states there have been no material changes to the risk factors disclosed in its 2022 Annual Report on Form 10-K, except for newly highlighted risks, including the potential adverse effects of **unfavorable economic conditions** (recession, inflation, rising interest rates) on discretionary spending and location partner viability, and risks related to **adverse developments in the financial services industry**, which could impact access to credit and liquidity - New risk factors have been added concerning **unfavorable economic conditions**, such as recession and inflation, which could reduce players' disposable income and harm the business[186](index=186&type=chunk)[188](index=188&type=chunk) - The company has also identified new risks related to **adverse developments in the financial services industry**, which could impact its financial condition and access to capital[190](index=190&type=chunk)[191](index=191&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=40&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) This section details the company's share repurchase activity under its publicly announced $200 million program, where during the first quarter of 2023, the company repurchased a total of 476,718 shares of its Class A-1 common stock at an average price of $8.82 per share, for a total cost of approximately $4.2 million, and as of March 31, 2023, approximately $107.8 million remained available for future repurchases under the program Share Repurchases in Q1 2023 | Period | Total Shares Purchased | Average Price Paid per Share | Approx. Value Remaining in Program (in millions) | | :--- | :--- | :--- | :--- | | Jan 2023 | 249,821 | $8.69 | $109.8 | | Feb 2023 | 1,600 | $9.02 | $109.8 | | Mar 2023 | 225,297 | $8.97 | $107.8 | | **Total Q1** | **476,718** | **$8.82** | **$107.8** | [Defaults Upon Senior Securities](index=41&type=section&id=ITEM%203.%20DEFAULTS%20UPON%20SENIOR%20SECURITIES) The company reported no defaults upon senior securities during the period - None [Mine Safety Disclosures](index=41&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This item is not applicable to the company's business - Not applicable [Exhibits](index=42&type=section&id=ITEM%206.%20EXHIBITS) This section lists the exhibits filed with the Form 10-Q, including forms of Restricted Stock Unit Award Agreements, officer certifications as required by the Sarbanes-Oxley Act, and XBRL data files - Exhibits filed include forms of employee stock award agreements and required CEO/CFO certifications[198](index=198&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, 2022 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](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 ```