[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents the company's financial statements, management's analysis, market risk disclosures, and internal controls [Financial Statements](index=3&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) Accel Entertainment reported significant Q1 2022 financial growth, with revenues up 33.9% and net income surging [Condensed Consolidated Statements of Operations and Comprehensive Income](index=3&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income) Q1 2022 saw total net revenues increase 33.9% to $196.9 million and net income rise to $15.8 million | Financial Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | YoY Change | | :--- | :--- | :--- | :--- | | **Total Net Revenues** | $196,891 thousand | $147,069 thousand | +33.9% | | **Operating Income** | $21,207 thousand | $9,555 thousand | +121.9% | | **Net Income** | $15,788 thousand | $1,501 thousand | +951.8% | | **Diluted EPS** | $0.17 | $0.02 | +750.0% | [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of March 31, 2022, total assets increased slightly to $624.5 million, with stockholders' equity rising to $166.8 million | Balance Sheet Item | March 31, 2022 (Unaudited) | December 31, 2021 | | :--- | :--- | :--- | | **Total Current Assets** | $254,604 thousand | $247,995 thousand | | **Total Assets** | $624,514 thousand | $616,073 thousand | | **Total Current Liabilities** | $72,370 thousand | $71,835 thousand | | **Total Liabilities** | $457,692 thousand | $457,612 thousand | | **Total Stockholders' Equity** | $166,822 thousand | $158,461 thousand | [Condensed Consolidated Statements of Stockholders' Equity](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity) Total stockholders' equity increased by $8.4 million in Q1 2022, driven by net income and unrealized gains, offset by share repurchases - Key changes in stockholders' equity for Q1 2022 include: - Repurchase of **1,087,990 shares** of common stock for **$13.9 million** - Net income of **$15.8 million** - Unrealized gain on interest rate caplets of **$4.9 million**[6](index=6&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operations remained stable at $22.1 million, while financing activities shifted to a significant use of cash due to stock repurchases | Cash Flow Activity | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | **Net cash provided by operating activities** | $22,061 thousand | $21,586 thousand | | **Net cash used in investing activities** | ($6,387) thousand | ($2,462) thousand | | **Net cash (used in) provided by financing activities** | ($19,562) thousand | $19,103 thousand | | **Net (decrease) increase in cash** | ($3,888) thousand | $38,227 thousand | [Notes to the Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) Notes detail business operations, accounting policies, and significant events including expansion, acquisitions, and legal proceedings - The company operates **13,663 video gaming terminals (VGTs)** across **2,565 locations** in Illinois as of March 31, 2022[11](index=11&type=chunk) - In Q4 2021, the company extended the useful lives of its gaming terminals, route/customer acquisition costs, and location contracts, which decreased depreciation and amortization expense in Q1 2022[18](index=18&type=chunk)[19](index=19&type=chunk) - The company has a pending acquisition of Century Gaming, Inc. for **$140 million** in cash and stock, expected to close in Q2 2022[62](index=62&type=chunk) - The company is involved in a legal dispute with Gold Rush Amusements, Inc. over convertible notes after the IGB denied the transfer of Gold Rush common stock to Accel; Accel has filed a lawsuit against Gold Rush[32](index=32&type=chunk)[33](index=33&type=chunk) - The company received a disciplinary complaint from the IGB seeking a **$5 million** fine, which the company is vigorously defending[112](index=112&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=ITEM%202.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Management attributes strong Q1 2022 performance to the absence of prior-year COVID-19 shutdowns and increased gaming operations - The increase in Q1 2022 revenue was primarily driven by the absence of the IGB-mandated shutdown that impacted 18 of 90 gaming days (**20%**) in Q1 2021[148](index=148&type=chunk) | Metric | Q1 2022 | Q1 2021 | YoY Change | | :--- | :--- | :--- | :--- | | **Total Net Revenues** | $196.9M | $147.1M | +33.9% | | **Operating Income** | $21.2M | $9.6M | +121.9% | | **Net Income** | $15.8M | $1.5M | +951.8% | | Key Business Metrics | As of March 31, 2022 | As of March 31, 2021 | YoY Change | | :--- | :--- | :--- | :--- | | **Licensed establishments** | 2,565 | 2,470 | +3.8% | | **VGTs** | 13,663 | 12,720 | +7.4% | | **Location hold-per-day** | $811 | $784 | +3.4% | - Adjusted EBITDA for Q1 2022 increased by **36.5%** to **$35.2 million**, compared to **$25.8 million** in the prior-year period[166](index=166&type=chunk) - As of March 31, 2022, the company had **$194.9 million** in cash and cash equivalents and approximately **$550.0 million** of availability under its Credit Agreement[169](index=169&type=chunk)[175](index=175&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=37&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The company manages interest rate risk on its floating-rate debt through interest rate caplets - The company is exposed to interest rate risk on its **$345.6 million** of borrowings under its senior secured credit facility as of March 31, 2022[192](index=192&type=chunk) - To hedge against rising interest rates, the company entered into a 4-year series of interest rate caplets on January 12, 2022, covering the first **$300 million** of its term loan, protecting if the 1-month LIBOR exceeds **2%**[192](index=192&type=chunk) [Controls and Procedures](index=38&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) Disclosure controls and procedures were deemed ineffective due to material weaknesses, though financial statements are fairly presented - The CEO and CFO concluded that disclosure controls and procedures were not effective as of March 31, 2022, due to previously identified material weaknesses still being present[195](index=195&type=chunk) - Notwithstanding the material weaknesses, management asserts that the condensed consolidated financial statements included in the Form 10-Q are fairly presented in all material respects[196](index=196&type=chunk) [PART II. OTHER INFORMATION](index=39&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section covers legal proceedings, risk factors, equity sales, and other disclosures [Legal Proceedings](index=39&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) The company is involved in several legal disputes, including litigation with J&J Ventures, an IGB disciplinary complaint, and a lawsuit against Gold Rush - The company is involved in a series of litigated matters with J&J Ventures Gaming, LLC over contractual rights dating back to 2012[200](index=200&type=chunk) - A disciplinary complaint from the IGB received in December 2020 seeks to fine the company **$5 million**; the company denies wrongdoing and is defending itself[208](index=208&type=chunk) - On March 9, 2022, the company filed a lawsuit against Gold Rush for breach of contract related to convertible notes[209](index=209&type=chunk) - The company has recorded estimated legal reserves of **$1.6 million** as of March 31, 2022, which includes a **$1.0 million** loss recognized during the first quarter[212](index=212&type=chunk) [Risk Factors](index=40&type=section&id=ITEM%201A.%20RISK%20FACTORS) Investors are directed to the comprehensive risk factors detailed in the company's Annual Report on Form 10-K - The report refers to the risk factors described in the Annual Report on Form 10-K for the year ended December 31, 2021, for a comprehensive understanding of investment risks[213](index=213&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=41&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECU RITIES%20AND%20USE%20OF%20PROCEEDS) The company continued its share repurchase program, repurchasing over 1 million shares in Q1 2022 | Period | Total Shares Purchased | Average Price Paid per Share | Approx. Dollar Value Remaining (in millions) | | :--- | :--- | :--- | :--- | | January 2022 | 561,120 | $12.52 | $184.0 | | February 2022 | 316,277 | $13.15 | $179.8 | | March 2022 | 210,593 | $13.06 | $177.1 | | **Q1 2022 Total** | **1,087,990** | **-** | **-** | [Defaults Upon Senior Securities](index=41&type=section&id=ITEM%203.%20DEFAULTS%20UPON%20SENIOR%20SECURITIES) No defaults upon senior securities were reported - No defaults upon senior securities were reported[216](index=216&type=chunk) [Mine Safety Disclosures](index=41&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This item is not applicable to the company - This item is not applicable to the company[217](index=217&type=chunk) [Exhibits](index=42&type=section&id=ITEM%206.%20EXHIBITS) This section lists the exhibits filed with the Form 10-Q, including employment agreements and certifications - Exhibits filed include an Executive Employment Agreement dated April 25, 2022, CEO and CFO certifications, and XBRL data files[219](index=219&type=chunk)

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

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

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

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

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended March 31, 2020 Commission File Number 001-38136 | --- | --- | --- | |--------------------------------------------------------|-----------------------------------------------------------------------|------------------------------------------| | Accel | Entertainment, (Exact Name of Registrant as Specified in It ...

Part I [Business Overview](index=4&type=section&id=ITEM%201.%20BUSINESS) Accel Entertainment, Inc. is a leading distributed gaming operator in the US, primarily in Illinois, providing video gaming terminals (VGTs), redemption devices, and amusement equipment, with plans for expansion - Accel Entertainment is a leading distributed gaming operator in the US, primarily operating in the Illinois market, offering VGTs, redemption devices, and amusement equipment[8](index=8&type=chunk)[111](index=111&type=chunk) - The company has been licensed by the Illinois Gaming Board (IGB) since 2012 and holds a temporary license from the Pennsylvania Gaming Control Board (PA Board)[8](index=8&type=chunk)[9](index=9&type=chunk) - As of December 31, 2019, Accel operated **10,499 VGTs** in **2,312 licensed establishments**, with a three-year voluntary contract renewal rate exceeding **98%**[8](index=8&type=chunk)[12](index=12&type=chunk)[21](index=21&type=chunk) - The company plans to drive growth by increasing VGT market share in Illinois, expanding into Pennsylvania, launching a player rewards program, and entering other states[14](index=14&type=chunk)[15](index=15&type=chunk)[16](index=16&type=chunk) - Illinois gaming tax rate increased from **30% to 33%** (effective July 1, 2019) and will further increase to **34%** on July 1, 2020[10](index=10&type=chunk)[21](index=21&type=chunk) - The company's revenue-sharing model with licensed establishments is: after deducting the **33% gaming tax** and **0.8513% administrative fee**, the remaining profit is split **50/50** between Accel and the licensed establishment[21](index=21&type=chunk) [Risk Factors](index=13&type=section&id=ITEM%201A.%20RISK%20FACTORS) The company faces significant risks including difficulties in obtaining or maintaining necessary operating licenses, managing rapid growth, providing innovative products, and uncertainties in market demand and contract renewals - The company's operations depend on extensive federal, state, and local government regulation, facing potential difficulties, delays, or failures in obtaining or maintaining required licenses and approvals[31](index=31&type=chunk)[32](index=32&type=chunk) - Rapid growth poses challenges to management and operational resources, potentially impacting service quality and customer satisfaction if not effectively managed[34](index=34&type=chunk) - The company's success relies on providing innovative products and services, but consumer preferences are unpredictable, and there is reliance on third-party content and equipment suppliers[34](index=34&type=chunk)[35](index=35&type=chunk) - Outbreaks of health epidemics like COVID-19 could lead to business disruptions, reduced customer traffic, and operational restrictions, adversely affecting the company's business, operating results, and financial condition[38](index=38&type=chunk)[40](index=40&type=chunk) - The company's business is highly concentrated in Illinois, making it susceptible to changes in local economic, legal, competitive, and natural disaster conditions[41](index=41&type=chunk) - The company identified three material weaknesses in internal control, including financial statement review, business combination accounting, and IT controls, which if not remediated, could affect the accuracy and timeliness of financial reporting[53](index=53&type=chunk)[54](index=54&type=chunk)[177](index=177&type=chunk)[181](index=181&type=chunk)[182](index=182&type=chunk) - As of December 31, 2019, the company's total debt was **$358.5 million**, and a high debt level could impact financing ability, cash flow, and flexibility to respond to market changes[64](index=64&type=chunk)[241](index=241&type=chunk) - TPG Global, LLC, Clairvest Group Inc., and the Rubenstein family hold significant amounts of the company's common stock, and their interests may differ from other shareholders, significantly influencing company decisions[70](index=70&type=chunk)[72](index=72&type=chunk) [Unresolved Staff Comments](index=35&type=section&id=ITEM%201B.%20UNRESOLVED%20STAFF%20COMMENTS) This report contains no unresolved staff comments - This report contains no unresolved staff comments[86](index=86&type=chunk) [Properties](index=35&type=section&id=ITEM%202.%20PROPERTIES) The company owns and leases multiple facilities in Illinois, including a 58,000 square foot corporate headquarters in Burr Ridge, supporting various operational functions and equipment warehousing - The company owns a **58,000 square foot** corporate headquarters in Burr Ridge, Illinois, which integrates service, support, sales, administration, compliance, IT, security, finance, data analytics, and warehousing functions[87](index=87&type=chunk) - The company also owns facilities in Peoria, Springfield, Glen Carbon, and Rockford, Illinois, and leases **14 locations** for operational support and equipment warehousing[87](index=87&type=chunk) [Legal Proceedings](index=35&type=section&id=ITEM%203.%20LEGAL%20PROCEEDINGS) The company faces various legal actions and claims in its ordinary course of business, including contract and non-compete disputes, with some settlements reached, and management expects no material adverse impact from other ongoing cases - The company is involved in litigation with J&J Ventures Gaming, LLC regarding the legality of contracts signed with **10 licensed establishments** in 2012, where the Illinois Supreme Court ruled the IGB has exclusive jurisdiction over the validity and enforceability of such agreements[88](index=88&type=chunk)[90](index=90&type=chunk)[309](index=309&type=chunk)[310](index=310&type=chunk) - The company filed a lawsuit against Jason Rowell, alleging breach of non-compete agreements and interference with customer relationships; Jason Rowell also sued the company, claiming he did not receive his rightful equity[91](index=91&type=chunk)[310](index=310&type=chunk) - In 2017, the company settled with Illinois Gold Rush, Inc., paying **$3.5 million** in cash, issuing **32,745 shares** of Class A common stock, and receiving a **$3.3 million** shareholder note receivable[90](index=90&type=chunk)[312](index=312&type=chunk) - In 2018, the company settled a breach of contract claim with Family Amusements and paid a total of **$0.4 million** for other contractual and employment matters[90](index=90&type=chunk)[312](index=312&type=chunk) - Illinois Gaming Investors, LLC filed a lawsuit against the company in July 2019, seeking **$10 million** in damages, alleging breach of non-compete agreements and improper solicitation of customers by the company and its employees[92](index=92&type=chunk)[312](index=312&type=chunk) [Mine Safety Disclosures](index=37&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This item is not applicable - This item is not applicable[93](index=93&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=38&type=section&id=ITEM%205.%20MARKET%20FOR%20REGISTRANT'S%20COMMON%20EQUITY,%20RELATED%20STOCKHOLDER%20MATTERS%20AND%20ISSUER%20PURCHASES%20OF%20EQUITY%20SECURITIES) The company's Class A-1 common stock and warrants began trading on the NYSE on November 21, 2019, with 126 Class A-1 and 106 Class A-2 common stockholders as of March 12, 2020, and no cash dividends paid to date - The company's Class A-1 common stock and warrants began trading on the New York Stock Exchange (NYSE) on November 21, 2019, under the ticker symbols "ACEL" and "ACEL.WS", respectively[95](index=95&type=chunk) - As of March 12, 2020, the company had **126 holders** of Class A-1 common stock and **106 holders** of Class A-2 common stock[96](index=96&type=chunk) - The company has not paid any cash dividends to date and does not intend to pay cash dividends[97](index=97&type=chunk) 2019 Issuer Purchases of Equity Securities | Period | (a) Total number of shares (or units) purchased | (b) Average price paid per share (or unit) | |:---|:---|:---| | November 2019 | 22,939,736 | $10.30 | - As of December 31, 2019, the company had **22,333,308 warrants** outstanding, each allowing the purchase of one share of Class A-1 common stock at an exercise price of **$11.50**[100](index=100&type=chunk) - Warrants became exercisable **30 days** after the business combination on November 20, 2019, and expire five years from that date or upon earlier redemption or liquidation[100](index=100&type=chunk) Relative Stock Price Performance from November 20, 2019 to December 31, 2019 | | 11/20/2019 | 11/29/2019 | 12/31/2019 | |:---|:---|:---|:---|\ | Accel Entertainment | $100.00 | $100.48 | $119.05 | | NASDAQ Composite Index | $100.00 | $101.63 | $105.28 | | RUSSELL 3000 Casinos & Gambling Industry Index | $100.00 | $101.28 | $107.94 | [Selected Financial Data](index=40&type=section&id=ITEM%206.%20SELECTED%20FINANCIAL%20DATA) This section provides consolidated statements of operations, cash flows, and balance sheet data for the periods ended December 31, 2019, along with key metrics used to monitor company performance and strategic planning Consolidated Statements of Operations, Cash Flows and Other Data (as of December 31) | (in thousands, except key metrics data) | Year 2019 | 2018 | 2017 | |:---|:---|:---|:---|\ | Total net revenues | $424,385 | $331,993 | $248,435 | | Operating income | 13,336 | 24,869 | 18,170 | | (Loss) income before income tax expense | (665) | 15,225 | 10,065 | | Net (loss) income | $ (5,864) | $10,803 | $8,311 | | Net cash provided by operating activities | $45,565 | $44,343 | $33,097 | | Net cash used in investing activities | (151,532) | (73,547) | (70,870) | | Net cash provided by financing activities | 139,141 | 46,122 | 59,081 | | Adjusted EBITDA (1) | $79,594 | $63,815 | $46,865 | | (2) Adjusted net (loss) income | $22,695 | $23,136 | $17,310 | | (3) Licensed establishments | 2,312 | 1,686 | 1,442 | | (4) Video gaming terminals | 10,499 | 7,649 | 6,439 | | (5) Average remaining contract term (years) | 6.9 | 7.6 | 8.3 | | (6) Hold-per-day | $130 | $125 | $115 | Consolidated Balance Sheet Data (as of December 31) | (in thousands) | As of 2019 | December 31, 2018 | |:---|:---|:---|\ | Cash and cash equivalents | $125,403 | $92,229 | | Total current assets | 151,495 | 102,011 | | Property and equipment, net | 119,201 | 92,442 | | Total assets | 509,317 | 335,174 | | Total current liabilities | 54,946 | 85,882 | | Total long-term liabilities | 368,846 | 192,174 | | Stockholders' equity | 85,525 | 57,118 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=42&type=section&id=ITEM%207.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section provides a detailed discussion of the company's financial condition and operating results for 2019 and 2018, highlighting revenue growth, net loss expansion due to one-time expenses, and strong liquidity Comparison of Operating Results for 2019 vs. 2018 (as of December 31) | (in thousands, except %'s) | Year Ended 2019 | December 31, 2018 | Increase / Decrease Change % | |:---|:---|:---|:---|\ | Net video gaming | $410,636 | $321,711 | 27.6 % | | Amusement | 5,912 | 4,199 | 40.8 % | | ATM fees and other revenue | 7,837 | 6,083 | 28.8 % | | Total revenues | 424,385 | 331,993 | 27.8 % | | Total operating expenses | 411,049 | 307,124 | 33.8 % | | Operating income | 13,336 | 24,869 | (46.4)% | | Net (loss) income | $ (5,864) | $10,803 | (154.3)% | - Total revenues increased by **27.8%** to **$424.4 million** in 2019, primarily driven by a **27.6%** increase in video gaming revenue (including **$39.6 million** from acquisitions) and growth in amusement and ATM services revenue[120](index=120&type=chunk) - A net loss of **$5.864 million** was recorded in 2019, mainly due to a significant **555.6%** increase in net other expenses from one-time business combination-related fees and contingent consideration revaluation[119](index=119&type=chunk)[122](index=122&type=chunk) Comparison of Operating Results for 2018 vs. 2017 (as of December 31) | (in thousands, except %'s) | Year Ended 2018 | December 31, 2017 | Increase / Decrease Change % | |:---|:---|:---|:---|\ | Net video gaming | $321,711 | $240,235 | 33.9% | | Amusement | 4,199 | 3,422 | 22.7% | | ATM fees and other revenue | 6,083 | 4,778 | 27.3% | | Total revenues | 331,993 | 248,435 | 33.6% | | Total operating expenses | 307,124 | 230,265 | 33.4% | | Operating income | 24,869 | 18,170 | 36.9% | | Net income | $10,803 | $8,311 | 30.0% | - Total revenues increased by **33.6%** to **$332.0 million** in 2018, primarily driven by a **33.9%** increase in video gaming revenue, which included **$29.9 million** from acquisitions[126](index=126&type=chunk) Key Business Metrics (as of December 31) | | 2019 | 2018 | 2017 | |:---|:---|:---|:---|\ | Licensed establishments | 2,312 | 1,686 | 1,442 | | Video gaming terminals | 10,499 | 7,649 | 6,439 | | Average remaining contract term (years) | 6.9 | 7.6 | 8.3 | | Hold-per-day | $130 | $125 | $115 | Adjusted EBITDA and Adjusted Net (Loss) Income (as of December 31) | (in thousands) | 2019 | 2018 | 2017 | |:---|:---|:---|:---|\ | Net (loss) income | $(5,864) | $10,803 | $8,311 | | Adjusted net income | $22,695 | $23,136 | $17,310 | | Adjusted EBITDA | $79,594 | $63,815 | $46,865 | - As of December 31, 2019, the company had **$125.4 million** in cash and cash equivalents and expects its cash, operating cash flow, and borrowing capacity under its senior secured credit facility to meet capital needs for the next **12 months**[142](index=142&type=chunk) - The company entered into a new credit agreement on November 13, 2019, including a **$100 million** revolving credit facility, a **$240 million** initial term loan, and a **$125 million** additional term loan, with approximately **$106.5 million** available as of December 31, 2019[143](index=143&type=chunk) Summary of Cash Flows (as of December 31) | (in thousands) | 2019 | 2018 | 2017 | |:---|:---|:---|:---|\ | Net cash provided by operating activities | $45,565 | $44,343 | $33,097 | | Net cash used in investing activities | (151,532) | (73,547) | (70,870) | | Net cash provided by financing activities | 139,141 | 46,122 | 59,081 | - Net cash used in investing activities was **$151.5 million** in 2019, primarily for business and asset acquisitions and a **$30 million** investment in convertible notes[151](index=151&type=chunk) - The company adopted ASU No. 2014-09 (Topic 606) new revenue standard in Q4 2019, extending the amortization period for route and customer acquisition costs to **12.4 years** and resulting in a **$2.6 million** cumulative impact adjustment to accumulated deficit[164](index=164&type=chunk)[213](index=213&type=chunk) Contractual Obligations (as of December 31, 2019, in thousands of dollars) | | Less than 1 Year | Due in 1 to 3 years | Due in 3 to 5 years | Total | |:---|:---|:---|:---|:---|\ | Credit facility principal payments | $15,000 | $30,000 | $313,500 | $358,500 | | Interest payments on credit facility | 15,612 | 28,697 | 24,133 | 68,442 | | Operating lease obligations | 273 | 246 | 65 | 584 | | Total contractual obligations | $30,885 | $58,943 | $337,698 | $427,526 | [Quantitative and Qualitative Disclosures About Market Risk](index=56&type=section&id=ITEM%207A.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The company primarily faces interest rate risk from its $358.5 million floating-rate debt, with a 1.0% rate increase potentially raising annual interest expense by $3.6 million - The company primarily faces interest rate risk, with **$358.5 million** in borrowings under its senior secured credit facility as of December 31, 2019[173](index=173&type=chunk) - If the underlying interest rate increases by **1.0% (100 basis points)**, the company's interest expense on floating-rate debt would increase by approximately **$3.6 million** annually[173](index=173&type=chunk) - Inflation has not had a material impact on the company's operating results, cash flows, or financial condition over the past three years[174](index=174&type=chunk) [Financial Statements and Supplementary Data](index=56&type=section&id=ITEM%208.%20FINANCIAL%20STATEMENTS%20AND%20SUPPLEMENTARY%20DATA) This item refers to the financial statements, notes, and independent auditor's report starting on page F-1 of this annual report - This item refers to the financial statements, notes, and independent auditor's report starting on page F-1 of this annual report[175](index=175&type=chunk) [Changes in and Disagreements With Accountants on Accounting and Financial Disclosure](index=56&type=section&id=ITEM%209.%20CHANGES%20IN%20AND%20DISAGREEMENTS%20WITH%20ACCOUNTANTS%20ON%20ACCOUNTING%20AND%20FINANCIAL%20DISCLOSURE) This report contains no changes in accountants or disagreements on accounting and financial disclosure - This report contains no changes in accountants or disagreements on accounting and financial disclosure[175](index=175&type=chunk) [Controls and Procedures](index=57&type=section&id=ITEM%209A.%20CONTROLS%20AND%20PROCEDURES) The company's disclosure controls and procedures were deemed ineffective due to three material weaknesses in financial statement review, business combination accounting, and IT controls, with remediation plans underway - The company's disclosure controls and procedures were deemed ineffective due to material weaknesses in internal control[177](index=177&type=chunk) - The company identified three material weaknesses in internal control: 1) deficiencies in financial statement review and related accounting analysis, entries, and reconciliations; 2) deficiencies in business combination accounting and route and customer acquisition cost accounting; and 3) deficiencies in general information technology controls, including access and change management[181](index=181&type=chunk)[182](index=182&type=chunk) - The company is actively implementing remediation plans, including hiring additional accounting and finance personnel, enhancing accounting policies and procedures, engaging third-party valuation experts, and implementing IT controls under the COSO 2013 framework[182](index=182&type=chunk)[183](index=183&type=chunk) - Due to the preliminary stage of the internal control framework following the business combination, management was unable to assess the effectiveness of internal control as of December 31, 2019[178](index=178&type=chunk)[180](index=180&type=chunk) [Other Information](index=59&type=section&id=ITEM%209B.%20OTHER%20INFORMATION) This item is not applicable - This item is not applicable[184](index=184&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=60&type=section&id=ITEM%2010.%20DIRECTORS,%20EXECUTIVE%20OFFICERS%20AND%20CORPORATE%20GOVERNANCE) The information required for this item is incorporated by reference from the company's definitive proxy statement for the 2020 Annual Meeting of Stockholders - The information required for this item is incorporated by reference from the company's definitive proxy statement for the 2020 Annual Meeting of Stockholders[186](index=186&type=chunk) [Executive Compensation](index=60&type=section&id=ITEM%2011.%20EXECUTIVE%20COMPENSATION) The information required for this item is incorporated by reference from the company's definitive proxy statement for the 2020 Annual Meeting of Stockholders - The information required for this item is incorporated by reference from the company's definitive proxy statement for the 2020 Annual Meeting of Stockholders[187](index=187&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=60&type=section&id=ITEM%2012.%20SECURITY%20OWNERSHIP%20OF%20CERTAIN%20BENEFICIAL%20OWNERS%20AND%20MANAGEMENT%20AND%20RELATED%20STOCKHOLDER%20MATTERS) The information required for this item is incorporated by reference from the company's definitive proxy statement for the 2020 Annual Meeting of Stockholders - The information required for this item is incorporated by reference from the company's definitive proxy statement for the 2020 Annual Meeting of Stockholders[187](index=187&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=60&type=section&id=ITEM%2013.%20CERTAIN%20RELATIONSHIPS%20AND%20RELATED%20TRANSACTIONS,%20AND%20DIRECTOR%20INDEPENDENCE) The information required for this item is incorporated by reference from the company's definitive proxy statement for the 2020 Annual Meeting of Stockholders - The information required for this item is incorporated by reference from the company's definitive proxy statement for the 2020 Annual Meeting of Stockholders[187](index=187&type=chunk) [Principal Accountant Fees and Services](index=60&type=section&id=ITEM%2014.%20PRINCIPAL%20ACCOUNTING%20FEES%20AND%20SERVICES) The information required for this item is incorporated by reference from the company's definitive proxy statement for the 2020 Annual Meeting of Stockholders - The information required for this item is incorporated by reference from the company's definitive proxy statement for the 2020 Annual Meeting of Stockholders[188](index=188&type=chunk) Part IV [Exhibits, Financial Statement Schedules](index=61&type=section&id=ITEM%2015.%20EXHIBITS,%20FINANCIAL%20STATEMENT%20SCHEDULES) This section lists the financial statements starting on page F-1 and provides a detailed exhibit index, including key agreements related to the company's operations and acquisitions - Financial statements are included in the Index to Consolidated Financial Statements on page F-1 of this annual report[188](index=188&type=chunk) - Other schedules are omitted because they are not applicable, not required, or the information is included in the consolidated financial statements or notes thereto[189](index=189&type=chunk) - The exhibit list includes transaction agreements, organizational documents, equity incentive plans, warrant agreements, registration rights agreements, credit agreements, and other material documents related to acquisitions and employment agreements[190](index=190&type=chunk)[191](index=191&type=chunk) [FORM 10-K Summary](index=63&type=section&id=ITEM%2016.%20FORM%2010-K%20SUMMARY) This report does not contain a Form 10-K summary - This report does not contain a Form 10-K summary[192](index=192&type=chunk) FINANCIAL STATEMENTS [Report of Independent Registered Public Accounting Firm](index=66&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) KPMG LLP issued an unqualified opinion on Accel Entertainment, Inc.'s consolidated financial statements for 2019 and 2018, noting changes in revenue recognition and a business combination treated as a reverse recapitalization - KPMG LLP issued an unqualified opinion on Accel Entertainment, Inc.'s consolidated financial statements as of December 31, 2019, and 2018[196](index=196&type=chunk) - The company changed its accounting method for revenue recognition, adopting ASU No. 2014-09, effective January 1, 2019[196](index=196&type=chunk) - The company completed a business combination on November 20, 2019, which was accounted for as a reverse recapitalization[196](index=196&type=chunk) [Consolidated Statements of Operations](index=67&type=section&id=Consolidated%20Statements%20of%20Operations) The consolidated statements show a net loss of $5.864 million in 2019, contrasting with net income in prior years, driven by increased operating expenses and interest expense despite higher total net revenues Key Data from Consolidated Statements of Operations (as of December 31, in thousands of dollars) | (In thousands, except per share amounts) | 2019 | 2018 | 2017 | |:---|:---|:---|:---|\ | Total net revenues | $424,385 | $331,993 | $248,435 | | Operating income | 13,336 | 24,869 | 18,170 | | (Loss) income before income tax expense | (665) | 15,225 | 10,065 | | Net (loss) income | $(5,864) | $10,803 | $8,311 | | Net (loss) income per common share: Basic | $(0.09) | $0.19 | $0.15 | | Net (loss) income per common share: Diluted | $(0.09) | $0.17 | $0.14 | | Weighted average number of shares outstanding: Basic | 61,850 | 57,621 | 56,321 | | Weighted average number of shares outstanding: Diluted | 61,850 | 62,182 | 59,408 | [Consolidated Balance Sheets](index=69&type=section&id=Consolidated%20Balance%20Sheets) As of December 31, 2019, total assets increased to $509.3 million, primarily due to higher cash, property, and intangible assets, while total liabilities also rose to $423.8 million, reflecting increased debt and contingent consideration Key Data from Consolidated Balance Sheets (as of December 31, in thousands of dollars) | (In thousands, except par value and share amounts) | December 2019 | 31, 2018 | |:---|:---|:---|\ | Cash | $125,403 | $92,229 | | Total current assets | 151,495 | 102,011 | | Property and equipment, net | 119,201 | 92,442 | | Route and customer acquisition costs, net | 17,399 | 13,994 | | Location contracts acquired, net | 166,783 | 126,038 | | Goodwill | 34,511 | — | | Total assets | $509,317 | $335,174 | | Current maturities of debt | $15,000 | $62,500 | | Total current liabilities | 54,946 | 85,882 | | Debt, net of current maturities | 334,692 | 168,895 | | Consideration payable, less current portion | 16,426 | 9,020 | | Total long-term liabilities | 368,846 | 192,174 | | Total stockholders' equity | 85,525 | 57,118 | | Total liabilities and equity | $509,317 | $335,174 | [Consolidated Statements of Stockholders' Equity](index=70&type=section&id=Consolidated%20Statements%20of%20Stockholders'%20Equity) Total stockholders' equity increased to $85.525 million by December 31, 2019, primarily reflecting a net equity infusion from the reverse recapitalization and a cumulative adjustment from accounting standard changes Key Data from Consolidated Statements of Stockholders' Equity (as of December 31, in thousands of dollars) | (In thousands, except shares) | Class A-1 Common Stock Amount | Additional Paid-In Capital (1) | Treasury Stock Amount | Accumulated Deficit | Total Stockholders' Equity | |:---|:---|:---|:---|:---|:---|\ | Balance, January 1, 2017 | $5 | $60,667 | $(217) | $(36,316) | $24,139 | | Balance, December 31, 2017 | $6 | $75,801 | $0 | $(28,005) | $44,534 | | Balance, December 31, 2018 | $6 | $80,146 | $(5,832) | $(17,202) | $57,118 | | Net equity infusion from reverse recapitalization | $2 | $21,847 | $7,412 | $0 | $29,262 | | Cumulative transition adjustment for adoption of Topic 606, net of taxes | $0 | $0 | $0 | $2,596 | $2,596 | | Net loss | $0 | $0 | $0 | $(5,864) | $(5,864) | | Balance, December 31, 2019 | $8 | $105,986 | $0 | $(20,470) | $85,525 | - The reverse recapitalization completed on November 20, 2019, resulted in a net equity infusion of **$29.262 million**[203](index=203&type=chunk)[228](index=228&type=chunk) - The adoption of Topic 606 new revenue standard resulted in a **$2.596 million** cumulative transition adjustment, net of taxes, to accumulated deficit[203](index=203&type=chunk)[213](index=213&type=chunk) [Consolidated Statements of Cash Flows](index=71&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash provided by operating activities was $45.565 million in 2019, with significant cash used in investing activities for acquisitions and a convertible note, and cash provided by financing activities for credit facility borrowings Key Data from Consolidated Statements of Cash Flows (as of December 31, in thousands of dollars) | (In thousands) | 2019 | 2018 | 2017 | |:---|:---|:---|:---|\ | Net cash provided by operating activities | $45,565 | $44,343 | $33,097 | | Net cash used in investing activities | (151,532) | (73,547) | (70,870) | | Net cash provided by financing activities | 139,141 | 46,122 | 59,081 | | Net increase in cash | 33,174 | 16,918 | 21,308 | | Cash: End of year | $125,403 | $92,229 | $75,311 | - Net cash used in investing activities was **$151.5 million** in 2019, an increase of **$78 million** from 2018, primarily due to business and asset acquisitions and a **$30 million** investment in convertible notes[151](index=151&type=chunk)[205](index=205&type=chunk) - Net cash provided by financing activities was **$139.1 million** in 2019, an increase of **$93 million** from 2018, mainly due to increased credit facility borrowings to support business and asset acquisitions[153](index=153&type=chunk)[205](index=205&type=chunk) [Note 1. Description of Business](index=73&type=section&id=Note%201.%20Description%20of%20Business) Accel Entertainment, Inc. is an Illinois-licensed terminal operator, operating 10,499 VGTs at 2,312 locations as of December 31, 2019, following a reverse recapitalization business combination in November 2019 - Accel Entertainment, Inc. and its subsidiary, Accel Entertainment Gaming LLC, are Illinois Gaming Board-licensed terminal operators, primarily installing and operating VGTs, redemption terminals, and amusement equipment in Illinois[210](index=210&type=chunk) - As of December 31, 2019, the company operated **10,499 VGTs** across **2,312 locations**[210](index=210&type=chunk) - On November 20, 2019, TPG Pace Holdings Corp. acquired Accel Entertainment, Inc. through a business combination and changed its name to Accel Entertainment, Inc., with the transaction accounted for as a reverse recapitalization[210](index=210&type=chunk)[224](index=224&type=chunk) - The company is an "emerging growth company" and has elected to extend the transition period for complying with new accounting standards[210](index=210&type=chunk) [Note 2. Summary of Significant Accounting Policies](index=73&type=section&id=Note%202.%20Summary%20of%20Significant%20Accounting%20Policies) This section outlines key accounting policies, including the adoption of ASU No. 2014-09 (Topic 606) in Q4 2019, which extended amortization periods for route and customer acquisition costs and resulted in a $2.6 million cumulative adjustment to accumulated deficit - The company adopted ASU No. 2014-09 (Topic 606) revenue recognition standard in Q4 2019, electing the modified retrospective method and applying the standard to all contracts not completed as of January 1, 2019[211](index=211&type=chunk) - The adoption of Topic 606 extended the amortization period for route and customer acquisition costs to **12.4 years**, resulting in a **$2.6 million** cumulative impact adjustment to accumulated deficit and a **$1.1 million** reduction in amortization expense for the year[213](index=213&type=chunk)[237](index=237&type=chunk) - The company recognizes video gaming terminal revenue as the net cash generated from gaming activity, which is the difference between amounts wagered and amounts paid out, with revenue recognized at the completion of each game[216](index=216&type=chunk)[218](index=218&type=chunk)[219](index=219&type=chunk) - Route and customer acquisition costs are recorded at the net present value of future payments and amortized on a straight-line basis over the contract term, including expected renewal periods, discounted at the company's incremental borrowing rate[219](index=219&type=chunk) - Business combinations are accounted for using the acquisition method, with acquisition costs allocated to tangible and identifiable intangible assets (primarily location contracts) and liabilities, and goodwill representing the excess of the purchase price over net identifiable assets[219](index=219&type=chunk)[220](index=220&type=chunk) Estimated Useful Lives of Property and Equipment | | Years | |:---|:---|\ | Video game terminals and equipment | 7 | | Amusement and other equipment | 7 | | Office equipment and furniture | 7 | | Computer equipment and software | 3-5 | | Leasehold improvements | 5 | | Vehicles | 5 | | Buildings and improvements | 15-29 | [Note 3. Reverse Recapitalization](index=78&type=section&id=Note%203.%20Reverse%20Recapitalization) On November 20, 2019, TPG Pace Holdings Corp. acquired Accel Entertainment, Inc. in a business combination treated as a reverse recapitalization, resulting in a $29.262 million net equity infusion and a new capital structure - On November 20, 2019, TPG Pace Holdings Corp. acquired all issued and outstanding shares of Accel Entertainment, Inc. through a business combination and changed its name to Accel Entertainment, Inc., with the transaction accounted for as a reverse recapitalization[224](index=224&type=chunk) - The consideration for the transaction included cash, Class A-1 common stock, 2019 warrants, and Class A-2 common stock[224](index=224&type=chunk)[226](index=226&type=chunk) - Approximately **$48 million** was raised through an investment in a private placement to fund a portion of the cash consideration[227](index=227&type=chunk) - The reverse recapitalization resulted in a net equity infusion of **$29.262 million**[228](index=228&type=chunk) Capital Structure After Reverse Recapitalization (as of November 20, 2019) | | Number of Shares | |:---|:---|\ | Total Shares of Accel Stock on November 20, 2019 | 3,610,705 | | Effect of exchange ratio to convert Accel stock to A-1 Common Stock | 62,062,715 | | Shares issued in reverse recapitalization | 14,574,755 | | Total A-1 Common Stock | 76,637,470 | | Class A-2 Shares | 4,999,999 | | Warrants to purchase Class A-1 Share | 22,333,308 | [Note 4. Investment in Convertible Note](index=80&type=section&id=Note%204.%20Investment%20in%20Convertible%20Note) The company invested $30 million in 3% convertible notes in 2019, which are convertible into common stock of another terminal operator and are subordinate to that operator's credit facility - The company purchased **$5 million** and **$25 million** in convertible notes on July 19 and October 11, 2019, respectively, totaling **$30 million** with an annual interest rate of **3%**[232](index=232&type=chunk) - The company has the option to convert the notes into common stock of another terminal operator, and these notes are subordinate to that terminal operator's credit facility[232](index=232&type=chunk) - As of December 31, 2019, the carrying value of the investment in convertible notes was substantially consistent with its fair value[232](index=232&type=chunk) [Note 5. Property and Equipment](index=80&type=section&id=Note%205.%20Property%20and%20Equipment) Net property and equipment increased to $119.2 million as of December 31, 2019, with depreciation and amortization expenses of $26.4 million for the year Composition of Property and Equipment (as of December 31, in thousands of dollars) | | 2019 | 2018 | |:---|:---|:---|\ | Video game terminals and equipment | $166,850 | $126,043 | | Amusement and other equipment | 16,417 | 12,539 | | Office equipment and furniture | 1,540 | 1,827 | | Computer equipment and software | 8,715 | 5,092 | | Leasehold improvements | 44 | 44 | | Vehicles | 9,304 | 7,174 | | Buildings and improvements | 12,075 | 9,365 | | Land | 911 | 883 | | Construction in progress | 768 | 1,339 | | Total property and equipment | 216,624 | 164,306 | | Less accumulated depreciation and amortization | (97,423) | (71,864) | | Property and equipment, net | $119,201 | $92,442 | - Depreciation and amortization expense for property and equipment was **$26.4 million** in 2019, **$20.8 million** in 2018, and **$16.8 million** in 2017[235](index=235&type=chunk) [Note 6. Route and Customer Acquisition Costs](index=81&type=section&id=Note%206.%20Route%20and%20Customer%20Acquisition%20Costs) Route and customer acquisition costs, representing payments for VGT installation and operation contracts, were $17.399 million net as of December 31, 2019, with amortization expenses reduced by the adoption of Topic 606 - Route and customer acquisition costs are fees paid by the company to third parties and licensed video gaming establishments for contracts allowing the company to install and operate VGTs[236](index=236&type=chunk) - These costs are recorded at the net present value of future payments and amortized on a straight-line basis over the contract term, including expected renewal periods[236](index=236&type=chunk)[237](index=237&type=chunk) Route and Customer Acquisition Costs (as of December 31, in thousands of dollars) | | 2019 | 2018 | |:---|:---|:---|\ | Cost | $28,501 | $27,726 | | Accumulated amortization | (11,102) | (13,732) | | Route and customer acquisition costs, net | $17,399 | $13,994 | - As of December 31, 2019, the net present value of route and customer acquisition costs payable was **$6.5 million**, with **$1.7 million** included in current liabilities[236](index=236&type=chunk) - Amortization expense was **$1.7 million** in 2019, down from **$3.9 million** in 2018 and **$3.3 million** in 2017, primarily due to the extended amortization period from adopting ASC Topic 606[237](index=237&type=chunk) [Note 7. Location Contracts Acquired](index=81&type=section&id=Note%207.%20Location%20Contracts%20Acquired) Acquired location contracts, recorded as intangible assets at fair value, were $166.8 million net as of December 31, 2019, with amortization expenses of $16.2 million for the year and projected annual amortization of $20.475 million for the next five years - Acquired location contracts are recorded as intangible assets at their fair value at the time of acquisition and amortized on a straight-line basis over an estimated useful life of **10 years**[219](index=219&type=chunk)[238](index=238&type=chunk) Acquired Location Contracts (as of December 31, in thousands of dollars) | | 2019 | 2018 | |:---|:---|:---|\ | Cost | $204,353 | $147,341 | | Accumulated amortization | (37,570) | (21,302) | | Location contracts acquired, net | $166,783 | $126,038 | - Amortization expense for location contracts was **$16.2 million** in 2019, **$10.8 million** in 2018, and **$6.5 million** in 2017[239](index=239&type=chunk) Estimated Amortization Expense for Acquired Location Contracts (in thousands of dollars) | Year ending December 31: | | |:---|:---|\ | 2020 | 20,475 | | 2021 | 20,475 | | 2022 | 20,475 | | 2023 | 20,475 | | 2024 | 20,267 | | Thereafter | 64,615 | | Total | 166,783 | [Note 8. Goodwill](index=82&type=section&id=Note%208.%20Goodwill) The company recognized $34.5 million in goodwill from the Grand River Jackpot acquisition in September 2019, with $27.3 million tax-deductible, and no impairment was identified in the annual test - The company recognized **$34.5 million** in goodwill from the acquisition of Grand River Jackpot on September 16, 2019, of which **$27.3 million** is tax-deductible[240](index=240&type=chunk)[250](index=250&type=chunk) - The company had no goodwill prior to the Grand River Jackpot acquisition[240](index=240&type=chunk) - In its annual impairment test on October 1, 2019, the company performed a qualitative assessment, considering historical performance, existing market growth opportunities, and new markets and products, concluding that goodwill was not impaired[240](index=240&type=chunk) [Note 9. Debt](index=82&type=section&id=Note%209.%20Debt) As of December 31, 2019, the company's total debt was $358.5 million, primarily from a new senior secured credit facility, with a weighted average interest rate of approximately 4.45% and compliance with all debt covenants Company Debt Composition (as of December 31, in thousands of dollars) | | 2019 | 2018 | |:---|:---|:---|\ | New Credit Facility: Revolving credit facility | $58,500 | $0 | | New Credit Facility: Term Loan | 240,000 | $0 | | New Credit Facility: Delayed Draw Term Loan (DDTL) | 60,000 | $0 | | Prior Credit Facility: Line of credit | $0 | $50,000 | | Prior Credit Facility: Contract draw loan | $0 | $67,000 | | Prior Credit Facility: Term loans | $0 | $115,625 | | Total debt | $358,500 | $232,625 | | Less: Debt issuance costs | (8,808) | (1,230) | | Total debt, net of debt issuance costs | $349,692 | $231,395 | | Less: Current maturities | (15,000) | (62,500) | | Total debt, net of current maturities | $334,692 | $168,895 | - The company entered into a new senior secured credit facility on November 13, 2019, comprising a **$100 million** revolving credit facility, a **$240 million** initial term loan, and a **$125 million** additional term loan, with approximately **$106.5 million** available as of December 31, 2019[243](index=243&type=chunk) - Borrowings under the new credit facility bear interest at a floating rate (LIBOR or ABR plus an applicable margin), with a weighted average interest rate of approximately **4.45%** as of December 31, 2019[243](index=243&type=chunk) - The term loan and delayed draw term loan will amortize at an annual rate of approximately **5.00%**, with all loans maturing on November 13, 2024[243](index=243&type=chunk) - The company repaid its prior credit facility in November 2019, recording a **$1.1 million** loss on debt extinguishment[247](index=247&type=chunk) - The company was in compliance with all debt covenants as of December 31, 2019[245](index=245&type=chunk) Principal Maturities of Long-Term Debt (as of December 31, 2019, in thousands of dollars) | Year ending December 31: | | |:---|:---|\ | 2020 | 15,000 | | 2021 | 15,000 | | 2022 | 15,000 | | 2023 | 15,000 | | 2024 | 298,500 | | Total debt | 358,500 | [Note 10. Business and Asset Acquisitions](index=85&type=section&id=Note%2010.%20Business%20and%20Asset%20Acquisitions) The company achieved growth through various business and asset acquisitions, including Grand River Jackpot for $113.7 million in 2019, which added 2,009 VGTs and over 450 locations, and other acquisitions in prior years - On September 16, 2019, the company acquired Grand River Jackpot for a total consideration of **$113.7 million**, adding **2,009 VGTs** and over **450 licensed establishments**, and generating **$34.5 million** in goodwill[250](index=250&type=chunk)[251](index=251&type=chunk) - The consideration for Grand River Jackpot included **$100 million** in cash, **$6.6 million** in working capital adjustments, and **$7.1 million** in contingent consideration[250](index=250&type=chunk) - On September 23, 2019, the company acquired assets of Illinois Gaming Systems, LLC for **$2.4 million** in cash and **$2.3 million** in notes payable, including **139 VGTs** and **29 licensed establishments**[254](index=254&type=chunk) - In 2018, the company completed several business acquisitions, including Quad B, Skyhigh Gaming, G3 Gaming, Mike's Amusements, and Family Amusement, for a total consideration of **$63.745 million**[255](index=255&type=chunk) - In 2017, the company acquired Fair Share Gaming for a total consideration of **$65.119 million**, including cash, common stock, contingent stock consideration, and accounts payable[262](index=262&type=chunk)[263](index=263&type=chunk) Current and Long-Term Portions of Contingent Consideration (as of December 31, in thousands of dollars) | | Current 2019 | Long-Term 2019 | Current 2018 | Long-Term 2018 | |:---|:---|:---|:---|:---|\ | TAV | $490 | $3,497 | $194 | $1,232 | | Abraham | 55 | — | 207 | — | | Fair Share Gaming | 1,057 | 899 | 1,027 | — | | Family Amusement | 293 | 2,815 | 357 | 3,011 | | Skyhigh | 763 | 3,948 | 550 | 3,971 | | G3 | 2,952 | 154 | 221 | 806 | | Grand River | 2,304 | 5,113 | — | — | | IGS | 2,379 | — | — | — | | Total | $10,293 | $16,426 | $2,556 | $9,020 | [Note 11. Fair Value Measurements](index=91&type=section&id=Note%2011.%20Fair%20Value%20Measurements) The company measures financial instruments at fair value using a three-level hierarchy, with convertible notes and contingent consideration valued using Level 3 unobservable inputs and changes recognized in net other expenses - The company measures financial instruments at fair value in accordance with ASC Topic 820, categorizing them into Level 1, Level 2, and Level 3 based on the observability of inputs[272](index=272&type=chunk) - Convertible notes are valued using a binomial lattice model and classified as Level 3 fair value measurements due to significant unobservable inputs[274](index=274&type=chunk) - Contingent consideration is valued using a discounted cash flow analysis, updated periodically, with changes in fair value recognized in net other expenses in the consolidated statements of operations[275](index=275&type=chunk)[276](index=276&type=chunk) Fair Value of Contingent Consideration (as of December 31, in thousands of dollars) | Liabilities: | December 2019 | Fair Value Measurement at Reporting Date Using Significant Unobservable Inputs (Level 3) | |:---|:---|:---|\ | Contingent consideration | $17,327 | $17,327 | | Liabilities: | December 2018 | Fair Value Measurement at Reporting Date Using Significant Unobservable Inputs (Level 3) | | Contingent consideration | $6,782 | $6,782 | Changes in Fair Value of Contingent Consideration (as of December 31, in thousands of dollars) | Liabilities: Contingent consideration: | 2019 | 2018 | 2017 | |:---|:---|:---|:---|\ | Beginning of year balance | $6,782 | $785 | $190 | | Issuance of contingent consideration in connection with acquisitions | 7,216 | 5,350 | 595 | | Payment of contingent consideration | (1,658) | (387) | — | | Additional accruals included in earnings | 4,987 | 1,034 | — | | Ending balance | $17,327 | $6,782 | $785 | [Note 12. Stockholders' Equity](index=93&type=section&id=Note%2012.%20Stockholders'%20Equity) Following the reverse recapitalization, the company's authorized capital includes preferred, Class A-1, and Class A-2 common stock, with Class A-2 shares convertible to Class A-1 upon meeting specific conditions - The company is authorized to issue **1,000,000 shares** of preferred stock, **250,000,000 shares** of Class A-1 common stock, and **10,000,000 shares** of Class A-2 common stock[277](index=277&type=chunk) - Holders of Class A-1 common stock are entitled to one vote per share and have rights to dividends and distributions[278](index=278&type=chunk) - Class A-2 common stock has no voting or dividend rights but is convertible into Class A-1 common stock in three tranches upon meeting specific LTM EBITDA or Class A-1 share price trigger conditions[278](index=278&type=chunk)[279](index=279&type=chunk) - On January 14, 2020, the market condition for the conversion of the first tranche (**1,666,666 shares**) of Class A-2 common stock was met, and these shares were converted into Class A-1 common stock[279](index=279&type=chunk)[318](index=318&type=chunk) - As of December 31, 2019, the company had **22,333,308 warrants** for Class A-1 common stock and **2,376,700 options** for Class A-1 common stock outstanding[286](index=286&type=chunk) - The company has reserved **29,710,007 shares** of Class A-1 common stock for future issuance[286](index=286&type=chunk) [Note 13. Video Gaming Terminal Fees](index=97&type=section&id=Note%2013.%20Video%20Gaming%20Terminal%20Fees) Net terminal income is subject to a 33% state tax and a 0.8513% administrative fee, with the remaining profit split 50/50 between the company and licensed locations, totaling $133.2 million in fees for 2019 - Under the Illinois Video Gaming Act, net terminal income is subject to a **33% state tax** (increased from **30%** effective July 2019)[287](index=287&type=chunk) - An administrative fee of **0.8513%** is also payable (increased from **0.7275%** effective July 2018)[287](index=287&type=chunk) - After deducting taxes and fees, the remaining net terminal income is split **50/50** between the company and the licensed video gaming establishment[287](index=287&type=chunk) - Total video gaming terminal fees were **$133.2 million** in 2019, **$99.1 million** in 2018, and **$73.8 million** in 2017[287](index=287&type=chunk) [Note 14. Employee Benefit Plans](index=97&type=section&id=Note%2014.%20Employee%20Benefit%20Plans) The company offers a 401(k) plan with a 50% employer match and provides incentive compensation, with total 401(k) expenses of approximately $0.6 million and bonus expenses of $2.1 million in 2019 - The company offers a 401(k) benefit plan for eligible employees, providing a **50% employer match** (up to **5%** of employee compensation) since February 2017, with employees fully vested after one year[288](index=288&type=chunk) - 401(k) benefit plan expenses were approximately **$0.6 million** in 2019, **$0.5 million** in 2018, and **$0.2 million** in 2017[288](index=288&type=chunk) - Incentive compensation plan bonus expenses were **$2.1 million** in 2019, **$1.8 million** in 2018, and **$1.6 million** in 2017[289](index=289&type=chunk) [Note 15. Stock-based Compensation](index=97&type=section&id=Note%2015.%20Stock-based%20Compensation) The company grants stock options under equity incentive plans, typically vesting over three to five years, with fair value estimated using the Black-Scholes model, resulting in $2.2 million in stock-based compensation expense for 2019 - The company grants stock options to employees under its 2011 and 2016 equity incentive plans, with options typically vesting over three to five years and exercise prices not less than **100%** of the common stock's fair market value on the grant date[291](index=291&type=chunk) - The company uses the Black-Scholes model to estimate the fair value of stock options, considering volatility of comparable public companies, expected dividends, expected term, risk-free rate, and stock price[293](index=293&type=chunk) Option Valuation Model Assumptions (as of December 31) | | 2019 * | 2018 | 2017 | |:---|:---|:---|:---|\ | Expected approximate volatility | None | 35% | 35% | | Expected dividends | None | None | None | | Expected term (in years) | None | 3-5 | 5 | | Risk-free rate | None | 2.41% - 2.62% | 1.81% - 2.18% | | Stock price | None | $4 - $5 | $3 - $4 | * there were no options granted in 2019 - Stock-based compensation expense was **$2.2 million** in 2019, **$0.5 million** in 2018, and **$0.8 million** in 2017[297](index=297&type=chunk) - As of December 31, 2019, unrecognized compensation expense was approximately **$0.9 million**, expected to be recognized through 2021[297](index=297&type=chunk) [Note 16. Income Taxes](index=99&type=section&id=Note%2016.%20Income%20Taxes) The company recognized $5.2 million in income tax expense in 2019, influenced by state income taxes and permanent items, and holds federal and state net operating loss carryforwards - The company recognized income tax expense of **$5.2 million** in 2019, **$4.4 million** in 2018, and **$1.8 million** in 2017[299](index=299&type=chunk)[300](index=300&type=chunk) - The 2017 Tax Cuts and Jobs Act resulted in a revaluation of the company's deferred tax assets and liabilities, generating a **$1.8 million** benefit[301](index=301&type=chunk) Deferred Tax Assets and Liabilities (as of December 31, in thousands of dollars) | | 2019 | 2018 | |:---|:---|:---|\ | Deferred tax assets: Net operating loss carryforwards | $6,633 | $4,192 | | Deferred tax assets: Location contracts acquired | 4,699 | 1,887 | | Deferred tax assets: Other | 260 | 1,032 | | Deferred tax assets: Total | 11,592 | 7,111 | | Deferred tax liabilities: Property and equipment | 24,568 | 16,006 | | Net deferred tax liability | $(12,976) | $(8,895) | Net Operating Loss Carryforwards (as of December 31, in thousands of dollars) | | 2019 Amount | Expiration | 2018 Amount | Expiration | |:---|:---|:---|:---|:---|\ | Federal net operating losses | $27,873 | 2033 - 2039 | $17,942 | 2031 - 2038 | | State net operating losses | 14,454 | 2024 - 2031 | 5,655 | 2023 - 2030 | [Note 17. Commitments and Contingencies](index=101&type=section&id=Note%2017.%20Commitments%20and%20Contingencies) The company has various commitments, including lease obligations and earnout payments, and faces multiple legal proceedings, with management expecting no material adverse impact from most ongoing cases - The company has lease obligations for office space, with rent expense of approximately **$0.3 million** in 2019 and future minimum payments of **$0.584 million** through December 2023[306](index=306&type=chunk)[307](index=307&type=chunk) - The company has future location earnout payments related to business acquisitions and salary and potential severance payments under employment agreements[307](index=307&type=chunk)[308](index=308&type=chunk) - The company is involved in litigation with J&J Ventures Gaming, LLC regarding the legality of contracts signed with **10 licensed establishments** in 2012, where the Illinois Supreme Court ruled the IGB has exclusive jurisdiction over the validity and enforceability of such agreements[309](index=309&type=chunk)[310](index=310&type=chunk) - The company filed a lawsuit against Jason Rowell, alleging breach of non-compete agreements and interference with customer relationships; Jason Rowell also sued the company, claiming he did not receive his rightful equity[310](index=310&type=chunk) - Illinois Gaming Investors, LLC filed a lawsuit against the company in July 2019, seeking **$10 million** in damages, alleging breach of non-compete agreements and improper solicitation of customers by the company and its employees[312](index=312&type=chunk) [Note 18. Related-Party Transactions](index=103&type=section&id=Note%2018.%20Related-Party%20Transactions) The company engages in related-party transactions, including legal service payments, investment banking fees to Raine Group, and a $2.9 million payment by a Class A common stockholder for audit services in 2019 - The company previously engaged in stock repurchases and cashless option conversions with certain officers and employees and collected shareholder notes receivable, which were fully paid prior to the reverse recapitalization[313](index=313&type=chunk) - The company paid legal service fees to Much Shelist, P.C., a related-party legal counsel, totaling **$0.6 million** in 2019, **$0.3 million** in 2018, and **$0.6 million** in 2017[313](index=313&type=chunk) - In 2019, the company paid **$11 million** in investment banking service fees to Raine Group, a director of which is also a director of the company[313](index=313&type=chunk) - In Q3 2019, a Class A common stockholder paid **$2.9 million** in service fees to the independent registered public accounting firm on behalf of the company, which was recorded in net other expenses and additional paid-in capital[315](index=315&type=chunk) [Note 19. Earnings Per Share](index=104&type=section&id=Note%2019.%20Earnings%20Per%20Share) Weighted average shares outstanding were retrospectively adjusted for the reverse recapitalization, resulting in a basic and diluted net loss per share of -$0.09 in 2019, with anti-dilutive securities excluded from diluted EPS calculations - The company retrospectively adjusted the weighted average number of shares outstanding for the reverse recapitalization[316](index=316&type=chunk) Earnings Per Share Composition (as of December 31, in thousands of dollars, except per share amounts) | | 2019 | 2018 | 2017 | |:---|:---|:---|:---|\ | Net (loss) income | $(5,864) | $10,803 | $8,311 | | Basic weighted average outstanding shares of common stock | 61,850 | 57,621 | 56,321 | | Diluted weighted average outstanding shares of common stock | 61,850 | 62,182 | 59,408 | | Earnings (loss) per share: Basic | $(0.09) | $0.19 | $0.15 | | Earnings (loss) per share: Diluted | $(0.09) | $0.17 | $0.14 | - There was no difference between basic and diluted weighted average common shares outstanding in 2019 due to the company being in a net loss position[317](index=317&type=chunk) - In 2019, 2018, and 2017, **28,561,724**, **439,167**, and **629,960** anti-dilutive stock options, Class A-2 shares, and warrants, respectively, were excluded from the diluted earnings per share calculation[317](index=317&type=chunk) [Note 20. Subsequent Events](index=104&type=section&id=Note%2020.%20Subsequent%20Events) On January 14, 2020, the market condition for the conversion of Tranche I of Class A-2 shares was met, resulting in the conversion of 1,666,666 Class A-2 shares into Class A-1 shares - On January 14, 2020, the market condition for the conversion of Tranche I of Class A-2 shares was met, and **1,666,666 Class A-2 shares** were converted into Class A-1 shares[318](index=318&type=chunk)