Accel Entertainment(US:ACEL)2021-03-15 16:00Financial Reporting and Internal Controls - Accel identified three material weaknesses in its internal control over financial reporting, which could impair the accuracy of financial statements and compliance with applicable laws [142]. - The company has begun hiring additional accounting and finance personnel to address identified material weaknesses and improve financial reporting accuracy [149]. - Accel's management is actively addressing the identified material weaknesses and has developed a comprehensive remediation plan [347]. - The company has established an Internal Audit department to monitor quality controls and review internal controls over financial reporting [354]. - Additional accounting and finance personnel have been added to improve the execution of the control framework [354]. - The company is developing policies and procedures to assist in the appropriate recording of transactions [354]. - A third-party valuation specialist has been engaged to perform acquisition purchase price allocations for material business combinations [354]. - IT policies have been developed and are in the process of being implemented to strengthen general information technology controls [354]. - As of December 31, 2020, the material weaknesses have not yet been remediated, but management is actively addressing them [356]. - There were no other changes in internal control over financial reporting that materially affected the company's reporting during the quarter ended December 31, 2020 [356]. Financial Condition and Debt - As of December 31, 2020, Accel had total indebtedness of $347.6 million, with approximately $100.0 million of availability under its current Credit Agreement [172]. - Accel's level of indebtedness could adversely affect its ability to obtain financing or refinance existing debt, requiring a significant portion of cash flow to be dedicated to interest and principal payments [173]. - Accel may not have sufficient cash flows from operating activities to service all of its indebtedness and obligations, potentially forcing the company to take other actions [179]. - Accel's credit facilities impose restrictions on incurring additional debt, making loans, and paying dividends, which may adversely affect its operations [185]. - The financial covenants require Accel to maintain a consolidated first lien net debt to consolidated EBITDA ratio no greater than 4.50 to 1.00 [185]. - Accel's ability to refinance debt on acceptable terms is uncertain, posing risks to its financial stability [186]. - As of December 31, 2020, Accel's borrowings under its senior secured credit facility were $347.6 million, with a potential annual increase in interest expense of approximately $3.5 million if interest rates rise by 1.0% [343]. Regulatory and Legal Risks - Changes in gaming regulations, such as the recent Illinois gaming expansion bill, could increase operational costs and impact profitability [140]. - The company is required to comply with evolving government regulations, which may limit operations and expose it to fines or penalties [138]. - Accel's gaming machines have experienced anomalies in the past, which could lead to claims from players or licensed establishment partners and potential regulatory investigations [170]. - The Illinois legislature approved a gaming expansion bill in June 2019, increasing the state tax on gaming revenue, which could adversely affect Accel's financial condition [163]. - The company may incur significant expenses related to litigation claims, which could adversely affect its business and financial condition [151]. - Holders of common stock are subject to gaming regulations, which may require qualification by gaming authorities [194]. Market and Stock Performance - The market price of Class A-1 common stock may be volatile, influenced by various factors including operational shutdowns and changes in gaming laws [197]. - Future capital raising efforts may dilute existing stockholders and reduce the market price of Accel's securities [202]. - The potential for a large number of Accel's securities to be sold in the market could depress the market price of its Class A-1 common stock [215]. - Accel's Class A-1 common stock is currently listed on the NYSE but may face delisting if it fails to maintain at least 300 public stockholders [203]. - The company must maintain a minimum share price of $4.00 per share and at least 400 round lot holders to comply with NYSE listing requirements [205]. - Accel's securities could be classified as "penny stocks" if delisted, resulting in stricter trading rules and reduced market activity [206]. - The influence of major stockholders like TPG and Clairvest may affect corporate governance and strategic decisions [190]. - As of December 31, 2020, approximately 18% of Class A-1 common stock was beneficially owned by affiliates of Clairvest, indicating significant ownership concentration [188]. - Accel has never declared or paid cash dividends and does not intend to do so, relying on subsidiaries for any potential distributions [196]. Operational Risks - Accel's operations could be adversely affected by natural disasters, which may disrupt operations and delay product introductions in new jurisdictions [136]. - Accel's products and services may be vulnerable to security breaches, which could expose the company to liability and damage its reputation [168]. - Accel's success depends on the protection of its intellectual property, including trademarks and copyrights, which may not provide competitive advantages [159]. - Accel's strategy includes capitalizing on the liberalization of gaming regulations, but this process can be protracted and uncertain [166]. - Accel's ability to generate revenue and procure new contracts depends on its liquidity levels and ability to obtain financing on commercially reasonable terms [176].