Accel Entertainment(ACEL) - 2021 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Presents unaudited consolidated financial statements and notes for periods ended June 30, 2021 and 2020 Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) 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 | $0.14 | 1400.0% | Condensed Consolidated Balance Sheets Presents the company's unaudited condensed consolidated balance sheets as of June 30, 2021, and December 31, 2020 Balance Sheet Highlights (in thousands) | Metric | June 30, 2021 (Unaudited) | December 31, 2020 (As Restated) | Change ($) | 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) 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 $5,673 thousand[15] Condensed Consolidated Statements of Cash Flows Presents the company's unaudited condensed consolidated statements of cash flows for the six months ended June 30, 2021, and 2020 Cash Flow Summary (Six Months Ended June 30, in thousands) | Activity | 2021 | 2020 (As Restated) | Change ($) | | :------------------------------------------ | :----- | :----------------- | :--------- | | 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 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] 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][28] Note 2. Summary of Significant Accounting Policies 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] - Prior periods (June 30, 2020, and December 31, 2020) were restated as detailed in the Form 10-K[31] - 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] - 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][36] Note 3. Investment in Convertible Notes 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] - Amendments in July 2020 and March 2021 extended the maturity dates and payback periods for these notes[39][40] - 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] - 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][125] Note 4. Property and Equipment 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 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] 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 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 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] Note 8. Debt 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] - The weighted-average interest rate was approximately 3.3% as of June 30, 2021[56] - 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] Note 9. Business and Asset Acquisitions 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] - 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] - 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][68] 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 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][78] - 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] Note 11. Warrant Liability 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][81] - 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][82][83] - 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] Note 12. Fair Value Measurements 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][86] 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][96][97][98] Note 13. Stockholders' Equity 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] - 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] Note 14. Stock-based Compensation 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][104] 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 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][107] Note 16. Commitments and Contingencies 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][109][110][111][112][113] - Accel is also involved in lawsuits with Jason Rowell concerning breaches of his non-compete agreement and his claims for certain equity interests[114] - 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] - 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] - 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][114][115][116] Note 17. Related-Party Transactions 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] - 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] - The Raine Group, which employs a company director, received $0.2 million in underwriting fees for the September 2020 public offering[121] Note 18. Earnings Per Share 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][124] Note 19. Subsequent Events 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] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Analyzes financial condition, operations, COVID-19 recovery, key drivers, metrics, non-GAAP measures, and liquidity for the period Company Overview 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] - As of June 30, 2021, the company operated 13,177 VGTs across 2,527 locations in Illinois[128] - 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][130] Impact of COVID-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][133] - In response, the company borrowed $65 million, reduced monthly cash expenses, furloughed approximately 90% of employees, and deferred vendor payments[132][133] - 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][135] Components of Performance 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] - 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][138] - 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][139][140][141] - Interest expense, net, covers interest on credit facilities, amortization of financing fees, accretion of interest on payables, and interest income on convertible notes[142] Results of Operations - Three Months Ended June 30, 2021 and 2020 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] - 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] - 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] - 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] - 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] - 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][155] - 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] Results of Operations - Six Months Ended June 30, 2021 and 2020 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] - 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] - 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] - 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] - Interest expense, net, remained flat at $6.7 million, with a weighted average interest rate of approximately 3.3% for both periods[167] - 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] - 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] Key Business Metrics 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] 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][175] Non-GAAP Financial Measures 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] 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] Liquidity and Capital Resources 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] - 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][183] - 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] 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 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] 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] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Outlines the company's market risk exposure, primarily focusing on interest rate risk from floating-rate debt Interest rate risk 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] - 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] ITEM 4. CONTROLS AND PROCEDURES Evaluates disclosure controls and procedures, noting material weaknesses but affirming fair financial statement presentation Evaluation of Disclosure Controls and Procedures 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] - 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] Changes in Internal Control Over Financial Reporting 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] PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 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][207][208][209][210] - 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] - 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] - 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] - 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][213][214][215] ITEM 1A. RISK FACTORS 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] - 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] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS Reports no unregistered sales of equity securities or use of proceeds for the period - None[217] ITEM 3. DEFAULTS UPON SENIOR SECURITIES Indicates no defaults upon senior securities for the period - None[217] ITEM 4. MINE SAFETY DISCLOSURES Clarifies that mine safety disclosures are not applicable to the company's operations - Not applicable[217] ITEM 6. EXHIBITS 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] 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]