2020 Annual Report
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, 2020
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
(State or Other Jurisdiction of Incorporation or Organization)
98-1350261
(I.R.S. Employer Identification No.)
140 Tower Drive Burr Ridge, Illinois
(Address of Principal Executive Offices)
60527
(Zip Code)
(630) 972-2235
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Class A-1 Common Stock, par value $.0001 per share
Trading Symbols
ACEL
Name of Each Exchange on Which Registered
The New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth
company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
☐
☐
Accelerated filer
Smaller reporting company
Emerging growth company
☒
☐
☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared
or issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of June 30, 2020, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the registrant’s Class A ordinary
shares outstanding held by non-affiliates of the registrant was approximately $332.2 million based on the closing price of such stock as reported on The New York Stock
Exchange on such date.
As of March 12, 2021, there were 93,379,508 shares outstanding of the registrant’s Class A-1 Common Stock, par value $.0001 per share.
Portions of the registrant’s definitive Proxy Statement for its 2021 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report on
Form 10-K where indicated. Such Proxy Statement will be filed with the Securities and Exchange Commission within 120 days of the registrant's fiscal year ended
December 31, 2020.
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ACCEL ENTERTAINMENT, INC.
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
BUSINESS
RISK FACTORS
UNRESOLVED STAFF COMMENTS
PROPERTIES
LEGAL PROCEEDINGS
MINE SAFETY DISCLOSURES
PART II
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
SELECTED FINANCIAL DATA
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
CONTROLS AND PROCEDURES
OTHER INFORMATION
PART III
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
EXECUTIVE COMPENSATION
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
PRINCIPAL ACCOUNTANT FEES AND SERVICES
ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 2.
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ITEM 6.
ITEM 7.
ITEM 7A.
ITEM 8.
ITEM 9.
ITEM 9A.
ITEM 9B.
ITEM 10.
ITEM 11.
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ITEM 13.
ITEM 14.
ITEM 15.
ITEM 16.
EXHIBIT AND FINANCIAL STATEMENT SCHEDULES
FORM 10-K SUMMARY
PART IV
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K (“Form 10-K”) contains forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”). All statements, other than statements of historical fact, contained in this Annual Report on Form
10-K are forward-looking statements, including, but not limited to, statements regarding our strategy, prospects, plans,
objectives, future operations, future revenue and earnings, projected margins and expenses, markets for our services, potential
acquisitions or strategic alliances, financial position, and liquidity and anticipated cash needs and availability. The words
“anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “will,” “would,” and similar
expressions or the negatives thereof are intended to identify forward-looking statements. However, not all forward-looking
statements contain these identifying words. These forward-looking statements represent our current reasonable expectations and
involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance and
achievements, or industry results, to be materially different from any future results, performance or achievements expressed or
implied by such forward-looking statements. We cannot guarantee the accuracy of the forward-looking statements, and you
should be aware that results and events could differ materially and adversely from those contained in the forward-looking
statements due to a number of factors including, but not limited to, those described in the section entitled “Risk Factors” included
in this Annual Report on Form 10-K. Furthermore, such forward-looking statements speak only as of the date of this Annual
Report on Form 10-K. Except as required by law, we do not undertake publicly to update or revise these statements, even if
experience or future changes make it clear that any projected results expressed in this Annual Report on Form 10-K or future
quarterly reports, press releases or company statements will not be realized. In addition, the inclusion of any statement in this
Annual Report on Form 10-K does not constitute an admission by us that the events or circumstances described in such statement
are material. We qualify all of our forward-looking statements by these cautionary statements. In addition, the industry in which
we operate is subject to a high degree of uncertainty and risk due to a variety of factors including those described in the section
entitled “Risk Factors.” These and other factors could cause our results to differ materially from those expressed in this Annual
Report on Form 10-K.
Unless otherwise indicated, information contained in this Annual Report on Form 10-K concerning our industry and the
markets in which we operate, including our general expectations and market position, market opportunity, and market size, is
based on information from various sources, on assumptions that we have made that are based on those data and other similar
sources, and on our knowledge of the markets for our services. This information includes a number of assumptions and
limitations, and you are cautioned not to give undue weight to such information. In addition, projections, assumptions, and
estimates of our future performance and the future performance of the industry in which we operate are necessarily subject to a
high degree of uncertainty and risk due to a variety of factors, including those described in the section entitled “Risk Factors”
and elsewhere in this Annual Report on Form 10-K. These and other factors could cause results to differ materially from those
expressed in the estimates made by third parties and by us.
Unless otherwise indicated or unless the context requires otherwise, all references in this document to “Accel,” “our
company,” “we,” “us,” “our,” and similar names refer to Accel Entertainment, Inc. and, where appropriate, its subsidiaries.
ITEM 1. BUSINESS
Overview
PART I
We believe we are the leading distributed gaming operator in the United States on an Adjusted EBITDA basis, and a
preferred partner for local business owners in the Illinois market. Our business consists of the installation, maintenance and
operation of gaming terminals, redemption devices that disburse winnings and contain automated teller machine (“ATM”)
functionality, and other amusement devices in authorized non-casino locations such as restaurants, bars, taverns, convenience
stores, liquor stores, truck stops, and grocery stores, which are referred to collectively as “licensed establishments.” We also
operate stand-alone ATMs in gaming and non-gaming locations. Accel has been licensed by the Illinois Gaming Board (“IGB”)
since 2012 and holds a license from the Pennsylvania Gaming Control Board (“PA Board”). In July 2020, the Georgia Lottery
Corporation (“GLC”) approved one of our consolidated subsidiaries as a licensed operator, or a Master Licensee, which allows us
to install and operate coin operated amusement machines for commercial use by the public for play throughout the State of
Georgia.
Our gaming-as-a-service platform provides local businesses with a turnkey, capital efficient gaming solution. We own all of
our gaming equipment and manage the entire operating process for our licensed establishment partners. We also offer our licensed
establishment partners gaming solutions that appeal to players who patronize those businesses. We devote significant resources to
licensed establishment partner retention, and seek to provide prompt, personalized player service and support, which we believe is
unparalleled among other distributed gaming operators. Dedicated relationship managers assist licensed establishment partners
with regulatory applications and compliance onboarding, train licensed establishment partners on how to engage with players and
potential players, monitor individual gaming areas for compliance, cleanliness and comfort and recommend potential changes to
improve both player gaming experience and overall revenue for each licensed establishment. We also provide weekly gaming
revenue reports to our licensed establishment partners and analyze and compare gaming results within individual licensed
establishment partners. This information is used to determine an optimal selection of games, layouts and other ideas to generate
foot traffic for our licensed establishment partners with the goal of generating increased gaming revenue. Further, our in-house
collections and security personnel provide highly secure cash transportation and vault management services. Our best-in-class
technicians ensure minimal downtime through proactive service and routine maintenance. As a result, Accel’s voluntary contract
renewal rate was approximately 99% for the three-year period ended December 31, 2020.
In addition to our gaming business, we also install, operate and service redemption devices that have ATM functionality,
stand-alone ATMs and amusement devices, including jukeboxes, dartboards, pool tables, pinball machines and other related
entertainment equipment. These operations provide a complementary source of lead generation for our gaming business by
offering a “one-stop” source of additional equipment for its licensed establishment partners.
Our Industry
We operate within the U.S. distributed gaming industry, which consists of the installation and service of slot machines at non-
casino licensed establishments. Generally, a gaming terminal or slot machine is any electronic video game machine that, upon
insertion of cash, electronic cards or vouchers, or any combination thereof, is available to play or simulate the play of a video
game, including but not limited to video poker and slots, and utilizes a video display and microprocessors in which players may
receive free games or credits that can be redeemed for cash or merchandise. Distributed gaming is currently legal in Illinois,
Louisiana, Montana, Nevada, Oregon, Pennsylvania, South Dakota and West Virginia. Other states such as Georgia have a similar
but separately regulated coin-operated amusement machine market. We believe that the distributed gaming industry is supported
by generally favorable trends, including an increasing number of states approving, or contemplating approving, gaming to
increase tax revenues, broader acceptance in the U.S. of gaming generally, including online and digital gaming, an aging
population that appreciates the convenience of gaming entertainment close to home, expected resilience through economic
downturns and attractive revenue and return on invested capital profiles when compared to traditional gaming venues, such as
casinos. We believe that, as an increasing number of jurisdictions have legalized distributed gaming, the industry has witnessed
both a growing player base and increased variety of higher quality game profiles available through gaming terminals.
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Our operations are based primarily in Illinois. We have been licensed as a terminal operator in Illinois under the Illinois
Gaming Act since 2012. We were one of the first terminal operators licensed in Illinois. The Illinois distributed gaming industry
has grown significantly since 2012, with 7,227 licensed establishments operating a total of 37,159 video gaming terminals
(“VGTs”) as of December 31, 2020, according to Scientific Games International’s terminal operator portal and the Video Gaming
Revenue Reports published by the IGB. According to the IGB, approximately 1,384 out of approximately 1,497 municipalities in
Illinois permit the operation of gaming terminals. Gaming terminals in Illinois can be played in licensed bars, restaurants, gaming
cafes, truck stops, fraternal organizations, veterans’ organizations, and other retail establishments, including some convenience
stores, in areas accessible only to players who are 21 years of age or older. Gaming revenue in Illinois from gaming terminals
generates significant tax revenue. The Illinois state legislature has increased applicable marginal tax rates on gaming from 30% to
33% effective July 1, 2019 and from 33% to 34% effective July 1, 2020. While the increase in gaming tax rates negatively
impacted the distributed gaming industry, other legislative changes, such as an increase in the number of permitted gaming
terminals at a given location, an increase in maximum wager limits and maximum win payouts are driving overall video gaming
revenue upward.
The IGB generally oversees gambling and video gaming operations in the state of Illinois. The IGB is authorized to issue
licenses to distributed gaming operators and has broad disciplinary authority over Illinois’s distributed gaming industry which
includes the power to fine operators and licensed establishments for non-compliance with IGB regulations. As enforcement efforts
and incidents of discipline among licensees increase, fine amounts for non-compliance have also increased. While the IGB has
licensed a significant number of new video gaming establishments in recent years, it has also experienced an increase in its
application backlog. In addition, Illinois’ governor is empowered to appoint board members to the IGB and select its
administrator for the IGB to ultimately approve. Not only do new appointments have the potential to change the composition of
the IGB, they can impact current rules, regulations, policies and agendas of the IGB, which may result in increased enforcement
measures or further delays in licensing new establishments. The IGB dictates the maximum bet, maximum win, and approves
payout percentages for games played on gaming terminals which are required by regulation to exceed 80%. Generally, suppliers
have designed gaming terminals to include between approximately 10 and 40 games. In 2020, payout percentages for gaming
terminals across Illinois averaged approximately 92%, according to the Video Gaming Revenue Reports published by the IGB.
Accel’s payouts range from 88% to 94%, with an average of 92%. Additionally, Illinois legislation has increased the maximum
number of gaming terminals that may be operated at a given licensed establishment from five to six, with certain qualifying truck
stop licensed establishments allowed to operate up to ten gaming terminals. This legislation has also increased the maximum
wager that may be placed on a gaming terminal from $2.00 to $4.00 and the maximum win from a single play from $500 to
$1,199. All gaming terminals are monitored and controlled by the IGB through a central communications system. The IGB
established minimum standards that licensed establishment partner contracts must meet, including limiting the length of contracts
entered into after February 2, 2018 to a maximum of eight years with no automatic renewals.
We have made substantial investments in regulatory training and compliance for our staff and licensed establishment
partners. Accel has designed and implemented systems and controls that facilitate compliance with applicable regulatory
requirements in Illinois and is working on implementing similar systems and controls in Georgia and for the anticipated start of
live gaming in Pennsylvania.
The operation of coin-operated amusement machines, or COAMs, in Georgia has been regulated by the GLC since April
2013. Class B COAMs provide skill-based games with winnings paid in points that may be redeemed for noncash merchandise,
prizes, toys, gift certificates, or novelties. The most common type of establishment licensees are convenience stores. Licensed
establishments are limited to a maximum of nine machines, unless a municipality specifically limits licensed establishments to a
maximum of six machines. In addition, any local governing authority may vote to remove coin operated amusement machines
from its jurisdiction upon 60 days’ advance notice. In 2020, we acquired Tom’s Amusement Company, Inc., a Southeastern U.S.
amusement operator and Master Licensee (“Tom’s Amusements”) in the state of Georgia. The acquisition of Tom’s Amusements
adds 11 Georgia COAM Class B locations to the Accel portfolio, as well as a total of 65 Class B COAM terminals.
On November 18, 2020, we became a licensed Terminal Operator in Pennsylvania under the Pennsylvania Race Horse
Development and Gaming Act, although Accel has not yet commenced any gaming operations in Pennsylvania. In November
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2017, Pennsylvania’s Governor signed the Pennsylvania Gaming Act. The law authorized, among other forms of gaming, gaming
terminals at qualified truck stops. To qualify for gaming, a truck stop must meet requirements that are similar to those in Illinois.
Accel has a binding agreement to install gaming terminals with a partner truck stop establishment in Pennsylvania that has
received a conditional license from the PA Board. Accel is also in discussions with other potential partners who have not yet
applied for licensure. The Company hopes to commence gaming operations in Pennsylvania in 2021. We believe the current total
potential number of qualified trucks stops to host gaming terminals in Pennsylvania is approximately 100-150 truck stop
establishments, although municipalities are able to individually opt out from authorizing distributed gaming. These establishments
consist of corporate truck stops and individual and corporate convenience stores that meet current regulatory requirements for
gaming terminal installation.
In addition, our marketing and sales efforts are subject to the rules and regulations of the regulatory gaming bodies and
municipal laws and regulations in the jurisdictions where we do business, including rules promulgated by the IGB, GLC, the PA
Board and local municipalities in Illinois. These rules generally require sales agent registration, include prohibitions related to
inducements and restrict certain advertising and promotional activities.
We may also enter states other than Pennsylvania that currently permit or may consider permitting gaming terminals. Indiana,
Missouri and Mississippi have proposed legislation permitting gaming terminals or other forms of gaming in the past, and gaming
terminals are currently legal in Louisiana, Montana, Nevada, Oregon, South Dakota and West Virginia. Other states, counties or
municipalities facing tax revenue shortfalls or other fiscal pressure may adopt similar measures.
Accel’s Core Strengths
We believe that the following competitive strengths contribute to our industry leading position:
Gaming-as-a-service platform. When compared with traditional gaming businesses such as casinos, Accel believes its
platform benefits from the following advantages:
“business-to-business” model secured by long-term, exclusive contracts that are typically renewed, allowing for
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predictable, highly recurring revenue streams with low churn;
operating a scalable business in fast-growing gaming segments that are primarily served by fragmented, sub-
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scale providers;
data reporting solutions and analytics, offering insight and advice to help licensed establishment partners
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maximize revenues and ultimately grow their businesses;
state-of-the-art technology-enabled slot machines from leading manufacturers who provide the most captivating
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titles in slots entertainment;
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comparatively low capital expenses and a comparatively asset-light operating model, in each case, when
compared to casinos, which typically provide significantly higher capital-intensive offerings such as hotel
accommodations, restaurants and stage-based entertainment;
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highly localized footprint that provides more access to gaming and convenience for consumers, as compared to
regional casinos that market to players who may live up to several hours away and are thus prone to disruption of
their feeder markets; and
strong marketing, legal, compliance, cash management, financial and technical support systems, all of which
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remain in-house to boost efficiency and enhance the ability to serve as a premier gaming-as-a-service provider.
Strong relationships with licensed establishment partners. Accel has prioritized establishing strong, lasting relationships
with its licensed establishment partners since its inception. Accel dedicates a relationship manager to each of its licensed
establishment partners, who, with support from other personnel, oversees every aspect of partner relationship management
and retention. Accel prides itself on providing prompt, reliable service and education, all of which helps to increase referral
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marketing by its partners. Accel’s relationship managers’ efforts to provide value-added services to their licensed
establishment partners result in consistent pre-renewals long before contracts expire and are a key element of our competitive
differentiation.
Proven track record in executing and integrating acquisitions. Accel continuously evaluates strategic acquisition
opportunities. Accel has a successful track record of identifying, acquiring and integrating competitive operators at favorable
terms. Since becoming a licensed terminal operator in 2012, Accel has acquired 13 operator companies, adding
approximately 1,000 licensed establishments to our total portfolio of 2,435 licensed establishment partners as of
December 31, 2020. Accel believes that its industry reputation, scale, proven track record of driving revenue synergies, and
public acquisition currency enhances its ability to acquire other operators or licensed establishments on favorable terms and
makes Accel a preferred partner of choice.
Diversified revenue base with limited churn. Accel believes that gaming regulations in Illinois facilitate a low revenue
concentration per licensed establishment partner, and that its low-limit slots are more resilient to economic downturn as
consumers typically continue to engage in locally convenient, lower cost forms of entertainment in such circumstances. For
the year ended December 31, 2020, Accel’s best-performing licensed establishment accounted for approximately $1.2
million, or less than 1% of gross revenue, its top 20 licensed establishments represented only 5% of gross revenue and
Accel’s licensed establishment partners each contributed an average of approximately $0.1 million of gross revenue. Accel’s
voluntary contract renewal rate was approximately 99% for the three-year period ended December 31, 2020. While Accel
experiences business disruptions each year due to business failures, IGB-imposed shutdowns, or natural disasters affecting
licensed establishment partners, many of these sites reopen in subsequent years under new owners, and Accel believes it is
best-positioned to reengage with those establishments as new licensed establishment partners because of its reputation and
leading market position. Accel’s gaming terminals are geographically diversified across the state of Illinois, limiting systemic
risk due to local weather patterns or regional economic downturns. We believe that Accel’s recent expansion into Georgia
and future expansion into other states may further help to diversify its portfolio.
Deep industry and vendor relationships. Accel’s leading market position has led to strong relationships within its industry
and with equipment suppliers. Accel has successfully integrated multiple other operators and believes this successful roll-up
strategy positions it well with potential additional local operators who could benefit from Accel’s gaming-as-a-service
platform. In addition, Accel’s industry leadership permits it to seek and obtain favorable pricing and supply of key gaming
machines. Due to its ability to procure machines and parts easily, Accel is able to rotate machines quickly to licensed
establishment partners where they are most needed across its operating footprint. This results in longer, more effective usage
and greater lifetimes for Accel’s gaming terminals.
Management team. Accel’s management team has many years of experience and industry knowledge. Accel’s President,
Chief Executive Officer and co-founder, Andy Rubenstein, has led the Company since its inception in 2009, and its other
officers have almost 60 years of combined gaming industry experience. Accel believes that its industry-leading management
team has a reputation for integrity and compelling customer service.
Company culture and training. Accel believes that it is an employer of choice for talented candidates. Accel’s corporate
culture is strong and Accel invests heavily in employees’ success, including devoting significant resources to training and
other development programs. Accel also experiences relatively low levels of employee turnover.
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Accel’s Growth Opportunities
Accel’s key growth strategies include its plans to:
Maintain competitive advantage in Illinois and increase gaming terminal share. Accel believes that there is substantial
potential for further growth in Illinois. Accel has been successful in the past in signing competitors’ licensed establishments
and has identified prospects for engagement after current contracts with other partners expire. In particular, Accel sees
opportunities for expansion in key local markets, such as Springfield, Bloomington and Decatur, where its gaming terminal
share is below its share in other regions. Accel also strives to further optimize revenues for gaming terminals it currently
operates through refined data analysis, marketing and other initiatives. Accel seeks to increase distribution possibilities
through corporate partners who operate multiple licensed establishments such as chain stores. Accel believes that these
corporate businesses tend to favor larger operators who have substantial compliance infrastructures in addition to leading
service capabilities. While such licensed establishments have been “second movers” in choosing to adopt video gaming,
partnering with reputable operators such as Accel could render deployment of gaming terminals more attractive. Accel’s
leadership position also creates an opportunity for it to take advantage of legislative changes in Illinois such as an increased
number of allowed gaming terminals per establishment, higher bet limits, higher win amounts, and larger jackpots.
Additionally, Accel may realize the benefits of potential municipal ordinance changes that would permit its business to
operate in new municipalities.
Grow our operations in Georgia. The operation of coin-operated amusement machines in Georgia has been regulated by the
Georgia Lottery Corporation since April 2013. Games are skill-based with winnings paid in points that may be redeemed for
noncash merchandise, prizes, toys, gift certificates, or novelties. The most common type of establishment licensees are
convenience stores. Licensed establishments are limited to a maximum of nine machines, unless a municipality specifically
limits licensed establishments to a maximum of six machines. In 2020, we acquired Tom’s Amusements which added 11
Georgia COAM Class B locations to the Accel portfolio, as well as a total of 65 Class B COAM terminals.
Expand operations into Pennsylvania. In November 2017, Pennsylvania’s Governor signed the Pennsylvania Gaming Act.
The law authorized, among other forms of gaming, gaming terminals at qualified truck stops. Accel estimates that the total
potential number of qualified truck stops to host gaming terminals in Pennsylvania is approximately 100-150 truck stops as of
December 31, 2020, although municipalities are able to individually opt out from authorizing distributed gaming. Accel
believes this market opportunity is attractive and has obtained a terminal operator license from the PA Board. Accel is also in
discussions with other potential location partners who have not yet applied for licensure. Accel believes that Pennsylvania is
a natural choice for its expansion outside of Illinois when compared to other states due to industry similarities with Illinois.
See “— Accel’s Industry” for more information.
Establish Player Rewards Program to further drive growth. As part of its gaming-as-a-service suite of offerings, Accel
has considered offering a Player Rewards Program for players. The anticipated terms of the program will provide for players
to accumulate points each time they use Accel’s products and may provide points that can be redeemed for rewards. Accel
believes this program will result in increased brand loyalty from licensed establishment partners by rewarding players for
using Accel’s gaming terminals. This opt-in program is expected to allow data analysis with respect to each player, location
and machine, which will in turn permit Accel to better assess performance and serve its partners. Although player rewards
programs are not specifically prohibited in Illinois, applicable regulations have not been enacted, and the IGB has not
approved any player rewards programs for any terminal operator. Accel has not applied to the IGB to establish any such
program, but expects to apply in the event of applicable regulation enactment.
Expand operations to other states.Various states and other jurisdictions have proposed legislation permitting gaming
terminals or other forms of gaming in the past. These states include Indiana, Missouri and Mississippi. Accel may also choose
to expand operations through strategic acquisitions or otherwise in other, more mature gaming jurisdictions where gaming
terminals are currently legal, such as Louisiana, Montana, Nevada, Oregon, South Dakota and West Virginia. Accel may
attempt to seek approval to operate in additional jurisdictions that authorize video gaming. Accel believes it would be a
favored entrant into any such markets given its track record of success and compliance.
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Expand ancillary service offerings to licensed establishments. While distributing and servicing amusement devices such as
jukeboxes, dartboards, pool tables, pinball machines and other ancillary equipment, such as redemption devices and stand-
alone ATMs, is not the primary focus of its business, Accel believes that these services provide a key point for ongoing
customer contact and enhances its image as a “one-stop shop” for entertainment devices. Accel has observed that licensed
establishment partners appreciate these services and continue to rely on Accel to provide them. Providing these services can
also serve as a point of initial contact with potential partners who may decide to avail themselves later of Accel’s primary
gaming services. As a result, Accel intends to continue prioritizing the installation of these devices and equipment.
Business Model and Capabilities
Accel provides a full suite of services and capabilities to enhance its business. These include:
Sales team that drives the initial acquisition of licensed establishment partners. Accel has a dedicated internal sales team
that drives sourcing of new licensed establishment partners. Accel also uses external independent sales agents. When seeking
to sign a new licensed establishment partner, Accel’s marketing team employs a data-driven sales process to identify and
nurture leads using a variety of digital and traditional strategies to drive organic gaming partnerships and preference. Accel’s
marketing team uses email, social media, blogs, search engine optimization, paid search and display advertising to create a
robust pipeline of leads. Sales teams are incentivized based on a competitive commission-based structure, which has driven
performance. Accel believes that it can continue to attract talented sales employees.
Dedicated on-boarding process that works with new licensed establishments to provide quick access to gaming
terminals and other equipment. Accel engages with licensed establishment partners through every step of the gaming
terminal installation process. This process begins with providing assistance with preparation and submission of a license
application to the applicable gaming regulatory board and educating each licensed establishment partner on legal and
regulatory topics to minimize compliance issues. Accel assists in the design and construction of gaming areas in licensed
establishments, including advising with respect to Illinois Video Gaming Act requirements that restrict access to persons
under 21 years of age. Accel then delivers gaming terminals to the licensed establishment partner after receipt of the proper
state and municipal licenses, which typically takes between two and six months from submission to receipt of approval to
operate gaming terminals.
Relationship management team that offers value to licensed establishment partners. Each of Accel’s licensed
establishment partners has a dedicated relationship manager who works with the licensed establishment partner in
maximizing revenue, based upon the licensed establishment’s unique characteristics. Compliance support is offered to assist
the licensed establishment partner with understanding gaming regulations, optimizing services that analyze video gaming
data against established benchmarks to assess and improve performance, offering marketing advice ranging from traditional
advertising and signage to social media advice, providing industry tracking and reporting measured against Accel’s industry
data, and delivering ongoing training for licensed establishment partner staff.
Digital and data analytics team that helps licensed establishment partners capture gaming revenue. Accel’s digital and
data analytics team studies the gaming terminal market and licensed establishment partner performance to provide insight and
advice to maximize gaming revenue. The team actively monitors machine optimization, service analytics, video game
popularity analytics, marketing and player behavior to identify new opportunities and provide insights to maximize gaming
revenues. Typical suggestions might involve adding new games, switching machines, adding machines or changing machine
location within a licensed establishment. The digital and data analytics team also seeks to improve the quality of customer
service and satisfaction by monitoring service calls to identify trends and solutions with the goal of optimizing response time
to decrease periods of machine inoperability.
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Dedicated legal and compliance function that assists licensed establishment partners to remain in regulatory
compliance. Accel’s legal and compliance team provides support and resources related to licensed establishment regulatory
compliance, which includes sending compliance reminders and industry updates to licensed establishment partners on a
regular basis. It does not dispense legal advice to licensed establishment partners, but may recommend that licensed
establishment partners obtain legal counsel in certain instances. In addition, the legal and compliance team participates in
lobbying measures, which includes working with gaming regulators and trade associations to encourage legislation and
regulation which may be favorable to the distributed gaming industry. Accel also regularly works with regulators in other
states as they explore the legalization of gaming terminals.
Strong relationships with equipment manufacturers to provide top-flight machines and software that help attract
players. Accel partners and has entered into purchase agreements with many industry-leading manufacturers of gaming
terminals. Accel benefits from favorable pricing and other terms with respect to its supplier partners. Accel believes that by
providing world-class premium equipment, it can assist licensed establishment partners in securing competitive advantages.
By using high-quality equipment, Accel aims to limit downtime and help maximize revenue and player retention.
Cash collection and analytics. Accel offers cash collection and analytics services at multiple strategic locations across
Illinois to help ensure secure, fast and accurate collection of revenue for licensed establishment partners. Additionally,
Accel’s data team provides information to its treasury department enabling it to deliver efficient, secure, and optimized
collection services. These cash collection locations function as a key point of contact for licensed establishment partners, and
Accel believes that this service differentiates it from most of its competitors.
Marketing services that aid in player awareness and gameplay. In addition to its business-to-business focus, Accel’s
marketing team uses a variety of player marketing strategies to drive player preference, loyalty, and increase play at Accel
locations. Player marketing initiatives include a dedicated player website, AEPlayer.com, a statewide player loyalty program
(AEPlayer Rewards), including a tablet-based in-location entry option as well as a mobile app, player email and text
messaging communications, indoor and outdoor signage, cooperative location advertising and other media to increase
awareness and encourage gameplay. Accel believes that these initiatives increase Accel’s branding at each location. Accel
believes that it has the most extensive and accomplished marketing team in the Illinois gaming terminal segment.
Best-in-class technicians who assist licensed establishment partners in the event of any mechanical or software issues
with the devices Accel provides. Accel leverages technology and data-driven algorithms to enable a 24/7 call center to direct
its service technicians. These technicians serve to prevent and solve technical issues with gaming terminals at licensed
establishment partners in a timely manner. Accel’s service tracking process begins when a licensed establishment partner
identifies an issue at their licensed establishment and contacts the service center. As of December 31, 2020, more than 15%
of service issues are resolved by the call center directly without the need to dispatch any technician. In the event a technician
is required, 95% of customer service issues are addressed on a first-time technician dispatch, with an average response time
of approximately 80 minutes. Replacement parts for gaming terminals, if required, are sourced from Accel’s offices and
warehouses located across the state. Accel uses system analytics across its gaming-as-a-service platform to keep track of parts
used and, if necessary, order new parts for delivery to various warehouses.
Sports betting. Accel believes it is well positioned to participate in the fast-growing sports betting segment. While Accel
expects to remain focused on gaming in the near future, it has not applied for a sports betting license, but it may consider
doing so in the future.
Licensed Establishments and VGTs
As of December 31, 2020, Accel operates 12,247 VGTs in 2,435 licensed establishments. Licensed establishments typically
include bars, restaurants, gaming cafes, truck stops, fraternal organizations, veterans’ organizations, and other retail
establishments.
Accel enters into long-term exclusive location and gaming terminal use agreements with its licensed establishment partners,
or master exclusive gaming terminal use agreements with licensed establishment partners who have several licensed
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establishments. Under those agreements, Accel has the exclusive right to place gaming terminals and redemption devices in such
licensed establishments. Once proper licenses are received, Accel experiences minimal delay related to the installation of gaming
terminals in those licensed establishments. As of December 31, 2020, the average remaining term on Accel’s agreements is 6.8
years. In addition, Accel’s voluntary contract renewal rate for the three-year period ended December 31, 2020 was approximately
99%.
Under these agreements, Accel is responsible for providing hardware and related software, accounting and reporting
functions as required by the Illinois Video Gaming Act and/or Pennsylvania Gaming Act, and placement of devices such as stand-
alone ATMs and redemption devices at the discretion of the licensed establishment.
Under IGB regulations, tax and administrative fees in Illinois are required to be split evenly between gaming terminal
operators and licensed establishments. Accordingly, Accel shares the responsibility with its licensed establishment partners of the
payment of a 34% tax on gross gaming revenue, with such tax increased from 33% beginning on July 1, 2020. In accordance with
IGB regulations, Accel further shares the responsibility of a 0.8513% administrative fee with its licensed establishment partners,
payable to Scientific Games International, the company that maintains the central communications system to which all gaming
terminals across Illinois are connected. The remaining after-tax profits from a video gaming terminal, 50% shall be paid to Accel
and 50% shall be paid to the licensed establishment in accordance with Illinois state law. Accel typically remits the amount to
licensed establishment partners on a weekly basis. Accel’s agreements with licensed establishment partners are typically not
subject to termination rights by licensed establishment partners in the event of a sale or relocation of the licensed establishments
during the term of the agreements, though termination may occur upon closure of the business or if the licensed establishment
partner chooses to terminate at the end of a term.
In addition, Accel has a very limited number of revenue-share agreements with other licensed terminal operators in Illinois,
which provide splitting gross gaming revenue. For the year ended December 31, 2020, revenue shared with other terminal
operators accounted for less than 1% of gross revenue.
Suppliers
Accel installs cutting-edge software and multi-game gaming terminals, at each licensed establishment, from leading
manufacturers such as Scientific Games International, WMS (owned by Scientific Games International), IGT, Bally (owned by
Scientific Games International), Aristocrat and Novomatic. Under agreements with these manufacturers, Accel is able to provide
26 different types of gaming terminal models and 236 different games to licensed establishment partners. Accel believes its efforts
to procure gaming terminals from various sources better enables it to meet the needs of licensed establishment partners and
players.
Accel purchases gaming terminals in upright and slant varieties. Games include different varieties of slots, poker, and keno
games. Accel routinely meets with existing and potential manufacturers in the market to discuss performance, service trends, and
feedback from licensed establishment partners and players. Accel purchases gaming terminals from certain suppliers under master
purchase agreements and purchase orders. Under these master purchase agreements with certain suppliers, pricing is determined
by purchase commitments made for delivery over defined periods. Accel generally pays its suppliers within 90 days after the date
of invoice.
Accel also purchases redemption devices, amusement devices and stand-alone ATMs from reputable suppliers such as NRT,
Touch Tunes, Arachnid, and Diamond.
Competition
Accel competes on the basis of the responsiveness of its services to players, and the popularity, content, features, quality,
functionality, accuracy and reliability of its products. Accel generally does not consider pricing to be a factor in its gaming
terminal business as all minimum and maximum wagers are mandated by the IGB and all revenue splits with the licensed
establishments are mandated by the IGB and by law. Accel believes most licensed establishments focus on player appeal,
customer service and reputation when making their decisions to collaborate with terminal operators. In Illinois, Accel currently
competes with 55 terminal operators that operate in 4,943 gaming establishments as of December 31, 2020. The top five terminal
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operators with which Accel principally competes are J&J Ventures Gaming, LLC, Gold Rush Amusements, Inc., Illinois Gaming
Investors LLC, Gaming & Entertainment Management-Illinois LLC, and Illinois Gaming Systems, LLC. Together with Accel,
they operate in more than 75% of all licensed establishments in Illinois, and the top 10 terminal operators in Illinois operate in
approximately 87% of all licensed establishments. Accel currently operates gaming terminals and/or amusement devices in 32%
of all establishments licensed to operate gaming terminals in Illinois.
Accel faces particularly robust competition from other forms of gaming. The distributed gaming industry is characterized by
an increasingly high degree of competition among a large number of participants on both a local and national level, including
casinos, Internet gaming, sports betting, sweepstakes and poker machines not located in casinos, horse racetracks (including those
featuring slot machines and/or table games), fantasy sports, real money iGaming, and other forms of gaming. In addition, Internet-
based lotteries, sweepstakes, and fantasy sports, and Internet-based or mobile-based gaming platforms, which allow their
customers to wager on a wide variety of sporting events and/or play casino games from home or in non-casino settings and could
divert players from using Accel’s products in its licensed establishments. Even Internet wagering services that may be illegal
under federal and state law but operate from overseas locations, may nevertheless sometimes be accessible to domestic gamblers
and divert players from visiting licensed establishment partners to play on Accel’s gaming terminals.
The availability of other forms of gaming could increase substantially in the future. Voters and state legislatures may seek to
supplement traditional sources of tax revenue by authorizing or expanding gaming. For example, on June 2, 2019, the Illinois
legislature passed a significant gaming expansion bill authorizing the addition of more casinos to the state, including a casino in
Chicago, permitting slot and table games at three horse racetracks, adding slot machines to two Illinois airports, and sports betting
at a variety of approved establishments throughout the state. In addition, jurisdictions are considering or have already recently
legalized, implemented and expanded gaming, and there are proposals across the country that would legalize Internet poker and
other varieties of Internet gaming in a number of states and at the federal level. Pennsylvania enacted legislation allowing
regulated online poker and casino-style games within the commonwealth and legalizing sports betting in casinos. Established
gaming jurisdictions could also award additional gaming licenses or permit the expansion or relocation of existing gaming
operations, including gaming terminals. While Accel believes it is well positioned to take advantage of certain of these
opportunities, expansion of gaming in other jurisdictions, both legal and illegal, could further compete with its gaming terminals.
In addition to competition from other forms of gaming and entertainment and the expansion thereof, Accel’s business faces
significant competition from suppliers and other terminal operators, stand-alone ATMs, jukeboxes, dartboards, pool tables, pinball
machines and related entertainment machines. Accel’s operations also face competition from many forms of leisure and
entertainment activities, including shopping, athletic events, television and movies, concerts, and travel.
Intellectual property
Accel owns or has rights to use the trademarks, service marks or trade names that it uses or will use in conjunction with the
operation of its business. In the highly competitive gaming industry, trademarks, service marks, trade names and logos are
important to the success of its business.
As of December 31, 2020, Accel owned eight registered trademarks and 100 registered domain names. Accel also relies on
software or technologies that it licenses from third parties. These licenses may not continue to be available to Accel on
commercially reasonable terms in the future and as a result, Accel may be required to obtain substitute software or technologies.
Seasonality
Accel’s results of operations can fluctuate due to seasonal trends and other factors. For example, the gross revenue per
machine per day is typically lower in the summer when players will typically spend less time indoors at licensed establishment
partners, and higher in cold weather between February and April, when players will typically spend more time indoors at licensed
establishment partners. Holidays, vacation seasons and sporting events may also cause Accel’s results to fluctuate.
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Employees
As of December 31, 2020, Accel had approximately 770 employees. None of Accel’s employees are represented by a labor
union or covered by a collective bargaining agreement. Accel believes its current staffing levels to be adequate for its needs and
operations, and that relations with employees are generally good.
The board of directors is charged with oversight of human capital management. Accel's human capital resources objectives
include, as applicable, identifying, recruiting, retaining, incentivizing and integrating our existing and additional employees. The
principal purposes of our equity incentive plans are to attract, retain and motivate selected employees, consultants and directors
through the granting of stock-based compensation awards and cash-based performance bonus awards. The Accel Code of
Business Conduct and Ethics sets high standards of ethical business conduct and provides guidance applicable to every employee,
including every Accel officer and director. The Accel Code of Business Conduct and Ethics covers many types of matters,
including creating a respectful work environment that is free of unlawful discrimination and harassment.
Available Information
Our principal executive offices are located at 140 Tower Drive, Burr Ridge, Illinois 60527, and our telephone number is
(630) 972-2235. Our website is www.accelentertainment.com. The information contained on our website or that can be accessed
through our website is not part of, and is not incorporated by reference into, this Annual Report on Form 10-K or in any other
report or document we file with the Securities and Exchange Commission (“SEC”).
We file reports with the SEC, including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on
Form 8-K, and any other filings required by the SEC. Through our website, we make available free of charge our Annual Reports
on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports, as soon as
reasonably practicable after we electronically file such material with, or furnish it to, the SEC.
The SEC maintains an Internet site (www.sec.gov) that contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the SEC.
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ITEM 1A. RISK FACTORS
You should carefully consider the risk factors set forth below as well as the other information contained in this Annual
Report on Form 10-K, including our consolidated financial statements and related notes. Any of the following risks could
materially and adversely affect our business, financial condition, results of operations and cash flows. The risks described below
are not the only risks facing us. Additional risks and uncertainties not currently known to us or those we currently view to be
immaterial may also materially adversely affect our business, financial condition, or results of operations.
Summary of Risk Factors
Below is a summary of the principal factors that make an investment in our common stock speculative or risky. This
summary does not address all of the risks that we face. Additional discussion of the risks summarized in this risk factor
summary, and other risks that we face, can be found below under the heading “Risk Factors” and should be carefully considered,
together with other information in this Form 10-K and our other filings with the SEC, before making an investment decision
regarding our common stock
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The full effect of the COVID-19 pandemic is uncertain and cannot be predicted. The COVID-19 pandemic could
worsen, or its effects may be prolonged, which could lead to a materially adverse effect on our business and results of
operations.
Our operating results are likely to vary significantly and be unpredictable.
Our success depends on its ability to offer new and innovative products and services that fulfill the needs of licensed
establishment partners and create strong and sustained player appeal.
• We are dependent on relationships with key manufacturers, developers and third parties to obtain gaming terminals,
amusement machines, and related supplies, programs, and technologies for our business on acceptable terms.
•
Our future results of operations may be negatively impacted by slow growth in demand for gaming terminals and by the
slow growth of new gaming jurisdictions.
• We depend heavily on our ability to win, maintain and renew contracts with licensed establishment partners.
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Adverse economic conditions or decreased discretionary spending may adversely impact our business.
Our ability to operate in existing markets or expand into new jurisdictions could be adversely affected by difficulties,
delays, or failures by us or our stakeholders in obtaining or maintaining required licenses or approvals.
Our business is geographically concentrated, which subjects it to greater risks from changes in local or regional
conditions. Our revenue growth and future success depends on our ability to expand into new markets, which may not
occur as anticipated or at all.
Our industry is highly competitive and we must accurately predict, prepare for and respond promptly to technological
and market developments and changing end-customer needs, including by acquiring and integrating other businesses,
products and technologies that address a fast-changing technology and threat landscape and that achieve sufficient
market acceptance, in order to maintain or improve our competitive position.
• We are subject to strict government regulations that are constantly evolving and may be amended, repealed, or subject
to new interpretations, which may limit existing operations, have an adverse impact on the ability to grow or may
expose us to fines or other penalties.
• We have identified three material weaknesses in our internal control over financial reporting and if remediation of these
material weaknesses is not effective, or if we fail to develop and maintain an effective system of disclosure controls and
internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with
applicable laws and regulations could be impaired and our reputation and business could be adversely affected. In
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addition, the presence of material weaknesses increases the risk of material misstatement of the consolidated financial
statements.
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Our business depends on the protection of intellectual property and proprietary information.
Gaming opponents persist in their efforts to curtail the expansion of legalized gaming, which, if successful, could limit
our growth of operations.
Our success depends on the security and integrity of the systems and products offered, and security breaches or other
disruptions could compromise certain information and expose us to liability.
Our level of indebtedness, and any increase thereto, could adversely affect results of operations, cash flows and
financial condition.
Certain stockholders own a significant portion of common stock and they may have interests that differ from those of
other stockholders.
Risks Related to Our Business and Industry
The outbreak and spread of the novel coronavirus disease known as COVID-19 has had, and could continue to have, an
adverse impact on our business, operations and financial condition for an extended period of time.
On March 11, 2020 the World Health Organization declared the novel coronavirus disease (“COVID-19”) a global
pandemic and recommended containment and mitigation measures worldwide. The global and national impact of COVID-19
could be immense and the length of the pandemic and its ultimate economic and human toll cannot yet be determined.
On March 16, 2020, the IGB issued an order requiring the suspension of all video gaming operations at all licensed video
gaming establishments of any kind in Illinois (the “IGB Closure Order”). Additionally, on March 21, 2020, Illinois Governor
J.B. Pritzker issued an executive order (the “Illinois Executive Order”) requiring the closure of all “non-essential” businesses and
also requiring all individuals living within the State of Illinois to “stay at home” other than in the case of limited exceptions. The
IGB Closure Order and the Illinois Executive Order were each extended multiple times. The Illinois Executive Order was
canceled on June 26, 2020 as non-essential businesses were allowed to open at limited capacities. In response to the cancellation
of the Illinois Executive Order, the IGB allowed video gaming operations to resume on July 1, 2020. As COVID-19 began a
resurgence in the fall, the virus spread exponentially in every region of the State of Illinois. In response, the IGB suspended all
video gaming operations until further notice across the entire state of Illinois starting at 11:01 PM on Thursday November 19,
2020. Video gaming operations resumed in certain regions of the state beginning on January 16, 2021, and fully resumed in all
regions on January 23, 2021. Even though video gaming operations resumed across all regions, certain regions still had
government-imposed restriction that, among other things, limited hours of operation and restricted the number of patrons
allowed within the licensed establishments.
The mandated shutdown of our licensed establishment partners’ gaming operations and our VGTs by the IGB Closure Order
substantially and adversely impacted our business, operations and financial condition. In addition, we have been, and will
continue to be further, negatively impacted by related developments, including heightened governmental regulations and travel
advisories, recommendations by the U.S. Department of State and the Centers for Disease Control and Prevention, and travel
bans and restrictions, each of which has impacted, and is expected to continue to significantly impact, travel of customers to our
licensed establishment partners.
While the IGB has announced the resumption of all video gaming activities, it is possible that it or the State of Illinois may
order a shutdown by region (currently 11 regions), or a complete suspension of video gaming in the state, or institute stay-at-
home, closure or other similar orders or measures in the future in response to a resurgence of COVID-19 or other events. It is
difficult to predict at this time how quickly customers will return to our licensed establishment partners, which may be a function
of continued concerns over safety and/or depressed consumer sentiment due to adverse economic conditions, including job
losses. Demand for the video gaming and non-gaming services provided by our licensed establishment partners may remain
weak for a significant length of time and we cannot predict if and when such demand will sustain at pre-outbreak demand, if at
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all. We also cannot predict whether all of our licensed establishment partners will re-open and continue operating, or if they do,
whether they will choose to renew their contracts with Accel at pre-outbreak levels or at all. Certain of our licensed
establishment partners may go out of business. We may be adversely impacted as a result of any future adverse impact of
COVID-19 on our licensed establishment partners.
While our operations workforce returns to support our business, we continue to allow office employees to work from home,
which, if continued, may have a substantial impact on employee attendance and productivity, may cause employee turnover,
disrupt access to facilities, equipment, networks, corporate systems, books and records and may add additional expenses and
strain on our business. Now that the IGB Closure and Illinois Executive Orders are lifted and our operations resume, we may
experience difficulties in resuming our operations to pre-closure levels, and our ability to serve our clients may be disrupted or
inconsistent with pre-closure service, all or any of which could have a material adverse effect on our business, operations and
financial condition.
Further, our business may be negatively impacted by the adverse changes in the perceived or actual economic climate,
including higher unemployment rates, declines in income levels and loss of personal wealth resulting from the impact of
COVID-19, which could contribute to weak demand for gaming and non-gaming services.
Additionally, given the existing impact of COVID-19 on our business, operations and financial condition and potential
future impact, we can make no assurances that we will be able to successfully pursue expansion of gaming operations into new
jurisdictions or that such jurisdictions will pass laws and regulations allowing gaming, the opening of new licensed
establishments, the addition of new gaming terminals and amusement machines in existing licensed establishments or the
acquisition of other terminal operators.
There may be other adverse consequences to our business, operations and financial condition from the spread of COVID-19
that we have not considered. We have never previously experienced a complete cessation of our business operations, and as a
consequence, our ability to predict the impact of such a cessation on our business and future prospects is inherently uncertain.
We can offer no assurances that the effects of COVID-19 are temporary or that any losses that are incurred as a result of these
uncertainties will be regained if and when this crisis has passed. As a result, COVID-19 may continue to have a material adverse
impact on our business, operations and financial condition for an extended period of time.
Accel’s ability to operate in existing markets or expand into new jurisdictions could be adversely affected by difficulties,
delays, or failures by Accel or its stakeholders in obtaining or maintaining required licenses or approvals.
Accel operates only in jurisdictions where gaming is legal. The gaming industry is subject to extensive governmental
regulation by federal, state, and local governments, which customarily includes some form of licensing or regulatory screening
of operators, suppliers, manufacturers and distributors and their applicable affiliates, their major stockholders, officers, directors
and key employees. In addition, certain gaming products and technologies must be certified or approved in certain jurisdictions
in which Accel operates, and these regulatory requirements vary from jurisdiction to jurisdiction. The scope of the approvals
required can be extensive. Regulators review many facets of an applicant or holder of a license, including its financial stability,
integrity and business experience. While the regulatory requirements vary by jurisdiction, most require:
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licenses and/or permits;
documentation of qualifications, including evidence of financial stability;
other required approvals for companies who design, assemble, supply or distribute gaming equipment and
services; and
individual suitability of officers, directors, major equity holders, lenders, key employees and business partners.
Accel may not be able to obtain or maintain all necessary registrations, licenses, permits or approvals, or could experience
delays related to the licensing process which could adversely affect its operations and ability to retain key employees. If Accel
fails to obtain a license required in a particular jurisdiction for games and gaming terminals, hardware or software or have such
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license revoked, it will not be able to expand into, or continue doing business in, such jurisdiction. Any delay, difficulty or
failure by Accel to obtain or retain a required license or approval in one jurisdiction could negatively impact the ability to obtain
or retain required licenses and approvals in other jurisdictions, or affect eligibility for a license in other jurisdictions, which can
negatively affect opportunities for growth. For example, if Accel’s license to operate in Illinois is not renewed as a result of a
failure to satisfy suitability requirements or otherwise, its ability to obtain or maintain a license in Pennsylvania or Georgia may
be harmed. Unexpected changes or concessions required by local, state or federal regulatory authorities could involve significant
additional costs and delay. The necessary permits, licenses and approvals may not be obtained within the anticipated time
frames, or at all. Additionally, licenses, approvals or findings of suitability may be revoked, suspended or conditioned at any
time. If a license, approval or finding of suitability is required by a regulatory authority and Accel fails to seek or does not
receive the necessary approval, license or finding of suitability, or if it is granted and subsequently revoked, it could have an
adverse effect on Accel’s results of operations, cash flows and financial condition.
For example, Accel has received a terminal operator license from the PA Board. While Accel does not expect that the
composition of the PA Board will change prior to the next Pennsylvania gubernatorial election in 2022, there can be no
assurances with respect thereto, and any changes in composition to the PA Board could alter existing interpretations or
enforcement of the Pennsylvania Gaming Act. In Illinois, Accel was granted its original license to conduct business as a terminal
operator by the IGB in 2012, and has most recently had its license renewed in June 2020, retroactive to March 2020 for a period
of one year. Renewal is subject to, among other things, continued satisfaction of suitability requirements.
In addition to any licensing requirements, all of Accel’s licensed establishment partners are required to be licensed, and
delays in or failure to obtain approvals of these licenses may adversely affect results of operations, cash flows and financial
condition. Accel and certain of its affiliates, major stockholders (generally persons and entities beneficially owning a specified
percentage (typically 5% or more) of equity securities), directors, officers and key employees are subject to extensive
background investigations, personal and financial disclosure obligations and suitability standards in its businesses. Certain
jurisdictions may require the same from Accel’s lenders or key business partners. The failure of these individuals and business
entities to submit to such background checks and provide required disclosure, or delayed review or denial of application resulting
from such submissions, could jeopardize Accel’s ability to obtain or maintain licensure in such jurisdictions. Any delay,
difficulty, or failure by any of Accel’s major stockholders, directors, officers, key employees, products or technology, to obtain
or retain a required license or approval in one jurisdiction could negatively impact its licensure in other jurisdictions, which can
ultimately negatively affect opportunities for growth. In addition, the failure of Accel’s officers, directors, key employees or
business partners, equity holders, or lenders to obtain or maintain licenses in one or more jurisdictions may require Accel to
modify or terminate its relationship with such officers, directors, key employees or business partners, equity holders, or lenders,
or forego doing business in such jurisdiction. The licensing procedures and background investigations of the authorities that
regulate Accel’s businesses may inhibit potential investors from becoming significant stockholders, inhibit existing stockholders
from retaining or increasing their ownership, or inhibit existing stockholders from selling their shares to potential investors who
are found unsuitable to hold Accel stock by gaming authorities or whose stock ownership may adversely affect Accel’s ability to
obtain, maintain, renew or qualify for a license, contract, franchise or other regulatory approval from a gaming authority.
If Accel fails to manage its growth effectively, Accel may be unable to execute its business plan or maintain high levels of
service and customer satisfaction.
Accel has experienced, and expects to continue to experience, rapid growth, which has placed, and may continue to place,
significant demands on its management and its operational and financial resources. Since its inception, Accel has acquired 13
distributed gaming operators adding approximately 1,000 licensed establishments to its portfolio of over 2,400 total licensed
establishments as of December 31, 2020. Accel has also experienced significant growth in the number of licensed establishment
partners and players, and in the amount of data that it supports. Additionally, Accel’s organizational structure will become more
complex as it scales its operational, financial and management controls to support additional jurisdictions as well as its reporting
systems and procedures.
To manage growth in operations and personnel, Accel will need to continue to grow and improve its operational, financial,
and management controls and reporting systems and procedures. Accel may require significant capital expenditures and the
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allocation of valuable management resources to grow and change in these areas without undermining its culture, which has been
central to growth so far. Accel’s expansion has placed, and expected future growth will continue to place, a significant strain on
management, customer experience, data analytics, sales and marketing, administrative, financial, and other resources. If Accel
fails to manage its anticipated growth and change in a manner consistent with its reputation, the quality of its services may
suffer, which could negatively affect its brand and reputation and harm its ability to attract licensed establishment partners and
players.
Accel’s success depends on its ability to offer new and innovative products and services that fulfill the needs of licensed
establishment partners and create strong and sustained player appeal.
Accel’s success depends upon its ability to fulfill the needs of licensed establishment partners and players by offering new
and innovative products and services on a timely basis. Consumer preferences for games are usually cyclical and difficult to
predict, and even the most successful content remains popular for only limited periods of time, unless refreshed with new content
or otherwise enhanced. If Accel fails to accurately anticipate the needs of licensed establishments and player preferences, it
could lose business to competitors, which would adversely affect Accel’s results of operations, cash flows and financial
condition. Accel may not have the financial resources needed to introduce new products or services on a timely basis or at all.
Accel’s business depends on content for gaming terminals, stand-alone ATMs, redemption devices, and amusement devices
that is developed by third-party suppliers. Accel believes that creative and appealing game content results in more players
visiting its licensed establishment partners, which offers more revenue for licensed establishment partners and provides them
with a competitive advantage, which in turn enhances Accel’s revenue and ability to attract new business and to retain existing
business. The success of such content is dependent on these suppliers’ ability to anticipate changes in consumer tastes,
preferences and requirements and deliver to Accel in sufficient quantities and on a timely basis a desirable, high-quality and
price-competitive mix of products. Accel’s suppliers’ products may fail to meet the needs of licensed establishment partners due
to changes in consumer preference or Accel’s suppliers may be unable to maintain a sufficient inventory to satisfy the
requirements of licensed establishment partners. In addition, suppliers must obtain regulatory approvals for new products, and
such approvals may be delayed or denied. Accordingly, Accel may not be able to sustain the success of its existing game content
or effectively obtain from third parties their products and services that will be widely accepted both by licensed establishment
partners and players.
Accel’s suppliers may also increase their prices due to increasing demand for their products from Accel’s competitors.
Further, because there exists a limited number of suppliers in the distributed gaming business, an increase in supplier pricing
may limit Accel’s ability to seek alternate sources of gaming content and may result in increased operating expenses. See “Risk
Factors — Accel is dependent on relationships with key manufacturers, developers and third parties to obtain gaming terminals,
amusement machines, and related supplies, programs, and technologies for its business on acceptable terms” for more
information.
Accel is dependent on relationships with key manufacturers, developers and third parties to obtain gaming terminals,
amusement machines, and related supplies, programs, and technologies for its business on acceptable terms.
The supply of Accel’s gaming terminals, stand-alone ATMs, redemption devices and amusement devices depends upon the
manufacture, development, assembly, design, maintenance and repair of such products by certain key providers, as well as
regulatory approval for these products. Accel’s operating results could be adversely affected by an interruption or cessation in
the supply of these items, a serious quality assurance lapse, including as a result of the insolvency of any key provider, or
regulatory issues related to key providers’ products or required licenses. Additionally, certain components of our gaming
terminals are sourced from China, where outbreaks of the COVID-19 or other widespread public health problems have led to
quarantines, shutdowns, shipping or logistics changes, or other disruptions that could impair our ability to obtain gaming
terminals and their components. Accel has achieved significant cost savings through centralized purchasing of equipment
and non-equipment. However, as a result, Accel is exposed to the credit and other risks of having a small number of key
suppliers. While Accel makes every effort to evaluate counterparties prior to entering into long-term and other significant
procurement contracts, it cannot predict the impact on suppliers of the current economic environment and other developments in
their respective businesses. Insolvency, financial difficulties, supply chain delays, regulatory issues or other factors may result in
15
Accel’s suppliers not being able to fulfill the terms of their agreements. Further, such factors may render suppliers unwilling to
extend contracts that provide favorable terms to Accel, or may force them to seek to renegotiate existing contracts.
Failure of key suppliers to meet their delivery commitments could result in Accel being in breach of and subsequently losing
contracts with key licensed establishment partners. Although Accel believes it has alternative sources of supply for the
equipment and other supplies used in its business, the limited number of suppliers in the distributed gaming business could lead
to delays in the delivery of products or components, and possible resultant breaches of contracts that it is party to with licensed
establishment partners, increases in the prices it must pay for products or components, problems with product quality or
components coming to the end of their life and other concerns. Accel may be unable to find adequate replacements for suppliers
within a reasonable time frame, on favorable commercial terms or at all.
Certain of Accel’s products and services, including a Player Rewards Program that Accel intends to implement, include
know-your-customer programs or technologies supplied by third parties. These programs and technologies could be an important
aspect of products and services because they can confirm certain information with respect to players and prospective players,
such as age, identity and location. Payment processing programs and technologies, typically provided by third parties, are also a
necessary feature of Accel’s products and services. In the event that these products and technologies are not made available to
Accel on acceptable terms, or in the event that they are defective, Accel’s results of operations, cash flows and financial
condition may be materially adversely affected.
Accel’s future results of operations may be negatively impacted by slow growth in demand for gaming terminals and by the
slow growth of new gaming jurisdictions.
Slow growth or declines in the demand for gaming terminals could reduce the demand for Accel’s services and negatively
impact results of operations, cash flows and financial condition. Moreover, even with the expansion of gaming into new
jurisdictions, the opening of new licensed establishments and the addition of new gaming terminals and amusement machines in
existing licensed establishments, demand for Accel’s services could decline due to the desires of licensed establishment partners,
unfavorable economic conditions, failure to obtain regulatory approvals and the availability of financing. Accordingly, Accel
may not be successful in placing additional gaming terminals or amusement machines with additional licensed establishments.
Accel depends heavily on its ability to win, maintain and renew contracts with licensed establishment partners, and it could
lose substantial revenue if it is unable to renew certain of its contracts on substantially similar terms or at all.
Accel’s contracts with its licensed establishment partners generally contain initial multi-year terms. Contracts entered into
prior to February 2018 typically contain automatic renewal provisions that provide the individual partner with an option to
terminate within a specified time frame. As a result of the IGB rule changes, contracts entered into after February 2018 do not
contain renewal provisions, automatic or otherwise. At the end of a contract term, licensed establishment partners may choose to
extend their engagement by signing a new contract or may sign with a competitor terminal operator, in their sole discretion.
While Accel has historically experienced high rates of contract extension or renewal, these rule changes may lead to
declines in contract extension or renewal. The termination, expiration or failure to renew one or more of its contracts with its
licensed establishment partners could cause it to lose substantial revenue, which could have an adverse effect on its ability to win
or renew other contracts or pursue growth initiatives.
In addition, Accel may not be able to obtain new or renewed contracts with licensed establishment partners that contain
terms that are as favorable as Accel’s current terms in its current contracts, and any less favorable contract terms or diminution in
scope could negatively impact Accel’s business.
Additionally, Accel’s revenue, business, result of operations, cash flows and financial condition could be negatively affected
if its licensed establishment partners sell or merge themselves or their licensed establishments with other entities. Upon the sale
or merger of such licensed establishments, Accel’s licensed establishment partners could choose to no longer partner with Accel
and decide to contract with its competitors.
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Unfavorable economic conditions or decreased discretionary spending due to other factors such as terrorist activity or threat
thereof, epidemics, pandemics or other public health issues, civil unrest or other economic or political uncertainties, may
adversely affect Accel’s business, results of operations, cash flows and financial condition.
Unfavorable economic conditions, including recession, economic slowdown, decreased liquidity in the financial markets,
decreased availability of credit and relatively high rates of unemployment, could have a negative effect on Accel’s business.
Unfavorable economic conditions could cause licensed establishment partners to shut down or ultimately declare bankruptcy,
which could adversely affect Accel’s business. Unfavorable economic conditions may also result in volatility in the credit and
equity markets. The difficulty or inability of licensed establishment partners to generate or obtain adequate levels of capital to
finance their ongoing operations may cause some to close or ultimately declare bankruptcy. Accel cannot fully predict the effects
that unfavorable social, political and economic conditions and economic uncertainties and decreased discretionary spending
could have on its business.
Accel’s revenue is largely driven by players’ disposable incomes and level of gaming activity. Unfavorable economic
conditions may reduce the disposable incomes of players at licensed establishment partners and may result in fewer players
visiting licensed establishment partners, reduced play levels, and lower amounts spent per visit, adversely affecting Accel’s
results of operations and cash flows. Adverse changes in discretionary consumer spending or consumer preferences, which may
result in fewer players visiting licensed establishment partners and reduced frequency of visits and play levels, could also be
driven by an unstable job market, outbreaks (or fear of outbreaks) of contagious diseases, such as the COVID-19 outbreak, or
other factors. Socio-political factors such as terrorist activity or threat thereof, civil unrest or other economic or political
uncertainties that contribute to consumer unease may also result in decreased discretionary spending by players and have a
negative effect on Accel.
Accel’s revenue growth and future success depends on its ability to expand into new markets, which may not occur as
anticipated or at all.
Accel’s future success and growth depend in large part on the successful addition of new licensed establishments as partners
(whether through organic growth, conversion from competitors or partner relationships) and on the entry into new markets,
including other licensed jurisdictions such as Pennsylvania, where Accel was recently granted a license as a terminal operator
and Georgia, where Accel recently acquired Tom’s Amusement Company, Inc., a Southeastern U.S. amusement operator and
Master Licensee. These markets are new to Accel and its success depends in part on displacing entrenched competitors who are
familiar with these markets and are known to players. In many cases, Accel is attempting to enter into or expand its presence in
these new markets and where the appeal and success of gaming terminals and other forms of entertainment has not yet been
proven. In some cases, Accel may need to develop or expand its sales channels and leverage the relationships with its licensed
establishment partners in order to execute this strategy. There can be no assurance that video gaming will have success with new
licensed establishment partners or in new markets, or that it will succeed in capturing a significant or even acceptable market
share in any new markets, including Pennsylvania and Georgia. In addition, it is possible that Accel will not be able to enter the
Pennsylvania market at all, due to regulatory or other concerns. See “ —Accel is subject to strict government regulations that are
constantly evolving and may be amended, repealed, or subject to new interpretations, which may limit existing operations, have
an adverse impact on the ability to grow or may expose Accel to fines or other penalties.” If Accel fails to successfully expand
into these markets, it may have difficulty growing its business and may lose business to its competitors.
Accel’s business is geographically concentrated, which subjects it to greater risks from changes in local or regional
conditions.
Accel currently installs gaming terminals and amusement devices in licensed establishments primarily in Illinois. Due to this
geographic concentration, Accel’s results of operations, cash flows and financial condition are subject to greater risks from
changes in local and regional conditions, such as:
•
•
changes in local or regional economic conditions and unemployment rates;
changes in local and state laws and regulations, including gaming laws and regulations;
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•
•
•
a decline in the number of residents in or near, or visitors to, licensed establishment partners;
changes in the local or regional competitive environment; and
adverse weather conditions and natural disasters (including weather or road conditions that limit access to licensed
establishments).
Accel largely depends on local markets of licensed establishments for players. Local competitive risks and the failure of
licensed establishment partners to attract a sufficient number of guests, players and other visitors in these locations could
adversely affect Accel’s business. As a result of the geographic concentration of Accel’s businesses, it faces a greater risk of a
negative impact on its results of operations, cash flows and financial condition in the event that Illinois is more severely
impacted by any such adverse condition, as compared to other areas in the United States. If Accel is successful in expanding its
operations into Pennsylvania or other gaming jurisdictions, it may face similar concentration risk there.
If Accel fails to offer a high-quality experience, its business and reputation may suffer.
Once Accel installs gaming terminals and amusement machines in licensed establishment partners, those licensed
establishment partners rely on support from Accel to resolve any related issues. High-quality user and location education and
customer service to the licensed establishments have been key to Accel’s brand and is important for the successful marketing and
sale of its products and services and to increase the number of gaming terminals and amusement machines at licensed
establishments. The importance of high-quality customer service to the licensed establishments will increase as Accel expands its
business and pursues new licensed establishment partners and potentially expands into new jurisdictions. For instance, if Accel
does not help its licensed establishment partners quickly resolve issues, whether those issues are regulatory, technical, or data
related, and provide an effective ongoing level of support, its ability to retain or renew contracts with its licensed establishment
partners could suffer and its reputation with existing or potential licensed establishment partners may be harmed. In some cases,
Accel depends on third parties to resolve such issues, the performance of which is out of Accel’s control. Further, Accel’s
success is highly dependent on business reputation and positive recommendations from existing licensed establishment partners.
Any failure to maintain high-quality levels of service, or a market perception that Accel does not maintain a high-quality service
to licensed establishments, could harm its reputation, its ability to market to existing and prospective licensed establishment
partners, and Accel’s results of operations, cash flows and financial condition.
In addition, as Accel continues to grow its operations and expand into additional jurisdictions, Accel needs to be able to
provide efficient support that meets the needs of its licensed establishment partners. The number of licensed establishments with
Accel’s products has grown significantly and that may place additional pressure on its support organization. As Accel’s base of
licensed establishment partners continues to grow, it may need to increase the number of relationship managers, customer service
and other personnel it employs to provide personalized account management, assistance to its licensed establishment partners in
navigating regulatory applications and ongoing compliance concerns, and customer service, training, and revenue optimization.
If Accel is not able to continue to provide high levels of customer service, its reputation, as well as Accel’s results of operations,
cash flows and financial condition, could be harmed.
Accel’s revenue growth and ability to achieve and sustain profitability will depend, in part on being able to expand its sales
force and increase the productivity of its sales force.
Most of Accel’s revenue has been attributable to the efforts of its sales force, which consists of both in-house personnel and
independent agents. In order to increase Accel’s revenue and achieve and sustain profitability, Accel intends to increase the size
of its sales force to generate additional revenue from new and existing licensed establishments.
Accel’s ability to achieve significant revenue growth will depend, in large part, on its success in recruiting, training, and
retaining sufficient numbers of in-house and independent sales personnel to support growth. New sales personnel require
significant training and can take a number of months to achieve full productivity. Accel’s recent hires and planned hires may not
become productive as quickly as expected and if new sales employees and agents do not become fully productive on the
timelines that have been projected or at all, Accel’s revenue may not increase at anticipated levels and its ability to achieve long-
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term projections may be negatively impacted. In addition, as Accel continues to grow, a larger percentage of its sales force will
be new to Accel and its business, which may adversely affect Accel’s sales if it cannot train its sales force quickly or effectively.
Attrition rates may increase, and Accel may face integration challenges as it continues to seek to expand its sales force. Accel
also believes that there is significant competition for sales personnel with the skills that it requires in the industries in which it
operates, and may be unable to hire or retain sufficient numbers of qualified individuals in the markets where it operates or plans
to operate. If Accel is unable to hire and train sufficient numbers of effective sales personnel or agents, or if the sales personnel
or agents are not successful in obtaining new licensed establishment partners or promoting activity within Accel’s existing
licensed establishment partners, Accel’s business may be adversely affected.
Accel periodically changes and adjusts its sales organization in response to market opportunities, competitive threats,
management changes, product and service introductions or enhancements, acquisitions, sales performance, increases in sales
headcount, cost levels, and other internal and external considerations. Any future sales organization changes may result in a
temporary reduction of productivity, which could negatively affect Accel’s rate of growth. In addition, any significant change to
the way Accel structures the compensation of its sales organization may be disruptive and may affect revenue growth.
Accel’s inability to complete acquisitions and integrate acquired businesses successfully could limit its growth or disrupt its
plans and operations.
Accel continues to pursue expansion and acquisition opportunities in gaming and related businesses. Accel’s ability to
succeed in implementing its strategy will depend to some degree upon its ability to identify and complete commercially viable
acquisitions. Accel may not be able to find acquisition opportunities on acceptable terms or at all, or obtain necessary financing
or regulatory approvals to complete potential acquisitions.
Accel may not be able to successfully integrate any businesses that it acquires or do so within intended timeframes. Accel
could face significant challenges in managing and integrating its acquisitions and combined operations, including acquired
assets, operations and personnel. In addition, the expected cost synergies associated with such acquisitions may not be fully
realized in the anticipated amounts or within the contemplated timeframes or cost expectations, which could result in increased
costs and have an adverse effect on Accel’s results of operations, cash flows and financial condition. Accel expects to incur
incremental costs and capital expenditures related to its contemplated integration activities.
Acquisition transactions may disrupt Accel’s ongoing business. The integration of acquisitions will require significant time
and focus from management and may divert attention from the day-to-day operations of the combined business or delay the
achievement of strategic objectives. Accel’s business may be negatively impacted following the acquisitions if it is unable to
effectively manage expanded operations.
Accel faces significant competition from other gaming and entertainment operations, and Accel’s success in part relies on
maintaining Accel’s competitive advantages and market share in key markets.
Accel faces significant competition from suppliers and other operators of gaming terminals and dartboards, pool tables,
pinball and other related non-gaming equipment at licensed establishment partners. Accel competes on the basis of the
responsiveness of its services, and the popularity, content, features, quality, functionality, accuracy, and reliability of its
products. In order to remain competitive and maintain Accel’s existing market share, Accel must continuously offer popular,
high-quality games in a timely manner and new services or enhancements to its existing services. These services or
enhancements may not be well received by licensed establishment partners or consumers, even if well reviewed and of high
quality. In addition, some of Accel’s current and future competitors may enjoy substantial competitive advantages over it, such
as greater name recognition, longer operating histories, or greater financial, technical, and other resources. These companies may
use these advantages to offer services that respond better to the needs of licensed establishment partners, spend more on
advertising and brand marketing, expand their operations, or respond more quickly and effectively than Accel does or can to new
or changing opportunities, technologies, standards, regulatory conditions or requirements, or player preferences. These
competitors could use these advantages to capture additional market share to Accel’s detriment in key markets. Additionally,
Accel could lose some or all of the competitive advantages that it currently enjoys over its current and potential competitors.
Accel also faces high levels of competition related to newly legalized gaming jurisdictions and for openings of new or expanded
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licensed establishments. Accel’s success depends on its ability to successfully enter new markets and compete successfully for
new business, which is not certain to occur. Any of these developments could have an adverse effect on Accel’s results of
operations, cash flows and financial condition and could result in a loss of market share in key markets.
Accel operates in the highly competitive gaming industry, and Accel’s success depends on its ability to effectively compete
with numerous types of businesses in a rapidly evolving, and potentially expanding, gaming environment.
While Accel’s operations face competition from many forms of leisure and entertainment activities, including shopping,
athletic events, television and movies, concerts, and travel, Accel faces particularly robust competition from other forms of
gaming. The gaming industry is characterized by an increasingly high degree of competition among a large number of
participants on both a local and national level, including casinos, Internet gaming, sports betting, sweepstakes and poker
machines not located in casinos, horse racetracks, including those featuring slot machines and/or table games, fantasy sports, real
money iGaming, and other forms of gaming, such as, Internet-based lotteries, sweepstakes, and fantasy sports, and Internet-
based or mobile-based gaming platforms, which allow their players to wager on a wide variety of sporting events and/or play
casino games from home or in non-casino settings. This could divert players from using Accel’s products in licensed
establishment partners, and adversely affect its business. Even Internet wagering services that are illegal under federal and state
law but operate from overseas locations, may nevertheless be accessible to domestic gamblers and divert players from visiting
licensed establishment partners to play on Accel’s gaming terminals.
The availability of competing gaming activities could increase substantially in the future. Voters and state legislatures may
seek to supplement traditional tax revenue sources of state governments by authorizing or expanding gaming in Illinois, adjacent
states or jurisdictions where Accel plans to operate in the future, such as Pennsylvania and Georgia. For example, on June 2,
2019, the Illinois legislature passed a significant gaming expansion bill authorizing the addition of multiple casinos to the state,
including a casino in Chicago, permitting slot and table games at three horse racetracks, adding slot machines to two airports and
creating licensing criteria for those eligible to provide sports betting services. In addition, other jurisdictions are considering or
have already recently legalized, implemented and expanded gaming, and there are proposals across the country that would
legalize Internet poker and other varieties of Internet gaming in a number of states and at the federal level. For example,
Pennsylvania legislation allowing regulated online poker and casino-style games within the commonwealth and legalizing sports
betting in casinos. In addition, established gaming jurisdictions could award additional gaming licenses or permit the expansion
or relocation of existing gaming operations (including gaming terminals). See “ —Accel’s revenue growth and future success
depends on its ability to expand into new markets, which may not occur as anticipated or at all” for more information. While
Accel believes it is well positioned to take advantage of certain of these opportunities, expansion of gaming in other jurisdictions
(both legal and illegal) could further compete with Accel’s gaming terminals, which could have an adverse impact on Accel’s
results of operations, cash flows and financial condition.
The concentration and evolution of the gaming terminal manufacturing industry could impose additional costs on Accel.
A majority of Accel’s revenue is attributable to gaming terminals and related systems supplied by it at licensed
establishment partners. A substantial majority of the gaming terminals sold in the U.S. in recent years have been manufactured
by a few select companies, and there has been extensive consolidation within the gaming equipment sector in recent years,
including the acquisitions of Bally Technologies, Inc. (which had acquired SHFL Entertainment, Inc.) and WMS Industries, Inc.
by Scientific Games Corporation (“Scientific Games”) and International Game Technology PLC by GTECH S.p.A, respectively.
Consolidation may force Accel to enter into purchase arrangements for new gaming terminals that are more expensive to
operate than its existing gaming terminals. If the newer gaming terminals do not result in sufficient incremental revenues to
offset the potential increased investment and costs, it could damage Accel’s profitability. In the event that Accel loses a supplier,
it may be unable to replace such supplier, and Accel’s remaining suppliers may increase fees and costs. See “— An increase in
Accel’s borrowing costs would negatively affect its financial condition, cash flow and results of operations”.
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Accel’s operations are largely dependent on the skill and experience of its management and key personnel. The loss of
management and other key personnel could significantly harm Accel’s business, and it may not be able to effectively replace
members of management who may leave Accel.
Accel’s success and competitive position are largely dependent upon, among other things, the efforts and skills of its senior
executives and management team, including Andrew H. Rubenstein as the Chief Executive Officer and President, Karl Peterson
as Chairman of the Board, Brian Carroll as Chief Financial Officer and Derek Harmer as General Counsel and Chief Compliance
Officer. Although Accel has entered into employment agreements with senior executives and key personnel, there can be no
assurance that these individuals will remain employed. If Accel loses the services of any members of its management team or
other key personnel, its business may be significantly impaired.
Accel relies on assumptions and estimates to calculate certain key metrics, and real or perceived inaccuracies in such metrics
may harm its reputation and negatively affect its business.
Accel regularly reviews metrics, including the number of players and other measures, to evaluate growth trends, measure
performance and make strategic decisions. Additionally, Accel commits significant amounts of resources and employee time to
understanding the inherent historical patterns of gaming results within individual licensed establishment partners. Accel uses this
pattern recognition process to implement more optimal gaming layouts for licensed establishment partners, with the goal of
generating increased gaming revenue.
Certain of Accel’s key metrics, including the average post-acquisition net video gaming revenue per gaming terminal per
location per day (“location hold-per-day”) and a number of other measures to evaluate growth trends and the quality of
marketing and player behaviors, are calculated using data from Scientific Games, a contractor of the IGB. Scientific Games and
the IGB may calculate certain metrics differently, which could limit the comparability of Accel’s key metrics and those of its
competitors, who may use a different methodology to calculate similar metrics. For example, the IGB calculates location hold-
per-day and other metrics using the number of gaming terminals that are active at the end of a given month, while Scientific
Games uses the number of gaming terminals that are active at least one day during a month. See “Accel Management’s
Discussion and Analysis of Financial Condition and Results of Operations — Key Business Metrics” for more information.
While Accel believe these figures to be reasonable and that its reliance on them is justified, there can be no assurance that such
figures are reliable or accurate. Should Accel decide to review these or other figures, it may discover material inaccuracies,
including unexpected errors in its internal data that result from technical or other errors. If Accel determines that any of its
metrics are not accurate, they may be required to revise or cease reporting such metrics and such changes may harm Accel’s
reputation and business.
Accel’s results of operations, cash flows and financial condition could be affected by natural events in the locations in which
it or its licensed establishment partners, suppliers or regulators operate.
Accel may be impacted by severe weather and other geological events, including hurricanes, tornados, earthquakes, floods
or tsunamis that could disrupt operations or the operations of its licensed establishment partners, suppliers, data service providers
and regulators. Natural disasters or other disruptions at any of Accel’s facilities or suppliers’ facilities may impair or delay the
operation, development, provisions or delivery of its products and services. Additionally, disruptions experienced by Accel’s
regulators due to natural disasters or otherwise could delay the introduction of new products or entry into new jurisdictions
where regulatory approval is necessary. While Accel insures against certain business interruption risks, there can be no assurance
that such insurance will adequately compensate for any losses incurred as a result of natural or other disasters. Any serious
disruption to Accel’s operations, or those of its licensed establishment partners, suppliers, data service providers, or regulators,
could have an adverse effect on Accel’s results of operations, cash flows and financial condition.
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Risks Related to Compliance and Regulatory Matters
Accel is subject to strict government regulations that are constantly evolving and may be amended, repealed, or subject to new
interpretations, which may limit existing operations, have an adverse impact on the ability to grow or may expose Accel to
fines or other penalties.
Accel is subject to the rules, regulations, and laws applicable to gaming, including, but not limited to, the Illinois Video
Gaming Act, the Pennsylvania Gaming Act and the Georgia Lottery for Education Act. These gaming laws and related
regulations are administered by the IGB, PA Board, and GLC, respectively, which are regulatory boards with broad authority to
create and interpret gaming regulations and to regulate gaming activities. These gaming authorities are authorized to:
•
•
•
•
•
•
adopt additional rules and regulations under the implementing statutes;
investigate violations of gaming regulations;
enforce gaming regulations and impose disciplinary sanctions for violations of such laws, including fines, penalties and
revocation of gaming licenses;
review the character and fitness of manufacturers, distributors and operators of gaming services and equipment and
make determinations regarding their suitability or qualification for licensure;
review and approve transactions (such as acquisitions, material commercial transactions, securities offerings and debt
transactions); and
establish and collect related fees and/or taxes.
Although Accel plans to maintain compliance with applicable laws as they evolve and to generally maintain good relations
with regulators, there can be no assurance that Accel will do so, and that law enforcement or gaming regulatory authorities will
not seek to restrict Accel’s business in their jurisdictions or institute enforcement proceedings if Accel is not compliant. There
can be no assurance that any instituted enforcement proceedings will be favorably resolved, or that such proceedings will not
have an adverse effect on its ability to retain and renew existing licenses or to obtain new licenses in other jurisdictions. Gaming
authorities may levy fines against Accel or seize certain assets if Accel violates gaming regulations. Accel’s reputation may also
be damaged by any legal or regulatory investigation, regardless of whether Accel is ultimately accused of, or found to have
committed, any violation. A negative regulatory finding or ruling in one jurisdiction could have adverse consequences in other
jurisdictions, including with gaming regulators.
In addition to regulatory compliance risk, Illinois, Pennsylvania, Georgia or any other states or other jurisdiction in which
Accel operates or may operate (including jurisdictions at the county, district, municipal, town or borough level), certain
jurisdictions may amend or repeal gaming enabling legislation or regulations. Changes to gaming enabling legislation or new
interpretations of existing gaming laws may hinder or prevent Accel from continuing to operate in the jurisdictions where it
currently conducts business, which could increase operating expenses and compliance costs or decrease the profitability of
operations. Repeal of gaming enabling legislation could result in losses of capital investments and revenue, limit future growth
opportunities and have an adverse effect on Accel’s results of operations, cash flows and financial condition. If any jurisdiction
in which Accel operates were to repeal gaming enabling legislation, there could be no assurance that Accel could sufficiently
increase revenue in other markets to maintain operations or service existing indebtedness. In particular, the enactment of
unfavorable legislation or government efforts affecting or directed at gaming terminal manufacturers or gaming operators, such
as referendums to increase gaming taxes or requirements to use local distributors, would likely have a negative impact on
operations. For example, the Illinois legislature has recently approved a gaming expansion bill that, in addition to providing for
an increased number of possible gaming venues, also increases Illinois state tax on gaming revenue. Additionally, membership
changes within regulatory agencies could impact operations. The IGB in particular has experienced significant personnel
changes since the commencement of Accel’s gaming terminal operations in 2012. Changes in the composition of the IGB can
impact current rules, regulations, policies, enforcement trends and overall agendas of the IGB.
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Accel is obligated to develop and maintain proper and effective internal control over financial reporting. Accel has identified
three material weaknesses in its internal control over financial reporting and if remediation of these material weaknesses is
not effective, or if Accel fails to develop and maintain an effective system of disclosure controls and internal control over
financial reporting, its ability to produce timely and accurate financial statements or comply with applicable laws and
regulations could be impaired and its reputation and business could be adversely affected. In addition, the presence of
material weaknesses increases the risk of material misstatement of the consolidated financial statements.
Accel is currently a public company and is required, pursuant to Section 404(a) of the Sarbanes-Oxley Act, to furnish a
report by management on, among other things, the effectiveness of its internal control over financial reporting on its Annual
Report on Form 10-K. Effective internal control over financial reporting is necessary for reliable financial reports and, together
with adequate disclosure controls and procedures, such internal controls are designed to prevent fraud. Any failure to implement
required new or improved controls, or difficulties encountered in their implementation, could cause Accel to fail to meet its
reporting obligations. Ineffective internal controls could also cause investors to lose confidence in reported financial information,
which could have a negative effect on the trading price of our Class A-1 common stock.
The report by management will need to include disclosure of any material weaknesses identified in internal control over
financial reporting. However, for as long as Accel is an “emerging growth company” under the Jumpstart Our Business Startups
Act of 2012 (“JOBS Act”) following the consummation of the merger of TPG Pace Holding Corp. and Accel Entertainment, Inc.
(the “Business Combination”), its independent registered public accounting firm will not be required to attest to the effectiveness
of internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley
Act”). Management’s assessment of internal controls, when implemented, could detect problems with internal controls, and an
independent assessment of the effectiveness of internal controls by Accel’s auditors could detect further problems that
management’s assessment might not, and could result in the identification of material weaknesses that were not otherwise
identified. Undetected material weaknesses in internal controls could lead to financial statement restatements and require Accel
to incur the expense of remediation.
In connection with the preparation of its consolidated financial statements for 2018, Accel identified a number of
adjustments to its consolidated financial statements that resulted in a restatement of previously issued financial statements. These
adjustments related to accounting for business acquisitions and subsequent accounting, accounting for route and customer
acquisition costs and related liabilities, classification of items on the consolidated statements of stockholders’ equity and cash
flows, accounting for income taxes, and other miscellaneous adjustments. Accel identified the cause of these adjustments was
due to three material weaknesses in internal controls. A material weakness is a deficiency or combination of deficiencies in its
internal control over financial reporting such that there is a reasonable possibility that a material misstatement of its consolidated
financial statements would not be prevented or detected on a timely basis. This deficiency could result in additional
misstatements to its consolidated financial statements that would be material and would not be prevented or detected on a timely
basis.
The following three material weaknesses in internal control over financial reporting were identified, which are not
remediated as of December 31, 2020, or currently:
•
A material weakness in the design and implementation of the Company’s internal controls relating to review of
the consolidated financial statements and certain of the associated accounting analysis, journal entries, non-recurring
transactions and accounting reconciliations due, in part, to the lack of formally documented accounting policies and
procedures, as well as headcount necessary to support consistent, timely and accurate financial reporting in accordance
with U.S. GAAP;
•
A material weakness in the design and implementation of the Company’s internal controls relating to business
combination accounting and route and customer acquisition cost accounting due to the absence of formalized internal
controls surrounding the determination of the fair value and the accounting for assets acquired and liabilities assumed in
business combinations and the accounting for the initial route and customer acquisition costs; and
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•
A material weakness in the Company’s general information technology controls including the design and
implementation of access and change management internal controls.
Accel has begun evaluating and implementing additional procedures in order to remediate these material weaknesses,
however, it cannot assure you that these or other measures will fully remediate the material weaknesses in a timely manner. As
part of the remediation plan to address the material weakness identified above, Accel has hired additional accounting and finance
employees with the specific technical accounting and financial reporting experience necessary for a public company. Accel has
hired these personnel after considering the appropriateness of each individual’s experience and believe that these personnel are
qualified to serve in their current respective roles. In addition, Accel has begun to implement more formal accounting policies
and procedures to support timely and accurate financial reporting in accordance with GAAP. Accel will continue to assess the
adequacy of its accounting and finance personnel and resources, and will add additional personnel, as well as adjust its resources,
as necessary, commensurate with any increase in the size and complexity of its business. Accel also increased the depth and level
of review procedures with regard to financial reporting and internal control procedures. If Accel is unable to remediate these
material weaknesses, or otherwise maintain effective internal control over financial reporting, it may not be able to report its
financial results accurately, prevent fraud or file its periodic reports in a timely manner. If Accel’s remediation of these material
weaknesses is not effective, if Accel’s independent registered public accounting firm is unable to express an opinion on the
effectiveness of its internal control or if it experiences additional material weaknesses or otherwise fails to maintain an effective
system of internal controls in the future, it may not be able to accurately or timely report its financial condition or results of
operations, which may cause Accel to become subject to investigation or sanctions by the SEC or adversely affect investor
confidence in Accel and, as a result, the value of our Class A-1 common stock. There can be no assurance that all existing
material weaknesses have been identified, or that additional material weaknesses will not be identified in the future. In addition,
if Accel is unable to continue to meet its financial reporting obligations, it may not be able to remain listed on the NYSE.
Accel may be liable for product defects or other claims relating to its products that it provides to its licensed establishment
partners.
The products that Accel provides to its licensed establishment partners could be defective, fail to perform as designed or
otherwise cause harm to players or licensed establishment partners. If any of the products Accel provides are defective, Accel
may be required to recall the products and/or repair or replace them, which could result in substantial expenses and affect
profitability. In the event of any repair or recall, Accel could be dependent on the services, responsiveness or product stock of
key suppliers, and any delay in their ability to resupply or assist in servicing key products could affect its ability to maintain the
gaming terminals in licensed establishment partners. Any problem with the performance of Accel’s products could harm its
reputation, which could result in a loss of existing or potential licensed establishments and players. In addition, the occurrence of
errors in, or fraudulent manipulation of, Accel’s products or software may give rise to claims by licensed establishment partners
or by players, including claims by licensed establishment partners for lost revenues and related litigation that could result in
significant liability. Any claims brought against Accel by licensed establishment partners or players may result in the diversion
of management’s time and attention, expenditure of large amounts of cash on legal fees and payment of damages, lower demand
for products or services, or injury to reputation. Accel’s insurance or recourse against other parties may not sufficiently cover a
judgment against it or a settlement payment, and any insurance payment is subject to customary deductibles, limits and
exclusions. In addition, a judgment against Accel or a settlement could make it difficult for it to obtain insurance in the coverage
amounts necessary to adequately insure its businesses, or at all, and could materially increase insurance premiums and
deductibles. Software bugs or malfunctions, errors in distribution or installation of Accel’s software, failure of products to
perform as approved by the appropriate regulatory bodies or other errors or malfunctions, may subject Accel to investigation or
other action by gaming regulatory authorities, including fines.
Litigation may adversely affect Accel’s business, results of operations, cash flows and financial condition.
Accel may become subject to litigation claims in the operation of its business, including, but not limited to, with respect to
employee matters, alleged product and system malfunctions, alleged intellectual property infringement and claims relating to
contracts, licenses and strategic investments. Accel may incur significant expense defending or settling any such litigation.
Additionally, adverse judgments that may be decided against Accel could result in significant monetary damages or injunctive
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relief that could adversely affect Accel’s ability to conduct business, its results of operations, cash flows and financial condition.
See “Business — Legal Proceedings” for more information.
If Accel’s estimates or judgments relating to critical accounting policies prove to be incorrect or financial reporting standards
or interpretations change, its operating results could be adversely affected.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments,
and assumptions that affect the amounts reported in its consolidated financial statements and accompanying notes. Accel bases
its estimates on historical experience and on various other assumptions that management believes to be reasonable under the
circumstances, as provided in “Accel Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
The results of these estimates form the basis for making judgments about the carrying values of assets, liabilities, and equity as
of the date of the financial statements, and the amount of revenue and expenses, during the periods presented, that are not readily
apparent from other sources. Significant assumptions and estimates used in preparing consolidated financial statements include
among other things, the useful lives for depreciable and amortizable assets, income tax provisions, the evaluation of the future
realization of deferred tax assets, projected cash flows in assessing the initial valuation of intangible assets in conjunction with
business acquisitions, the initial selection of useful lives for depreciable and amortizable assets in conjunction with business
acquisitions, the fair value of convertible note investments, contingencies, and the expected term of share-based compensation
awards and stock price volatility when computing share-based compensation expense. Accel’s operating results may be
adversely affected if assumptions change or if actual circumstances differ from assumed circumstances, which could cause its
operating results to fall below the expectations of industry or financial analysts and investors, resulting in a decline in the trading
price of its common stock.
Additionally, Accel regularly monitors compliance with applicable financial reporting standards and reviews relevant new
accounting pronouncements and drafts thereof. As a result of new standards, changes to existing standards, and changes in
interpretation, Accel may be required to change accounting policies, alter operational policies and implement new or enhance
existing systems so that they reflect new or amended financial reporting standards, or it may be required to restate published
financial statements. Such changes to existing standards or changes in their interpretation may cause an adverse deviation from
Accel’s revenue and operating profit target, which may negatively impact results of operations, cash flows and financial
condition.
Accel may not have adequate insurance for potential liabilities.
In the ordinary course of business, Accel has, and in the future may become the subject of, various claims, lawsuits and
administrative proceedings seeking damages or other remedies concerning its commercial operations, products, employees and
other matters. Accel maintains insurance to cover these and other potential losses, and is subject to various self-retentions,
deductibles and caps under its insurance. Accel faces the following risks with respect to insurance coverage:
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Accel may not be able to continue to obtain insurance on commercially reasonable terms;
Accel may incur losses from interruptions of business that exceed insurance coverage;
Accel may be faced with types of liabilities that will not be covered by insurance;
Accel’s insurance carriers may not be able to meet their obligations under the policies; or
the dollar amount of any liabilities may exceed policy limits.
Even a partially uninsured claim, if successful and of significant size, could have an adverse effect on Accel’s results of
operations, cash flows and financial condition. Even in cases where Accel maintains insurance coverage, its insurers may raise
various objections and exceptions to coverage that could make uncertain the timing and amount of any possible insurance
recovery.
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Accel’s business depends on the protection of intellectual property and proprietary information.
Accel believes that its success depends, in part, on protecting its intellectual property. Accel’s intellectual property includes
certain trademarks and copyrights relating to its products and services, and proprietary or confidential information that is not
subject to patent or similar protection. As of December 31, 2020, Accel owned eight registered trademarks and 100 registered
domain names. Accel’s success may depend, in part, on its ability to obtain protection for the trademarks, trade dress, names,
logos or symbols under which it markets products and to obtain copyright and patent protection for proprietary technologies,
designs, software and innovations. There can be no assurance that Accel will be able to build and maintain consumer value in its
trademarks, obtain patent, trademark or copyright protection or that any patent, trademark or copyright will provide competitive
advantages.
Accel’s intellectual property protects the integrity of its systems, products and services. Competitors may independently
offer similar or superior products, software or systems, which could negatively impact results of operations, cash flows and
financial condition. In cases where Accel’s technology or product is not protected by enforceable intellectual property rights,
such independent development may result in a significant diminution in the value of such technology or product.
Accel also relies on trade secrets and proprietary knowledge and enters into confidentiality agreements with employees and
independent contractors regarding trade secrets and proprietary information, however, there can be no assurance that the
obligation to maintain the confidentiality of trade secrets and proprietary information will be honored.
Accel may, in the future, make claims of infringement, invalidity or enforceability against third parties. This could:
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cause Accel to incur greater costs and expenses in the protection of intellectual property;
potentially negatively impact its intellectual property rights;
cause one or more of its patents, trademarks, copyrights or other intellectual property interests to be ruled or rendered
unenforceable or invalid; or
divert management’s attention and resources.
Gaming opponents persist in their efforts to curtail the expansion of legalized gaming, which, if successful, could limit the
growth of operations.
There is significant debate over, and opposition to, the gaming industry. There can be no assurance that this opposition will
not succeed in preventing the legalization of gaming in jurisdictions where it is presently prohibited, prohibiting or limiting the
expansion of gaming where it is currently permitted or causing the repeal of legalized gaming in any jurisdiction. Such
opposition could also lead these jurisdictions to adopt legislation or impose a regulatory framework to govern gaming that
restricts Accel’s ability to advertise games or substantially increases costs to comply with these regulations. Accel continues to
devote significant attention to monitoring these developments, however, Accel cannot accurately predict the likelihood, timing,
scope or terms of any state or federal legislation or regulation relating to its business. Any successful effort to curtail the
expansion of, or limit or prohibit, legalized gaming could have an adverse effect on Accel’s results of operations, cash flows and
financial condition.
For example, the Illinois legislature approved a gaming expansion bill in June 2019 that, in addition to providing for an
increased number of possible gaming venues, also increased Illinois state tax on gaming revenue. Any tax increase by the state of
Illinois, whether levied on licensed establishments or Accel, could have an adverse effect on Accel’s results of operations, cash
flows and financial condition. Current and future appointees to the IGB may enact, change or rescind other rules and regulations
in a way that negatively affects business.
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Accel may not be able to capitalize on the expansion of gaming or other trends and changes in the gaming industries,
including due to laws and regulations governing these industries, and other factors.
Accel participates in new and evolving aspects of the gaming industries. These industries involve significant risks and
uncertainties, including legal, business and financial risks. The fast-changing environment in these industries can make it
difficult to plan strategically and can provide opportunities for competitors to grow their businesses at Accel’s expense.
Consequently, future results of operations, cash flows and financial condition are difficult to predict and may not grow at
expected rates.
Part of Accel’s strategy is to take advantage of the liberalization of regulations covering these industries on a municipality
and state basis, which can be a protracted process. To varying degrees, governments have taken steps to change the regulation of
gaming terminals through the implementation of new or revised licensing and taxation regimes. For example, in addition to the
State-issued gaming licenses, gaming licenses are also governed on a municipality-level in Illinois. While Accel has contracted
for exclusive rights to operate in licensed establishments in over 600 different municipalities in Illinois, all of which have no
prohibition or restriction with respect to gaming, there are many other municipalities that have “opt out” or “anti-gambling”
ordinances which prohibit a range of activities characterized from “devices of chance” to “any gambling”. While a number of
these municipalities have removed the ordinance or introduced an amendment to permit gaming activities germane to Accel’s
business, they or other municipalities may choose to prohibit or limit gambling in the future. Additionally, Pennsylvania
currently only permits the operation of gaming terminals at truck stops. While there are currently efforts to permit the expansion
of gaming terminals into additional types of establishments, there can be no assurance that such efforts will succeed, or that
gaming operations at truck stops will be continued to be permitted. Accel cannot predict the timing, scope or terms of the
implementation or revision of any such state, federal or local laws or regulations, or the extent to which any such laws and
regulations may facilitate or hinder its strategy.
Accel’s success depends on the security and integrity of the systems and products offered, and security breaches or other
disruptions could compromise certain information and expose Accel to liability, which could cause Accel’s business and
reputation to suffer.
Accel believes that success depends, in large part, on providing secure products, services and systems to licensed
establishments and players, and on the ability to avoid, detect, replicate and correct software and hardware anomalies and
fraudulent manipulation of products and services. Accel’s business sometimes involves the storage, processing and transmission
of proprietary, confidential and personal information, and any future player program it may institute will also involve such
information. Accel also maintains certain other proprietary and confidential information relating to its business and personal
information of its personnel. All of Accel’s products, services and systems are designed with security features to prevent
fraudulent activity. Despite these security measures, Accel’s products, services and systems may be vulnerable to attacks by
licensed establishment partners, players, retailers, vendors or employees, or breaches due to cyber-attacks, viruses, malicious
software, computer hacking, security breaches or other disruptions. Expanded use of the Internet and other interactive
technologies may result in increased security risks for Accel and its licensed establishment partners because the techniques used
to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and often are not foreseeable or
recognized until launched against a target and Accel may be unable to anticipate these techniques or to implement adequate
preventative measures. Furthermore, hackers and data thieves are becoming increasingly sophisticated and could operate large-
scale and complex automated attacks. Any security breach or incident could result in unauthorized access to, misuse of, or
unauthorized acquisition of certain data, the loss, corruption or alteration of this data, interruptions in operations or damage to
computers or systems or those of certain players or third-party platforms. Any of these incidents could expose Accel to claims,
litigation, fines and potential liability. Accel’s ability to prevent anomalies and monitor and ensure the quality and integrity of its
products and services is periodically reviewed and enhanced, and Accel regularly assesses the adequacy of security systems,
including the security of its games and software, to protect against any material loss to licensed establishment partners and
players, as well as the integrity of its products and services and its games. However, these measures may not be sufficient to
prevent future attacks, breaches or disruptions.
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There is a risk that Accel’s products, services or systems may be used to defraud, launder money or engage in other illegal
activities at licensed establishments. Accel’s gaming machines have also experienced anomalies in the past. Games and gaming
machines may be replaced by Accel and other gaming machine operators if they do not perform according to expectations, or
they may be shut down by regulators. The occurrence of anomalies in, or fraudulent manipulation of, Accel’s gaming machines
or other products and services, may give rise to claims from players or licensed establishment partners, may lead to claims for
lost revenue and profits and related litigation by licensed establishment partners and may subject Accel to investigation or other
action by regulatory authorities, including suspension or revocation of licenses or other disciplinary action. Additionally, in the
event of the occurrence of any such issues with Accel’s products and services, substantial resources may be diverted from other
projects to correct these issues, which may delay other projects and the achievement of strategic objectives.
Further, third party hosted solution providers that provide services to Accel, such as Rackspace or Salesforce, could also be
a source of security risk in the event of a failure of their own security systems and infrastructure.
Risks related to our Financial Condition
Accel’s level of indebtedness could adversely affect results of operations, cash flows and financial condition.
As of December 31, 2020, Accel had total indebtedness of $347.6 million, all of which was borrowed under its current
Credit Agreement, and had approximately $100.0 million of availability.
Accel’s level of indebtedness could affect its ability to obtain financing or refinance existing indebtedness; require Accel to
dedicate a significant portion of its cash flow from operations to interest and principal payments on indebtedness, thereby
reducing the availability of cash flow to fund working capital, capital expenditures and other general corporate purposes,
increase its vulnerability to adverse general economic, industry or competitive developments or conditions and limit its
flexibility in planning for, or reacting to, changes in its businesses and the industries in which it operates or in pursuing its
strategic objectives. In addition, Accel is exposed to the risk of higher interest rates as a significant portion of its borrowings are
at variable rates of interest. If interest rates increase, the interest payment obligations would increase even if the amount
borrowed remained the same, and results of operations, cash flows and financial condition could be negatively impacted. All of
these factors could place Accel at a competitive disadvantage compared to competitors that may have less debt.
An increase in Accel’s borrowing costs could negatively affect its financial condition, cash flow and results of operations.
Certain of Accel’s gaming terminal and amusement machine acquisitions are financed using revolving credit facilities and
bank loans. Accel’s financing agreements include variable interest rates and regular required interest, fee and amortization
payments. If Accel is unable to generate sufficient revenue to offset the required payments, it could have an adverse effect on
Accel’s results of operations, cash flows and financial condition. In addition, Accel is not currently involved in any interest rate
hedging activities. Any such hedging activities could require Accel to incur additional costs, and there can be no assurance that
Accel would be able to successfully protect itself from any or all negative interest rate fluctuations at a reasonable cost.
Accel may not have sufficient cash flows from operating activities, cash on hand and available borrowings under its credit
agreement to finance required capital expenditures under new contracts and meet other cash needs.
Accel’s business generally requires significant upfront capital expenditures for gaming terminals and amusement machines,
software customization and implementation, systems and equipment installation and telecommunications configuration. In
connection with the signing or renewal of a gaming or amusement contract, Accel may provide new equipment or impose new
service requirements at a licensed establishment, which may require additional capital expenditures in order to enter into or
retain the contract. Historically, Accel has funded these upfront costs through cash flows generated from operations, available
cash on hand and borrowings under the Credit Agreement.
In addition, since Accel is not paid for expenses and services, Accel may incur upfront costs (which may be significant)
prior to receipt of any revenue under such arrangements. Accel’s ability to generate revenue and to continue to procure new
contracts will depend on, among other things, its then present liquidity levels or its ability to obtain additional financing on
commercially reasonable terms.
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If Accel does not have adequate liquidity or is unable to obtain financing for these upfront costs and other cash needs on
favorable terms or at all, it may not be able to pursue certain contracts, which could result in the loss of business or restrict the
ability to grow. Moreover, Accel may not realize the return on investment that it anticipates on new or renewed contracts due to
a variety of factors, including lower than anticipated retail sales or amounts wagered, higher than anticipated capital or operating
expenses and unanticipated regulatory developments or litigation. Accel may not have adequate liquidity to pursue other aspects
of its strategy, including bringing products and services to new licensed establishment partners or new or underpenetrated
geographies (including through equity investments) or pursuing strategic acquisitions. In the event Accel pursues significant
acquisitions or other expansion opportunities, conducts significant repurchases of outstanding securities, or refinances or repays
existing debt, it may need to raise additional capital either through the public or private issuance of equity or debt securities or
through additional borrowings under its existing financing arrangements, which sources of funds may not necessarily be
available on acceptable terms, if at all.
Accel may not have sufficient cash flows from operating activities to service all of its indebtedness and other obligations, and
may be forced to take other actions to satisfy obligations, which may not be successful.
Accel’s ability to make payments on and to refinance indebtedness and other obligations depends on its results of
operations, cash flows and financial condition, which in turn are subject to general economic, financial, competitive, legislative,
regulatory and other factors that are beyond its control. Accel may not be able to maintain a level of cash flows from operating
activities sufficient to pay the principal, premium, if any, and interest on its indebtedness and other obligations.
Accel is required to make scheduled payments of principal in respect of the term loans under the Credit Agreement. Accel
may also, from time to time, repurchase, or otherwise retire or refinance debt, through subsidiaries or otherwise. Such activities,
if any, will depend on prevailing market conditions, contractual restrictions and other factors, and the amounts involved may or
may not be material. If Accel needs to refinance all or part of its indebtedness at or before maturity, there can be no assurance
that Accel will be able to obtain new financing or to refinance any of its indebtedness on commercially reasonable terms or at all.
Accel’s lenders, including the lenders participating in its delayed draw and/or revolving credit facilities under the Credit
Agreement, may become insolvent or tighten their lending standards, which could make it more difficult for Accel to borrow
under its delayed draw and/or revolving credit facilities or to obtain other financing on favorable terms or at all. Accel’s results
of operations, cash flows and financial condition could be adversely affected if Accel is unable to draw funds under its delayed
draw and/or revolving credit facilities because of a lender default or to obtain other cost-effective financing. Any default by a
lender in its obligation to fund its commitment under the delayed draw and/or revolving credit facilities (or its participation in
letters of credit) could limit Accel’s liquidity to the extent of the defaulting lender’s commitment. If Accel is unable to generate
sufficient cash flow in the future to meet commitments, it may be required to adopt one or more alternatives, such as refinancing
or restructuring indebtedness, selling material assets or operations or seeking to raise additional debt or equity capital. In
addition, borrowings under Accel’s existing revolving credit facilities may be subject to capacity under an available borrowing
base.
Agreements governing Accel’s indebtedness impose certain restrictions that may affect the ability to operate its business.
Failure to comply with any of these restrictions could result in the acceleration of the maturity of indebtedness and require
Accel to make payments on indebtedness. Were this to occur, Accel would not have sufficient cash to pay accelerated
indebtedness.
Agreements governing Accel’s indebtedness impose, and future financing agreements are likely to impose, operating and
financial restrictions on activities that may adversely affect its ability to finance future operations or capital needs or to engage in
new business activities. In some cases, these restrictions require Accel to comply with or maintain certain financial tests and
ratios. Subject to certain exceptions, Accel’s credit facilities restrict its ability to, among other things:
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incur or guarantee additional indebtedness;
• make loans to others;
• make investments;
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• merge or consolidate with another entity;
• make dividends and certain other payments, including payment of junior debt;
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create liens that secure indebtedness and guarantees thereof;
transfer or sell assets;
enter into transactions with affiliates;
change the nature of Accel's business;
enter into certain burdensome agreements;
• make certain accounting changes; and
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in the case of Accel Entertainment, Inc., change its passive holding company status.
In addition, the Credit Agreement contains financial covenants that require Accel to maintain (a) a ratio of consolidated first
lien net debt to consolidated EBITDA no greater than 4.50 to 1.00 and (b) a ratio of (i) (A) consolidated EBITDA minus (B) the
sum of (i) cash taxes, (ii) 3.00% of consolidated revenue, (iii) operator earnout payments and (iv) regularly scheduled dividend
payments that are financed with internally generated cash flow to consolidated fixed charges no less than 1.20 to 1.00, in each
case, tested as of the last day of each full fiscal quarter ending after November 20, 2019 and determined on the basis of the four
most recently ended fiscal quarters of Accel for which financial statements have been or are required to have been delivered
pursuant to the Credit Agreement, subject to customary “equity cure” rights. If an event of default (as such term is defined in the
Credit Agreement) occurs, the administrative agent on behalf of the lenders would be entitled to take various actions under
certain circumstances, including the acceleration of amounts due under the Credit Agreement, termination of the lenders’
commitments thereunder, foreclosure on collateral, and all other remedial actions available to a secured creditor. The failure to
pay certain amounts owing under the Credit Agreement may result in an increase in the interest rate applicable thereto. Cross-
default provisions may also be triggered. Under these circumstances, Accel might not have, or be able to obtain, sufficient funds
or other resources to satisfy all of its obligations. In addition, the limitations imposed by financing agreements on Accel’s ability
to incur additional debt, cause subsidiaries to guarantee certain debt, pay dividends or make other distributions, or take other
actions might significantly impair its ability to obtain other financing.
There can be no assurance that Accel will be granted waivers or amendments to these agreements if for any reason it is
unable to comply with these obligations or that it will be able to refinance its debt on terms acceptable or at all.
Risks Related to Our Common Stock
TPG Global, LLC, or TPG, Clairvest Group Inc., or Clairvest, and members of the Rubenstein Family own a significant
portion of Common Stock and have representation on the Company Board. TPG and Clairvest, through their respective
affiliates, and members of the Rubenstein Family may have interests that differ from those of other stockholders.
As of December 31, 2020, approximately 3% of the shares of our Class A-1 common stock were beneficially owned by Karl
Peterson and approximately 18% of the shares of our Class A-1 common stock were beneficially owned by affiliates of
Clairvest. Following the consummation of the Business Combination, (i) three directors were jointly nominated by Pace, an
affiliate of TPG, the Sellers and the Shareholder Representatives to serve on the Company Board, (ii) another two directors were
jointly nominated by Pace, an affiliate of TPG and the Shareholder Representatives and (iii) one director was jointly nominated
by TPG and Clairvest. While Accel’s subsidiaries (including those holding gaming licenses) manage their respective operations
in the ordinary course, TPG and Clairvest may be able to significantly influence the outcome of matters submitted for action by
directors of the Company Board, subject to the Company’s directors’ obligation to act in the interest of all of the Company’s
stakeholders, and for stockholder action, including the designation and appointment of the Company Board (and committees
thereof) and approval of significant corporate transactions, including business combinations, consolidations and mergers. So
long as TPG and Clairvest continue to directly or indirectly own a significant amount of Accel’s outstanding equity interests and
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any individuals affiliated with TPG and Clairvest are members of the Company Board and/or any committees thereof, TPG and
Clairvest may be able to exert substantial influence on Accel and may be able to exercise its influence in a manner that is not in
the interests of Accel’s other stakeholders. TPG’s and Clairvest influence over Accel’s management could have the effect of
delaying or preventing a change in control or otherwise discouraging a potential acquirer from attempting to obtain control of us,
which could cause the market price of Class A-1 common stock to decline or prevent public stockholders from realizing a
premium over the market price for Class A-1 common stock. Additionally, TPG and Clairvest and their respective affiliates are
in the business of making investments in companies and owning real estate, and may from time to time acquire and hold interests
in businesses that compete directly or indirectly with Accel or that supply Accel with goods and services. TPG, Clairvest, or their
respective affiliates may also pursue acquisition opportunities that may be complementary to (or competitive with) Accel’s
business, and as a result those acquisition opportunities may not be available to Accel. Prospective investors should consider that
the interests of TPG and Clairvest may differ from their interests in material respects.
In addition, as of December 31, 2020, approximately 9% of the shares of our Class A-1 common stock were beneficially
owned by Mr. A. Rubenstein, approximately 3% of the shares of our Class A-1 common stock were beneficially owned by his
brother, Mr. G. Rubenstein, and Mr. A. Rubenstein, together with Mr. G. Rubenstein and their father, Mr. Jeffrey Rubenstein
(together, the “Rubenstein Family”) collectively beneficially own approximately 16% of the shares of our Class A-1 common
stock. Although each of Mr. A. Rubenstein, Mr. G. Rubenstein, and Mr. J. Rubenstein each disclaim legal or beneficial
ownership of any shares of Class A-1 common stock owned or controlled by the others, the Rubenstein Family have and may
exert significant influence over corporate actions requiring stockholder approval. In addition, each of Mr. A. Rubenstein and Mr.
G. Rubenstein are members of the Company Board. As a result, the Rubenstein Family, including Mr. A. Rubenstein and Mr. G.
Rubenstein may be able to significantly influence the outcome of matters submitted for director action, subject to Accel’s
director’s obligation to act in the interest of all of Accel’s stakeholders, and for stockholder action, including the designation and
appointment of the Company Board (and committees thereof) and approval of significant corporate transactions, including
business combinations, consolidations and mergers. So long as the Rubenstein Family, including Mr. A. Rubenstein and Mr. G.
Rubenstein continues to directly or indirectly own a significant amount of Accel’s outstanding equity interests and any
individuals affiliated with members of the Rubenstein Family are members of the Company Board and/or any committees
thereof, and the Rubenstein Family, including Mr. A. Rubenstein and Mr. G. Rubenstein may be able to exert substantial
influence on Accel and may be able to exercise its influence in a manner that is not in the interests of Accel’s other stakeholders.
The Rubenstein Family, including Mr. A. Rubenstein’s and Mr. G. Rubenstein’s influence over Accel’s management could have
the effect of delaying or preventing a change in control or otherwise discouraging a potential acquirer from attempting to obtain
control of Accel, which could cause the market price of Class A-1 common stock to decline or prevent public stockholders from
realizing a premium over the market price for Class A-1 common stock. Prospective investors should consider that the interests
of the Rubenstein Family may differ from their interests in material respects. In addition, pursuant to the Transaction Agreement
and subject to certain limitations set forth in the Transaction Agreement, any person who held (together with such person’s
affiliates) at least 8% of the outstanding shares of Class A-1 common stock immediately following the closing of the Stock
Purchase in connection with the Business Combination, had the right to nominate an individual to be a member of the Company
Board. So long as any such stockholder with director nomination rights continues to directly or indirectly own a significant
amount of Accel’s outstanding equity interests and any individuals affiliated with such stockholder are members of the Company
Board and/or any committees thereof, such major stockholder may be able to exert substantial influence on Accel and may be
able to exercise its influence in a manner that is not in the interests of Accel’s other stakeholders. This influence over Accel’s
management could have the effect of delaying or preventing a change in control or otherwise discouraging a potential acquirer
from attempting to obtain control of Accel, which could cause the market price of Class A-1 common stock to decline or prevent
public stockholders from realizing a premium over the market price for Class A-1 common stock.
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Holders of common stock are subject to certain gaming regulations, and if a holder is found unsuitable by a gaming
authority, that holder would not be able to, directly or indirectly, beneficially own common stock.
Holders of common stock are subject to certain gaming regulations. In Illinois, Georgia, Pennsylvania and other regulated
gaming jurisdictions, gaming laws can require any holder of common stock to be disclosed, file an application, be investigated,
and qualify or have his, her or its suitability determined by gaming authorities. Gaming laws in Illinois, Georgia, Pennsylvania
and other regulated gaming jurisdictions also require any person who acquires beneficial ownership of more than 5% of voting
securities of a gaming company to notify the gaming authorities, and gaming authorities may require such holders to apply for
qualification or a finding of suitability, subject to limited exceptions for “institutional investors” that hold a company’s voting
securities for investment purposes only. If a holder is found unsuitable by a gaming authority, that holder would not be able to,
directly or indirectly, beneficially own common stock.
Gaming authorities have very broad discretion in determining whether an applicant should be deemed suitable. For any
cause deemed reasonable by the gaming authorities, subject to certain administrative proceeding requirements, gaming regulators
in Illinois, Pennsylvania or elsewhere would have the authority to (i) deny any application; (ii) limit, condition, restrict, revoke,
or suspend any license, registration, finding of suitability or approval, including revoking any licenses held by Accel to conduct
business in the state or (iii) fine any person licensed, registered, or found suitable or approved. Any person required by a gaming
authority to be found suitable, who is found unsuitable by the gaming authority, may not hold, directly or indirectly, the
beneficial ownership of any voting security or beneficial or record ownership of any non-voting security or any debt security of
any public corporation that is registered with the gaming authority beyond the time prescribed by the gaming authority. A
finding of unsuitability by a particular gaming authority in Illinois, Pennsylvania or elsewhere will impact that person’s ability to
associate or affiliate with gaming licensees in that particular jurisdiction and could impact the person’s ability to associate or
affiliate with gaming licensees in other jurisdictions.
Accel is a holding company and depends on the ability of Accel’s subsidiaries to pay dividends.
Accel has never declared or paid any cash dividends, nor does Accel intend to pay cash dividends. Accel is a holding
company without any direct operations and will have no significant assets other than Accel’s ownership interest in its
subsidiaries. Accordingly, Accel’s ability to pay dividends will depend upon the financial condition, liquidity and results of
operations of, and Accel’s receipt of dividends, loans or other funds from, its subsidiaries. Accel’s subsidiaries are separate and
distinct legal entities and have no obligation to make funds available to Accel. In addition, there are various statutory, regulatory
and contractual limitations and business considerations on the extent, if any, to which Accel’s subsidiaries may pay dividends,
make loans or otherwise provide funds to Accel. For example, the ability of Accel’s subsidiaries to make distributions, loans and
other payments to it for the purposes described above and for any other purpose will be limited by the terms of the Credit
Agreement.
The market price and trading volume of Class A-1 common stock may be volatile and could decline significantly.
The stock markets, including the NYSE have from time to time experienced significant price and volume fluctuations.
Even if an active, liquid and orderly trading market develops and is sustained for the Class A-1 common stock, the market price
of Class A-1 common stock may be volatile and could decline significantly. In addition, the trading volume
in Class A-1 common stock may fluctuate and cause significant price variations to occur. If the market price
of Class A-1 common stock declines significantly, you may be unable to resell your Class A-1 common stock at or above the
market price as of the date hereof. Accel cannot assure you that the market price of Class A-1 common stock will not fluctuate
widely or decline significantly in the future in response to a number of factors, including, among others, the following:
the realization of any of the risk factors presented in this Annual Report on Form 10-K, including risks related to
•
shutdowns of our operations as a result of COVID-19 or other pandemics;
actual or anticipated differences in Accel’s estimates, or in the estimates of analysts, for Accel’s revenues, Adjusted
•
EBITDA, results of operations, level of indebtedness, liquidity or financial condition;
• additions and departures of key personnel;
32
•
•
failure to comply with the requirements of the NYSE;
failure to comply with the Sarbanes-Oxley Act or other laws or regulations;
• changes to gaming laws, regulations or enforcement policies of applicable gaming authorities;
•
future issuances, sales, resales or repurchases or anticipated issuances, sales, resales or repurchases, of Accel’s capital
stock;
• publication of research reports about Accel, its licensed establishments or the video gaming terminal industry generally;
•
the performance and market valuations of other similar companies;
• commencement of, or involvement in, litigation involving Accel;
• broad disruptions in the financial markets, including sudden disruptions in the credit markets;
• speculation in the press or investment community;
• actual, potential or perceived control, accounting or reporting problems; and
• changes in accounting principles, policies and guidelines.
In the past, securities class-action litigation has often been instituted against companies following periods of volatility in the
market price of their shares. This type of litigation could result in substantial costs and divert Accel’s management’s attention
and resources, which could have a material adverse effect on Accel.
If securities or industry analysts do not publish research, publish inaccurate or unfavorable research or cease publishing
research about Accel, our share price and trading volume could decline significantly.
The market for our Class A-1 common stock will depend in part on the research and reports that securities or industry
analysts publish about Accel or its business. If one or more of the analysts who cover Accel downgrade their opinions
about Class A-1 common stock, publish inaccurate or unfavorable research about Accel, or cease publishing about it regularly,
demand for Class A-1 common stock could decrease, which might cause our share price and trading volume to decline
significantly.
Future issuances of debt securities and equity securities may adversely affect Accel, including the market price of its
securities and may be dilutive to existing stockholders.
In the future, Accel may incur debt or issue equity ranking senior to its securities. Those securities will generally have
priority upon liquidation. Such securities also may be governed by an indenture or other instrument containing covenants
restricting Accel’s operating flexibility. Additionally, any convertible or exchangeable securities that Accel issues in the future
may have rights, preferences and privileges more favorable than those of Accel’s securities. Because Accel’s decision to issue
debt or equity in the future will depend on market conditions and other factors beyond its control, Accel cannot predict or
estimate the amount, timing, nature or success of future capital raising efforts. As a result, future capital raising efforts may
reduce the market price of Accel’s securities and be dilutive to existing stockholders.
The NYSE may delist Accel’s securities from trading on its exchange, which could limit investors’ ability to make
transactions in its securities and subject Accel to additional trading restrictions.
Accel's Class A-1 common stock is listed on the NYSE. Although Accel currently meet the minimum initial listing
standards set forth in the NYSE listing standards, there can be no assurance that our Class A-1 common stock will continue to be
listed on the NYSE in the future. In order to continue listing Accel’s securities on the NYSE, Accel must maintain certain
financial, distribution and share price levels. For instance, Accel must maintain a minimum of 300 public stockholders of
its Class A-1 common stock on an ongoing basis under the NYSE's continued listing standards. On October 3, 2018, Pace
33
received written notice from the NYSE that a NYSE Regulation review of the then-current distribution of Class A Ordinary
Shares of Pace showed that Pace had fewer than 300 public stockholders and were therefore non-compliant with the relevant
section of the NYSE Listed Company Manual. In accordance with the procedures set forth in the NYSE Listed Company
Manual, Pace submitted a business plan demonstrating how Pace expected to return to compliance with the minimum public
stockholders’ requirement within 18 months. In July 2019, Pace received a letter from the NYSE certifying its compliance.
Additionally, in connection with the Business Combination, Pace was required to demonstrate round lot compliance with the
NYSE’s initial listing requirements, which are more rigorous than the NYSE’s continued listing requirements, in order to
continue to maintain the listing of Accel’s securities on the NYSE. For instance, the Class A-1 common stock was required to be
at least $4.00 per share, upon consummation of the Business Combination, and Pace was required to maintain a minimum of 400
round lot holders, on the date of the consummation of the Business Combination.In addition, in connection with the public
exchange offer of our warrants that was completed in August 2020, we received written notice from the NYSE that the NYSE
suspended trading in, and had determined to commence proceedings to delist, our warrants from the NYSE. The delisting was a
result of the failure to of the warrants to comply with the continued listing standard set forth in Section 802.01D of the NYSE
Listed Company Manual which requires the Company to maintain at least 100 public holders of a listed security. The delisting
was effective as of August 6, 2020, and the warrants are no longer listed on the NYSE.
If the NYSE delists Accel’s securities from trading on its exchange and Accel is not able to list Accel’s securities on
another national securities exchange, Accel expects its securities could be quoted on an over-the-counter market. If this were to
occur, Accel could face significant material adverse consequences, including:
• a limited availability of market quotations for the Class A-1 common stock;
•
reduced liquidity for Class A-1 common stock;
a determination
•
trading
in Class A-1 common stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the
secondary trading market for Accel’s securities;
is a “penny stock” which will require brokers
that Class A-1 common stock
• a limited amount of news and analyst coverage; and
• a decreased ability to issue additional securities or obtain additional financing in the future.
The National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from
regulating the sale of certain securities, which are referred to as “covered securities.” The Class A-1 common stock is listed on
the NYSE, and, as a result, is a covered security. Although the states are preempted from regulating the sale of Accel’s
securities, the federal statute does allow the states to investigate companies if there is a suspicion of fraud, and, if there is a
finding of fraudulent activity, then the states can regulate or bar the sale of covered securities in a particular case. If Accel were
no longer listed on the NYSE, its securities would not be covered securities and Accel would be subject to regulation in each
state in which Accel offers its securities.
Accel is an “emerging growth company,” and Accel cannot be certain if the reduced SEC reporting requirements applicable
to emerging growth companies will make its securities less attractive to investors, which could have a material and adverse
effect on Accel, including its growth prospects.
Accel is an “emerging growth company” as defined in the JOBS Act. Accel will remain an “emerging growth company”
until the earliest to occur of (i) the last day of the fiscal year (a) following June 30, 2022, the fifth anniversary of the IPO of Pace,
(b) in which Accel has total annual gross revenue of at least $1.0 billion or (c) in which Accel is deemed to be a large accelerated
filer, which means the market value of Class A-1 Shares that is held by non-affiliates exceeds $700 million as of the last business
day of the prior second fiscal quarter, and (ii) the date on which Accel has issued more than $1.0 billion in non-convertible debt
during the prior three-year period. Accel intends to take advantage of exemptions from various reporting requirements that are
applicable to most other public companies, whether or not they are classified as “emerging growth companies,” including, but
not limited to, an exemption from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that Accel’s independent
34
registered public accounting firm provide an attestation report on the effectiveness of Accel’s internal control over financial
reporting and reduced disclosure obligations regarding executive compensation in Accel’s periodic reports and proxy statements
and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder
approval of any golden parachute payments not previously approved. The JOBS Act also provides that an “emerging growth
company” can take advantage of the extended transition period provided in the Securities Act for complying with new or revised
accounting standards. Accel has not chosen to “opt out” of this extended transition period, which means that when a standard is
issued or revised and it has different application dates for public or private companies, Accel, as an emerging growth company,
can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make
comparison of Accel’s financial statements with another public company which is neither an emerging growth company nor an
emerging growth company which has opted out of using the extended transition period difficult or impossible because of the
potential differences in accounting standards used. Accel cannot predict if investors will find its securities less attractive because
it intends to rely on certain of these exemptions and benefits under the JOBS Act. If some investors find Accel securities less
attractive as a result, there may be a less active, liquid and/or orderly trading market for Accel’s securities and the market price
and trading volume of its securities may be more volatile and decline significantly.
Provisions in Accel’s Charter designate the Court of Chancery of the State of Delaware, to the fullest extent permitted by law,
as the sole and exclusive forum for certain times of actions and proceedings that may be initiated by Accel’s stockholders,
and provisions in Accel’s Bylaws also provide that the federal district courts will be the exclusive forum for resolving any
complaint asserting a cause of action arising under the Securities Act which could limit the ability of Accel’s stockholders to
obtain a favorable judicial forum for disputes with Accel or with its directors, officers or employees and may discourage
stockholders from bringing such claims.
The Charter provides that, to the fullest extent permitted by law, unless Accel consents to the selection of an alternative
forum, and subject to the Court of Chancery of the State of Delaware having personal jurisdiction over the parties named as
defendants therein, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for:
•
•
•
•
any derivative action or proceeding brought on behalf of Accel;
any action asserting a claim of breach of a fiduciary duty owed by any of Accel’s directors or officers to Accel or its
stockholders, creditors or other constituents;
any action asserting a claim against Accel or any of its directors or officers arising pursuant to any provision of the
DGCL, the Charter or the Bylaws (as either may be amended and/or restated from time to time); or
any action asserting a claim against Accel that is governed by the internal affairs doctrine.
This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable
for disputes with Accel or any of its directors, officers, or other employees, which may discourage lawsuits with respect to such
claims. However, stockholders will not be deemed to have waived Accel’s compliance with the federal securities laws and the
rules and regulations thereunder and this provision would not apply to suits brought to enforce a duty or liability created by the
Exchange Act, which provides for the exclusive jurisdiction of the federal courts with respect to all suits brought to enforce any
duty or liability created by the Exchange Act or the rules and regulations thereunder. The Bylaws also provide that the federal
district courts of the United States are the exclusive forum for resolving any complaint asserting a cause of action arising under
the Securities Act. If a court were to find the choice of forum provision contained in the Charter to be inapplicable or
unenforceable in an action, Accel may incur additional costs associated with resolving such action in other jurisdictions, which
could harm Accel’s business, results of operations and financial condition.
Resales of the securities, or issuances of Class A-1 common stock following the conversion of Class A-2 common stock could
depress the market price of Accel’s Class A-1 common stock.
There may be a large number of Accel’s securities sold in the market in the near future. These sales, or the perception in the
market that the holders of a large number of securities intend to sell securities, could reduce the market price of Accel’s
35
securities. For example, a significant number of shares of Class A-1 common stock held by parties to the registration rights
agreement entered into by certain shareholders in connection with the Business Combination have been registered for resale
pursuant to an effective registration statement on Form S-3, including Class A-1 shares issuable upon exchange of shares of
Class A-2 common stock. While each registration rights holder (as defined in the registration rights agreement) has agreed not to
effect any sale or distribution of its registrable shares if such sale or distribution would, or would reasonably be expected to,
constitute or result in a “change of control” or similar event under Accel or its subsidiaries’ credit facilities, as contractual
restrictions on resale end, the sale or possibility of sale of these shares could have the effect of increasing the volatility in the
market price of our common stock or decreasing the market price itself.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
We own our 58,000 sq. ft. corporate headquarters in Burr Ridge, Illinois. This facility houses service, support and sales
functions for the Chicagoland region. It also houses the executive management team, as well as several other business units and
shared services such as legal/compliance, human resources, information technology, security, fleet, finance/accounting, data
digital, sales, service, amusements, and marketing and service units. The facility supports Accel’s 24/7 Service Solutions Call
Center, as well as onsite route management and collection processing. This facility also contains Accel’s largest warehouse, from
which equipment installations, preparation, programming, and repairs occur, as well as gaming terminal quality assurance
processes and general storage. In this facility there is an IGB-approved secured storage site for sensitive video gaming equipment
and materials.
We also own facilities in Peoria, Springfield, Glen Carbon and Rockford, all of which are located in Illinois, that support our
operations.
We also lease an additional 15 locations in Illinois and three locations in Georgia that are used to support our operations and
provide warehousing for our equipment.
We believe that our current facilities are in good working order and are capable of supporting our operations for the
foreseeable future; however, we will continue to evaluate buying or leasing additional space as needed to accommodate our
growth.
ITEM 3. LEGAL PROCEEDINGS
Lawsuits and claims are filed against Accel from time to time in the ordinary course of business, including related to
employment agreements and non-compete clauses and agreements. Other than settled matters explained as follows, these actions
are in various stages, and no judgments or decisions have been rendered. Management, after reviewing matters with legal
counsel, believes that the outcome of such matters are not expected to have a material adverse effect on our financial position or
results of operations.
Accel has been involved in a series of related litigated matters stemming from claims that Accel wrongly contracted with 10
different licensed establishments (the “Defendant Establishments”) in 2012 in violation of the contractual rights held by J&J
Ventures Gaming, LLC (“J&J”), as further described below.
On August 21, 2012, one of Accel’s operating subsidiaries entered into certain agreements with Jason Rowell (“Rowell”), a
member of Action Gaming LLC (“Action Gaming”), which was an unlicensed terminal operator that had exclusive rights to
place and operate gaming terminals within a number of establishments, including the Defendant Establishments. Under
agreements with Rowell, Accel agreed to pay him for each licensed establishment which decided to enter into exclusive location
agreements with Accel. In late August and early September 2012, each of the Defendant Establishments signed separate location
agreements with Accel, purporting to grant it the exclusive right to operate gaming terminals in those establishments. Separately,
on August 24, 2012, Action Gaming sold and assigned its rights to all its location agreements to J&J, including its exclusive
36
rights with the Defendant Establishments (the “J&J Assigned Agreements”). At the time of the assignment of such rights to J&J,
the Defendant Establishments were not yet licensed by the IGB.
Action Gaming, J&J, and other parties, collectively, the Plaintiffs, filed a complaint against Accel, Rowell, and other parties
in the Circuit Court of Cook County (the “Circuit Court”), on August 31, 2012, as amended on November 1, 2012, December 19,
2012, and October 3, 2013, alleging, among other things, that Accel aided and abetted Rowell in breaches of his fiduciary duties
and contractual obligations with Action Gaming and tortiously interfered with Action Gaming’s contracts with Rowell and
agreements assigned to J&J. The complaint seeks damages and injunctive and equitable relief. On January 24, 2018, Accel filed
a motion to dismiss for lack of subject matter jurisdiction, as further described below. On May 14, 2018, the Circuit Court denied
Accel’s motion to dismiss and granted a stay to the case, pending a ruling from the IGB on the validity of the J&J Assigned
Agreements.
From 2013 to 2015, the Plaintiffs filed additional claims, including J&J Ventures Gaming, LLC et al. v. Wild, Inc. (“Wild”),
in various circuit courts seeking declaratory judgements with a number of establishments, including each of the Defendant
Establishments, requesting declarations that, among other things, J&J held the exclusive right to operate VGTs at each of the
Defendant Establishments as a result of the J&J Assigned Agreements. Accel was granted leave to intervene in all of the
declaratory judgements. The circuit courts found that the J&J Assigned Agreements were valid because each of the underlying
location agreements were between an unlicensed establishment and an unlicensed terminal operator, and therefore did not
constitute use agreements that were otherwise precluded from assignment under the IGB’s regulations. Upon Accel’s appeal, the
Illinois Appellate Court, Fifth District (the “District Court”), vacated the circuit courts’ judgements and dismissed the appeals,
holding that the IGB had exclusive jurisdiction over the matter that formed the basis of the parties’ claims, and declined to
consider the merits of the parties’ disputes. On September 22, 2016, and after the IGB intervened, the Supreme Court of Illinois
issued a judgment in Wild, affirming the District Court’s decision vacating the circuit courts’ judgments for lack of subject
matter jurisdiction and dismissing the appeals, determining that the IGB has exclusive jurisdiction to decide the validity and
enforceability of VGT use agreements.
Between May 2017 and September 2017, both Accel and J&J filed petitions with the IGB seeking adjudication of the rights
of the parties and the validity of the use agreements. Those petitions have been fully briefed and remain pending. There is no
indication as to when the IGB will rule on the petitions. Accel does not have a present estimate regarding the potential damages,
if any, that could potentially be awarded in this litigation and, accordingly, have established no reserves relating to such matters.
There are also petitions pending with the IGB which could lead to Accel obtaining new locations.
On October 7, 2019, Accel filed a lawsuit in the Circuit Court of Cook County against Jason Rowell and other parties
related to Mr. Rowell’s breaches of his non-compete agreement with Accel. Accel alleged that Mr. Rowell and a competitor
were working together to interfere with Accel’s customer relationships. That lawsuit, which seeks equitable relief and legal
damages, has not yet been served. On November 7, 2019, Mr. Rowell filed a lawsuit in the Circuit Court of Cook County against
Accel alleging that he had not received certain equity interests in Accel to which he was allegedly entitled under his agreement.
The parties are engaging in discovery. Accel intends to defend itself against the allegations. Accel does not have a present
estimate regarding the potential damages, nor does it believe any payment of damages is probable, and, accordingly, has
established no reserves relating to these matters.
During 2018, we entered into a settlement agreement with Illinois Gold Rush, Inc. (“Illinois Gold Rush”), related to a 2013
business acquisition completed by Accel with Illinois Gold Rush. As a result of the settlement, we paid $3.5 million, issued
32,745 additional shares of Class A Common Stock, acquired 4 locations and we issued a stockholder note receivable of $3.3
million based on the value of the underlying collateral. During the year ended December 31, 2019 the note receivable matured
and was settled and 46,667 shares of Class A Common Stock were placed into treasury. As a result of the settlement agreement,
we decreased our location contract asset and Class A Common Stock by $1.0 million during 2018 for the fair value of the shares
outstanding prior to the settlement agreement.
37
During the year ended December 31, 2019, we entered into a settlement agreement regarding breach of contract with Family
Amusements. Additionally, during the year ended December 31, 2019, we entered into settlement agreements related to breach
of contract and employment matters for a total of $0.4 million, which was recorded within general and administrative expenses
on the consolidated statements of operations and comprehensive (loss) income.
On July 2, 2019, Illinois Gaming Investors, LLC filed a lawsuit against Accel. The lawsuit alleges that a current employee
violated his non-competition agreement with Illinois Gaming Investors, LLC, and together with Accel, wrongfully solicited
prohibited licensed video gaming locations. The lawsuit on its face seeks damages of $10,000,000. The parties are engaging in
discovery. We are in the process of defending this lawsuit and have not accrued any amounts as losses related to this suit are not
probable or reasonably estimable.
On December 18, 2020, we received a disciplinary complaint from the IGB alleging violations of the Video Gaming Act and
the IGB’s Adopted Rules for Video Gaming. The disciplinary complaint seeks to fine us in the amount of $5 million. We filed
our initial answer to the IGB’s complaint on January 11, 2021 and have begun the administrative hearing process. We intend to
vigorously defend ourself against the allegations in the complaint and deny any allegations of wrongdoing. The Company has
not accrued any amounts related to this complaint as losses are not probable or reasonably estimable.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
38
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Market Information on Common Stock
Our Class A-1 common stock is trading on the NYSE under the ticker symbol “ACEL” since November 21, 2019. Prior to
that time, our Class A-1 common stock was listed under the symbols “TPGH”. On November 21, 2019, we delisted the units
offered in our initial public offering, each consisting of one share of Class A Ordinary Share and one-third of a warrant, which
were listed under the symbol “TPGH.U”, and the units ceased to trade. In August of 2020, our warrants, which were previously
listed under the symbol “ACEL-WS” were delisted from the NYSE.
Stockholders
As of March 12, 2021, there were 123 stockholders of record of our Class A-1 common stock, 108 stockholders of record of
our Class A-2 common stock.
Dividends
We have not paid any cash dividends on our shares to date, nor do we intend to pay cash dividends. The payment of cash
dividends in the future will be dependent upon our revenues and earnings, if any, capital requirements and general financial
condition. The payment of any cash dividends will be within the discretion of the Company Board. Further, if the Company incurs
any indebtedness, its ability to declare dividends may be limited by restrictive covenants it may agree to in connection therewith.
Securities Authorized for Issuance Under Equity Compensation Plans
The information required by this item with respect to our equity compensation plans is incorporated by reference to our Proxy
Statement for the 2021 annual meeting of stockholders to be filed with the SEC within 120 days of the fiscal year ended
December 31, 2020.
Unregistered Sales of Equity Securities and Use of Proceeds
Information about unregistered sales of our equity securities is set forth in Part II, Item 2 of our Quarterly Reports on Form
10-Q filed with the SEC on August 10, 2017, November 8, 2017, May 8, 2018, August 3, 2018, November 5, 2018, May 8, 2019,
November 5, 2020, and under Item 3.02 of our Current Reports on Form 8-K filed with the SEC on June 13, 2019, August 19,
2019 and November 26, 2019.
Issuer Purchase of Equity Securities
We did not repurchase any equity securities within the fourth quarter of the fiscal year ended December 31, 2020.
39
Performance Graph
The following stock price performance graph should not be deemed incorporated by reference by any general statement
incorporating by reference this Annual Report on Form 10‑K into any filing under the Exchange Act or the Securities Act, except
to the extent that we specifically incorporate this information by reference, and shall not otherwise be deemed filed under such
acts.
The following stock performance graph compares, for the period November 20, 2019 (the day prior to our Class A-1 common
stock being traded on the NYSE) through December 31, 2020 (the last trading day of our fiscal year), the cumulative total
stockholder return for (1) Accel’s Class A-1 common stock, (2) the NASDAQ Composite Index and (3) Russell 3000 Casinos &
Gambling Industry Index assuming a hypothetical $100 investment in our stock or respective index on November 20, 2019.
The stock price performance below is not necessarily indicative of future stock price performance.
11/20/2019
12/31/2019
12/31/2020
Accel Entertainment
$100.00
$119.05
$92.24
NASDAQ Composite Index
$100.00
$105.23
$151.52
RUSSELL 3000 Casinos & Gambling Industry Index
$100.00
$107.94
$125.07
ITEM 6. SELECTED FINANCIAL DATA
Part II, Item 6 is no longer required as the Company has adopted certain provisions within the amendments to Regulation S-K
that eliminate Item 301.
40
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion provides information that management believes is relevant to an understanding and assessment of
our consolidated financial condition and results of operations. You should read this discussion in conjunction with our
consolidated financial statements and the notes thereto included in Part II, Item 8 of this Annual Report on Form 10-K. This
discussion and analysis of our financial condition and results of operations also contains forward-looking statements that involve
risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking
statements as a result of a variety of factors, including those set forth under Item 1A. “Risk Factors.”
Company Overview
We believe Accel is the leading distributed gaming operator in the United States on an Adjusted EBITDA basis, and a
preferred partner for local business owners in the Illinois market. Accel’s business consists of the installation, maintenance and
operation of gaming terminals, redemption devices that disburse winnings and contain ATM functionality, and other amusement
devices which are located in authorized non-casino locations such as restaurants, bars, taverns, convenience stores, liquor stores,
truck stops, and grocery stores, which are referred to collectively as “licensed establishments.” Accel also operates a small
number of stand-alone ATMs in gaming and non-gaming locations. Accel has been licensed by the Illinois Gaming Board since
2012 and holds a license from the PA Board since November 2020. Accel operates 12,247 video gaming terminals across 2,435
locations in the State of Illinois as of December 31, 2020. In July 2020, the Georgia Lottery Corporation approved one of the
Company's consolidated subsidiaries as a licensed operator, or a Master Licensee, which allows the Company to begin the
installation and operation of coin operated amusement machines for commercial use by the public for play throughout the State of
Georgia. The Company is subject to various federal, state and local laws and regulations in addition to gaming regulations.
Impact of COVID-19
The COVID-19 outbreak is having a significant impact on global markets as a result of government-mandated business
closures, supply chain and production disruptions, workforce restrictions, travel restrictions, reduced consumer spending and
sentiment, amongst other factors, which are, individually or in the aggregate, negatively affecting the financial performance,
liquidity and cash flow projections of many companies in the United States and abroad.
In response to the COVID19 outbreak, the IGB made the decision to shut down all gaming terminals across the State of
Illinois starting at 9:00 p.m. on March 16, 2020 and ultimately extended the shutdown through June 30, 2020. As a result, we
borrowed $65 million on our delayed draw term loan in March 2020 to increase our cash position and help preserve our financial
flexibility. As COVID-19 began a resurgence in the fall, the virus spread exponentially in every geographical region (currently 11
regions) in the State of Illinois. In response, the IGB suspended all video gaming operations until further notice across the entire
state of Illinois starting at 11:01 PM on Thursday November 19, 2020. Video gaming operations resumed in certain regions of the
state beginning on January 16, 2021, and fully resumed in all regions on January 23, 2021. Even though video gaming operations
resumed across all regions, certain regions still had government-imposed restrictions that, among other things, limited hours of
operation and restricted the number of patrons allowed within in the licensed establishments.
These temporary shutdowns of Illinois video gaming impacted 148 of the 365 gaming days (or 40% of gaming days) during
the year ended December 31, 2020. In light of these events and their effect on our employees and licensed establishment partners,
we took action to position the Company to help mitigate the effects of the temporary cessation of operations. During the initial
shutdown the Company furloughed approximately 90% of its employees and deferred certain payments to major vendors.
Additionally, members of the Company's senior management decided to voluntarily forgo their base salaries until the resumption
of video gaming operations. Beginning in early June, the Company started reinstating employees from furlough in anticipation of
resuming operations on July 1, 2020. During the second shutdown, the Company furloughed idle staff as appropriate and deferred
certain payments to major vendors.
41
As a result of these developments, our revenues, results of operations and cash flows have been materially affected. The
situation is rapidly changing and additional impacts to the business and financial results may arise that we are not aware of
currently.
In close consultation with the Illinois Department of Public Health and the governor, the IGB issued resumption protocols to
guide casino and terminal operators in keeping players safe. Based on those protocols, we worked with our licensed establishment
partners to, among other things:
•
Follow social distancing requirements within the gaming area by moving the gaming equipment or installing
spacers that meet IGB guidelines;
•
•
determine how personal protective equipment usage requirements will be observed and enforced;
develop procedures and schedules for cleaning, disinfecting and sanitizing the establishment as well the gaming
area, including the gaming terminals; and
•
proper signage to remind patrons of social distancing requirements, proper hand washing, use of sanitizers, use
of personal protective equipment, and to stay at home if feeling sick.
Accel supports these measures to protect the safety of our fellow Illinois citizens, as the health and safety of players and
licensed partner establishments is of paramount importance to us. We have been in constant contact with our licensed partner
establishments to keep them aware of current developments and have been working with them through these difficult times.
We incurred non-recurring, one-time expenses of $1.2 million ($2.5 million of costs less recoveries under the CARES Act of
$1.3 million) for the year ended December 31, 2020, for costs to provide benefits (e.g. health insurance) for furloughed employees
during COVID-19 operational disruptions. These costs are included within other expenses, net. The Company also spent
$2.0 million in capital costs for the year ended December 31, 2020 related to the purchase of IGB-mandated spacers for its
gaming terminals to promote social distancing requirements within the gaming area and incurred operating expenses of
$0.8 million for the year ended December 31, 2020 related to cleaning, disinfecting and sanitizing supplies.
While the IGB has announced the resumption of all video gaming activities, it is possible that it or the State of Illinois may
order a shutdown by region, or a complete suspension of video gaming in the state, or institute stay-at-home, closure or other
similar orders or measures in the future in response to a resurgence of COVID-19 or other events. Under the guidelines provided
by the IL Department of Health and Governor’s office, the IGB has been closely monitoring Illinois' COVID-19 related statistics
including the positivity rate, hospital admissions, and hospital bed availability in each region. We will continue to monitor the
situation and its potential impact on our operations.
Components of Performance
Revenues
Net gaming. Net gaming revenue represents net cash received from gaming activities, which is the difference between
gaming wins and losses. Net gaming revenue includes the amounts earned by the licensed establishments and is recognized at
the time of gaming play.
Amusement. Amusement revenue represents amounts collected from amusement devices operated at various licensed
establishments and is recognized at the point the amusement device is used.
ATM fees and other revenue. ATM fees and other revenue represents fees charged for the withdrawal of funds from Accel’s
redemption devices and stand-alone ATMs and is recognized at the time of the ATM transaction.
42
Operating Expenses
Cost of revenue. Cost of revenue consists of (i) a 34% tax on net gaming revenue (such tax increased from 30% beginning on
July 1, 2019 and from 33% beginning on July 1, 2020) that is payable to the IGB, (ii) an administrative fee (0.8513%
currently) payable to Scientific Games International, the third-party contracted by IGB to maintain the central system to
which all gaming terminals across Illinois are connected, (iii) establishment revenue share, which is defined as 50% of gross
gaming revenue after subtracting the tax and administrative fee, (iv) ATM and amusement commissions payable to locations,
(v) ATM and amusement fees, and (vi) licenses and permits required for the operation of gaming terminals and other
equipment.
General and administrative. General and administrative expenses consist of operating expense and general and administrative
(“G&A”) expense. Operating expense includes payroll and related expense for service technicians, route technicians, route
security, and preventative maintenance personnel. Operating expense also includes vehicle fuel and maintenance, and non-
capitalizable parts expenses. Operating expenses are generally proportionate to the number of licensed establishments and
gaming terminals. G&A expense includes payroll and related expense for account managers, business development
managers, marketing, and other corporate personnel. In addition, G&A expense also includes marketing, information
technology, insurance, rent and professional fees.
Depreciation and amortization of property and equipment. Depreciation is computed using the straight-line method over the
estimated useful lives of the individual assets. Leasehold improvements are amortized over the shorter of the useful life or the
lease.
Amortization of route and customer acquisition costs and location contracts acquired. Route and customer acquisition costs
consist of fees paid at the inception of contracts entered into with third parties and licensed video gaming establishments,
which allow Accel to install and operate gaming terminals. The route and customer acquisition costs and route and customer
acquisition costs payable are recorded at the net present value of the future payments using a discount rate equal to Accel’s
incremental borrowing rate associated with its long-term debt. Route and customer acquisition costs are amortized on a
straight-line basis beginning on the date the location goes live and amortized over the estimated life of the contract, including
expected renewals.
Location contracts acquired in a business combination are recorded at fair value and then amortized as an intangible asset on
a straight-line basis over the expected useful life of 10 years.
Interest expense, net
Interest expense, net consists of interest on Accel’s current and prior credit facilities, amortization of financing fees, and
accretion of interest on route and customer acquisition costs payable. Interest on the current credit facility is payable monthly
on unpaid balances at the variable per annum LIBOR rate plus an applicable margin, as defined under the terms of the credit
facility, ranging from 1.75% to 2.75% depending on the first lien net leverage ratio. Interest on our prior credit facility was
payable monthly on unpaid balances at the variable per annum LIBOR rate plus an applicable margin, as defined under the
terms of the prior credit facility, ranging from 1.70% to 2.50% depending on the ratio of total net debt to EBITDA. Interest
expense, net also consists of interest income on convertible promissory notes from another terminal operator that bear interest
at 3% per annum.
Income tax (benefit) expense
Income tax (benefit) expense consists mainly of taxes (receivable) payable to national, state and local authorities. Deferred
income taxes are recognized for the tax consequences of temporary differences between the financial statement carrying
amounts and the tax basis of the assets and liabilities.
43
(26.8) %
(5.1) %
(20.8) %
(26.2) %
(25.1) %
11.7 %
(20.6) %
25.8 %
(54.5) %
(17.9) %
(285.1) %
6.6 %
(186.2) %
(100.0) %
184.7 %
(425.4) %
(17.3) %
Results of Operations
The following table summarizes Accel’s results of operations on a consolidated basis for the years ended December 31,
2020 and 2019:
(in thousands, except %'s)
Revenues:
Net gaming
Amusement
ATM fees and other revenue
Total net revenues
Operating expenses:
Year Ended December 31,
Increase / Decrease
2020
2019
(As Restated)
Change
Change %
$
300,520 $
410,636 $
(110,116)
9,247
6,585
9,749
8,311
(502)
(1,726)
316,352
428,696
(112,344)
Cost of revenue (exclusive of depreciation and amortization
expense shown below)
General and administrative
Depreciation and amortization of property and equipment
Amortization of route and customer acquisition costs and
location contracts acquired
Other expenses, net
Total operating expenses
Operating (loss) income
Interest expense, net
(Gain) loss on change in fair value of contingent earnout shares
Loss on debt extinguishment
Loss before income tax (benefit) expense
Income tax (benefit) expense
211,086
282,008
(70,922)
77,420
20,969
22,608
8,948
69,330
26,398
17,975
19,649
341,031
415,360
(24,679)
13,707
(8,484)
—
13,336
12,860
9,837
1,141
(29,902)
(10,502)
(16,918)
5,199
8,090
(5,429)
4,633
(10,701)
(74,329)
(38,015)
847
(18,321)
(1,141)
(19,400)
(22,117)
Net loss
Revenues
$
(12,984) $
(15,701) $
2,717
Total net revenues for the year ended December 31, 2020 were $316.4 million, a decrease of $112.3 million, or 26.2%,
compared to the prior-year period. This decrease was driven by a decrease in net video gaming revenue of $110.1 million, or
26.8%, a decrease in ATM fees and other revenue of $1.7 million, or 20.8%, and a decrease in amusement revenue of $0.5
million, or 5.1%. The decrease in net gaming revenue is primarily attributable to the IGB mandated temporary shutdowns of
Illinois gaming due to the COVID-19 outbreak which impacted 148 of the 365 gaming days (or 40% of gaming days) during the
year ended December 31, 2020, partially offset by the acquisition of Grand River Jackpot on September 16, 2019, which
contributed an increase in net gaming revenue of $24.5 million during the first nine months of 2020. Excluding Grand River
Jackpot, net gaming revenue decreased in 2020 by $134.6 million, or 32.8%, compared to the prior-year period, largely
attributable to the previously mentioned IGB mandated temporary shutdowns, partially offset by an increase in the number of
licensed establishments and gaming terminals.
Cost of revenue
Total cost of revenue for the year ended December 31, 2020 was $211.1 million, a decrease of $70.9 million, or 25.1%,
compared to the prior-year period. The decrease of $70.9 million was the result of the previously mentioned IGB mandated
temporary shutdowns of Illinois video gaming due to the COVID-19 outbreak. The components of cost of revenue as a
percentage of total revenues of 66.7% for the year ended December 31, 2020 was higher than the 65.8% for the prior-year period
primarily due to the increase in the gaming tax from 33% to 34% on July 1, 2020.
44
General and administrative
Total general and administrative expenses for the year ended December 31, 2020 were $77.4 million, an increase of $8.1
million, or 11.7%, compared to the prior-year period. We experienced higher costs related to professional fees and stock-based
compensation, partially offset by a reduction in our monthly expenses during the IGB mandated temporary shutdowns which
included furloughing some of our employees.
Depreciation and amortization of property and equipment
Depreciation and amortization of property and equipment for the year ended December 31, 2020 was $21.0 million, a
decrease of $5.4 million, or 20.6%, compared to the prior-year period. The decrease in depreciation and amortization is the result
of a change in estimate in which we extended the useful lives of our video gaming terminals and equipment from 7 to 10 years.
The impact of this change in estimate for the year ended December 31, 2020 was a net decrease in depreciation expense of $7.7
million. Partially offsetting this decrease was an increased number of licensed establishments and gaming terminals.
Depreciation and amortization as a percentage of revenue was 6.6% for the year ended December 31, 2020 compared to 6.2% for
the prior year period.
Amortization of route and customer acquisition costs and location contracts acquired
Amortization of route and customer acquisition costs and location contracts acquired for the year ended December 31, 2020
was $22.6 million, an increase of $4.6 million, or 25.8%, compared to the prior-year period. The increase is primarily
attributable to our business and asset acquisitions and their related performance. Amortization of route and customer acquisition
costs and location contracts acquired as a percentage of revenue increased to 7.1% for the year ended December 31, 2020 from
4.2% in the prior-year period.
Other expenses, net
Other expenses, net for the year ended December 31, 2020 were $8.9 million, a decrease of $10.7 million, or 54.5%,
compared to the prior-year period. The decrease was largely attributed to one-time expenses in the prior year period for the
reverse recapitalization and lower fair value adjustments associated with the revaluation of contingent consideration liabilities
related to acquisitions, partially offset by non-recurring, one-time expenses of $1.2 million ($2.5 million of costs less recoveries
under the CARES Act of $1.3 million) for costs to provide benefits (e.g. health insurance) for furloughed employees during the
COVID-19 shutdown as well as additional non-recurring costs related to public company registration statements.
Interest expense, net
Interest expense, net for the year ended December 31, 2020 was $13.7 million, an increase of $0.8 million, or 6.6%,
compared to the prior-year period primarily due to an increase in borrowings, partially offset by lower rates and interest income
on the convertible notes. For the year ended December 31, 2020, the weighted-average interest rate was approximately 3.3%
compared to the weighted-average interest rate of approximately 4.5% for the prior year.
(Gain) loss on change in fair value of contingent earnout shares
Gain on change in fair value of contingent earnout shares for the year ended December 31, 2020 was $8.5 million, an
increase of $18.3 million, or 186.2%, compared to the prior-year which had a loss of $9.8 million. The increase was primarily
due to the change in the market value of our A-1 common stock which is the primary input to the valuation of the contingent
earnout shares.
Loss on debt extinguishment
Loss on debt extinguishment of $1.1 million for the year ended December 31, 2019 was recorded in connection with the
extinguishment of our Prior Credit Facility in November 2019. For more information on the extinguishment of our Prior Credit
Facility see Liquidity and Capital Resources later in this section.
45
Income tax (benefit) expense
Income tax benefit for the year ended December 31, 2020 was $16.9 million, a decrease of $22.1 million, or 425.4%,
compared to income tax expense of $5.2 million in the prior-year period. In addition to our net loss, the income tax benefit for
the year ended December 31, 2020 was impacted by a benefit of $8 million from a change in estimate that resulted in favorable
return-to-provision adjustments during the preparation of our 2019 federal and state income tax returns. Income tax expense for
the prior year was impacted by permanent differences attributable to non-deductible transaction costs associated with the reverse
recapitalization and executive compensation.
The following table summarizes Accel’s results of operations on a consolidated basis for the years ended December 31,
2019 and 2018:
(in thousands, except %'s)
Year Ended December 31,
Increase / Decrease
Revenues:
Net gaming
Amusement
ATM fees and other revenue
Total net revenues
Operating expenses:
Cost of revenue (exclusive of depreciation and amortization
expense shown below)
General and administrative
Depreciation and amortization of property and equipment
Amortization of route and customer acquisition costs and
location contracts acquired
Other expenses, net
Total operating expenses
Operating income
Interest expense
Loss on change in fair value of contingent earnout shares
Loss on debt extinguishment
(Loss) income before income tax expense
Income tax expense
Net (loss) income
Revenues
2019
(As Restated)
2018
Change
Change %
$
410,636 $
321,711 $
88,925
2,748
1,942
93,615
64,551
15,035
5,616
3,294
16,652
105,148
(11,533)
3,216
9,837
1,141
27.6 %
39.3 %
30.5 %
27.9 %
29.7 %
27.7 %
27.0 %
22.4 %
555.6 %
33.9 %
(46.4) %
33.3 %
—
—
9,749
8,311
7,001
6,369
428,696
335,081
282,008
217,457
69,330
26,398
17,975
19,649
415,360
13,336
12,860
9,837
1,141
(10,502)
5,199
54,295
20,782
14,681
2,997
310,212
24,869
9,644
—
—
15,225
4,422
$
(15,701) $
10,803 $
(26,504)
(245.3) %
(25,727)
(169.0) %
777
17.6 %
Total net revenues for the year ended December 31, 2019 were $428.7 million, an increase of $93.6 million, or 27.9%,
compared to the prior year. This growth was driven by an increase in net gaming revenue of $88.9 million, or 27.6%, an increase
in amusement revenue of $2.7 million, or 39.3% and an increase in ATM fees and other revenue of $1.9 million, or 30.5%. The
increase in net gaming revenue is partially attributable to the acquisitions of Skyhigh Gaming on August 1, 2018, G3 Gaming on
October 16, 2018, (collectively, the “2018 Acquisitions”) and Grand River Jackpot on September 16, 2019, which collectively
contributed $39.6 million in net gaming revenue to the above comparative increase. Excluding all acquisitions, net gaming
revenue increased in 2020 by $49.5 million, or 14.8%, compared to the prior year, largely due to an increase in the number of
licensed establishments and VGTs.
Cost of revenue
Cost of revenue for the year ended December 31, 2019 was $282.0 million, an increase of $64.6 million, or 29.7%,
compared to the prior year. The components of cost of revenue as a percentage of revenue of 65.8% for the year ended
December 31, 2019 was slightly higher than the 64.9% for the prior year due to the increase in the gaming tax from 30% to 33%
46
on July 1, 2019. The increase of $64.6 million was the result of an increase in net gaming revenue and corollary increase in
gaming tax at a higher tax rate, as well as, establishment revenue share costs and required payments to the IGB’s third-party
system administrator.
General and administrative
Total general and administrative expenses for the year ended December 31, 2019 were $69.3 million, an increase of $15.0
million, or 27.7%, compared to the prior year. The increase was primarily attributable to a $8.0 million increase in operating
costs that increase variably based on the number of licensed establishments and VGTs, which includes increases in payroll and
employee related expenses and marketing expenses.
Depreciation and amortization of property and equipment
Depreciation and amortization of property and equipment for the year ended December 31, 2019 was $26.4 million, an
increase of $5.6 million, or 27.0%, compared to the prior year. The increase in depreciation and amortization is the result of
increased number of licensed establishments and VGTs. Depreciation and amortization as a percentage of revenue was 6.2% for
the year ended December 31, 2019 compared to 6.2% for the prior year.
Amortization of route and customer acquisition costs and location contracts acquired
Amortization of route and customer acquisition costs and location contracts acquired for the year ended December 31, 2019
was $18.0 million, an increase of $3.3 million, or 22.4%, compared to the prior year. The increase is primarily attributable to our
business and asset acquisitions and their related performance, partially offset by the favorable impact from the adoption of Topic
606 of $1.0 million which increased the period over which route and customer acquisition costs are amortized to include
expected renewals. Amortization of route and customer acquisition costs and location contracts acquired as a percentage of
revenue was 4.2% for the year ended December 31, 2019 compared to 4.4% for the prior year .
Other expenses, net
Other expenses, net for the year ended December 31, 2019 were $19.6 million, an increase of $16.7 million, or 555.6%,
compared to the prior year. The increase was largely attributed to one-time expenses for the Business Combination and larger
fair value adjustments associated with the revaluation of contingent consideration liabilities related to acquisitions.
Interest expense
Interest expense for the year ended December 31, 2019 was $12.9 million, an increase of $3.2 million, or33.3%, compared
to the prior year primarily due to an increase in borrowings related to our business and asset acquisitions. For the year ended
December 31, 2019, the weighted average interest rate was approximately 4.5% compared to the weighted average interest rate
of approximately 4.6% for the prior year.
(Gain) loss on change in fair value of contingent earnout shares
Loss on change in fair value of contingent earnout shares for the year ended December 31, 2019 was $9.8 million. The loss
was due to the change in the market value of our A-1 common stock which is the primary input to the valuation of the contingent
earnout shares.
Loss on debt extinguishment
Loss on debt extinguishment of $1.1 million for the year ended December 31, 2019 was recorded in connection with the
extinguishment of our Prior Credit Facility in November 2019. For more information on the extinguishment of our Prior Credit
Facility see Liquidity and Capital Resources later in this section.
47
Income tax expense
Income tax expense for the year ended December 31, 2019 was $5.2 million, an increase of $0.8 million, or 17.6%,
compared to the prior year. Income tax expense increased due to permanent differences attributable to transaction costs
associated with the Business Combination and executive compensation.
Key Business Metrics
Accel uses a variety of statistical data and comparative information commonly used in the gaming industry to monitor the
performance of the business, none of which are prepared in accordance with GAAP, and therefore should not be viewed as
indicators of operational performance. Accel’s management uses this information for financial planning, strategic planning and
employee compensation decisions. The key indicators include:
•
•
•
•
Number of licensed establishments;
Number of VGTs;
Average remaining contract term (years); and
Location hold-per-day.
Number of licensed establishments
The number of licensed establishments is calculated based on data provided by Scientific Games, a contractor of the IGB.
Terminal operator portal data is updated at the end of each gaming day and includes licensed establishments that may be
temporarily closed but still connected to the central system. Accel utilizes this metric to continually monitor growth from organic
openings, purchased licensed establishments, and competitor conversions. Competitor conversions occur when a licensed
establishment chooses to change terminal operators.
Number of video game terminals (VGTs)
The number of VGTs in operation is based on Scientific Games terminal operator portal data which is updated at the end of
each gaming day and includes VGTs that may be temporarily shut off but still connected to the central system. Accel utilizes this
metric to continually monitor growth from existing licensed establishments, organic openings, purchased licensed
establishments, and competitor conversions.
Average remaining contract term
Average remaining contract term is calculated by determining the average expiration date of all outstanding contracts with
Accel’s current licensed establishment partners, and then subtracting the applicable measurement date. The IGB limited the
length of contracts entered into after February 2, 2018 to a maximum of eight years and prohibits automatic renewals.
Location hold-per-day
Location hold-per-day is calculated by dividing the difference between cash deposited in all VGTs at each licensed
establishment and tickets issued to players at each licensed establishment by the number of locations in operation each day
during the period being measured. Then divide the calculated amount by the number of operating days in such period.
The following tables set forth information with respect to Accel’s licensed establishments, number of VGTs, average
remaining contract term and location hold-per-day as of and for the years ended December 31.
48
Licensed establishments
Video gaming terminals
Average remaining contract term (years) (1)
Location hold-per-day (2)
Licensed establishments
Video gaming terminals
Average remaining contract term (years) (1)
Location hold-per-day (2)
As of and for the year ended
December 31,
Increase / Decrease
2020
2019
Change
Change %
2,435
12,247
6.8
2,312
10,499
6.9
$
585 $
590 $
123
1,748
(0.1)
(5)
5.3 %
16.6 %
(1.4) %
(0.8) %
As of and for the year ended
December 31,
Increase / Decrease
2019
2018
Change
Change %
2,312
10,499
6.9
1,686
7,649
7.6
$
590 $
575 $
626
2,850
(0.7)
15
37.1 %
37.3 %
(9.2) %
2.6 %
(1) Excluding the Grand River Jackpot acquisition, the average remaining contract life was 7.2 years as of December 31, 2019.
(2) Excluding the Grand River Jackpot acquisition, location hold-per-day was $635 and $609 for the years ended December 31, 2020 and 2019,
respectively. Location hold-per day for the year ended December 31, 2020 is computed based on 217 eligible gaming days (excludes 148 non-gaming
days due to the IGB mandated COVID-19 shutdown).
Non-GAAP Financial Measures
Adjusted EBITDA and Adjusted net income are non-GAAP financial measures and are key metrics used to monitor ongoing
core operations. Management of Accel believes Adjusted EBITDA and Adjusted net income enhance the understanding of
Accel’s underlying drivers of profitability and trends in Accel’s business and facilitate company-to-company and period-to-
period comparisons, because these non-GAAP financial measures exclude the effects of certain non-cash items or represent
certain nonrecurring items that are unrelated to core performance. Management of Accel and Pace also believe that these non-
GAAP financial measures are used by investors, analysts and other interested parties as measures of financial performance and to
evaluate Accel’s ability to fund capital expenditures, service debt obligations and meet working capital requirements. For more
information see “Selected Historical Financial Data of Accel and Non-GAAP Financial Measures”.
49
Adjusted net income and Adjusted EBITDA
(in thousands)
Net (loss) income
Adjustments:
Amortization of route and customer acquisition costs and location
contracts acquired(1)
Stock-based compensation(2)
(Gain) loss on change in fair value of contingent earnout shares(3)
Other expenses, net(4)
Tax effect of adjustments(5)
Adjusted net income
Depreciation and amortization of property and equipment
Interest expense, net
Emerging markets(6)
Income tax (benefit) expense
Loss on debt extinguishment
Adjusted EBITDA
Year Ended December 31,
2020
2019
(As Restated)
2018
$
(12,984) $
(15,701) $
10,803
22,608
5,538
(8,484)
8,948
17,975
2,236
9,837
19,649
(9,850)
(11,301)
14,681
453
—
3,030
(5,831)
$
5,776 $
22,695 $
23,136
20,969
13,707
517
(7,068)
—
26,398
12,860
—
16,500
1,141
20,782
9,644
—
10,253
—
$
33,901 $
79,594 $
63,815
(1) Route and customer acquisition costs consist of upfront cash payments and future cash payments to third-party sales agents to acquire the licensed video
gaming establishments that are not connected with a business combination. Accel amortizes the upfront cash payment over the life of the contract,
including expected renewals, beginning on the date the location goes live, and recognizes non-cash amortization charges with respect to such items. Future
or deferred cash payments, which may occur based on terms of the underlying contract, are generally lower in the aggregate as compared to established
practice of providing higher upfront payments, and are also capitalized and amortized over the remaining life of the contract. Future cash payments do not
include cash costs associated with renewing customer contracts as Accel does not generally incur significant costs as a result of extension or renewal of an
existing contract. Location contracts acquired in a business combination are recorded at fair value as part of the business combination accounting and then
amortized as an intangible asset on a straight-line basis over the expected useful life of the contract of 10 years. “Amortization of route and customer
acquisition costs and location contracts acquired” aggregates the non-cash amortization charges relating to upfront route and customer acquisition cost
payments and location contracts acquired.
(2) Stock-based compensation consists of options, restricted stock units and warrants.
(3)
(Gain) loss on change in fair value of contingent earnout shares represents an unrealized fair value adjustment at each reporting period end related to the
value of these contingent shares. Upon achieving such contingency, A-2 shares convert to A-1 common stock resulting in a non-cash settlement of the
obligation.
(4) Other expenses, net consists of (i) non-cash expenses including the remeasurement of contingent consideration liabilities, (ii) non-recurring expenses
relating to lobbying efforts and legal expenses in Pennsylvania and lobbying efforts in Missouri, (iii) non-recurring costs associated with COVID-19 and
(iv) other non-recurring expenses.
(5) Calculated by excluding the impact of the non-GAAP adjustments from the current period tax provision calculations.
(6) Emerging markets consist of the results, on an adjusted EBITDA basis, for non-core jurisdictions where our operations are developing. Markets are no
longer considered emerging when Accel has installed or acquired at least 500 gaming terminals in the jurisdiction, or when 24 months have elapsed from
the date Accel first installs or acquires gaming terminals in the jurisdiction, whichever occurs first.
Adjusted EBITDA for the year ended December 31, 2020 was $33.9 million, a decrease of $45.7 million, or 57.4%,
compared to the prior year. The decrease was primarily due to the impact of the previously mentioned temporary shutdowns of
gaming in the state of Illinois due to the COVID-19 outbreak that impacted 148 of the 365 gaming days (or 40% of gaming days)
during the year ended December 31, 2020.
Adjusted EBITDA for the year ended December 31, 2019 was $79.6 million, an increase of $15.8 million, or 24.7%,
compared to the prior year. The increase was primarily attributable to an increase in licensed establishments and gaming
terminals.
Liquidity and Capital Resources
In order to maintain sufficient liquidity, Accel reviews its cash flow projections and available funds with its Board of
Directors to consider modifying its capital structure and seeking additional sources of liquidity, if needed. The availability of
additional liquidity options will depend on the economic and financial environment, Accel’s credit, its historical and projected
50
financial and operating performance, and continued compliance with financial covenants. As a result of possible future
economic, financial and operating declines, possible declines in Accel’s creditworthiness and potential non-compliance with
financial covenants, Accel may have less liquidity than anticipated, fewer sources of liquidity than anticipated, less attractive
financing terms and less flexibility in determining when and how to use the liquidity that is available.
Accel believes that its cash and cash equivalents, cash flows from operations and borrowing availability under its senior
secured credit facility will be sufficient to meet its capital requirements for the next twelve months. Accel’s primary short-term
cash needs are paying operating expenses, servicing outstanding indebtedness and funding near term acquisitions. As of
December 31, 2020, Accel had $134.5 million in cash and cash equivalents.
In response to the decision by the IGB to temporarily suspend all video gaming across the State of Illinois due to the
COVID-19 outbreak, we took action to reduce our projected monthly cash expenses during the shutdowns to help position us to
mitigate the effects of the temporary cessation of operations. The actions taken include furloughing our employees and deferring
certain payments to major vendors. Additionally, members of our management team decided to voluntarily forgo their salaries
during the first shutdown. We also borrowed $65 million on our delayed draw term loan in March 2020 to increase our cash
position and help preserve our financial flexibility.
2019 Senior Secured Credit Facility
On November 13, 2019, in order to refinance our prior credit facility, for working capital and other general purposes, we
entered into a credit agreement (the “Credit Agreement”) as borrower, Accel and our wholly-owned domestic subsidiaries, as a
guarantor, the banks, financial institutions and other lending institutions from time to time party thereto, as lenders, the other
parties from time to time party thereto and Capital One, National Association, as administrative agent (in such capacity, the
“Agent”), collateral agent, issuing bank and swingline lender, providing for a:
•
•
•
$100.0 million revolving credit facility, including a letter of credit facility with a $10.0 million sublimit and a swing
line facility with a $10.0 million sublimit,
$240.0 million initial term loan facility and
$125.0 million additional term loan facility.
As of December 31, 2020, there remained approximately $100.0 million of availability under the Credit Agreement.
The obligations under the Credit Agreement are guaranteed by Accel and our wholly-owned domestic subsidiaries, subject
to certain exceptions (collectively, the “Guarantors”). The obligations under the Credit Agreement are secured by substantially
all of assets of the Guarantors, subject to certain exceptions. Certain future-formed or acquired wholly owned domestic
subsidiaries of the Company will also be required to guarantee the Credit Agreement and grant a security interest in substantially
all of its assets (subject to certain exceptions) to secure the obligations under the Credit Agreement.
Borrowings under the Credit Agreement bear interest, at Accel’s option, at a rate per annum equal to either (a) the adjusted
LIBOR rate (“LIBOR”) (which cannot be less than zero) for interest periods of 1, 2, 3 or 6 months (or if consented to by (i) each
applicable Lender, 12 months or any period shorter than 1 month or (ii) the Agent, a shorter period necessary to ensure that the
end of the relevant interest period would coincide with any required amortization payment ) plus the applicable LIBOR margin
or (b) the alternative base rate (“ABR”) plus the applicable ABR margin. ABR is a fluctuating rate per annum equal to the
highest of (i) the Federal Funds Effective Rate plus 1/2 of 1.0%, (ii) the prime rate announced from time to time by Capital One,
National Association and (iii) LIBOR for a 1-month Interest Period on such day plus 1.0%. The Credit Agreement also includes
provisions for determining a replacement rate when LIBOR is no longer available. As of December 31, 2020, the weighted-
average interest rate was approximately 3.3%.
Interest is payable quarterly in arrears for ABR loans, at the end of the applicable interest period for LIBOR loans (but not
less frequently than quarterly) and upon the prepayment or maturity of the underlying loans. Accel is required to pay a
commitment fee quarterly in arrears in respect of unused commitments under the revolving credit facility and the additional term
loan facility.
51
The applicable LIBOR and ABR margins and the commitment fee rate are calculated based upon the first lien net leverage
ratio of Accel and its restricted subsidiaries on a consolidated basis, as defined in the Credit Agreement. The revolving loans and
term loans bear interest, at either (a) ABR (150bps floor) plus a margin of 1.75% or (b) LIBOR (50bps floor) plus a margin of
2.75% at our option.
The additional term loan facility was available for borrowings until November 13, 2020. Each of the revolving loans and the
term loans mature on November 13, 2024.
The term loans and, once drawn, the additional term loans will amortize at an annual rate equal to approximately 5.00% per
annum. Upon the consummation of certain non-ordinary course asset sales, we may be required to apply the net cash proceeds
thereof to prepay outstanding term loans and additional term loans. The loans under the Credit Agreement may be prepaid
without premium or penalty, subject to customary LIBOR “breakage” costs.
The Credit Agreement contains certain customary affirmative and negative covenants and events of default and requires
Accel and certain of its affiliates obligated under the Credit Agreement to make customary representations and warranties in
connection with credit extensions thereunder.
In addition, the Credit Agreement requires Accel to maintain (a) a ratio of consolidated first lien net debt to consolidated
EBITDA no greater than 4.50 to 1.00 and (b) a ratio of consolidated EBITDA to consolidated fixed charges no less than 1.20 to
1.00, in each case, tested as of the last day of each full fiscal quarter ending after the Closing Date and determined on the basis of
the four most recently ended fiscal quarters of Accel for which financial statements have been delivered pursuant to the Credit
Agreement, subject to customary “equity cure” rights.
If an event of default (as such term is defined in the Credit Agreement) occurs, the lenders would be entitled to take various
actions, including the acceleration of amounts due under the Credit Agreement, termination of the lenders’ commitments
thereunder, foreclosure on collateral, and all other remedial actions available to a secured creditor. The failure to pay certain
amounts owing under the Credit Agreement may result in an increase in the interest rate applicable thereto.
We were in compliance with all debt covenants as of December 31, 2020. Given our assumptions about the future impact of
COVID-19 on the gaming industry, which could be materially different due to the inherent uncertainties of future restrictions on
the industry, we expect to remain in compliance with all debt covenants for the next 12 months. However, given the uncertainty
of COVID-19 and the resulting potential impact to the gaming industry and our future assumptions, as well as to provide
additional financial flexibility, we and the other parties thereto amended the Credit Agreement on August 4, 2020 to provide a
waiver of financial covenant breach for the periods ended September 30, 2020 through March 31, 2021 of the First Lien Net
Leverage Ratio and Fixed Charge Coverage Ratio (each as defined under the Credit Agreement). The amendment also raised the
floor for the adjusted LIBOR rate to 0.50% and the floor for the Base Rate to 1.50%. We incurred costs of $0.4 million
associated with the amendment of the Credit Agreement, of which $0.3 million was capitalized and will be amortized over the
remaining life of the Facility.
Prior Credit Facility
Accel’s prior credit facility was a senior secured first lien credit facility, as amended, that consisted of a $125.0 million term
loan, a contract draw loan facility of $170.0 million and a revolving credit facility of $85.0 million. Accel’s prior credit facility
was with a syndicated group of banks with CIBC Bank USA, as administrative agent for the Lenders. Included in the revolving
credit facility and contract draw loan were swing line sub-facilities of $5.0 million each.
The prior credit facility was paid off with the proceeds from the 2019 Senior Secured Credit Facility. In connection with the
extinguishment of the prior credit facility, the Company recorded a loss from debt extinguishment of $1.1 million for the year
ended December 31, 2019.
52
Cash Flows
The following table summarizes Accel’s net cash provided by or used in operating activities, investing activities and
financing activities for the periods indicated and should be read in conjunction with our consolidated financial statements and the
notes thereto included in Part II, Item 8 of this Annual Report on Form 10-K:
(in thousands)
Year Ended December 31,
2019
2020
2018
Net cash (used in) provided by operating activities
$
(3,705) $
45,565 $
44,343
Net cash used in investing activities
Net cash provided by financing activities
Net cash provided by operating activities
(61,435)
(151,532)
(73,547)
74,188
139,141
46,122
For the year ended December 31, 2020, net cash used in operating activities was $3.7 million, a decrease of $49.3 million
over the prior year. In addition to our decrease in net income, we had a $16.8 million decrease attributable to the impact of
deferred income taxes and $1.8 million in payments on contingent consideration.
For the year ended December 31, 2019, net cash provided by operating activities was $45.6 million, an increase of
$1.2 million over the prior year. The increase was primarily attributable to an increase in gaming revenue from licensed
establishments acquired from the 2018 Acquisitions and the 2019 acquisition of Grand River Jackpot.
Net cash used in investing activities
For the year ended December 31, 2020, net cash used in investing activities was $61.4 million, a decrease of $90.1 million
over the prior year and was primarily attributable to less cash used for business and asset acquisitions, partially offset by higher
purchases of property and equipment. We also invested $30.0 million in convertible notes in 2019. We anticipate our capital
expenditures will be approximately $20-25 million in 2021.
For the year ended December 31, 2019, net cash used in investing activities was $151.5 million, an increase of $78.0 million
over the prior year and was primarily attributable to more cash used to fund business and asset acquisitions and our investment in
convertible notes of $30 million.
Net cash provided by financing activities
For the year ended December 31, 2020, net cash provided by financing activities was $74.2 million, a decrease of
$65.0 million over the prior year. The decrease was primarily due to a decrease in net borrowings on Accel’s credit facility,
lower proceeds from the exercise of stock options and warrants, and higher payments on consideration payable, partially offset
by proceeds received from issuing common stock and lower debt issuance costs.
For the year ended December 31, 2019, net cash provided by financing activities was $139.1 million, an increase of $93.0
million over the prior year. The increase was due to increased borrowings on Accel’s credit facility to fund our business and
asset acquisitions and the proceeds from the capital infusion in the reverse recapitalization.
53
Critical Accounting Policies and Estimates
Accel prepares its consolidated financial statements in accordance with U.S. GAAP. In applying accounting principles, it is
often required to use estimates. These estimates consider the facts, circumstances and information available, and may be based
on subjective inputs, assumptions and information known and unknown to Accel. Material changes in certain of the estimates
that Accel uses could affect, by a material amount, its consolidated financial position and results of operations. Although results
may vary, Accel believes its estimates are reasonable and appropriate. The following describes certain significant accounting
policies that involve more subjective and complex judgments where the effect on Accel’s consolidated financial position and
operating performance could be material.
Revenue recognition
Accel generates revenues in the State of Illinois from the following types of services: Video gaming terminals, Amusements
and ATMs. Revenue is disaggregated by type of revenue and is presented on the face of the consolidated statements of
operations and comprehensive (loss) income. Net gaming revenue is the win from gaming activities, which is the difference
between gaming wins and losses. Amusement revenue represents amounts collected from machines operated at various licensed
establishments. ATM fees and other revenue represents fees charged for the withdrawal of funds from Accel’s redemption
devices and stand-alone ATMs.
Accel determined that in a gaming environment, whenever a customer’s money has been accepted by a machine, we have an
obligation (an implied contract) to provide the customer access to the game and honor the outcome of the game (in the case of
video gaming terminals). Accel determined that the implied contract is entered into between us and customers satisfies the
requirements of a contract under Topic 606, as (i) the contract is legally enforceable with the customer, (ii) the arrangement
identifies the rights of the parties, (iii) the contract has commercial substance, and (iv) the cash is received upfront from the
customer so its collectability is probable. The gaming service is a single performance obligation in each implied contract with
the customer. Accel applies the portfolio approach of all wins and losses by VGT daily to determine the total transaction price of
the portfolio of implied contracts. Accel recognizes revenue when the single performance obligation is satisfied, which is at the
completion of each game.
Route and customer acquisition costs
Accel’s route and customer acquisition costs consist of fees paid, typically an upfront payment and future installment
payments over the life of the contract, entered into with third parties and licensed establishments throughout the State of Illinois.
These contracts are non-cancelable and allow Accel to install and operate VGTs in various establishments throughout the State
of Illinois. The upfront payment and future installment payments are recorded at the net present value using a discount rate equal
to Accel’s incremental borrowing costs. Route acquisition costs are amortized on a straight-line basis beginning on the date the
location goes live and amortized over the life of the contract, which upon adoption of Topic 606, includes expected renewals.
Accel records the accretion of interest on the route installment payments in the consolidated statements of operations and
comprehensive (loss) income as a component of interest expense, net. For locations that close prior to the end of the contractual
term, Accel writes-off the net book value of the route and the related installment payables not yet paid and records a gain or loss
in the consolidated statements of operations and comprehensive (loss) income as a component of general and administrative
expense. Additionally, most of the route acquisition contracts allow Accel to clawback some upfront and installment payments
over the first few years of a contract if the location is unable to secure the appropriate licensing or it goes out of business prior to
the end of the contract term. In the case of instances where a claw-back is triggered and Accel assesses it as recoverable, a
receivable will be recorded. Upfront payments with a claw-back prior to a location going live are capitalized and will not begin
amortization until the respective licensed establishment commences operations.
Consideration payable
Consideration payable consists of amounts payable related to certain business acquisitions as well as contingent
consideration for future licensed establishment performance related to certain business acquisitions. The contingent
consideration is measured at fair value on a recurring basis. Accel uses a discounted cash flow analysis to determine the value of
54
contingent consideration upon acquisition and updates this estimate on a recurring basis. The significant assumptions in the cash
flow analysis include the probability adjusted projected revenues after state taxes, a discount rate as applicable to each
acquisition, and the estimated number of licensed establishments at which Accel commences operations during the contingent
consideration period. The changes in the fair value of contingent consideration are recognized within Accel’s consolidated
statements of operations and comprehensive (loss) income as other expenses, net.
Business combinations and goodwill
For acquisitions meeting the definition of a business combination, the acquisition method of accounting is used. The
acquisition date is the date on which Accel obtains operating control over the acquired business. The consideration paid is
determined on the acquisition date and is the sum of the fair values of the assets acquired by Accel and the liabilities assumed by
Accel, including the fair value of any asset or liability resulting from a deferred consideration arrangement. Acquisition-related
costs, such as professional fees, are excluded from the consideration transferred and are expensed as incurred. Any contingent
consideration is measured at its fair value on the acquisition date, recorded as a liability and accreted over its payment term in
Accel’s consolidated statements of operations and comprehensive (loss) income as other expenses, net. Goodwill is measured as
the excess of the consideration transferred over the fair value of the net identifiable assets acquired and liabilities assumed.
Goodwill is reviewed for impairment annually, as of October 1st, and whenever events or changes in circumstances indicate
that the carrying value of the goodwill may not be recoverable. When performing the annual goodwill impairment test, we
conduct a qualitative assessment to determine whether it is more likely than not that the goodwill is impaired. Under the
qualitative assessment, we consider both positive and negative factors, including macroeconomic conditions, industry events,
financial performance, and we make a determination of whether it is more likely than not that the fair value of the goodwill is
less than its carrying amount. If, after assessing the qualitative factors, we determine it is more likely than not the goodwill is
impaired, we then perform a quantitative test. When performing the quantitative test, we compare the fair value of the reporting
unit to its carrying value. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the
reporting unit, the Company would record an impairment loss equal to the difference. To determine the fair value of the
reporting units, we would engage a third-party valuation specialist. If a valuation by a third-party valuation specialist was
performed, it would have been required for us to make significant estimates and assumptions such as company forecasts,
discount rates and growth rates, among others. Changes in assumptions concerning future financial results or other underlying
assumptions could have a significant impact on either the fair value of the goodwill, the amount of the goodwill impairment
charge, or both.
Convertible notes
At acquisition, an entity shall classify debt securities as trading, available-for-sale, or held-to-maturity. While the Company
has no intention of selling the convertible notes it holds, it cannot classify them as held-to-maturity due to the conversion feature.
Therefore, the Company has classified its investment in convertible notes as available for sale and they are recorded at their fair
market value. To compute the fair value of the convertible notes, a binomial lattice model is utilized in which a convertible
instrument is split into two separate components: a cash-only (debt) component and an equity component. The binomial lattice
trees are constructed using a methodology that assigns up and downward movement factors and probabilities based on rates of
return, volatility, and time. It allows for the optional conversion features of the convertible promissory notes to be captured by
determining whether conversion or continuing to hold is the most economically advantageous to the holder. Upon conversion,
future values in the equity component are subject to only the risk-free rate, while the cash-only component associated with
continuing to hold the debt instrument is subject to the selected risk-adjusted discount rate. Solving backwards through the trees
associated with the equity component and the trees associated with the debt component yields an aggregate discounted value for
each. The sum of these values yields the indicated fair value of the convertible promissory notes.
The discount rate is the risk-adjusted discount rate that is implied by the rate that allows the discounted cash flows with all
terms and conditions modeled to equal the total cash consideration. As such, after modeling the features of convertible
promissory notes as of the issuance date using the lattice model framework outlined above, the Company solved for the discount
rate that resulted in a value for the note equal to the total cash consideration. The significant inputs used in determining the fair
55
value are unobservable and require significant judgment or estimation. Changes in in these inputs or other underlying
assumptions could have a significant impact on the fair value of the convertible notes.
Contingent earnout shares liability
Our A-2 common stock is classified as a contingent earnout shares liability due to the fact that the conversion of the A-2
common stock would be accelerated on a change of control regardless of the transaction value. The liability is stated at fair value
and any change in the fair value is recognized as a gain or loss in our consolidated statements of operations and comprehensive
(loss) income. We determine the fair value of the contingent earnout shares based on the market price of our A-1 common stock.
The liability, by tranche, is then stated at present value based on i.) an interest rate derived from our borrowing rate and the
applicable risk-free rate and ii.) an estimate on when we expect the contingent earnout shares to convert to A-1 common stock.
Changes in in these inputs or other underlying assumptions could have a significant impact on the fair value of the contingent
earnout shares liability.
Change in estimate
During the first quarter of 2020, we conducted a review of our estimate of depreciable lives for our video gaming terminals
and equipment. As a result of this review, we extended the useful lives of our video gaming terminals and equipment from 7 to
10 years as the equipment is lasting longer than originally estimated. We have many video gaming terminals and equipment that
were purchased when the Company started operations that are still being used today. The impact of this change in estimate for
the year ended December 31, 2020, was a net decrease to depreciation expense of $7.7 million and $3.3 million net of tax.
Quarterly Results of Operations
The following table presents unaudited consolidated statements of operations and comprehensive (loss) income data for each
of the four quarters ended December 31, 2020 and 2019. We believe that all necessary adjustments have been included to fairly
present the quarterly information when read in conjunction with our annual consolidated financial statements and related notes.
The operating results for any quarter are not necessarily indicative of the results for any subsequent quarter.
(in thousands, except per share data)
2020(1):
Total revenues
Operating income (loss)
Income (loss) before income taxes
Net income (loss)
Earnings (loss) per common share:
Basic
Diluted
2019(2):
Total revenues
Operating income (loss)
Income (loss) before income taxes
Net income (loss)
Earnings (loss) per common share (3) :
Basic
Diluted
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$
106,463 $
2,143
15,301
379 $
(23,840)
(33,503)
135,096 $
8,984
1,951
15,440
(28,448)
8,544
0.20
0.20
(0.36)
(0.36)
0.10
0.10
74,414
(11,966)
(13,651)
(8,520)
(0.09)
(0.09)
$
98,444 $
8,719
5,673
3,995
105,263 $
9,256
6,099
4,328
102,177 $
1,018
(2,297)
(1,598)
122,812
(5,657)
(19,976)
(22,425)
0.07
0.06
0.07
0.07
(0.03)
(0.03)
(0.36)
(0.36)
(1) Quarterly results for 2020 and for the last quarter of 2019 have been restated for the items that are discussed in Note 2 to the consolidated financial
statements.
(2) Quarterly results for the first three quarters of 2019 have been adjusted for an immaterial correction discussed in Note 2 to the consolidated financial
statements.
(3) Per share amounts have been retroactively restated to give effect to the reverse recapitalization that is discussed in Note 3 to the consolidated financial
statements.
56
Our 2020 quarterly results were adversely impacted by the previously mentioned temporary shutdowns of Illinois video
gaming due to the COVID-19 outbreak. These temporary shutdowns impacted 15 out of 91gaming days in the first quarter, all of
the 91 gaming days in the second quarter and 42 out of 92 gaming days in the fourth quarter. In 2020, we also incurred non-
recurring, one-time expenses, net of recoveries under the CARES Act, for costs to provide benefits (e.g., health insurance) for
furloughed employees during COVID-19 operational disruptions. We also incurred capital costs related to the purchase of IGB-
mandated spacers for our gaming terminals to promote social distancing requirements within the gaming area and incurred
operating expenses related to cleaning, disinfecting and sanitizing supplies.
As previously discussed, we incurred higher operating expenses in the third and fourth quarter of 2019 attributable to one-
time expenses related to the Business Combination. The loss in the fourth quarter of 2019 was also impacted by larger fair value
adjustments associated with the revaluation of contingent consideration liabilities related to acquisitions. Revenues in the fourth
quarter of 2019 were positively impacted by the Grand River Jackpot acquisition.
As an EGC, we elected to use the non-public effective date and adopted the Topic 606 in the fourth quarter of 2019 for the
annual period ended December 31, 2019. Our quarterly financial statement disclosure for the first nine months of 2019 reflect the
previous accounting standard of Topic 605 and will not be restated for the adoption of Topic 606. The cumulative impact of the
new revenue standard for fiscal year 2019 was recorded in the fourth quarter and reflects the adjustment as if we adopted the
standard as of January 1, 2019.
Seasonality
Accel’s results of operations can fluctuate due to seasonal trends and other factors. For example, the gross revenue per
machine per day is typically lower in the summer when players will typically spend less time indoors at licensed establishment
partners, and higher in cold weather between February and April, when players will typically spend more time indoors at
licensed establishment partners. Holidays, vacation seasons, and sporting events may also cause Accel’s results to fluctuate.
57
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of loss that may impact Accel’s financial position due to adverse changes in financial market
prices and rates. Market risk exposure is primarily the result of fluctuations in interest rates as well as, to a lesser extent, inflation.
Interest rate risk
Accel is exposed to interest rate risk in the ordinary course of its business. Accel’s borrowings under its senior secured credit
facility were $347.6 million as of December 31, 2020. If the underlying interest rates were to increase by 1.0%, or 100 basis
points, the increase in interest expense on Accel’s floating rate debt would negatively impact Accel’s future earnings and cash
flows by approximately $3.5 million annually, assuming the balance outstanding under Accel’s credit facility remained at
$347.6 million. Cash and cash equivalents are held in cash vaults, highly liquid, checking and money market accounts, VGTs,
redemption terminals, ATMs, and amusement equipment. As a result, these amounts are not materially affected by changes in
interest rates.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the financial statements, the notes thereto, and the report of our independent registered public
accounting firm commencing at page F-1 of this Annual Report on Form 10-K, which financial statements, notes, and report are
incorporated herein by reference. For the Quarterly Results of Operations, see Item 7. “Management’s Discussion and Analysis of
Financial Condition and Results of Operations.”
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
58
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
In connection with the Business Combination, we began to evaluate, develop and implement “disclosure controls and
procedures,” as such term is defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the
“Exchange Act”), that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded,
processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and
forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer
(“CEO”) , serving as our Principal Executive Officer, and our Chief Financial Officer (“CFO”), serving as our Principal
Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. We conducted an evaluation (the
“Evaluation”), under the supervision and with the participation of our CEO and CFO, of the effectiveness of the design and
operation of our disclosure controls and procedures (“Disclosure Controls”) as of the end of the period covered by this Annual
Report on Form 10-K for the fiscal year ended December 31, 2020 pursuant to Rule 13a-15 of the Exchange Act. Based on the
Evaluation, and considering the review of controls and procedures that is being conducted by our CEO and CFO, our CEO and
CFO concluded that the Company’s disclosure controls and procedures were not effective because of the identification of
material weaknesses in our internal control over financial reporting, as discussed further below.
Accel has identified three material weaknesses in its internal control over financial reporting. A material weakness is a
deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable
possibility that a material misstatement of Accel’s annual or interim financial statements will not be prevented or detected on a
timely basis. Accel management is actively addressing the material weaknesses that have been identified and has developed a
comprehensive plan for effective remediation. While these material weaknesses remain unremediated, an increased risk of
material misstatement of the consolidated financial statements exists, and if remediation of these material weaknesses is not
effective, or if Accel fails to develop and maintain an effective system of disclosure controls and internal control over financial
reporting, its ability to produce timely and accurate financial statements or comply with applicable laws and regulations could
be impaired.
Management's Report on Internal Control Over Financial Reporting
Our management, including our CEO and CFO, is responsible for establishing and maintaining adequate internal control
over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act and based upon the criteria
established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (the “COSO framework”)). Our internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external
reporting purposes in accordance with GAAP.
An effective internal control system, no matter how well designed, has inherent limitations, including the possibility of
human error or overriding of controls, and therefore can provide only reasonable assurance with respect to reliable financial
reporting. Because of its inherent limitations, our internal control over financial reporting may not prevent or detect all
misstatements, including the possibility of human error, the circumvention or overriding of controls, or fraud. Effective internal
controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements.
As a result of management’s review of the Company’s financial and accounting records and the other work completed by
the management team, as of December 31, 2020, Accel has three material weaknesses in its internal control over financial
reporting. Based on the existence of three material weaknesses, management concluded that our internal control over financial
reporting was not effective as of December 31, 2020. These material weaknesses are previously identified and are summarized
below.
59
Previously Identified Material Weaknesses in our Internal Control over Financial Reporting
Presented below is a summary of the material weaknesses and the related remediation plans that have been developed to
address our material weaknesses. These material weaknesses were previously reported in the Company's Annual Report on Form
10-K for the fiscal year ended December 31,2019.
Description of Material Weakness
There is a material weakness in the design and implementation
of the Company’s internal controls relating to review of the
consolidated financial statements and certain of the associated
accounting analysis, journal entries, non-recurring transactions
and accounting reconciliations due, in part, to the lack of
formally documented accounting policies and procedures,
ineffective risk assessment, as well as headcount necessary to
support consistent, timely and accurate financial reporting in
accordance with U.S. GAAP.
Description of Planned Remediation
Remediation plan includes enhanced management review
controls on consolidated financial statements, the
documentation of policies and procedures related to
accounting in the consolidated financial statements
including, but not limited to, Journal Entry Process,
Finance Close, Account Reconciliations, Cash, Fixed
Assets, etc., and hiring accounting and finance personnel
to support timely and accurate financial reporting. This
remediation plan is in-process and not yet complete.
There is a material weakness in the design and implementation
of the Company’s internal controls relating to business
combination accounting and route and customer acquisition
cost accounting due to the absence of formalized internal
controls surrounding the determination of the fair value and the
accounting for assets acquired and liabilities assumed in
business combinations and the accounting for the initial route
and customer acquisition costs.
Remediation plan includes engaging third-party business
combination valuation specialist to perform acquisition
purchase price allocations, and enhanced management
review controls on key methodologies, assumptions and
inputs used in the valuations performed by the third-party
specialist. and implementing internal controls relating to
route acquisition cost accounting. This remediation plan is
in-process and not yet complete.
There is a material weakness in the Company’s general
information technology controls including the design and
implementation of access and change management internal
controls.
Remediation plan includes implementing COSO 2013
framework to evaluate IT environment, design general
information technology controls, and implement those
controls. This remediation plan is in-process and not yet
complete.
As discussed elsewhere in this Annual Report on Form 10-K for the fiscal year ended December 31, 2020, the Business
Combination was completed on November 20, 2019. Prior to the Business Combination, Accel was a private company that did
not maintain internal controls that were comprehensive enough for a public company. Since the Business Combination, Accel has
invested considerable time and resources towards improving the design and implementation of internal controls over financial
reporting. The progress we have made can be summarized as follows:
• We established an Internal Audit department to act as a monitoring portion of our system of quality controls and to
review and make recommendations on designing the internal controls over financial reporting.
• We added additional accounting and finance personnel to support timely and accurate financial reporting and execution
of a control framework.
• We are developing policies and procedures to assist our finance organization in recording transactions appropriately.
• We developed a framework to identify risks of material misstatement to our consolidated financial statements and made
progress towards reviewing existing controls and designing appropriate controls to mitigate those risks.
• We hired a third-party valuation specialist to perform acquisition purchase price allocations for our material business
combinations and have reviewed the assumptions and inputs used to complete these third-party valuations.
• We developed IT policies and are in the process of implementing those policies.
60
Changes in Internal Control Over Financial Reporting
As discussed above, we have identified material weaknesses in our internal control over financial reporting. Although we
have not remediated the material weaknesses as of December 31, 2020, Accel management is actively addressing the material
weaknesses that have been identified and developed a comprehensive plan of remediation.
Other than the material weaknesses and remediation efforts mentioned above, there were no changes during the quarter
ended December 31, 2020 in our internal control over financial reporting that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
Not applicable.
61
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this Item is incorporated herein by reference to the definitive Proxy Statement to be filed
pursuant to Regulation 14A of the Exchange Act for our 2021 Annual Meeting of Stockholders.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is included in our definitive Proxy Statement (see Item 10 above), and is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The information required by this Item is included in our definitive Proxy Statement (see Item 10 above), and is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this Item is included in our definitive Proxy Statement (see Item 10 above), and is incorporated
herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item is included in our definitive Proxy Statement (see Item 10 above), and is incorporated
herein by reference.
62
ITEM 15. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES
(a) Financial Statements and Financial Statement Schedules
PART IV
(1) Financial Statements are listed in the Index to Financial Statements on page F-1 of this Annual Report on Form 10-K.
(2) Other schedules are omitted because they are not applicable, not required, or because required information is included in
the consolidated financial statements or notes thereto.
(b) Exhibits
Exhibit
No.
3.1
3.2
3.3
4.1
4.2
4.3
10.1**
10.2**
10.3**
10.4
10.5
10.6
10.7
10.8+
10.9
Exhibit
Amended and Restated Certificate of Incorporation of Accel Entertainment, Inc. (Incorporated by reference to
Exhibit 3.2 to the Company’s Current Report on Form 8-K dated November 20, 2019).
Amended and Restated Bylaws of Accel Entertainment, Inc. (Incorporated by reference to Exhibit 3.3 to the
Company’s Current Report on Form 8-K dated November 20, 2019).
Amendment No. 1 to the Bylaws of Accel Entertainment, Inc (incorporated by reference to Exhibit 3.3 to the
Current Report on Form 8-K dated May 6, 2020).
Description of the Company’s Common Stock Registered Under Section 12 of the Securities Exchange Act of
1934, as amended.
Nominating and Support Agreement, dated November 6, 2019 (Incorporated by reference to Exhibit 10.1 filed
with the Company’s Current Report on Form 8-K dated November 6, 2019.
Mutual Support Agreement, dated November 6, 2019 (Incorporated by reference to Exhibit 99.1 filed with the
Company’s Current Report on Form 8-K dated November 6, 2019).
Accel Entertainment, Inc. Long Term Incentive Plan (Incorporated by reference to Exhibit 10.1 to the Company’s
Current Report on Form 8-K dated November 20, 2019).
Accel Entertainment, Inc. 2011 Equity Incentive Plan (Incorporated by reference to Exhibit 4.4 to the Company’s
Registration Statement on Form S-8 dated January 24, 2020).
Accel Entertainment, Inc. 2016 Equity Incentive Plan (Incorporated by reference to Exhibit 4.5 to the Company’s
Registration Statement on Form S-8 dated January 24, 2020).
Restricted Stock Agreement, dated as of November 20, 2019 (Incorporated by reference to Exhibit 10.2 to the
Company’s Current Report on Form 8-K dated November 20, 2019).
Warrant Agreement, dated as of November 20, 2019 (Incorporated by reference to Exhibit 10.3 to the Company’s
Current Report on Form 8-K dated November 20, 2019).
Registration Rights Agreement, dated as of November 20, 2019 (Incorporated by reference to Exhibit 10.4 to the
Company’s Current Report on Form 8-K dated November 20, 2019).
Form of Indemnity Agreement (Incorporated by reference to Exhibit 10.5 to the Company’s Current Report on
Form 8-K dated November 20, 2019).
Membership Interest Purchase Agreement, by and among GRE-Illinois, LLC, Great River Entertainment, LLC,
Grand River Jackpot, LLC and Accel Entertainment Gaming, LLC, dated as of August 26, 2019 (Incorporated by
reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K dated November 20, 2019).
Credit Agreement, by and among New Pace LLC, the Company, Capital One, National Association and the other
parties thereto, dated as of November 13, 2019 (Incorporated by reference to Exhibit 10.1 to the Company’s
Current Report on Form 8-K dated November 13, 2019).
10.9(A)
Amendment No.1 to the Credit Agreement, by and among the Registrant, Capital One, National Association and
the other parties thereto, dated November 13, 2019 (incorporated by reference to Exhibit 10.9(A) to the
Company’s Current Report on Form 8-K dated August 6, 2020).
63
10.10**
Employment Agreement by and between Accel Entertainment Gaming, LLC and Andrew Rubenstein, dated as of
January 28, 2013, as amended by First Amendment to Employment Agreement, dated December 13, 2016, and
Second Amendment to Employment Agreement, dated as of January 31, 2019 (Incorporated by reference to
Exhibit 10.16 to the proxy statement/prospectus on Form S-4/A dated October 24, 2019).
10.10(A)** Amended and Restated Executive Employment Agreement, dated July 15, 2020, by and between Accel
Entertainment, Inc., and Andrew Rubenstein (incorporated by reference to Exhibit 10.10(A) to the Current Report
on Form 8-K filed with the SEC on July 20, 2020).
10.11**
Employment Agreement by and between Accel Entertainment Gaming, LLC and Brian Carroll, dated as of March
18, 2014, as amended by First Amendment to Employment Agreement, dated November 9, 2017, and Second
Amendment to Employment Agreement, dated as of July 9, 2018 (Incorporated by reference to Exhibit 10.17 to
the proxy statement/prospectus on Form S-4/A dated October 24, 2019).
10.11(A)** Amended and Restated Executive Employment Agreement, dated July 16, 2020, by and between Accel
Entertainment, Inc., and Derek Harmer (incorporated by reference to Exhibit 10.11(A) to the Current Report on
Form 8-K filed with the SEC on July 20, 2020).
10.12**
Employment Agreement by and between Accel Entertainment Gaming, LLC and Derek Harmer, dated as of July
9, 2012, as amended by First Amendment to Employment Agreement, dated November 8, 2017, and Second
Amendment to Employment Agreement, dated as of July 9, 2018 (Incorporated by reference to Exhibit 10.18 to
the proxy statement/prospectus on Form S-4/A dated October 24, 2019).
10.12(A)** Amended and Restated Executive Employment Agreement, dated July 16, 2020, by and between Accel
Entertainment, Inc., and Brian Carroll (incorporated by reference to Exhibit 10.12(A) to the Current Report on
Form 8-K filed with the SEC on July 20, 2020).
10.13**
10.14**
10.15**
10.16**
10.17**
10.18**
10.19
10.20
Form of Company Restricted Stock Unit Award Agreement (Incorporated by reference to Exhibit 10.13 to the
Company's Current Report on Form 8-K dated February 27, 2020).
Form of Company Stock Option Award Agreement (Incorporated by reference to Exhibit 10.13 to the Company's
Current Report on Form 8-K dated February 27, 2020).
Advisor Agreement, dated February 28, 2020, by and between Gordon Rubenstein and the Company
(Incorporated by reference to Exhibit 10.13 to the Company's Current Report on Form 8-K dated February 27,
2020).
Employment Agreement by and between Accel Entertainment Gaming, LLC and Mark Phelan, dated as of May 1,
2017. (incorporated by reference to Exhibit 10.16 to the Company's Annual Report on Form 10-K for the year
ended December 31, 2019).
Executive Employment Agreement by and between Accel Entertainment, Inc. and Michael Marino, dated as of
March 8, 2020. (incorporated by reference to Exhibit 10.17 to the Company's Annual Report on Form 10-K for the
year ended December 31, 2019).
Executive Employment Agreement by and between Accel Entertainment, Inc. and Ryan Hammer, dated as of
March 6, 2020.(incorporated by reference to Exhibit 10.18 to the Company's Annual Report on Form 10-K for the
year ended December 31, 2019).
Tender and Exchange Agreement, dated June 18, 2020, by and among the Company and the holders of Private
Placement Warrants party thereto (incorporated by reference to Exhibit 10.19 to the Quarterly Report on Form 10-
Q filed with the SEC on August 6, 2020).
Securities Purchase Agreement, by and among Century Gaming Inc., the shareholders of Century, the Company,
Accel Entertainment LLC, and Steve W. Arntzen as the Sellers representative, dated as of March 2, 2021
(incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K dated March 2, 2021).
64
21.1 *
List of Subsidiaries
23 *
Consent of Independent Registered Public Accounting Firm
24.1 *
Power of Attorney (included on the signature page of this Annual Report on Form 10-K)
31.1 *
Certification of Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a)
31.2 *
Certification of Principal Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a)
32.1 *
Section 1350 Certification of Principal Executive Officer
32.2 *
Section 1350 Certification of Principal Financial Officer
101.INS * XBRL Instance Document
101.SCH * XBRL Taxonomy Extension Schema Document
101.CAL * XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF * XBRL Taxonomy Extension Definition Linkbase Document
101.LAB * XBRL Taxonomy Extension Label Linkbase Document
101.PRE * XBRL Taxonomy Extension Presentation Linkbase Document
104 *
Cover Page Inline XBRL File (included in Exhibit 101)
*
Filed herewith.
**
Indicates management contract or compensation plan or agreement.
+ Certain information has been excluded from this exhibit because it is not material and would likely cause competitive harm to the registrant
if publicly disclosed.
ITEM 16. FORM 10-K SUMMARY
None.
65
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: March 16, 2021
ACCEL ENTERTAINMENT, INC.
By:
/s/ Brian Carroll
Brian Carroll
Chief Financial Officer
66
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and
appoints Andrew Rubenstein and Brian Carroll, and each of them, as his or her true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him or her and in his or her name, place, and stead, in any and all capacities, to
sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent,
full power and authority to do and perform each and every act and thing required and necessary to be done in connection
therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that
said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Andrew Rubenstein
Andrew Rubenstein
/s/ Brian Carroll
Brian Carroll
/s/ Derek Harmer
Derek Harmer
/s/ Karl Peterson
Karl Peterson
/s/ Gordon Rubenstein
Gordon Rubenstein
/s/ Kathleen Philips
Kathleen Philips
/s/ David W. Ruttenberg
David W. Ruttenberg
/s/ Eden Godsoe
Eden Godsoe
/s/ Kenneth B. Rotman
Kenneth B. Rotman
/s/ Dee Robinson
Dee Robinson
Chief Executive Officer, President and Director
March 16, 2021
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
March 16, 2021
General Counsel, Chief Compliance Officer and Secretary
March 16, 2021
Chairman of the Board and Director
March 16, 2021
March 16, 2021
March 16, 2021
March 16, 2021
March 16, 2021
March 16, 2021
March 16, 2021
Director
Director
Director
Director
Director
Director
67
INDEX TO FINANCIAL STATEMENTS
ACCEL ENTERTAINMENT, INC.
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations and Comprehensive (Loss) Income
Consolidated Balance Sheets
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
F-2
F-3
F-4
F-5
F-6
F-8
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
Accel Entertainment, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Accel Entertainment, Inc. and subsidiaries (the Company) as
of December 31, 2020 and 2019, the related consolidated statements of operations and comprehensive (loss) income,
stockholders’ equity, and cash flows for each of the years in the three‑year period ended December 31, 2020, and the related notes
(collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and
its cash flows for each of the years in the three‑year period ended December 31, 2020, in conformity with U.S. generally accepted
accounting principles.
Correction of Misstatements
As discussed in Note 2 to the consolidated financial statements, the 2019 financial statements have been restated to correct
misstatements.
Change in Accounting Principle
As discussed in Note 3 to the consolidated financial statements, the Company has changed its method of accounting for revenue
from contracts with customers and related costs as of January 1, 2019 due to the adoption of Accounting Standards Update No.
2014-09, Revenue from Contracts with Customers.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company
in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial
reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the Company’s auditor since 2019.
Chicago, Illinois
March 16, 2021
F-2
ACCEL ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS and COMPREHENSIVE (LOSS) INCOME
(in thousands, except per share amounts)
Revenues:
Net gaming
Amusement
ATM fees and other revenue
Total net revenues
Operating expenses:
Cost of revenue (exclusive of depreciation and amortization expense shown
below)
General and administrative
Depreciation and amortization of property and equipment
Amortization of route and customer acquisition costs and location
contracts acquired
Other expenses, net
Total operating expenses
Operating (loss) income
Interest expense, net
(Gain)/loss on change in fair value of contingent earnout shares
Loss on debt extinguishment
(Loss) income before income tax (benefit) expense
Income tax (benefit) expense
Net (loss) income
Earnings (loss) per share:
Basic (1)
Diluted (1)
Weighted average number of shares outstanding:
Basic (1)
Diluted (1)
Comprehensive (loss) income
Net (loss) income
Unrealized gain on investment in convertible notes (net of income
taxes of $36)
Comprehensive (loss) income
Years ended December 31,
2020
2019
(As Restated)
2018
$
300,520 $
410,636 $
321,711
9,247
6,585
9,749
8,311
7,001
6,369
316,352
428,696
335,081
211,086
77,420
20,969
22,608
8,948
341,031
(24,679)
13,707
(8,484)
—
(29,902)
(16,918)
282,008
69,330
26,398
17,975
19,649
415,360
13,336
12,860
9,837
1,141
(10,502)
5,199
(12,984) $
(15,701) $
(0.16) $
(0.16)
(0.25) $
(0.25)
83,045
83,045
61,850
61,850
217,457
54,295
20,782
14,681
2,997
310,212
24,869
9,644
—
—
15,225
4,422
10,803
0.19
0.17
57,621
62,182
(12,984) $
(15,701) $
10,803
93
—
—
(12,891) $
(15,701) $
10,803
$
$
$
$
(1) Per share and share amounts for 2018 have been retroactively restated to give effect to the reverse recapitalization that is discussed in Note 3.
See Note 2 for impact of restatement
The accompanying notes are an integral part of these consolidated financial statements
F-3
ACCEL ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except par value and share amounts)
Assets
Current assets:
Cash and cash equivalents
Prepaid expenses
Income taxes receivable
Investment in convertible notes (current)
Other current assets
Total current assets
Property and equipment, net
Other assets:
Route and customer acquisition costs, net
Location contracts acquired, net
Goodwill
Investment in convertible notes, less current portion
Deferred income tax asset
Other assets
Total noncurrent assets
Total assets
Liabilities and Stockholders’ Equity
Current liabilities:
Current maturities of debt
Current portion of route and customer acquisition costs payable
Accrued location gaming expense
Accrued state gaming expense
Accounts payable and other accrued expenses
Accrued compensation and related expenses
Current portion of consideration payable
Total current liabilities
Long-term liabilities:
Debt, net of current maturities
Route and customer acquisition costs payable, less current portion
Consideration payable, less current portion
Contingent earnout share liability
Deferred income tax liability
Total long-term liabilities
Stockholders’ equity:
Preferred Stock, par value of $0.0001; 1,000,000 shares authorized; 0 shares issued and outstanding at
December 31, 2020 and December 31, 2019
Class A-1 Common Stock, par value $0.0001; 250,000,000 shares authorized; 93,379,508 shares issued and
outstanding at December 31, 2020; 76,637,470 shares issued and outstanding at December 31, 2019
Additional paid-in capital
Accumulated other comprehensive income
Accumulated deficit
Total stockholders' equity
Total liabilities and stockholders' equity
See Note 2 for impact of restatement
December 31,
2020
2019
(As Restated)
134,451 $
5,549
3,341
—
8,643
151,984
143,565
15,251
167,734
45,754
30,129
3,824
2,000
264,692
560,241 $
18,250 $
1,608
—
—
23,666
5,853
3,013
52,390
321,891
4,064
20,943
33,069
—
379,967
125,403
4,151
3,907
11,000
7,034
151,495
119,201
17,399
166,783
34,511
19,000
—
928
238,621
509,317
15,000
1,700
1,323
7,119
17,110
2,401
10,293
54,946
334,692
4,752
16,426
61,478
12,976
430,324
—
—
9
171,073
93
(43,291)
127,884
560,241 $
8
54,346
—
(30,307)
24,047
509,317
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements
F-4
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T
ACCEL ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
2020
Year Ended 31,
2019
(As Restated)
2018
$
(12,984) $
(15,701) $
10,803
(in thousands)
Cash flows from operating activities:
Net (loss) income
Adjustments to reconcile net (loss) income to net cash provided by operating
activities:
Depreciation and amortization of property and equipment
Amortization of route and customer acquisition costs and location
contracts acquired
Amortization of debt issuance costs
Contributed capital, professional service fees paid by shareholder
Stock-based compensation
(Gain) loss on change in fair value of contingent earnout shares
Loss on disposal of property and equipment
Loss on write-off of route and customer acquisition costs and route and
customer acquisition costs payable
Loss on debt extinguishment
Remeasurement of contingent consideration
Payments on consideration payable
Accretion of interest on route and customer acquisition costs payable,
contingent consideration, and contingent stock consideration
Deferred income taxes
Changes in operating assets and liabilities, net of acquisition of
businesses:
Prepaid expenses and other current assets
Income taxes receivable
Route and customer acquisition costs
Route and customer acquisition costs payable
Accounts payable and accrued expenses
Accrued compensation and related expenses
Consideration payable
Other assets
Net cash (used in) provided by operating activities
$
Cash flows from investing activities:
Purchases of property and equipment
Proceeds from the sale of property and equipment
Payments for location contracts acquired
Purchase of investment in convertible notes
Payments on consideration payable
Business and asset acquisitions, net of cash acquired
Cash flows from financing activities:
Net cash used in investing activities
$
Proceeds from term loan
Payments on term loan
Proceeds from delayed draw term loans
Payments on delayed draw term loans
Net (payments on) proceeds from line of credit
Payments for debt issuance costs
Payments for repurchase of common shares
Proceeds from issuance of common stock, net
Proceeds from exercise of stock options and warrants
Payments on consideration payable
Payments on capital lease obligation
Net increase in outstanding checks in excess of bank balance
Proceeds from capital infusion in reverse recapitalization
Tax withholding on share-based payments
Net cash provided by financing activities
Net increase in cash and cash equivalents
$
20,969
22,608
2,064
—
5,538
(8,484)
47
910
—
(584)
(1,766)
2,030
(16,836)
(2,904)
566
(603)
(780)
(16,876)
3,452
—
(72)
(3,705) $
(25,761)
394
—
—
(299)
(35,769)
(61,435) $
—
(12,000)
65,000
(5,438)
(58,500)
(677)
—
90,422
847
(5,448)
—
—
—
(18)
74,188
9,048
$
26,398
17,975
655
2,891
2,236
9,837
100
342
1,141
6,723
—
1,623
4,081
(3,507)
(1,804)
(5,438)
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(899)
494
—
(240)
45,565
$
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121
—
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(151,532) $
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169,000
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(9,374)
—
—
3,583
(2,321)
(531)
—
27,030
(5,121)
139,141
33,174
$
20,782
14,681
394
—
453
—
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516
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852
—
912
4,300
(491)
(1,436)
(3,719)
(956)
(1,749)
(900)
(196)
36
44,343
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1,173
(80)
—
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(73,547)
46,250
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75,000
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3,000
(533)
(3,343)
—
396
(814)
(3,276)
67
—
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46,122
16,918
75,311
92,229
Cash and cash equivalents:
Beginning of year
End of year
125,403
92,229
$
134,451
$
125,403
$
F-6
ACCEL ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
8,719
1,594
2,243
—
—
(in thousands)
Supplemental disclosures of cash flow information:
Cash payments for:
Interest, net of amount of capitalized
Income taxes paid
2020
Year Ended 31,
2019
(As Restated)
2018
$
$
12,854 $
— $
12,024 $
1,759 $
Supplemental schedules of noncash investing and financing activities:
Purchases of property and equipment in accounts payable and accrued
liabilities
$
Common stock offering costs in accounts payable and accrued liabilities $
Conversion of contingent earnout shares
$
Reclassification of contingent stock consideration from liabilities to
equity
$
14,992 $
364 $
(19,924) $
11,501 $
— $
— $
— $
— $
2,575
Acquisition of businesses and assets:
Total identifiable net assets acquired
Less cash acquired
Less contingent consideration
Less promissory note
Cash purchase price
$
$
39,731 $
(716)
(3,246)
—
35,769 $
119,178 $
(8,861)
(7,216)
(2,244)
100,857 $
63,745
(3,633)
(5,350)
(3,368)
51,394
See Note 2 for impact of restatement
The accompanying notes are an integral part of these consolidated financial statements
F-7
Note 1. Description of Business
Accel Entertainment, Inc. and its subsidiaries (“the Company”) wholly owned subsidiary, Accel Entertainment Gaming LLC,
is a terminal operator licensed by the State of Illinois Gaming Board (“IGB”) since March 15, 2012. Its Illinois terminal operator
license allows the Company to install and operate video gaming terminals (“VGTs”) in licensed video gaming locations
throughout the State of Illinois as approved by individual municipalities. The Company also operates redemption terminals, which
also function as automated teller machines (“ATMs”) at its licensed video gaming locations, and amusement equipment at certain
locations. The Company's terminal operator license in Illinois, which is not transferable or assignable, requires compliance with
applicable regulations and the license is renewable annually unless sooner cancelled or terminated. In July 2020, the Georgia
Lottery Corporation approved one of the Company's consolidated subsidiaries as a licensed operator, or a Master Licensee, which
allows the Company to begin the installation and operation of coin operated amusement machines for commercial use by the
public for play throughout the State of Georgia. The Company is subject to various federal, state and local laws and regulations in
addition to gaming regulations.
The Company operates 12,247 and 10,499 VGTs across 2,435 and 2,312 locations in the State of Illinois as of December 31,
2020 and 2019, respectively.
On November 20, 2019, TPG Pace Holdings Corp., (“TPG Holdings”) entered into a Transaction Agreement with each of the
stockholders of Accel Entertainment, Inc. (“Accel”). Pursuant to the Transaction Agreement and in connection therewith, TPG
Holdings acquired, directly or indirectly, all of the issued and outstanding shares of common stock and preferred stock from the
Accel stockholders. In connection with the closing of the transaction, TPG Holdings changed its name to Accel Entertainment,
Inc. This transaction was accounted for as a reverse recapitalization. For more information on this transaction, see Note 4.
The Company is an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”)
following the consummation of the merger of TPG Pace Holding Corp. and Accel Entertainment, Inc. The Company has elected
to use this extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the
JOBS Act and as a result of this election, its financial statements may not be comparable to companies that comply with public
company effective dates. The Company will remain an “emerging growth company” until the earliest to occur of (i) the last day of
the fiscal year (a) following June 30, 2022, (b) in which Accel has total annual gross revenue of at least $1.0 billion or (c) in
which Accel is deemed to be a large accelerated filer, which means the market value of Class A-1 common stock that is held
by non-affiliates exceeds $700 million as of the last business day of the prior second fiscal quarter, and (ii) the date on which
Accel has issued more than $1.0 billion in non-convertible debt during the prior three-year period.
Impact of COVID-19 on the Consolidated Financial Statements
In its initial response to the COVID-19 outbreak, the IGB made the decision to shut down all VGTs across the State of
Illinois starting at 9:00 p.m. on March 16, 2020 and ultimately extended the shutdown through June 30, 2020. As COVID-19
began a resurgence in the fall, the virus spread exponentially in every geographical region (currently 11 regions) in the State of
Illinois. In response, the IGB suspended all video gaming operations until further notice across the entire state of Illinois starting
at 11:01 PM on Thursday November 19, 2020. Video gaming operations resumed in certain regions of the state beginning on
January 16, 2021, and fully resumed in all regions on January 23, 2021. Even though video gaming operations resumed across all
regions, certain regions still had government-imposed restrictions that, among other things, limited hours of operation and
restricted the number of patrons allowed within in the licensed establishments. These temporary shutdowns of Illinois video
gaming impacted 148 of the 365 gaming days (or 40% of gaming days) during the year ended December 31, 2020. In light of
these events and their effect on the Company’s employees and licensed establishment partners, the Company took action to
position itself to help mitigate the effects of the temporary cessation of operations. During the initial shutdown, the Company
furloughed a significant portion of its employees and deferred certain payments to major vendors. Additionally, members of the
Company's senior management decided to voluntarily forgo their base salaries until the resumption of video gaming operations.
F-8
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Beginning in early June, the Company started reinstating employees from furlough in anticipation of resuming operations on July
1, 2020. During the second shutdown, the Company furloughed idle staff as appropriate and deferred certain payments to major
vendors.
As a result of these developments, the Company's revenues, results of operations and cash flows for the year ended
December 31, 2020 have been materially affected, and the Company expects it could continue for at least as long as COVID-19 is
a threat to the public health. The situation is rapidly changing and additional impacts to the business may arise that the Company
is not aware of currently.
The Company incurred non-recurring, one-time expenses of $1.2 million ($2.5 million of costs less recoveries under the
CARES Act of $1.3 million) for the year ended December 31, 2020, for costs to provide benefits (e.g., health insurance) for
furloughed employees during COVID-19 operational disruptions. These costs are included within other expenses, net. The
Company also spent $2.0 million in capital costs for the year ended December 31, 2020 related to the purchase of IGB-mandated
spacers for its VGTs to promote social distancing requirements within the gaming area and incurred operating expenses of
$0.8 million for the year ended December 31, 2020 related to cleaning, disinfecting and sanitizing supplies.
As part of the Company's analysis of the financial reporting impacts of the COVID-19 outbreak, and corollary response in the
State of Illinois, including the temporary shutdowns of its gaming operations, the Company evaluated its goodwill and long-lived
assets for potential impairment triggers as of December 31, 2020. No impairment losses were recorded. The Company will
continue to monitor its assets for potential impairment losses in future periods. While the IGB has announced the resumption of
all video gaming activities, it is possible that it or the State of Illinois may order a shutdown by region, or a complete suspension
of video gaming in the state, or institute stay-at-home, closure or other similar orders or measures in the future in response to a
resurgence of COVID-19 or other events. If this were to occur, the Company could recognize impairment losses which could be
material.
Note 2. Restatement of Previously Issued Financial Statements
The Company has restated the accompanying consolidated financial statements for the year ended December 31, 2019 and
the unaudited condensed consolidated financial statements for the three months ended December 31, 2019 and the three months
ended and year-to-date periods ended March 31, 2020, June 30, 2020 and September 30, 2020.
The restatement reflects adjustments to correct an error related to the accounting treatment of certain earn out arrangements
issued in connection with the 2019 business combination with TPG Pace Holdings Corp., a special purpose acquisition company,
that were previously presented as equity. Because the number of Class A-1 common stock (the “contingent earnout shares”) the
holder is entitled to under the agreement are dependent, in part, upon the occurrence of a change of control, which is not an input
to the fair value of a fixed for fixed contract on equity shares, the Company determined that the contingent earnout share
obligation should be presented as a liability and marked to fair value each period, not equity-classified as previously presented.
The Company also concluded that Class A-2 common stock issued in the transaction does not represent an increase in equity due
to the fact that such shares are not entitled to dividends, voting rights, or a stake in the Company in the case of liquidation.
Accordingly, the contingent earnout is now reflected as a liability at fair value on the Company’s consolidated balance sheets
at December 31, 2020 and 2019, and the change in the fair value of such liability in each period is recognized as a gain or loss in
the Company’s consolidated statements of operations and comprehensive (loss) income. The contingent earnout liability does not
constitute indebtedness of the Company and will only be satisfied, if earned, by settlement in the Company’s Class A-1 common
stock in a non-cash transaction. The existence of contingent earnout shares occurred as a result of the Company’s merger and
reverse recapitalization occurring on November 20, 2019 and did not impact any reporting periods prior to the merger and reverse
recapitalization transaction.
F-9
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
When presenting diluted earnings (loss) per share in the Company’s Form 10-K for the year ended December 31, 2019 and in
the Company’s Form 10-Q filings for the 2020 quarterly periods, the shares issuable under the contingent earnout were considered
for inclusion in the diluted share count in accordance with U.S. generally accepted accounting principles (“GAAP”). Since the
shares issuable under the contingent earnout are contingently issuable shares that depend on future earnings or future market
prices of the common stock or a change in control, the shares are excluded when computing diluted earnings (loss) per share
unless the shares would be issuable if the reporting date was the end of the contingency period. Upon settlement, these shares are
included in Class A-1 common stock in the Company’s basic EPS share count. Also, upon settlement, the liability would be
extinguished and the fair value of the shares issued in settlement would be recorded as an increase in equity.
The impact of this correction to the applicable reporting periods for the financial statement line items impacted is as follows
(in thousands, except per share data):
NC = No change to the "as reported" amounts
December 31, 2019
As
As
Restated
Reported
March 31, 2020
(unaudited)
June 30, 2020
(unaudited)
September 30, 2020
(unaudited)
As
Reported
As
Restated
As
Reported
As
Restated
As
Reported
As
Restated
Consolidated Balance Sheets:
Contingent earnout share liability
$
—
$
61,478 $
— $
24,912
$
— $
32,086
$
— $
35,684
Total long-term liabilities
$ 368,846
$ 430,324 $ 418,905 $ 443,817
$ 409,770 $ 441,856
$ 354,017 $ 389,701
A-2 Common Stock
$
1
Additional paid-in capital
$ 105,986
$
$
— $
1 $
—
$
1 $
—
$
1 $
—
54,346 $ 107,046 $
74,565
$ 108,732 $
76,251
$ 189,524 $ 157,045
Accumulated deficit
Total stockholders' equity
$
$
(20,470) $
(30,307) $
(22,436) $
(14,866) $
(43,710) $
(43,314) $
(31,567) $
(34,771)
85,525
$
24,047 $
84,619 $
59,707
$
65,031 $
32,945
$ 157,967 $ 122,283
F-10
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Consolidated Statement of Operations:
Amusement revenue
ATM fees and other revenue
Total net revenues
Cost of revenue (exclusive of depreciation
and amortization expense shown below)
General and administrative
Total operating expenses
(Gain) loss on change in fair value of
contingent earnout shares
(Loss) income before income tax (benefit)
expense
Net (loss) income
(Loss) earnings per share:
Basic
Diluted
Year ended
December 31, 2019
Three Months Ended
Three Months Ended
March 31, 2020
(unaudited)
June 30, 2020
(unaudited)
As Reported
As Restated
As Reported
As Restated
As Reported
As Restated
$
$
$
$
$
$
$
$
$
$
$
5,912 $
9,749
7,837 $
8,311
424,385 $
428,696
271,999 $
282,008
75,028 $
69,330
411,049 $
415,360
— $
9,837
(665) $
(10,502)
(5,864) $
(15,701)
(0.09) $
(0.09) $
(0.25)
(0.25)
$
$
$
$
$
$
$
$
$
$
$
1,692 $
2,831
1,961 $
2,057
105,228 $
106,463
67,980 $
70,708
23,468 $
21,975
103,084 $
104,320
— $
(17,406)
(2,105) $
(1,966) $
15,301
15,440
(0.03) $
(0.03) $
0.20
0.20
NC
NC
NC
NC
NC
NC
$
$
$
$
$
$
$
— $
530
10,451 $
9,921
NC
NC
— $
7,174
(26,329) $
(33,503)
(21,274) $
(28,448)
(0.27) $
(0.27) $
(0.36)
(0.36)
Six Months Ended
June 30, 2020
(unaudited)
Three Months Ended
September 30, 2020
(unaudited)
Nine Months Ended
September 30, 2020
(unaudited)
As Reported
As Restated
As Reported
As Restated
As Reported
As Restated
Consolidated Statements of Operations and
Comprehensive (Loss) Income:
Amusement revenue
ATM fees and other revenue
Total net revenues
Cost of revenue (exclusive of depreciation
and amortization expense shown below)
General and administrative
Total operating expenses
(Gain) loss on change in fair value of
contingent earnout shares
(Loss) income before income tax (benefit)
expense
Net (loss) income
Earnings (loss) per share:
Basic
Diluted
$
$
$
$
$
$
$
$
$
$
$
1,952
2,080
105,607
67,980
33,919
127,303
—
$
$
$
$
$
$
$
3,091
2,177
106,843
71,239
31,896
128,539
(10,232)
(28,434) $
(23,240) $
(18,202)
(13,008)
(0.30) $
(0.30) $
(0.17)
(0.17)
$
$
$
$
$
$
$
$
$
$
$
4,171 $
3,031
2,526 $
2,431
136,332 $
135,097
91,792 $
90,556
23,164 $
23,164
127,348 $
126,113
— $
3,599
5,550 $
12,143 $
0.15 $
0.14 $
1,951
8,544
0.10
0.10
NC
NC
NC
NC
NC
NC
NC
NC
NC
NC
NC
NC
$
$
$
$
$
— $
(6,633)
(22,885) $
(11,097) $
(16,252)
(4,464)
(0.14) $
(0.14) $
(0.06)
(0.06)
These errors had a non-cash impact, as such, the statement of cash flows for the year ended December 31, 2019 reflects an
adjustment to net (loss) income and a corresponding adjustment for the (gain) loss on the change in fair value of the contingent
earnout shares.
F-11
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
The Company also identified certain adjustments to properly classify amusement revenue, ATM fees and other revenue, cost
of revenue, and general and administrative expense for the periods presented. This adjustment was identified in the third quarter
of 2020 and an adjustment was recorded for the three months ended September 30, 2020 to properly state the year to date results.
These amounts have been corrected in connection with this filing.
The impacts for the December 31, 2019 period are summarized in the restatement tables above. We have also corrected 2018
for these errors and concluded the impact was not material to the year ended December 31, 2018 financial statements. The result
of these corrections was to increase amusement revenue by $2.8 million, increase ATM fees and other revenue by $0.3 million,
increase cost of revenue by $7.0 million and decrease general and administrative by $3.9 million. The corrections did not impact
total operating (loss) income or net (loss) income for the year ended December 31, 2018.
Note 3. Summary of Significant Accounting Policies
Basis of presentation and preparation: The consolidated financial statements and accompanying notes were prepared in
conformity with U.S. GAAP and the rules and regulations of the Securities and Exchange Commission (“SEC”). The consolidated
financial statements include the accounts of the Company and of its wholly owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation. Certain prior period amounts have been corrected to conform to
the current period presentation.
Adopted accounting pronouncements: In December 2019, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update (“ASU”) No. 2019-12, Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which
intends to simplify the guidance by removing certain exceptions to the general principles and clarifying or amending existing
guidance. ASU 2019-12 is effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years
beginning after December 15, 2022. The Company early adopted the new standard in Q2 2020 (effective January 1, 2020) on a
prospective basis. The adoption of the new standard did not have a material impact on the Company's financial statements.
Previously adopted accounting pronouncements: In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts
with Customers (Topic 606), which amends the existing revenue recognition guidance and creates a new topic for Revenue from
Contracts with Customers. The guidance provides that an entity should recognize revenue to depict the transfer of promised goods
or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for
those goods and services. This guidance also substantially revises required interim and annual disclosures. The Company, as an
Emerging Growth Company ("EGC"), elected to use the non-public effective date and adopted the standard in the fourth quarter
of 2019 for the annual period ended December 31, 2019. The Company also elected the modified retrospective adoption approach
and applied the standard to all contracts open as of January 1, 2019. The Company's quarterly financial statement disclosure for
the first nine months of 2019 reflect the previous accounting standard of FASB Accounting Standards Codification ("ASC") 605,
Revenue Recognition, and will not be restated for the adoption of Topic 606. The cumulative impact of the new revenue standard
for fiscal year 2019 was recorded in the fourth quarter and reflects the adjustment as if the Company adopted the standard as of
January 1, 2019. The timing and amount of revenue recognized by the Company did not change upon the adoption of the new
standard, however the Company's accounting for route acquisition costs was impacted. ASC 340-40, Other Assets and Deferred
Costs - Contracts With Customers (“ASC 340-40”), issued in conjunction with ASU 2014-09, provides updated guidance around
accounting for the incremental costs of obtaining a contract with a customer and for the costs incurred to fulfill a contract with a
customer. ASC 340-40 states that an entity should amortize contract cost assets “on a systemic basis that is consistent with the
transfer to the customer of the good or services to which the asset relates”, which typically corresponds to the period in which
revenue will be recognized. The Company chose straight-line amortization of the contracts as it felt that best depicted when
revenue would be recognized and when customers are visiting the gaming establishments. When determining the appropriate
amortization period under ASC 340-40, the Company evaluated the impact of any renewal clauses that are likely to be exercised.
The Company focused on whether commissions paid for renewals were commensurate with commissions paid on the original
contract. The Company determined the renewal commissions were not commensurate and the amortization period should include
F-12
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
expected renewals. As such, the period over which route and customer acquisition costs are amortized was extended to include
expected renewals which resulted in an increase to the average life to 12.4 years. The Company recorded a cumulative effect
adjustment, net of taxes, to accumulated deficit of $2.6 million relating to the decreased in accumulated amortization of route
acquisition costs.
Use of estimates: The preparation of consolidated financial statements requires management to make estimates and assumptions
that affect (i) the reported amounts of assets and liabilities, (ii) disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and (iii) the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. Estimates used by the Company include, among other things, the useful lives for
depreciable and amortizable assets, income tax provisions, the evaluation of the future realization of deferred tax assets, projected
cash flows in assessing the initial valuation of intangible assets in conjunction with business and asset acquisitions, the selection
of useful lives for depreciable and amortizable assets in conjunction with business and asset acquisitions, the valuation of level 3
investments, contingencies, and the expected term of share-based compensation awards and stock price volatility when computing
share-based compensation expense. The Company also estimated stock prices prior to the reverse recapitalization discussed in
Note 3 when computing share-based compensation expense. Actual results may differ from those estimates.
Change in estimate: During the first quarter of 2020, the Company conducted a review of its estimate of depreciable lives for its
video gaming terminals and equipment. As a result of this review, the Company extended the useful lives of its video gaming
terminals and equipment from 7 to 10 years as the equipment is lasting longer than originally estimated. The Company has many
video gaming terminals and equipment that were purchased when the Company started operations that are still being used today.
The impact of this change in estimate for the year ended December 31, 2020, was as follows (in thousands):
Decrease to depreciation expense
Decrease to net loss
Decrease to net loss per share
Year ended
December 31, 2020
$
$
$
7,704
3,345
0.04
Segment information: The Company operates as a single operating segment. The Company’s chief operating decision maker
(“CODM”) is the chief executive officer, who has ultimate responsibility for the operating performance of the Company and the
allocation of resources. The CODM assesses the Company’s performance and allocates resources based on consolidated results,
and this is the only discrete financial information that is regularly reviewed by the CODM.
Cash and cash equivalents: Cash and cash equivalents include bank deposit accounts; term bank deposit accounts; uncollected
cash in the Company’s video gaming terminals, ATMs, and redemption terminals; and cash in Company vaults.
The Company’s policy is to limit the amount of credit exposure to any one financial institution. The Company maintains its cash
in accounts which may at times exceed Federal Deposit Insurance Corporation insured limits. The Company has not experienced
any losses in such accounts.
Convertible notes: At acquisition, an entity shall classify debt securities as trading, available-for-sale, or held-to-maturity. While
the Company has no the intention of selling the notes, it cannot classify them as held-to-maturity due to the conversion feature.
Therefore, the Company has classified its investment in convertible notes as available for sale.
Property and equipment: Property and equipment are stated at cost or fair value at the date of acquisition. Maintenance and
repairs are charged to expense as incurred. Major additions, replacements and improvements are capitalized. Spare parts are
included in other current assets when acquired and are expensed when used to repair equipment. Depreciation has been computed
using the straight-line method over the following estimated useful lives:
F-13
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Video game terminals and equipment
Amusement and other equipment
Office equipment and furniture
Computer equipment and software
Leasehold improvements
Vehicles
Buildings and improvements
Years
10
7
7
3-5
5
5
15-29
Leasehold improvements are amortized over the shorter of the useful life or the lease.
Development costs directly associated with the acquisition, development and construction of a project are capitalized as a cost of
the project during the periods in which activities necessary to prepare the property for its intended use are in progress. Interest
costs associated with major construction projects are capitalized as part of the cost of the constructed assets. When no debt is
incurred specifically for a project, interest is capitalized on amounts expended for the project using the weighted-average cost of
borrowing. Capitalization of interest ceases when the project (or discernible portions of the project) is substantially complete. If
substantially all of the construction activities of a project are suspended, capitalization of interest will cease until such activities
are resumed.
Concentration of credit risk: The Company’s operations are centralized primarily in the State of Illinois. Should there be
favorable or unfavorable changes to the Illinois Gaming Act there may be an impact on the Company’s results of operations. The
Company has high concentrations of locations within certain municipalities in Illinois which could impact the Company if these
municipalities change their gaming laws.
Fair value of financial instruments: The Company’s financial instruments consist principally of cash, convertibles notes,
accounts payable, route and customer acquisition costs payable, contingent consideration, contingent earnout shares liability, and
bank indebtedness.
The carrying amount of cash, accounts payable and short-term borrowings approximates fair value because of the short-term
maturity of these instruments. The Company estimates the fair value of its convertible notes using a binomial lattice model in
which a convertible instrument is split into two separate components: a cash-only (debt) component and an equity component.
The Company estimates the fair value of its debt using level two and level three inputs by discounting the future cash flows using
current interest rates at which it could obtain similar borrowings in consideration of the estimated enterprise value of the
Company.
Contingent consideration, which is recorded within consideration payable on the accompanying consolidated balance sheets, is
measured at fair value on a recurring basis based on Level 3 inputs. The fair value recorded at December 31, 2020 and 2019 was
determined using a discounted cash flow analysis. Refer to consideration payable below for disclosure of unobservable Level 3
inputs used.
Contingent earnout shares liability is measured at fair value on a recurring basis based on Level 2 inputs.
Revenue recognition: The Company generates revenues from the following types of services: Gaming, Amusements and ATMs.
Revenue is disaggregated by type of revenue and is presented on the face of the consolidated statements of operations and
comprehensive (loss) income.
Net gaming revenue is the net cash from gaming activities, which is the difference between gaming wins and losses. Net gaming
revenue includes the amounts earned by the licensed gaming locations and is recognized at the time of gaming play. Additionally,
F-14
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
taxes and administrative expenses due to the states in which the Company operates are recorded as net gaming revenue and cost of
revenue.
Amusement revenue represents amounts collected from machines (e.g. dart boards, digital jukeboxes, pool tables, etc.) operated at
various locations and is recognized at the time the machine is used.
ATM fees and other revenue represents fees charged for the withdrawal of funds from the Company’s redemption terminals and
stand-alone ATM machines and is recognized at the time of the transaction.
The Company determined that in a gaming environment, whenever a customer’s money has been accepted by a machine, the
Company has an obligation (an implied contract) to provide the customer access to the game and honor the outcome of the game
(in the case of video gaming terminals). The Company determined that the implied contract is entered into between the Company
and customers satisfies the requirements of a contract under the new revenue standard, as (i) the contract is a legally enforceable
contract with the customer, (ii) the arrangement identifies the rights of the parties, (iii) the contract has commercial substance, and
(iv) the cash is received upfront from the customer, so its collectability is probable. The gaming service is a single performance
obligation in each implied contract with the customer. The Company applies the portfolio approach of all wins and losses by
gaming terminals daily to determine the total transaction price of the portfolio of implied contracts. The Company recognizes
revenue when the single performance obligation is satisfied, which is at the completion of each game.
Route and customer acquisition costs: The Company’s route and customer acquisition costs consist of fees paid at the inception
of contracts entered into with third parties and licensed video gaming establishments throughout the State of Illinois which allow
the Company to install and operate video gaming terminals. The route and customer acquisition costs and route and customer
acquisition costs payable are recorded at the net present value of the future payments using a discount rate equal to the Company’s
incremental borrowing rate associated with its long-term debt. Route and customer acquisition costs are amortized on a straight-
line basis beginning on the date the location goes live and amortized over the life of the contract, which upon adoption of Topic
606, includes expected renewals. The Company records the accretion of interest on route and customer acquisitions costs payable
in the consolidated statements of operations and comprehensive (loss) income as a component of interest expense. For locations
that close prior to the end of the contractual term, the Company writes-off the net book value of the route and customer
acquisition cost and route and customer acquisition cost payable and records a gain or loss in the consolidated statements of
operations and comprehensive (loss) income as a component of other expenses, net. The Company’s route and customer
acquisition costs also consists of prepaid commission costs to the Company's internal sales force of employees. The commissions
paid to internal sales employees are subsequently expensed once the respective licensed video gaming location goes live and the
commission is earned by the employee.
Business acquisitions: The Company evaluates the inputs, processes and outputs of each business acquisition to determine if the
transaction is a business combination or asset acquisition. If an acquisition qualifies as a business combination, the related
transaction costs are recorded as an expense in the consolidated statements of operations and comprehensive (loss) income. If an
acquisition qualifies as an asset acquisition, the related transaction costs are generally capitalized and amortized over the useful
life of the acquired assets. The Company accounts for acquisitions using the acquisition method and records the cost of the
businesses acquired among tangible and recognized intangible assets and liabilities based upon their estimated fair values as of the
acquisition date. Recognized intangibles primarily include the value of location contracts. The Company estimates the fair value
of the business acquired using a combination of the cost and income approaches, depending on the specific assets or liabilities
acquired. The Company estimates the value of property and equipment and other current assets and liabilities acquired based on
their cost, which approximates fair value at acquisition.
Location contracts acquired: Location contracts acquired are accounted for as intangible assets and consist of expected cash
flows to be generated from location contracts acquired through business and asset acquisitions. Location contracts acquired are
amortized on a straight-line basis over the expected useful life of 10 years. Location contracts are tested for impairment when
triggering events occur. If a triggering event were to occur, the Company compares the carrying amount of the location contracts
F-15
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
to future undiscounted cash flows. If the value of future undiscounted cash flows is less than the carrying amount of an asset
group, an impairment loss is recorded based on the excess of the carrying amount over the fair value of the asset group.
Goodwill: Goodwill represents the difference between the purchase price and the fair value of the identifiable tangible and
intangible net assets acquired when accounted for using the purchase method of accounting. Goodwill is reviewed for impairment
annually, as of October 1st, and whenever events or changes in circumstances indicate that the carrying value of the goodwill may
not be recoverable. When performing the annual goodwill impairment test, the Company conducts a qualitative assessment to
determine whether it is more likely than not that the goodwill is impaired. Under the qualitative assessment, the Company
considers both positive and negative factors, including macroeconomic conditions, industry events, financial performance, and
makes a determination of whether it is more likely than not that the fair value of the goodwill is less than its carrying amount. If,
after assessing the qualitative factors, the Company determines it is more likely than not the goodwill is impaired, it then performs
a quantitative test. When performing the quantitative test, the Company compares the fair value of the reporting unit to its
carrying value. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, the
Company would record an impairment loss equal to the difference.
Consideration payable: Consideration payable consists of amounts payable related to certain business acquisitions as well as
contingent consideration for future location performance related to certain business acquisitions (see Note 10). Consideration
payable, exclusive of contingent consideration, is discounted using the Company’s incremental borrowing rate associated with its
long-term debt. The contingent consideration is measured at fair value on a recurring basis. The changes in the fair value of
contingent consideration are recognized within the Company’s consolidated statements of operations and comprehensive (loss)
income as other expenses, net.
Impairment of long-lived assets: Long-lived assets, which includes property and equipment, net and other assets, are reviewed
for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset or asset group may not
be recoverable. Impairment of the assets is measured by a comparison of the carrying amount of the asset to future undiscounted
cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an
impairment charge is recognized by the amount of which the carrying amount of the asset exceeds the fair value of the asset.
There were no indicators of impairment of long-lived assets in 2020, 2019, or 2018.
Contingent stock consideration: Contingent stock, which is provided as consideration in business acquisitions, is valued based
on the fair value of stock issued. The contingent stock consideration is discounted using the Company’s weighted average cost of
capital and the accretion of interest is recorded in the consolidated statements of operations and comprehensive (loss) income as a
component of interest expense.
Contingent earnout shares liability: The Company's A-2 common stock is classified as a contingent earnout shares liability due
to the fact that the conversion of the Company's A-2 common stock would be accelerated on a change of control regardless of the
transaction value. The liability is stated at fair value and any change in the fair value is recognized as a a gain or loss in the
Company’s consolidated statements of operations and comprehensive (loss) income.
Stock-based compensation: The Company grants common stock options and/or restricted stock units to certain employees and
officers. Stock-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is
recognized as general and administrative expense over the employee’s requisite service period. All stock-based awards are
classified as equity awards.
Income taxes: The Company is organized as a C-corporation and is taxable at the federal and state level. Deferred taxes are
provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss
and tax credit carryforwards, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences
are the differences between the book basis of assets and liabilities and their tax bases. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all of the deferred tax
F-16
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
asset, will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in the tax laws and rates as of
the date of enactment.
The consolidated financial statements reflect expected future tax consequences of uncertain tax positions presuming the taxing
authorities’ full knowledge of the position and all relevant facts. The Company files tax returns in all appropriate jurisdictions,
which includes a federal tax return and three state returns. Open tax years for the federal and state returns are 2017 to 2019, which
statutes expire in 2021 to 2023, respectively. When and if applicable, potential interest and penalty costs are accrued as incurred
with expenses recognized in general and administrative expenses in the consolidated statements of operations and comprehensive
(loss) income.
Earnings (loss) per share: The Company computes basic earnings (loss) per share by dividing net income (loss) by the weighted
average number of shares outstanding for the applicable period. Diluted earnings (loss) per share are computed in the same
manner as basic earnings (loss) per share, except that the number of shares is increased to assume exercise of potentially dilutive
stock options using the treasury stock method, unless the effect of such increase would be anti-dilutive. Under the treasury stock
method, the amount the employee must pay for exercising stock options and the amount of compensation cost for future service
that the Company has not yet recognized are assumed to be used to repurchase shares.
Debt issuance costs: Debt issuance costs are capitalized and amortized over the contractual terms of the related loans. Debt
issuance costs are presented as an offset to the related loans on the consolidated balance sheets.
Reverse recapitalization expenses. Legal fees and other costs that were determined to be direct and incremental to the reverse
recapitalization were recorded to equity as additional paid-in capital. Other fees associated with the reverse recapitalization that
were not direct and incremental were recorded to other expenses, net on the consolidated statements of operations and
comprehensive (loss) income.
Advertising costs: Advertising costs are primarily comprised of marketing expenses, which are recorded within general and
administrative expense within the accompanying consolidated statements of operations and comprehensive (loss) income.
Advertising costs were $3.2 million, $4.7 million, and $3.0 million for the years ended December 31, 2020, 2019, and 2018,
respectively.
Recent accounting pronouncements: In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The guidance
in this ASU supersedes the leasing guidance in Topic 840, Leases. In July 2018, the FASB also issued ASU No. 2018-11, Leases
(Topic 842): Targeted Improvements, which provides an optional transition method allowing the standard to be applied at the
adoption date. Under the new guidance, lessees are required to recognize lease assets and lease liabilities on the balance sheet for
all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting
the pattern of expense recognition in the statement of operations. The new standard is effective for the Company's fiscal year
beginning after December 15, 2021, including interim periods within fiscal years beginning after December 15, 2020, unless the
Company disqualifies as an emerging growth company, in which case earlier adoption may be required. A modified retrospective
transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the
earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is
assessing impact of the standard on its consolidated financial statements.
F-17
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Note 4. Reverse Recapitalization
As discussed in Note 1, on November 20, 2019, Accel Entertainment, Inc., consummated a business combination pursuant to
the Transaction Agreement, which has been accounted for as a reverse recapitalization. Pursuant to the Transaction Agreement,
TPG Holdings Corp. acquired, directly or indirectly, all of the issued and outstanding shares of common stock and preferred stock
of Accel Entertainment, Inc. In connection with reverse recapitalization, TPG Pace Holdings Corp. changed its name to Accel
Entertainment, Inc.
The consideration paid to holders of Accel stock in connection with the reverse recapitalization and subject to the terms and
conditions of the Transaction Agreement, consisted of a mix of consideration comprised of cash consideration equal to the
number of shares of Accel stock for which such holder of Accel stock made a cash election multiplied by $177 per share (the
“Purchase Price”) and share consideration comprised of a number of Class A-1 common stock equal to the number of shares of
Accel Stock for which such holder of Accel Stock did not make a cash election multiplied by an exchange ratio calculated by
dividing the Purchase Price by $10.30, which was the closing price of the common stock of TPG Pace Holdings Corp. on
November 20, 2019. In addition, each holder of Accel stock that made a cash election with respect to less than 70% of its shares
of Accel stock received its pro rata share, with such pro rata share determined with reference to a number of shares equal to 70%
of such holder’s shares of Accel Stock less the number of shares of Accel stock with respect to which such holder made a cash
election, of 2,444,444 2019 Warrants, subject to the conditions set forth in a warrant agreement and 3,000,000 Class A-2 common
stock, subject to the conditions set forth in a restricted stock agreement.
In connection with the reverse recapitalization, TPG Pace Holdings and its affiliates converted 7,500,000 of Class A-1
common stock, 4,888,889 2019 Warrants subject to the conditions set forth in the New Pace Warrant Agreement and 2,000,000
Class A-2 common stock, subject to the conditions set forth in a restricted stock agreement.
As part of an Investment Private Placement, certain accredited investors (as defined by Rule 501 of Regulation D) agreed to
subscribe for and purchase and Pace agreed to issue and sell to such investors 4,696,675 Class A-1 Shares for a purchase price of
$10.22 per share, or an aggregate of approximately $48 million. The proceeds from the Investment Private Placement was used to
fund a portion of the cash consideration required in the reverse recapitalization.
In connection with the reverse recapitalization, Accel repurchased approximately 36,157 shares of its stock from certain
employees, directors and officers at a repurchase price of $177 per share in order to facilitate (i) the repayment of existing loans to
Accel’s executive officers, (ii) the exercise of vested options and (iii) funding any resulting tax obligations from the exercise of
such vested options.
In accounting for the reverse recapitalization, the net equity deficit from the reverse recapitalization was $22.4 million as
shown in the table below (in thousands):
F-18
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
TPG Holdings Corp cash balance, November 19, 2019
Less redemption of Accel shares prior to reverse recapitalization
Cash balance prior to backstop equity financing
Plus funds from Investment Private Placement
Cash balance prior to consummation of the reverse recapitalization
Less adjustments to equity infusion:
Payment for sponsor loan
Less impact from issuance of contingent earnout shares
Transaction costs related to the reverse recapitalization, net of tax
Net equity deficit prior to stock issuance
Impact of stock issued in reverse recapitalization
Net equity deficit from reverse recapitalization
Amount
$
429,952
(413,733)
16,219
48,038
64,257
(4,000)
(51,641)
(31,005)
(22,389)
10
(22,379)
(7,414)
(29,793)
Less impact from conversion of treasury stock and issuance of warrants
Net impact to additional paid-in-capital from reverse recapitalization
$
Capitalization Adjustments
The table below summarizes the number of shares of Accel issued upon consummation of the reverse recapitalization
consisting of (i) the number of shares of Accel stock outstanding immediately before the reverse recapitalization along with the
impact of the exchange ratio.
Accel Capital Stock - pre reverse recapitalization
Number of Shares
Class A Common Stock
Class B Common Stock
Class C Preferred Stock
Class D Preferred Stock
Total Shares of Accel Stock on November 20, 2019
Exchange ratio
Effect of exchange ratio to convert Accel stock to A-1 Common Stock
Shares issued in reverse recapitalization
Total A-1 Common Stock
472,773
662,228
1,530,779
944,925
3,610,705
17.188531
62,062,715
14,574,755
76,637,470
Immediately after the reverse recapitalization, there were 76,637,470 Class A-1 common stock, 4,999,999 Class A-2 common
stock, and 22,333,308 warrants to purchase Class A-1 common stock issued and outstanding. Upon the closing, the
Company's Class A-1 common stock and warrants began trading on the New York Stock Exchange.
Note 5. Investment in Convertible Notes
On July 19, 2019, the Company entered into an agreement to purchase up to $30.0 million in convertible promissory notes
that bear interest at 3% per annum from another terminal operator. The Company has the option of converting the notes to
common stock of the terminal operator prior to the maturity date. At closing, the Company purchased a $5.0 million note which is
subordinated to the terminal operator’s credit facility and matures six months following the satisfaction of administrative
conditions.
F-19
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
On October 11, 2019, the Company purchased an additional $25.0 million note which is also subordinated to the terminal
operator’s credit facility and, beginning on July 1, 2020, the balance of this note, if not previously converted, was payable in equal
$1,000,000 monthly installments until all principal has been repaid in full.
On July 30, 2020, the Company and the terminal operator entered into the Omnibus Amendment (the “Amendment”) to the
original agreement to purchase convertible promissory notes from the terminal operator. The Amendment, among other things,
extended the maturity date of the $5.0 million convertible note and the beginning of the payback period for the $25.0 million
convertible note until December 31, 2020.
On March 9, 2021, the Company and the terminal operator entered into the Second Omnibus Amendment (the “Second
Amendment”) to both of the convertible notes and the agreement to purchase the convertible notes. The Second Amendment,
among other things, extends the December 31, 2020 maturity and conversion feature of the $5.0 million convertible note to
December 31, 2021, the maturity and conversion feature of the $25.0 million convertible note to June 1, 2024 and the beginning
of the payback period for the $25.0 million convertible note from December 31, 2020 to January 1, 2022.
The carrying amount of the investment in the convertible notes approximates the fair value, in all material respects, as of
December 31, 2020. The Company recognized an unrealized gain of $0.1 million, net of taxes, within comprehensive (loss)
income for the year ended December 31, 2020. For more information on how the Company determined the fair value of the
convertible note, see Note 13.
Note 6. Property and Equipment
Property and equipment consists of the following at December 31 (in thousands):
Video game terminals and equipment
Amusement and other equipment
Office equipment and furniture
Computer equipment and software
Leasehold improvements
Vehicles
Buildings and improvements
Land
Construction in progress
Total property and equipment
Less accumulated depreciation and amortization
Property and equipment, net
2020
2019
$
197,533 $
23,049
1,526
12,793
1,707
9,430
10,845
911
1,886
259,680
(116,115)
166,850
16,417
1,540
8,715
44
9,304
12,075
911
768
216,624
(97,423)
$
143,565 $
119,201
Depreciation and amortization of property and equipment amounted to $21.0 million, $26.4 million and $20.8 million during
the years ended December 31, 2020, 2019 and 2018, respectively.
Note 7. Route and Customer Acquisition Costs
The Company enters into contracts with third parties and licensed video gaming locations throughout the State of Illinois
which allow the Company to install and operate video gaming terminals. When video gaming operations commence, payments are
primarily due monthly. Gross payments due, based on the number of live locations, are approximately $6.4 million and $7.4
million as of December 31, 2020 and 2019, respectively. Payments are due over varying terms of the individual agreements and
are discounted at the Company’s incremental borrowing rate associated with its long-term debt at the time the contract is
acquired. The net present value of payments due is $5.7 million and $6.5 million as of December 31, 2020 and 2019, respectively,
F-20
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
of which approximately $1.6 million and $1.7 million is included in current liabilities in the accompanying consolidated balance
sheets as of December 31, 2020 and 2019, respectively. The route and customer acquisition cost asset is comprised of upfront
payments made on the contracts of $17.7 million and $18.7 million as of December 31, 2020 and 2019, respectively. The
Company has upfront payments of commissions paid to the third parties for the acquisition of the customer contracts that are
subject to a claw back provision if the customer cancels the contract prior to completion. The payments subject to a claw back are
$1.7 million and $2.2 million as of December 31, 2020 and 2019, respectively.
Route and customer acquisition costs consist of the following at December 31 (in thousands):
Cost
Accumulated amortization
Route and customer acquisition costs, net
2020
2019
$
$
27,364 $
(12,113)
15,251 $
28,501
(11,102)
17,399
Amortization expense of route and customer acquisition costs was $1.8 million, $1.7 million and $3.9 million for the years
ended December 31, 2020, 2019 and 2018, respectively. The Company's amortization expense is lower in 2019 and 2020 due to
the adoption of ASC Topic 606 as the amortization period for route and customer acquisition costs was extended to include
expected renewals.
Note 8. Location Contracts Acquired
Location contract assets acquired in business acquisitions are recorded at acquisition at fair value based on an income
approach. Location contracts acquired consist of the following at December 31 (in thousands):
Cost
Accumulated amortization
Location contracts acquired, net
2020
2019
$
$
226,012 $
204,353
(58,279)
(37,570)
167,734 $
166,783
Each asset is amortized over the expected useful life of 10 years. Estimated amortization expense related to location contracts
acquired for the next five years and thereafter is as follows:
Year ending December 31:
2021
2022
2023
2024
2025
Thereafter
Total
$
22,620
22,620
22,620
22,412
21,486
55,976
$
167,734
Amortization expense of location contracts acquired was $20.8 million, $16.2 million and $10.8 million, during the years
ended December 31, 2020, 2019 and 2018, respectively.
Note 9. Goodwill
On September 16, 2019, the Company acquired Grand River Jackpot, LLC and subsidiaries (“Grand River Jackpot”) which
was accounted for as a business combination using the acquisition method of accounting in accordance with ASC Topic 805,
Business Combinations ("Topic 805") . The excess of the purchase price over the tangible and intangible assets acquired and
liabilities assumed has been recorded as goodwill of $34.5 million as of December 31, 2020 and 2019, of which $27.4 million is
deductible for tax purposes. See Note 10 for more information on how the amount of goodwill was calculated.
F-21
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
The Company had no goodwill prior to the Grand River Jackpot acquisition.
The Company conducted its annual impairment test on October 1, 2020. The Company conducted a qualitative assessment to
determine whether it is more likely than not that the goodwill was impaired. Under the qualitative assessment, the Company
considered both positive and negative factors, including macroeconomic conditions, industry events, financial performance, to
make a determination of whether it is more likely than not that the fair value of the goodwill is less than its carrying amount. In
performing this assessment, the Company considered such factors as its historical performance, its growth opportunities in
existing markets; new markets and new products in determining whether the goodwill was impaired. The Company also
referenced its forecasts of revenue, operating income, and capital expenditures and concluded the carrying value of its goodwill
was not impaired as of October 1, 2020.
On December 30, 2020, the Company acquired American Video Gaming, LLC, and Erickson Amusements, Inc. (collectively
referred to as "AVG") which was accounted for as a business combination using the acquisition method of accounting in
accordance with Topic 805. The excess of the purchase price over the tangible and intangible assets acquired and liabilities
assumed has been recorded as goodwill of $11.2 million as of December 31, 2020, of which $9.8 million is deductible for tax
purposes. See Note 11 for more information on how the amount of goodwill was calculated.
The following is a roll forward of the Company's goodwill (in thousands):
Goodwill balance as of January 1, 2019
Addition to goodwill for acquisition of Grand River Jackpot
Goodwill balance as of December 31, 2019
Addition to goodwill for acquisition of AVG
Goodwill balance as of December 31, 2020
Note 10. Debt
The Company’s debt as of December 31, consisted of the following (in thousands):
2019 Senior Secured Credit Facility:
Revolving credit facility
Term Loan
Delayed Draw Term Loan (DDTL)
Total debt
Less: Debt issuance costs
Total debt, net of debt issuance costs
Less: Current maturities
Total debt, net of current maturities
2019 Senior Secured Credit Facility
$
$
—
34,511
34,511
11,243
45,754
2020
2019
$
— $
228,000
119,562
347,562
(7,421)
340,141
(18,250)
58,500
240,000
60,000
358,500
(8,808)
349,692
(15,000)
$
321,891 $
334,692
On November 13, 2019, in order to refinance its prior credit facility, for working capital and other general purposes from
time to time, the Company entered into a credit agreement (the “Credit Agreement”) as borrower, the Company and its wholly-
owned domestic subsidiaries, as a guarantor, the banks, financial institutions and other lending institutions from time to time party
thereto, as lenders, the other parties from time to time party thereto and Capital One, National Association, as administrative agent
(in such capacity, the “Agent”), collateral agent, issuing bank and swingline lender, providing for a:
•
$100.0 million revolving credit facility, including a letter of credit facility with a $10.0 million sublimit and a swing line
facility with a $10.0 million sublimit,
F-22
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
•
•
$240.0 million initial term loan facility and
$125.0 million additional term loan facility.
As of December 31, 2020, there remained approximately $100.0 million of availability under the Credit Agreement.
The obligations under the Credit Agreement are guaranteed by the Company and its wholly-owned domestic subsidiaries,
subject to certain exceptions (collectively, the “Guarantors”). The obligations under the Credit Agreement are secured by
substantially all of assets of the Guarantors, subject to certain exceptions. Certain future-formed or acquired wholly owned
domestic subsidiaries of the Company will also be required to guarantee the Credit Agreement and grant a security interest in
substantially all of its assets (subject to certain exceptions) to secure the obligations under the Credit Agreement.
Borrowings under the Credit Agreement bear interest, at the Company’s option, at a rate per annum equal to either (a) the
adjusted LIBOR rate (“LIBOR”) (which cannot be less than zero) for interest periods of 1, 2, 3 or 6 months (or if consented to by
(i) each applicable Lender, 12 months or any period shorter than 1 month or (ii) the Agent, a shorter period necessary to ensure
that the end of the relevant interest period would coincide with any required amortization payment ) plus the applicable LIBOR
margin or (b) the alternative base rate (“ABR”) plus the applicable ABR margin. ABR is a fluctuating rate per annum equal to the
highest of (i) the Federal Funds Effective Rate plus 1/2 of 1.0%, (ii) the prime rate announced from time to time by Capital One,
National Association and (iii) LIBOR for a 1-month Interest Period on such day plus 1.0%. The Credit Agreement also includes
provisions for determining a replacement rate when LIBOR is no longer available. As of December 31, 2020, the weighted-
average interest rate was approximately 3.3%.
Interest is payable quarterly in arrears for ABR loans, at the end of the applicable interest period for LIBOR loans (but not
less frequently than quarterly) and upon the prepayment or maturity of the underlying loans. The Company is required to pay a
commitment fee quarterly in arrears in respect of unused commitments under the revolving credit facility and the additional term
loan facility.
The applicable LIBOR and ABR margins and the commitment fee rate are calculated based upon the first lien net leverage
ratio of the Company and its restricted subsidiaries on a consolidated basis, as defined in the Credit Agreement. The revolving
loans and term loans bear interest at either (a) ABR (150bps floor) plus a margin of 1.75% or (b) LIBOR (50bps floor) plus a
margin of 2.75% at the option of the Company.
The additional term loan facility was available for borrowings until November 13, 2020. Each of the revolving loans and the
term loans mature on November 13, 2024.
The term loans and, once drawn, the additional term loans will amortize at an annual rate equal to approximately 5.00% per
annum. Upon the consummation of certain non-ordinary course asset sales, the Company may be required to apply the net cash
proceeds thereof to prepay outstanding term loans and additional term loans. The loans under the Credit Agreement may be
prepaid without premium or penalty, subject to customary LIBOR “breakage” costs.
The Credit Agreement contains certain customary affirmative and negative covenants and events of default and requires the
Company and certain of its affiliates obligated under the Credit Agreement to make customary representations and warranties in
connection with credit extensions thereunder.
In addition, the Credit Agreement requires the Company to maintain (a) a ratio of consolidated first lien net debt to
consolidated EBITDA no greater than 4.50 to 1.00 and (b) a ratio of consolidated EBITDA to consolidated fixed charges no less
than 1.20 to 1.00, in each case, tested as of the last day of each full fiscal quarter ending after the Closing Date and determined on
the basis of the four most recently ended fiscal quarters of the Company for which financial statements have been delivered
pursuant to the Credit Agreement, subject to customary “equity cure” rights.
F-23
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
If an event of default (as such term is defined in the Credit Agreement) occurs, the lenders would be entitled to take various
actions, including the acceleration of amounts due under the Credit Agreement, termination of the lenders’ commitments
thereunder, foreclosure on collateral, and all other remedial actions available to a secured creditor. The failure to pay certain
amounts owing under the Credit Agreement may result in an increase in the interest rate applicable thereto.
The Company incurred $8.8 million of debt issuance costs related to the 2019 Senior Secured Credit Facility, which are being
amortized over the life of the Facility.
The Company was in compliance with all debt covenants as of December 31, 2020. Given the Company's assumptions about
the future impact of COVID-19 on the gaming industry, which could be materially different due to the inherent uncertainties of
future restrictions on the industry, the Company expects to remain in compliance with all debt covenants for the next 12 months.
However, given the uncertainty of COVID-19 and the resulting potential impact to the gaming industry and its future
assumptions, as well as to provide additional financial flexibility, the Company and the other parties thereto amended the Credit
Agreement on August 4, 2020 to provide a waiver of financial covenant breach for the periods ended September 30, 2020 through
March 31, 2021 of the First Lien Net Leverage Ratio and Fixed Charge Coverage Ratio (each as defined under the Credit
Agreement). The amendment also raised the floor for the adjusted LIBOR rate to 0.50% and the floor for the Base Rate to 1.50%.
The Company incurred costs of $0.4 million associated with the amendment of the Credit Agreement, of which $0.3 million was
capitalized and is being amortized over the remaining life of the Credit Agreement.
Prior Credit Facility
The Company's prior credit facility was a senior secured first lien credit facility, as amended, that consisted of a $125.0
million term loan, a contract draw loan facility of $170.0 million and a revolving credit facility of $85.0 million. The Company’s
prior credit facility was with a syndicated group of banks with CIBC Bank USA, as administrative agent for the lenders. Included
in the revolving credit facility and contract draw loan were swing line sub-facilities of $5.0 million each.
The prior credit facility was paid off with the proceeds from the 2019 Senior Secured Credit Facility. In connection with the
extinguishment of the prior credit facility, the Company recorded a loss from debt extinguishment of $1.1 million for the year
ended December 31, 2019.
The principal maturities of long-term debt as of December 31, 2020 are as follows (in thousands):
F-24
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Year ending December 31:
2021
2022
2023
2024
Total debt
$
$
18,250
18,250
18,250
292,812
347,562
The fair value of the Company’s debt at December 31, 2020 was estimated using a discounted cash flow model, which
forecasts future interest and principal payments. The forecasted cash flows were discounted back to present value using the term-
matched risk-free rate plus an option adjusted spread to account for credit risk. The option adjusted spread was calculated as of
the debt's issuance date and then adjusted to the valuation date. The inputs used to determine the fair value were classified as
Level 2 in the fair value hierarchy as defined in Note 13. The estimated fair value of the Company's debt at December 31, 2019
approximated its carrying value as the debt facilities as of such date bore interest based on prevailing variable market rates and as
such were categorized as a Level 2 in the fair value hierarchy.
The carrying value and estimated fair value the Company's debt at December 31, was as follows (in thousands):
Carrying value
Estimated fair value
Note 11. Business and Asset Acquisitions
2020 Business Acquisition
Tom's Amusements
2020
2019
$
340,141 $
309,528
349,692
349,692
On July 22, 2020 (the “Tom's Closing Date”), the Company acquired Tom’s Amusement Company, Inc., (“Tom's
Amusements”) a southeastern U.S. gaming and amusement operator and Master Licensee in the state of Georgia. The total
purchase price was $3.6 million, of which the Company paid $2.1 million in cash at closing. The remaining $1.5 million of
contingent consideration payables are to be paid in cash on the 18-month and 24-month anniversaries of the Tom's Closing Date.
The amount of each payment is $750,000 multiplied by a performance ratio. The fair value of the contingent consideration was
$1.4 million as of December 31, 2020 and is included within consideration payable on the consolidated balance sheets. In
addition, the Georgia Lottery Corporation approved Accel's operating subsidiary, Bulldog Gaming, LLC, as a Master Licensee,
which allows the Company to install and operate coin operated amusement machines for commercial use by the public for play
throughout the State of Georgia.
The acquisition was accounted for as a business combination using the acquisition method of accounting in accordance with
Topic 805. The purchase price of $3.6 million has been allocated to the following assets: i) video game terminals and equipment
totaling $1.6 million; ii) location contracts totaling $0.8 million; iii) indefinite-lived gaming license intangible asset of $1.0
million and; iv) cash of $0.2 million.
The results of operations for Tom's Amusements are included in the consolidated financial statements of the Company from
the date of acquisition. Tom's Amusements generated revenues of $1.4 million and a net loss of $0.8 million from the acquisition
date through December 31, 2020.
F-25
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
American Video Gaming
On December 30, 2020, the Company acquired AVG, a terminal operator licensed by the Illinois Gaming Board. AVG had
267 VGTs in 49 licensed establishments. The Company completed this transaction in order to expand its presence within the State
of Illinois.
The acquisition aggregate purchase consideration transferred totaled $32.0 million, which included i.) cash paid at closing of
$30.5 million and ii.) contingent purchase consideration with an estimated fair value of $1.5 million. The contingent consideration
represents potentially two installment payments i.) $0.9 million if the acquired locations meet certain base performance criteria
and ii.) an additional $1.4 million if the acquired locations meet additional performance criteria. The estimated fair value of the
contingent consideration was determined based on the Company’s expected probability of future payment, discounted using
AVG’s weighted average cost of capital. The fair value of the contingent consideration is included within consideration payable
on the consolidated balance sheets.
The acquisition was accounted for as a business combination using the acquisition method of accounting in accordance with
Topic 805. The purchase price has been allocated to the tangible assets and identifiable intangible assets acquired and liabilities
assumed based upon their estimated fair values. The excess of the purchase price over the tangible and intangible assets acquired
and liabilities assumed has been recorded as goodwill.
The following table summarizes the fair value of consideration transferred and the estimated fair values of the assets acquired
and liabilities assumed at the date of acquisition (in thousands):
Cash paid
Fair value of contingent consideration
Total consideration
Cash
Location contracts acquired
Property and equipment:
Video game terminals and equipment
Amusement and other equipment
Vehicles
Other assets, net
Goodwill
Total assets acquired
Accrued expenses assumed
Net assets acquired
$
$
$
30,522
1,506
32,028
504
17,500
2,479
207
43
63
11,243
32,039
(11)
$
32,028
The results of operations for AVG are not material to the consolidated financial statements of the Company as the acquisition
date (December 30, 2020) was one day prior to year end and gaming was suspended in Illinois for that one day.
2020 Asset Acquisition
On August 6, 2020, pursuant to the terms of an asset purchase agreement, the Company purchased from Illinois Operators,
Inc. terminal use agreements and equipment representing the operations of 13 licensed establishments. The Company has
accounted for this transaction as an asset acquisition. The purchase consideration of $4.0 million consisted of: i) cash payment of
$3.7 million paid at closing and; ii) deferred payment of $0.3 million which was paid 90-days from the closing date. The asset
acquisition costs were allocated to the following assets: i) video game terminals and equipment totaling $0.6 million and; ii)
location contracts totaling $3.4 million.
F-26
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
2019 Business Acquisitions
Grand River Jackpot
On August 26, 2019, the Company entered into an agreement to acquire all issued and outstanding membership interests in
Grand River Jackpot, a terminal operator licensed by the State of Illinois Gaming Board. On September 16, 2019, the Company
completed its acquisition of Grand River Jackpot. Grand River Jackpot had 2,009 VGTs in over 450 licensed establishments. The
Company completed this transaction in order to expand its presence within the State of Illinois.
The acquisition aggregate purchase consideration transferred totaled $113.7 million, which included: i) a cash payment made
at closing of $100.0 million; ii) a subsequent cash payment of approximately $6.6 million for a working capital adjustment and;
iii) contingent purchase consideration with an estimated fair value of $7.1 million. The contingent consideration represents two
installment payments that are to be paid, up to a maximum amount, as follows: i) $2.5 million within 30 days following the one-
year anniversary of the acquisition closing date and; ii) $7.0 million within 30 days following the three-year anniversary of the
acquisition closing date. These payments are subject to adjustment based on certain performance measures included within the
purchase agreement. The estimated fair value was determined based on the Company’s expected probability of future payment,
discounted using Grand River Jackpot’s weighted average cost of capital. The cash payment made at closing and subsequent
working capital adjustment payment were both funded with the Company’s existing credit facilities. In connection with the
temporary suspension of gaming by the IGB due to the COVID-19 pandemic in 2020, the Company reversed its contingent
liability for the previously mentioned $2.5 million installment payment due 30 days following the one-year anniversary of the
acquisition closing date as the performance measures for the period were not reached.
The acquisition was accounted for as a business combination using the acquisition method of accounting in accordance with
Topic 805. The purchase price has been allocated to the tangible assets and identifiable intangible assets acquired and liabilities
assumed based upon their estimated fair values. The excess of the purchase price over the tangible and intangible assets acquired
and liabilities assumed has been recorded as goodwill. The Grand River Jackpot acquisition resulted in recorded goodwill as a
result of a higher consideration multiple paid relative to prior similar acquisitions driven by maturity and quality of the operations
and industry, including workforce and corresponding synergies, and is amortizable for income tax purposes. Management
integrated the Grand River Jackpot acquisition into its existing business structure, which is comprised of a single reporting unit.
F-27
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
The following table summarizes the fair value of consideration transferred and the fair values of the assets acquired and liabilities
assumed at the date of acquisition (in thousands):
Cash paid
Contingent consideration
Total consideration
Cash
Location contracts acquired
Property and equipment:
Video game terminals and equipment
Land
Buildings
Vehicles
Goodwill
Total assets acquired
Accounts payable assumed
Accrued expenses assumed
Net assets acquired
$
$
$
106,578
7,136
113,714
8,861
53,200
18,000
28
548
600
34,511
115,748
(532)
(1,502)
$
113,714
The Company incurred $0.2 million in acquisition related costs that are included in other operating expenses within the
consolidated statements of operations and comprehensive (loss) income for the year ended December 31, 2019.
The results of operations for Grand River Jackpot are included in the consolidated financial statements of the Company from
the date of acquisition. Grand River Jackpot's acquired assets generated revenues and net income of $16.6 million and $1.2
million for the year ended December 31, 2019.
2019 Asset Acquisition
On September 23, 2019, pursuant to the terms of an asset purchase agreement, the Company purchased from Illinois Gaming
Systems, LLC (“IGS”) terminal use agreements and equipment representing the operations of 139 video game terminals in 29
licensed establishments. The Company has accounted for this transaction as an asset acquisition. The purchase consideration
consisted of: i) cash payment of $2.4 million paid at closing and; ii) note payable of $2.3 million issued at closing which is
recorded in consideration payables as of December 31, 2019. The asset acquisition costs were allocated to the following assets: i)
video game terminals and equipment totaling $1.7 million and; ii) location contracts totaling $3.0 million. The note payable bore
interest at 5% and was paid in full on March 23, 2020.
2018 Business Acquisitions
The following table summarizes the consideration paid and the fair values of the tangible and intangible assets acquired at the
acquisition dates for the Company’s 2018 business acquisitions (in thousands):
F-28
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Cash paid at closing
$
610 $
9,268 $
36,500 $
3,500 $
1,512 $
51,390
Quad B
Skyhigh
G3
Mike's
Amusement
Family
Amusement
Total
Contingent consideration payable
Promissory note
Due to seller
Total Consideration
Cash
Video game terminals and equipment
Amusement and other equipment
Location contracts acquired
$
$
—
—
—
4,324
—
618
1,026
—
3,019
—
—
—
—
3,368
—
5,350
3,368
3,637
610 $
14,210 $
40,545 $
3,500 $
4,880 $
63,745
— $
—
472
138
1,126 $
2,507 $
506
59
12,519
3,009
204
34,825
— $
—
420
3,080
— $
—
300
4,580
3,633
3,515
1,455
55,142
63,745
Total fair value of net assets acquired
$
610 $
14,210 $
40,545 $
3,500 $
4,880 $
Quad B
On September 1, 2018, the Company acquired certain assets of B.B.B.B., Inc. (“Quad B”), an Illinois amusement operator.
The Company acquired 61 locations that are or are expected to become operational. Quad B’s acquired assets generated revenues
and net income of $0.1 million and $0.1 million, respectively, for the period from the acquisition date of September 1, 2018,
through December 31, 2018.
Skyhigh Gaming
On August 1, 2018, the Company acquired certain assets of Skyhigh Gaming, LLC (“Skyhigh”), an Illinois licensed terminal
operator. The Company initially acquired 23 locations that are or are expected to become operational.
The Company has a contingent consideration payable related to certain locations, as defined, in the acquisition agreement
placed in operation during five years after the acquisition date (“the installment period”). The Company will pay Skyhigh 18.44%
of the adjusted net terminal income, related to locations in operation during five years after the acquisition date. Payments will be
made on a monthly basis for the first two years and every three months for the latter three years, through July 2023. The
agreement also provides for a final payment upon the expiration of the installment period equal to 1.75 times the adjusted and
defined net terminal income generated by the locations in the twelve-month period ending on the final payment date. The fair
value of contingent consideration due as of December 31, 2020 and December 31, 2019 was $6.4 million and $4.7 million,
respectively. The fair value of contingent consideration is included in the consideration payable on the consolidated balance
sheets at December 31, 2020 and 2019. The contingent consideration accrued is measured at fair value on a recurring basis. The
maximum amount is determined based on the net terminal income for the related locations.
Skyhigh’s acquired assets generated revenues and net income of $3.9 million and $1.1 million, respectively, for the period
from the acquisition date of August 1, 2018, through December 31, 2018.
G3 Gaming
On October 16, 2018, the Company acquired certain assets of G3 Gaming, LLC (“G3”), an Illinois licensed terminal
operator. The Company initially acquired 87 locations that are or are expected to become operational.
The Company has contingent consideration payable related to locations placed in operation during the three years after the
acquisition date whereby the Company will pay G3 a specified percent of the monthly terminal operator revenue less video
gaming terminal fees for pending locations, recently added locations, and for a specified group of target establishments through
2022. The fair value of contingent consideration due as of December 31, 2020 and December 31, 2019 was $0.5 million and $3.1
million, respectively. The maximum amount is determined based on the net terminal income for the related locations.
F-29
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
G3’s acquired assets generated revenues and net income of $4.3 million and $0.8 million, respectively, for the period from
the acquisition date of October 16, 2018, through December 31, 2018.
Mike’s Amusements
On October 16, 2018, the Company acquired certain assets of Mike’s Amusements, Inc. (“Mike’s Amusements”), an Illinois
amusement operator. The Company initially acquired 73 locations that are or are expected to become operational.
Mike’s Amusement’s acquired assets generated revenues and net income of $0.2 million and $0.1 million, respectively, for
the period from the acquisition date of October 16, 2018, through December 31, 2018.
Family Amusement
On October 31, 2018, the Company entered into an agreement to acquire certain assets of Family Amusement, Inc. (“Family
Amusement”), an Illinois amusement operator. The Company initially acquired 139 locations that are or are expected to become
operational. Family Amusement’s acquired assets generated revenues and net income of $0.1 million and $0.1 million,
respectively, for the period from the acquisition date of October 31, 2018, through December 31, 2018.
The Company entered into a promissory note in connection with the acquisition. The promissory note provides for three
annual installments of $0.4 million from 2019 through 2021, one installment of $0.7 million in 2022, and one installment of $2.1
million in 2023. The first installment was paid upon signing of the promissory note and each subsequent installment shall be paid
on or before the anniversary date of the signing of the promissory note. The fair value of the consideration due as of December 31,
2020 and December 31, 2019 was $3.0 million and $3.1 million, respectively. The consideration is included in the consideration
payable on the consolidated balance sheets at December 31, 2020 and 2019. The Company and Family Amusement had a pre-
existing relationship prior to the business acquisition. Under that pre-existing relationship the Company had route and customer
acquisition costs payable to Family Amusement. As a result of the business acquisition, the pre-existing route and customer
acquisition payables to Family Amusement were settled and cost and accumulated amortization of the existing Family
Amusement route and customer acquisition cost assets was disposed, and a $0.1 million reduction in amortization of route and
customer acquisition costs and location contracts acquired was recorded.
Pro Forma Results
The following unaudited pro forma consolidated financial information reflects the results of operations of the Company for
the years ended December 31, 2020, 2019 and 2018 as if the acquisitions of AVG, Tom's Amusements, Grand River Jackpot,
Quad B, Skyhigh, G3, Mike’s Amusements, and Family Amusement, had occurred as of the beginning of the fiscal year prior to
the fiscal year of acquisition, after giving effect to certain purchase accounting adjustments. These amounts are based on available
financial information of the acquirees prior to the acquisition dates and are not necessarily indicative of what the Company’s
operating results would have been had the acquisitions actually taken place at the beginning of the fiscal year prior to the fiscal
year of acquisition. This unaudited pro forma information for the years ended December 31, does not project revenues and income
before income tax expense post acquisition (in thousands).
Revenues
Net (loss) income
Consideration Payable
2020
2019
2018
$
327,090 $
466,466 $
(13,200)
(2,598)
409,142
16,098
The Company has a contingent consideration payable related to certain locations, as defined, in the respective acquisition
agreement which are placed into operation during a specified period after the acquisition date. The fair value of contingent
consideration is included in the consideration payable on the consolidated balance sheets as of December 31, 2020 and 2019. The
contingent consideration accrued is measured at fair value on a recurring basis.
F-30
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Current and long-term portions of consideration payable consist of the following at December 31 (in thousands):
TAV*
Abraham*
Fair Share Gaming*
Family Amusement
Skyhigh
G3
Grand River Jackpot
IGS
Tom's Amusements
AVG
Total
2020
2019
Current
Long-Term
Current
Long-Term
$
490 $
3,206 $
490 $
—
1,096
391
601
355
—
80
—
—
—
523
2,609
5,789
100
5,755
—
1,455
1,506
55
1,057
293
763
2,952
2,304
2,379
—
—
3,497
—
899
2,815
3,948
154
5,113
—
—
—
$
3,013 $
20,943 $
10,293 $
16,426
•
Acquisitions that occurred prior to 2018.
Note 12. Contingent Earnout Share Liability
As discussed in Notes 1 and 4, on November 20, 2019, the Company, consummated a business combination pursuant to the
Transaction Agreement, which has been accounted for as a reverse recapitalization. Pursuant to the terms of the Company’s
Amended and Restated Certificate of Incorporation, the Company authorized and has available for issuance 10,000,000 shares of
Class A-2 Common Stock. The holders of the Class A-2 Common Stock do not have voting rights and are not entitled to receive
or participate in any dividends or distributions when and if declared from time to time. The Company concluded that the Class
A-2 common stock should be reflected as a contingent earnout share liability due to the fact that such shares are not entitled to
dividends, voting rights, or a stake in the Company in the case of liquidation.
As discussed in Note 4, 5,000,000 shares of Class A-2 Common Stock were issued with other consideration prior to the
reverse recapitalization, subject to the conditions set forth in a restricted stock agreement, which sets forth the terms upon which
the Class A-2 Common Stock will be exchanged for an equal number of validly issued, fully paid and non-assessable Class A-1
Common Stock. The exchange of Class A-2 Common Stock for Class A-1 Common Stock will be subject to the terms and
conditions set forth in the Restricted Stock Agreement, with such exchanges occurring in three separate tranches upon the
satisfaction of the following triggers:
•
•
•
Tranche I, equal to 1,666,666 Class A-2 Common Stock, will be exchanged for Class A-1 Common Stock if either (i) the
EBITDA for the last twelve months (“LTM EBITDA”) of the Company (as determined pursuant to the Restricted Stock
Agreement) as of December 31, 2021, March 31, 2022 or June 30, 2022 equals or exceeds $132 million or (ii) the
closing sale price of Class A-1 Common Stock on the New York Stock Exchange (“NYSE”) equals or exceeds $12.00 for
at least twenty trading days in any consecutive thirty trading day period;
Tranche II, equal to 1,666,667 Class A-2 Common Stock, will be exchanged for Class A-1 Common Stock if either (i)
the LTM EBITDA of the Company (as determined pursuant to the Restricted Stock Agreement) as of December 31,
2022, March 31, 2023 or June 30, 2023 equals or exceeds $152 million or (ii) the closing sale price of Class A-1
Common Stock on the NYSE equals or exceeds $14.00 for at least twenty trading days in any consecutive thirty trading
day period; and
Tranche III, equal to 1,666,667 Class A-2 Common Stock, will be exchanged for Class A-1 Common Stock if either (i)
the LTM EBITDA of the Company (as determined pursuant to the Restricted Stock Agreement) as of December 31,
2023, March 31, 2024 or June 30, 2024 equals or exceeds $172 million or (ii) the closing sale price of Class A-1
F-31
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Common Stock on the NYSE equals or exceeds $16.00 for at least twenty trading days in any consecutive thirty trading
day period.
The LTM EBITDA thresholds will be reasonably adjusted by the independent directors of the board of the Company (the
“Board”) from time to time to take into account the anticipated effect of any acquisitions or dispositions that exceed certain
thresholds and are otherwise materially different from certain forecasts.
Notwithstanding the foregoing, Class A-2 Common Stock, if not previously exchanged for Class A-1 Common Stock
pursuant to the triggers described above, will be exchanged for an equal number of Class A-1 common stock immediately prior to
the consummation of a transaction or series of related transactions that would result in a third party or group (as defined in or
under Section 13 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) becoming the beneficial owner of,
directly or indirectly, more than fifty percent of the total voting power of the equity securities of the Company, or more than fifty
percent of the consolidated net revenues, net income or total assets (including equity securities of its subsidiaries) of the
Company, provided that the satisfaction of the conditions set forth in the aforementioned triggers cannot be determined at such
time.
The Restricted Stock Agreement further provides that holders of Class A-2 Common Stock are not required to exchange such
shares for Class A-1 Common Stock if, (x) prior to giving effect to exchanges pursuant to the triggers described above, such
holder beneficially owns less than 4.99% of the issued and outstanding Class A-1 Common Stock, and (y) after giving effect to
the exchanges pursuant to the triggers described above, such holder would beneficially own in excess of 4.99% of the issued and
outstanding Class A-1 Common Stock. However, notwithstanding the limitation described in the previous sentence, if and when a
holder of Class A-2 Common Stock has obtained all required gaming approvals from the applicable gaming authorities permitting
such holder to beneficially own Class A-1 Common Stock in excess of 4.99%, then the Class A-2 Common Stock held by such
holder which are subject to exchange shall immediately be exchanged for Class A-1 Common Stock without regard to the
limitation.
On January 14, 2020, the market condition for the settlement of Tranche I was satisfied. However, as discussed above, no
shareholder is permitted to own more than 4.99% of the issued and outstanding Class A-1 Common Stock after the settlement
unless obtaining required gaming approvals from the applicable gaming authorities. In connection with the settlement, no gaming
approvals were obtained. As a result, only 1,666,636 of the 1,666,666 Class A-2 Common Stock were converted into Class A-1
Common Stock.
Note 13. Fair Value Measurements
ASC Topic 820, Fair Value Measurements and Disclosures, establishes a framework for measuring fair value and the
corresponding disclosure requirements around fair value measurements. This topic applies to all financial instruments that are
being measured and reported on a fair value basis.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. In determining fair value, the various methods including market, income and cost
approaches are used. Based on these approaches, certain assumptions are utilized that the market participants would use in pricing
the asset or liability, including assumptions about risk and/or the risks inherent in the inputs to the valuation technique. These
inputs can be readily observable, market corroborated, or generally unobservable inputs. Valuation techniques are utilized that
maximize the use of observable inputs and minimize the use of unobservable inputs. Based on the observability of the inputs used
in the valuation techniques, it is required to provide information according to the fair value hierarchy. The fair value hierarchy
ranks the quality and reliability of the information used to determine fair values. Assets and liabilities carried at fair value will be
classified and disclosed in one of the following three categories:
F-32
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Level 1: Valuations for assets and liabilities traded in active exchange markets, such as the New York Stock Exchange.
Level 1 also includes U.S. Treasury and federal agency securities and federal agency mortgage-backed securities, which are
traded by dealers or brokers in active markets. Valuations are obtained from readily available pricing sources for market
transactions involving identical assets or liabilities.
Level 2: Valuations for assets and liabilities traded in less active dealer or broker markets or for similar assets or liabilities in
active markets.
Level 3: Valuations for assets and liabilities that are derived from other valuation methodologies, including option pricing
models, discounted cash flow models and similar techniques, and not based on market exchange, dealer, or broker traded
transactions. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to
such assets or liabilities.
Assets measured at fair value
The following tables summarize the Company’s assets that are measured at fair value on a recurring basis (in thousands):
Fair Value Measurement at Reporting Date Using
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs (Level 3)
December 31, 2020
Assets:
Investment in convertible notes
$
30,129 $
— $
— $
30,129
Fair Value Measurement at Reporting Date Using
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs (Level 3)
December 31, 2019
Assets:
Investment in convertible notes
$
30,000 $
— $
— $
30,000
Investment in convertible notes
The Company engaged a third-party firm to assist it in determining the fair of its in the convertible notes. The valuation
utilized a binomial lattice model in which a convertible instrument is split into two separate components: a cash-only (debt)
component and an equity component. The binomial lattice trees are constructed using a methodology that assigns up and
downward movement factors and probabilities based on rates of return, volatility, and time. It allows for the optional conversion
features of the convertible promissory notes to be captured by determining whether conversion or continuing to hold is the most
economically advantageous to the holder. Upon conversion, future values in the equity component are subject to only the risk-free
rate, while the cash-only component associated with continuing to hold the debt instrument is subject to the selected risk-adjusted
discount rate. Solving backwards through the trees associated with the equity component and the trees associated with the debt
component yields an aggregate discounted value for each. The sum of these values yields the indicated fair value of the
convertible promissory notes.
The discount rate is the risk-adjusted discount rate that is implied by the rate that allows the discounted cash flows with all
terms and conditions modeled to equal the total cash consideration. As such, after modeling the features of convertible promissory
notes as of the issuance date using the lattice model framework outlined above, the Company solved for the discount rate that
resulted in a value for the note equal to the total cash consideration. The valuation of the Company's convertible promissory notes
is considered to be a Level 3 fair value measurement as the significant inputs are unobservable and require significant judgment or
estimation.
F-33
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
The following table provides a roll-forward of the fair value of recurring Level 3 fair value measurements for assets for the
years ended December 31 (in thousands):
Assets:
Beginning of year balance
Purchase of investment in convertible notes
Fair value adjustments
Ending balance
2020
2019
$
$
30,000 $
—
129
—
30,000
—
30,129 $
30,000
Changes in the fair value of the investment in convertible notes is included within comprehensive (loss) income on the
accompanying consolidated statements of operations and comprehensive (loss) income.
Liabilities measured at fair value
The following tables summarizes the Company’s liabilities that are measured at fair value on a recurring basis (in thousands):
Liabilities:
Contingent consideration
Contingent earnout shares
Total
Liabilities:
Contingent consideration
Contingent earnout shares
Total
Contingent consideration
Fair Value Measurement at Reporting Date Using
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs (Level 3)
December 31, 2020
$
$
17,260 $
33,069
50,329 $
— $
—
— $
17,260
33,069
—
— $
33,069 $
17,260
Fair Value Measurement at Reporting Date Using
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs (Level 3)
December 31, 2019
$
$
17,327 $
61,478
78,805 $
— $
—
— $
17,327
61,478
—
— $
61,478 $
17,327
The Company uses a discounted cash flow analysis to determine the value of contingent consideration upon acquisition and
updates this estimate on a recurring basis. The significant assumptions in the Company's cash flow analysis includes the
probability adjusted projected revenues after state taxes, a discount rate as applicable to each acquisition, and the estimated
number of locations that “go live” with the Company during the contingent consideration period. A hypothetical 1% increase in
the applicable discount rate would decrease other expenses, net by approximately $0.2 million while a hypothetical 1% decrease
in the applicable discount rate would increase other expenses, net by approximately $0.2 million. The valuation of the Company's
contingent consideration is considered to be a Level 3 fair value measurement as the significant inputs are unobservable and
require significant judgment or estimation. Changes in the fair value of contingent consideration liabilities are classified within
other expenses, net on the accompanying consolidated statements of operations and comprehensive (loss) income.
F-34
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Contingent earnout shares
The Company determines the fair value of the contingent earnout shares based on the market price of the Company's A-1
common stock. The liability, by tranche, is then stated at present value based on i.) an interest rate derived from the Company's
borrowing rate and the applicable risk-free rate and ii.) an estimate on when it expects the contingent earnout shares to convert to
A-1 common stock. The valuation of the Company's contingent consideration is considered to be a Level 2 fair value
measurement. Changes in the fair value of contingent earnout shares are included within (gain) loss on change in fair value of
contingent earnout shares on the accompanying consolidated statements of operations and comprehensive (loss) income
The following table provides a roll-forward of the fair value of recurring Level 3 fair value measurements for liabilities for
the years ended December 31 (in thousands):
Liabilities:
Beginning of year balance
Issuance of contingent consideration in connection with
acquisitions
Payment of contingent consideration
Fair value adjustments
Ending balance
Note 14. Stockholders’ Equity
2020
2019
2018
$
17,327 $
6,782 $
785
3,245
(4,420)
1,108
7,216
(1,658)
4,987
$
17,260 $
17,327 $
5,350
(387)
1,034
6,782
As discussed in Notes 1 and 3, on November 20, 2019, the Company, consummated a business combination pursuant to
the Transaction Agreement, which has been accounted for as a reverse recapitalization. Pursuant to the Certificate of
Incorporation as amended on November 20, 2019 and as a result of the reverse recapitalization, the Company retrospectively
adjusted the shares issued and outstanding prior to November 20, 2019 to give effect to the exchange ratio used to determine the
number of Class A-1 shares of common stock into which they were converted. Pursuant to the terms of the Company’s Amended
and Restated Certificate of Incorporation, the Company authorized and has available for issuance the following shares and classes
of capital stock, each with a par value of $0.0001 per share: i) 1,000,000 shares of preferred stock; and ii) 250,000,000 shares of
Class A-1 Common Stock.
Class A-1 Common Stock
The holders of the Class A-1 Common Stock are entitled to one vote for each share. The holders of Class A-1 Common
Stock are entitled to receive dividends or other distributions when and if declared from time to time and share equally on a per
share basis in such dividends and distributions subject to such rights of the holders of preferred stock.
On September 28, 2020, the Company completed an underwritten public offering (the “Offering”) of 8,000,000 shares of its
Class A-1 common stock (par value $0.0001 per share) at a price of $10.50 per share for a total offering size of $84.0 million. The
Company received net proceeds from the sale of shares of Class A-1 Common Stock sold by it in the Offering of approximately
$79.2 million (net of underwriting discounts and commissions). The Company incurred offering costs totaling $5.3 million which
have been capitalized to additional paid-in capital. The Offering also granted the underwriters an option to purchase up to
1,200,000 additional shares of Class A-1 common stock at the public offering price of $10.50 less the underwriting discount,
exercisable at any time within 30 days of September 23, 2020. In October 2020, the underwriters of the Offering partially
exercised their option and purchased an additional 1,133,015 shares at a price of $10.50 per share, resulting in additional net
proceeds to the Company of approximately $11.2 million (net of underwriting discounts and commissions).
F-35
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Warrants
On January 31, 2013, the Company issued 253,575 warrants to certain individual stockholders as compensation for
providing a personal guaranty for a revolving loan agreement. The warrants granted their holders the right to purchase the
Company’s Class A-1 Common Shares at the price of $17.80 per share anytime from January 31, 2013 through January 30, 2020.
The warrants were classified as an equity instrument. As of December 31, 2019, and 2018, there were 0 and 190,575 shares of
warrants outstanding. During the year ended December 31, 2019, 190,575 warrants were exercised prior to the reverse
recapitalization for proceeds of $3,392,235.
As discussed in Note 3, 7,333,326 warrants to purchase shares of Class A-1 Common Stock were issued with other
consideration prior to the reverse recapitalization (the “2019 Warrants”). As a part of the reverse recapitalization, 2,444,437 2019
warrants were canceled and reissued under the same terms and conditions to Accel legacy stockholders. Each warrant expires five
years from issuance and entitles the holder to purchase one Class A-1 Share at an exercise price of $11.50 per share, subject to
adjustments substantially similar to those applicable to the other outstanding warrants, at any time 30 days after the consummation
of the reverse recapitalization.
In 2017, 15,000,000 warrants to purchase shares of Class A-1 Common Stock were issued in connection with the formation
of TPG Pace Holdings (“Public Warrants”). Each warrant expires five years from issuance and entitles the holder to purchase one
Class A-1 Share at an exercise price of $11.50 per share, subject to adjustments substantially similar to those applicable to the
other outstanding warrants, at any time 30 days after the consummation of the reverse recapitalization.
On July 14, 2020, the Company announced that it had commenced an exchange offer (the "Offer") to all holders of its
outstanding warrants to receive 0.25 shares of Class A-1 Common Stock in exchange for each warrant tendered pursuant to the
Offer. The Offer was open until 11:59 p.m., Eastern Standard Time, on August 11, 2020.
On July 16, 2020, the Company consummated the redemption of its Public Warrants. The Company exchanged each Public
Warrant for 0.25 shares of the Company’s Class A-1 Common Stock and issued 3,784,416 shares of its Class A-1 Common Stock
in exchange for the Public Warrants at settlement of the redemption. The exchange was an equitable exchange at fair value and
was accounted for as a capital transaction. On July 22, 2020, the Company received written notice from the New York Stock
Exchange (the “NYSE”) that the NYSE suspended trading in, and has determined to commence proceedings to delist, the
Company’s Public Warrants to purchase shares of the Company’s Class A-1 Common Stock (ticker symbol ACEL.WS) from the
NYSE. The delisting is a result of the failure of the Public Warrants to comply with the continued listing standard set forth in
Section 802.01D of the NYSE Listed Company Manual which requires the Company to maintain at least 100 public holders of a
listed security.
On August 14, 2020, 7,189,990 of the 2019 Warrants were validly tendered representing approximately 99.93% of the total
2019 Warrants outstanding. The Company accepted all such warrants and issued an aggregate of 1,797,474 shares of its Class A-1
Common Stock in exchange for the warrants tendered.
At December 31, 2020 and 2019, the Company has reserved Class A-1 Common Stock for future issuance in relation to the
following:
Class A-1 Common Stock warrants issued and outstanding
Class A-1 Common Stock options and RSUs issued and outstanding
Conversion of Class A-2 Common Stock
Class A-1 Common Stock reserved for issuance
2020
5,411
3,885,360
3,333,363
7,224,134
2019
22,333,308
2,376,700
4,999,999
29,710,007
F-36
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Note 15. Gaming Terminal Fees
In accordance with the Illinois Video Gaming Act, a 34% tax on net terminal income (such tax increased from 30% to 33%
beginning on July 1, 2019 and from 33% to 34% beginning on July 1, 2020), as defined, is payable to the State of Illinois Gaming
Board. Through July 2018, a 0.7275% administrative fee was payable to a third-party at the direction of the State of Illinois
Gaming Board (the “administrative fee”). Effective July 2018, the administrative fee increased to 0.8513%. Gaming terminal fees,
which consist of the tax and administrative fee, totaled $103.6 million, $133.2 million and $99.1 million for the years ended
December 31, 2020, 2019 and 2018, respectively. The net terminal income remaining is split “50/50” between the Company and
the licensed gaming location. The licensed gaming location's share of net terminal income totaled $98.3 million, $138.8 million
and $111.4 million for the years ended December 31, 2020, 2019 and 2018, respectively. The gaming terminal fees and the
licensed gaming location's share of net terminal income are recorded in cost of revenue in the accompanying consolidated
statements of operations and comprehensive (loss) income.
Note 16. Employee Benefit Plans
401(k) Plan
The Company maintains a 401(k)-benefit plan for all employees with at least three months of service and have reached 21
years of age. Participants are 100% vested in their contributions. The Company provides an employer match contribution of 50%
of the participants’ contribution up to 5% of their compensation. Participants are fully vested in the employer match contribution
after one year of employment. The Company may also make profit sharing contributions to the plan which vest 20% a year after
the first 2 years of employment and are fully vested after 6 years of employment. The Company may also elect to make other
discretionary contributions to the Plan. The Company incurred 401(k)-benefit plan expense of approximately $0.6 million, $0.6
million and $0.5 million for the years ended December 31, 2020, 2019 and 2018, respectively.
Incentive Compensation Plan
Included in certain employee agreements are provisions for bonuses, which are determined at the discretion of management.
Bonus expense amounted to $1.9 million, $2.1 million and $1.8 million for the years ended December 31, 2020, 2019 and 2018,
respectively. Accrued bonuses totaled $2.5 million and $1.7 million at December 31, 2020 and 2019, respectively.
Note 17. Stock-based Compensation
The Company grants various types of stock-based awards including stock options and restricted stock units (“RSUs”). Stock-
based awards are valued on the date of grant and are expensed over the required service period. Total stock-based compensation
expense recognized during the years ended December 31, 2020, 2019 and 2018, was $5.5 million, $2.2 million and $0.5 million,
respectively. As of December 31, 2020, and 2019, there was approximately $20.0 million and $0.9 million, respectively, of
unrecognized compensation expense related to stock-based awards, which is expected to be recognized through 2025.
During the years ended December 31, 2020, 2019 and 2018, the Company recognized excess tax benefits (expense) from
stock-based compensation of $5.2 million, $(0.1) million, and $1.0 million, respectively, within income tax (benefit) expense in
the consolidated statements of operations and comprehensive (loss) income. Excess tax benefits (expense) reflect the total realized
value of the Company’s tax deductions from individual stock option exercise transactions and the vesting of restricted stock
awards in excess (deficit) of the deferred tax assets that were previously recorded.
Grant of Stock Options
The Company previously adopted the 2011 Equity Incentive Plan of Accel Entertainment, Inc., and 2016 Equity Incentive
Plan of Accel Entertainment, Inc., (collectively, “Plans”). Under the Plans, the aggregate number of shares of common stock that
may be issued or transferred pursuant to options or restricted stock awards under the Plans will not exceed ten percent of the
F-37
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
outstanding shares of the Company. Options generally vest over a three to five-year period. The exercise price of stock options
shall not be less than 100% of the fair market value per share of common stock on the grant date. The term of the options are a
maximum of 10 years from the grant date.
In conjunction with the closing of the reverse recapitalization, the Accel Entertainment, Inc. Long Term Incentive Plan (the
“LTIP”) was adopted. The LTIP provides for grants of a variety of awards to employees and non-employees for providing
services to the Company, including, but not limited to incentive stock options qualified as such under U.S. federal income tax
laws, stock options that do not qualify as incentive stock options, stock appreciation rights, restricted stock awards, restricted
stock units, cash incentive awards, and other stock-based awards. The Company has reserved, and in January 2020 registered, a
total of 6,000,000 shares of Class A-1 common stock for issuance pursuant to the LTIP, subject to certain adjustments set forth
therein. The term of any options to be granted are for a maximum of 10 years from the grant date. The exercise price of stock
options shall not be less than 100% of the fair market value per share of common stock on the grant date.
Under the LTIP, the Company granted 1.2 million options to eligible officers and employees of the Company during the
first quarter of 2020, which shall vest over a period of 5 years. The Company also granted 0.2 million options to eligible officers
of the Company during the third quarter of 2020, which shall vest over a period of 4 years. During the third quarter of 2020, the
Company also issued 1.7 million restricted stock units (“RSUs”) to board of directors and certain employees, which shall vest
over a period of 1 to 5 years for employees and a period of 6 months to 1 year for board of directors. The estimated grant date fair
value of these options and RSUs totaled $25.1 million.
The Company uses the Black-Scholes formula to estimate the fair value of its stock-based payments. The volatility
assumption used in the Black-Scholes formula is based on the volatility of comparable public companies. The Company
determined the share price at grant date used in the Black-Scholes formula based on an internal valuation model for options
granted prior to the Company going public. Upon going public, the Company used the closing market stock price on the date of
grant.
The fair value assigned to each option is estimated on the date of grant using a Black-Scholes-based option valuation model.
The expected term of each option granted represents the period of time that each option granted is expected to be outstanding. The
risk-free rate for periods within the contractual life of the unit is based on U.S. Treasury yields in effect at the time of grant.
The following assumptions were used in the option valuation model for options granted during the years ended December 31,
Expected approximate volatility
Expected dividends
Expected term (in years)
Risk-free rate
Stock price
2020
38%
None
7
0.44% -1.19%
N/A
2019 *
—%
None
None
—%
N/A
2018
35%
None
3-5
2.41% - 2.62%
$4 - $5
* there were no options granted in 2019
A summary of the options granted and the range in vesting periods based on specific provisions within the option agreements
during the years ended December 31, are as follows:
Options granted
Vesting period (in years)
2020
1,449,779
4 - 5
2019 *
0
0
2018
108,288
3 - 5
The following table sets forth of the activities of the Company’s vested stock options for the years ended December 31, 2020,
2019 and 2018.
F-38
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Outstanding options
Outstanding at January 1, 2018
Granted
Exercised
Forfeited/expired
Outstanding at December 31, 2018
Granted
Exercised
Forfeited/expired
Outstanding at December 31, 2019
Granted
Exercised
Forfeited/expired
Outstanding at December 31, 2020
Weighted
Average Grant
Date Fair Value
Weighted
Average
Exercise Price
Shares
4,122,910 $
0.69 $
108,288
(284,642)
(114,132)
3,832,424
—
(2,590,274)
(13,751)
1,228,399
1,449,779
(359,987)
(68,580)
2,249,611
1.73
0.40
1.03
0.73
—
0.62
0.77
0.96
4.49
0.69
1.32
3.25
2.03
5.10
1.15
2.96
2.16
—
1.84
2.33
2.91
11.20
2.33
3.85
8.32
A summary of the status of the activities of the Company’s nonvested stock options for the years ended December 31, 2020,
2019 and 2018 is as follows.
Nonvested options
Nonvested at January 1, 2018
Granted
Vested
Forfeited
Nonvested at December 31, 2018
Granted
Vested
Forfeited
Nonvested at December 31, 2019
Granted
Vested
Forfeited
Nonvested at December 31, 2020
Weighted
Average Grant
Date Fair Value
Shares
2,735,572 $
108,288
(1,032,910)
(101,361)
1,709,589
—
(547,537)
(13,751)
1,148,301
1,449,779
(496,464)
(68,580)
2,033,036
0.73
1.73
0.62
1.07
0.82
0.00
0.85
0.77
0.95
4.49
0.08
1.32
3.49
As of December 31, 2020, and 2019, a total of 216,575 and 80,098 options with a weighted-average remaining contractual
term of 1.6 and 1.9 years, respectively, granted to key employees were vested. The fair value of options that vested during 2020,
2019 and 2018 was $0.4 million, $1.2 million, and $0.6 million, respectively. As of December 31, 2020, and 2019, the weighted-
average exercise price of the non-vested awards was $8.87 and $2.86, respectively. As of December 31, 2020, and 2019, the
weighted-average remaining contractual term of the outstanding awards was 6.5 and 2.7 years, respectively. The total intrinsic
value of options that were exercised during the years ended December 31, 2020, 2019 and 2018 was approximately $2.2 million,
$20.7 million and $4.4 million, respectively. The aggregate intrinsic value of options outstanding as of December 31, 2020 is $5.8
million.
F-39
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Grant of RSUs
As previously mentioned, the Company issued 1.7 million RSUs to Directors and certain employees during the third quarter
of 2020, which shall vest over a period of 1 to 5 years for employees and a period of 6 months to 1 year for Directors. The RSUs
are valued using the stock price on the grant date. The following table sets forth the activities of the Company’s RSUs for the year
ended December 31, 2020.
Non-vested RSUs
Nonvested at January 1, 2020
Granted
Vested
Forfeited
Nonvested at December 31, 2020
Note 18. Income Taxes
Weighted
Average Grant
Date Fair Value
Shares
— $
1,665,968
(4,960)
(25,259)
1,635,749
—
11.16
10.08
11.66
11.15
Prior to the consummation of the reverse recapitalization, TPG Pace Holding Corp. was registered in the Cayman Islands. On
November 20, 2019 TPG Pace Holding Corp. effected a deregistration as an exempted company in the Cayman Islands under the
Cayman Islands Companies Law (2018 Revision), and a domestication as a corporation incorporated under the laws of the State
of Delaware under Section 388 of the DGCL, pursuant to which the Company's jurisdiction of incorporation was changed from
the Cayman Islands to the State of Delaware. This domestication was analyzed under the applicable tax laws and it was
determined that there were no significant tax implications associated with the domestication.
The Company recognized income tax (benefit) expense of $(16.9) million, $5.2 million and $4.4 million during the years
ended December 31, 2020, 2019 and 2018, respectively, which consists of the following (in thousands):
Current provision
Federal
State
Total current provision
Deferred provision
Federal
State
Total deferred provision
Total income tax (benefit) expense
2020
2019
2018
$
— $
(85) $
(100)
—
—
43
(42)
(12,286)
(4,632)
(16,918)
3,740
1,501
5,241
$
(16,918) $
5,199 $
222
122
3,256
1,044
4,300
4,422
A reconciliation of the “expected” income taxes computed by applying the federal statutory income tax rate to the total
(benefit) expense is as follows (in thousands):
F-40
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Computed “expected” tax (benefit) expense
(Decrease) increase in income taxes resulting from:
State income taxes
Return-to-provision
Change in fair value of contingent earnout shares
Permanently non-deductible transaction costs
Officer's compensation
Other permanent items
Enacted rate change
Other
2020
2019
2018
$
(6,279) $
(2,205) $
3,197
(2,848)
(7,613)
(1,782)
485
—
220
(6)
905
1,634
(341)
2,066
2,079
1,991
(16)
—
(9)
1,219
—
—
—
—
(264)
—
270
Total income tax (benefit) expense
$
(16,918) $
5,199 $
4,422
In the third quarter of 2020, the Company filed its federal and state income tax returns and identified certain favorable return-
to-provision adjustments, primarily the deductibility of employee and officer compensations costs and transaction costs, following
the engagement of specialized tax technical expertise resulting in a change in estimate relative to the Company's best estimate
used in the preparation of the 2019 income tax provision. The Company recorded this change in estimate and related income tax
benefit of $7.6 million for the year ended December 31, 2020.
The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and liabilities were as
follows at December 31 (in thousands):
Deferred tax assets:
Net operating loss carryforwards
Location contracts and other intangibles
Stock-based compensation
Other
Deferred tax liabilities:
Property and equipment
Unrealized gain on investments in convertible notes
2020
2019
$
31,215 $
5,829
1,428
394
6,633
4,699
—
260
38,866
11,592
35,005
37
35,042
24,568
—
24,568
Total deferred tax assets and liabilities, net
$
3,824 $
(12,976)
A valuation allowance is required to be established or maintained when, based on currently available information, it is more
likely than not that all or a portion of a deferred tax asset will not be realized. The guidance on accounting for income taxes
provides important factors in determining whether a deferred tax asset will be realized, including whether there has been sufficient
taxable income in recent years and whether sufficient taxable income can reasonably be expected in future years in order to utilize
the deferred tax asset.
The Company evaluated the need to record a valuation allowance for deferred tax assets based on an assessment of whether it
is more likely than not that deferred tax benefits will be realized through the generation of future taxable income. Appropriate
consideration was given to all available evidence, both positive and negative, in assessing the need for a valuation allowance. As a
result of this evaluation, the Company concluded as of December 31, 2020, that the positive evidence outweighed the negative
evidence and that it is more likely than not that its deferred tax assets will be realized
F-41
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
As of December 31, 2020, and 2019, the Company has not recorded a liability for unrecognized tax benefits.
The Company is subject to U.S. federal income tax as well as income tax of multiple state jurisdictions. As of December 31,
2020, the Company was subject to U.S federal income tax examinations for the years 2017 through 2019 and income tax
examinations from state jurisdictions for the years 2017 through 2019. The Company is currently under federal income tax audit
for the tax year 2017.
The following table summarizes carryforwards of net operating losses as of December 31 (in thousands):
Federal net operating losses
State net operating losses
2020
2019
Amount
Expiration
Amount
Expiration
$
108,830
106,004
2033
2024
$
27,873
14,454
2033
2024
The Company also has credit carryforwards of approximately $0.4 million and $0.5 million as of December 31, 2020 and
2019, respectively, which are expected to be fully utilized in 2021.
On March 27, 2020, the CARES Act was signed into law and authorizes more than $2 trillion to battle COVID-19 and its
economic effects, including immediate cash relief for individual citizens, loan programs for small business, support for hospitals
and other medical providers, and various types of economic relief for impacted businesses and industries. The Company was
eligible for certain credits of the relief programs under the CARES Act and has recorded a benefit of $1.3 million to other
expenses, net on its consolidated statements of operations and comprehensive (loss) income. The Company will continue to
monitor the situation and evaluate any additional future legislation.
Note 19. Commitments and Contingencies
The Company leases office space under agreements expiring at various dates from June 2021 through October 2023. Total
rent expense under these leases approximated $0.5 million, $0.3 million and $0.3 million for the years ended December 31, 2020,
2019 and 2018, respectively. The Company recognizes rent expense on a straight-line basis over the life of the leases. Rent
expense is recorded in general and administrative expense in the accompanying consolidated statements of operations and
comprehensive (loss) income.
Future minimum payments under these leases are as follows (in thousands):
Years ending December 31:
2021
2022
2023
Total
$
$
336
259
148
743
The Company has certain earnouts in periods for future location performance related to certain business acquisitions (see
discussion in Note 10).
The Company has certain employment agreements that call for salaries and potential severance upon termination.
Lawsuits and claims are filed against the Company from time to time in the ordinary course of business, including related to
employment of professionals and non-compete clauses and agreements. Other than settled matters explained as follows, these
actions are in various stages, and no judgments or decisions have been rendered. Management, after reviewing matters with legal
counsel, believes that the outcome of such matters will not have a material adverse effect on the Company’s financial position or
results of operations.
F-42
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Accel has been involved in a series of related litigated matters stemming from claims that Accel wrongly contracted with 10
different licensed establishments (the “Defendant Establishments”) in 2012 in violation of the contractual rights held by J&J
Ventures Gaming, LLC (“J&J”), as further described below.
On August 21, 2012, one of the Company’s operating subsidiaries entered into certain agreements with Jason Rowell
(“Rowell”), a member of Action Gaming LLC (“Action Gaming”), which was an unlicensed terminal operator that had exclusive
rights to place and operate VGTs within a number of establishments, including the Defendant Establishments. Under agreements
with Rowell, the Company agreed to pay him for each licensed establishment which decided to enter into exclusive location
agreements with the Company. In late August and early September 2012, each of the Defendant Establishments signed separate
location agreements with the Company, purporting to grant it the exclusive right to operate VGTs in those establishments.
Separately, on August 24, 2012, Action Gaming sold and assigned its rights to all its location agreements to J&J, including its
exclusive rights with the Defendant Establishments (the “J&J Assigned Agreements”). At the time of the assignment of such
rights to J&J, the Defendant Establishments were not yet licensed by the Illinois Gaming Board (“IGB”).
Action Gaming, J&J, and other parties, collectively, the Plaintiffs, filed a complaint against the Company, Rowell, and other
parties in the Circuit Court of Cook County (the “Circuit Court”), on August 31, 2012, as amended on November 1, 2012,
December 19, 2012, and October 3, 2013, alleging, among other things, that the Company aided and abetted Rowell in breaches
of his fiduciary duties and contractual obligations with Action Gaming and tortiously interfered with Action Gaming’s contracts
with Rowell and agreements assigned to J&J. The complaint seeks damages and injunctive and equitable relief. On January 24,
2018, the Company filed a motion to dismiss for lack of subject matter jurisdiction, as further described below. On May 14, 2018,
the Circuit Court denied the Company’s motion to dismiss and granted a stay to the case, pending a ruling from the IGB on the
validity of the J&J Assigned Agreements.
From 2013 to 2015, the Plaintiffs filed additional claims, including J&J Ventures Gaming, LLC et al. v. Wild, Inc. (“Wild”),
in various circuit courts seeking declaratory judgements with a number of establishments, including each of the Defendant
Establishments, requesting declarations that, among other things, J&J held the exclusive right to operate VGTs at each of the
Defendant Establishments as a result of the J&J Assigned Agreements. The Company was granted leave to intervene in all of the
declaratory judgments. The circuit courts found that the J&J Assigned Agreements were valid because each of the underlying
location agreements were between an unlicensed establishment and an unlicensed terminal operator, and therefore did not
constitute use agreements that were otherwise precluded from assignment under the IGB’s regulations. Upon the Company’s
appeal, the Illinois Appellate Court, Fifth District (the “District Court”), vacated the circuit courts’ judgments and dismissed the
appeals, holding that the IGB had exclusive jurisdiction over the matter that formed the basis of the parties’ claims, and declined
to consider the merits of the parties’ disputes. On September 22, 2016, and after the IGB intervened, the Supreme Court of Illinois
issued a judgment in Wild, affirming the District Court’s decision vacating the circuit courts’ judgments for lack of subject matter
jurisdiction and dismissing the appeals, determining that the IGB has exclusive jurisdiction to decide the validity and
enforceability of VGT use agreements.
Between May 2017 and September 2017, both the Company and J&J filed petitions with the IGB seeking adjudication of the
rights of the parties and the validity of the use agreements. Those petitions have been fully briefed and remain pending. There is
no indication as to when the IGB will rule on the petitions. The Company does not have a present estimate regarding the potential
damages, if any, that could potentially be awarded in this litigation and, accordingly, have established no reserves relating to such
matters. There are also petitions pending with the IGB which could lead to the Company obtaining new locations.
On October 7, 2019, the Company filed a lawsuit in the Circuit Court of Cook County against Jason Rowell and other parties
related to Mr. Rowell’s breaches of his non-compete agreement with the Company. The Company alleged that Mr. Rowell and a
competitor were working together to interfere with the Company’s customer relationships. On November 7, 2019, Mr. Rowell
filed a lawsuit in the Circuit Court of Cook County against the Company alleging that he had not received certain equity interests
in the Company to which he was allegedly entitled under his agreement. The Company has answered the complaint and asserted a
F-43
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
counterclaim, and intends to defend itself against the allegations. Mr. Rowell's claims and the Company's claims are both being
litigated in this lawsuit, while the original lawsuit remains pending against the other defendants. The Company does not have a
present estimate regarding the potential damages, nor does it believe any payment of damages is probable, and, accordingly, has
established no reserves relating to these matters.
During the year ended December 31, 2018, the Company entered into a settlement agreement regarding breach of contract
with Family Amusements (see discussion in Note 10). Additionally, during the year ended December 31, 2018, the Company
entered into settlement agreements related to breach of contract and employment matters for a total of $0.4 million, which was
recorded within general and administrative expenses on the consolidated statements of operations and comprehensive (loss)
income.
On July 2, 2019, Illinois Gaming Investors, LLC filed a lawsuit against the Company. The lawsuit alleges that a current
employee of the Company violated his non-competition agreement with Illinois Gaming Investors, LLC, and together with the
Company, wrongfully solicited prohibited licensed video gaming locations. The lawsuit on its face seeks damages of $10.0
million. The parties are engaging in discovery. The Company is in the process of defending this lawsuit, and has not accrued any
amounts as losses related to this suit are not probable or reasonably estimable.
On December 18, 2020, the Company received a disciplinary complaint from the IGB alleging violations of the Video
Gaming Act and the IGB’s Adopted Rules for Video Gaming. The disciplinary complaint seeks to fine the Company in the
amount of $5 million. The Company filed its initial answer to the IGB’s complaint on January 11, 2021 and have begun the
administrative hearing process. The Company intends to vigorously defend itself against the allegations in the complaint and
denies any allegations of wrongdoing. The Company has not accrued any amounts related to this complaint as losses are not
probable or reasonably estimable.
Note 20. Related-Party Transactions
Subsequent to the Company's acquisitions of Fair Share, G3 and Tom's Amusements, the sellers became employees of the
Company. Consideration payable to the Fair Share seller was $1.6 million and $2.0 million as of December 31, 2020 and 2019.
Payments to the Fair Share seller under the acquisition agreement were $0.9 million for both of the years ended December 31,
2020 and 2019 and zero for the year ended December 31, 2018. Consideration payable to the G3 sellers was $0.5 million and $3.1
million as of December 31, 2020 and 2019. Payments to the G3 seller under the acquisition agreement were $2.5 million and $0.4
million during the years ended December 31, 2020 and 2019 and zero for the year ended December 31, 2018. Consideration
payable to the Tom's Amusements seller was $1.5 million as of December 31, 2020 and there were no payments made to the
Tom's Amusements seller for the year ended December 31, 2020.
The Company engaged Much Shelist, P.C. (“Much Shelist”), as its legal counsel for general legal and business matters. An
attorney at Much Shelist is a related party to management of the Company. For the years ended December 31, 2020, 2019, and
2018, Accel paid Much Shelist $0.1 million, $0.6 million, and $0.3 million, respectively. These payments were included in
general and administrative expenses within the consolidated statements of operations and comprehensive (loss) income, however,
$0.2 million of the amounts paid in the fourth quarter of 2019 were recorded to additional paid-in capital as these costs were
determined to be direct and incremental for the reverse recapitalization discussed in Note 3.
F-44
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
As previously mentioned, the Company completed an underwritten public offering of 8,000,000 shares of its Class A-1
common stock, pursuant to the terms of an Underwriting Agreement, dated September 23, 2020, with Goldman Sachs & Co. LLC
and J.P. Morgan Securities LLC, as representatives of the several underwriters named therein. The Raine Group, which employs a
director of the Company, Gordon Rubenstein, was part of the underwriting group and was paid fees totaling $0.2 million (5.5% of
underwriting fee which was 4.5% of $84 million). These payments were capitalized to additional paid-in-capital on the
consolidated statements of stockholders' equity. The Raine Group also provided investment banking services and assisted the
Company in the negotiations and consummation of the reverse recapitalization. The Company paid $11 million to the Raine
Group in 2019.
Throughout the third quarter of 2019, one of the Company’s Class A Common Stockholders made payments on behalf of the
Company directly to the Company’s independent registered public accounting firm for services rendered to the Company during
the same period totaling $2.9 million. Such amounts are included as a component of other expenses, net in the Company’s
consolidated statements of operations and comprehensive (loss) income and contributed capital in the consolidated statement of
stockholders’ equity.
From time to time the Company entered into stock buy-back and cashless option conversion transactions in exchange for non-
recourse stockholder notes for certain officers and employees of the Company. Prior to the reverse recapitalization described in
Note 3, these balances were paid in full to the Company.
Note 21. Earnings Per Share
Pursuant to the Certificate of Incorporation as amended on November 20, 2019 and as a result of the reverse recapitalization,
the Company has retrospectively adjusted the weighted average shares outstanding prior to November 20, 2019 to give effect to
the exchange ratio used to determine the number of Class A-1 shares of common stock into which they were converted.
Basic earnings (loss) per share (“EPS”) is computed based on the weighted average number of shares of Class A-1 shares
outstanding during the period. Diluted EPS is computed based on the weighted average number of shares plus the effect of
dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common
shares include outstanding stock options, stockholder notes receivable, and warrants.
Since the shares issuable under the contingent earnout are contingently issuable shares that depend on future earnings or
future market prices of the common stock or a change in control, the shares are excluded when computing diluted earnings (loss)
per share unless the shares would be issuable if the reporting date was the end of the contingency period. Upon settlement, these
shares are included in Class A-1 common stock in the Company’s basic EPS share count.
The components of basic and diluted EPS were as follows (in thousands, except per share amounts):
F-45
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Net (loss) income
2020
2019
2018
$
(12,984) $
(15,701) $
10,803
Basic weighted average outstanding shares of common stock
83,045
61,850
Dilutive effect of stock-based awards for common stock
Dilutive effect of stockholder notes receivable for common stock
Dilutive effect of warrants for common stock
—
—
—
—
—
—
Diluted weighted average outstanding shares of common stock
83,045
61,850
57,621
1,605
407
2,549
62,182
Earnings (loss) per share:
Basic
Diluted
$
$
(0.16) $
(0.16) $
(0.25) $
(0.25) $
0.19
0.17
Since the Company was in a net loss position for the years ended December 31, 2020 and 2019, there is no difference
between basic and dilutive weighted average common stock outstanding.
Anti-dilutive stock-based awards and warrants excluded from the calculations of diluted EPS were 3,369,759, 23,561,725,
and 439,167 for the years ended December 31, 2020, 2019 and 2018, respectively.
Note 22. Subsequent Events
On March 9, 2021, the Company and the terminal operator entered into the Second Omnibus Amendment (the “Second
Amendment”) to both of the convertible notes and the agreement to purchase the convertible notes. The Second Amendment,
among other things, extends the December 31, 2020 maturity and conversion feature of the $5.0 million convertible note to
December 31, 2021, the maturity and conversion feature of the $25.0 million convertible note to June 1, 2024 and the beginning
of the payback period for the $25.0 million convertible note from December 31, 2020 to January 1, 2022.
On March 2, 2021, the Company announced that it entered into a securities purchase agreement, to acquire Century Gaming
Inc. (“Century”). Century is Montana’s largest gaming operator and a leader in the Nevada gaming market with over 900 licensed
establishments and more than 8,500 gaming terminals across both states. Pursuant to the purchase agreement, the Company will
acquire all of the outstanding equity interests of Century in a cash and stock transaction valued at $140 million. Each company’s
board of directors unanimously approved the transaction, which is expected to close by the end of 2021, subject to the satisfaction
of customary closing conditions, including regulatory approvals from applicable gaming authorities. The transaction will be
funded through a combination of the Company’s cash on hand and capacity under its existing credit facility, in addition to the
issuance of Accel shares.
F-46
ACCEL ENTERTAINMENT, INC.
SUBSIDIARIES OF THE REGISTRTANT
Exhibit 21.1
Name of Subsidiary
State or Jurisdiction of Incorporation/Organization
Accel Entertainment LLC
Accel Entertainment Gaming, LLC
Accel Entertainment Gaming (PA), LLC
Bulldog Holding, LLC
Bulldog Gaming, LLC
Accel Abraham Facility, LLC
Accel Momence Watseka LLC
Grand River Jackpot, LLC
Grand River Amusements LLC
Delaware
Illinois
Pennsylvania
Georgia
Georgia
Illinois
Illinois
Illinois
Illinois
Consent of Independent Registered Public Accounting Firm
Exhibit 23
The Board of Directors
Accel Entertainment, Inc.:
We consent to the incorporation by reference in the registration statement (No. 333-236049) on Form S-8 and the registration
statement on Form S-3 (No. 333-236501) of Accel Entertainment, Inc. of our report dated March 16, 2021, with respect to the
consolidated balance sheets of Accel Entertainment, Inc. and subsidiaries as of December 31, 2020 and 2019, the related
consolidated statements of operations and comprehensive (loss) income, stockholders’ equity, and cash flows for each of the
years in the three-year period ended December 31, 2020, and the related notes, which report appears in the December 31, 2020
annual report on Form 10-K of Accel Entertainment, Inc.
Our report refers to a restatement of the 2019 financial statements.
Our report refers to a change in the method of accounting for revenue from contracts with customers and related costs as of
January 1, 2019 due to the adoption of Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers.
/s/ KPMG LLP
Chicago, Illinois
March 16, 2021
Exhibit 31.1
Certification of Principal Executive Officer
I, Andrew Rubenstein, certify that:
1. I have reviewed this Annual Report on Form 10-K of Accel Entertainment, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report
financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: March 16, 2021
/s/ Andrew Rubenstein
Andrew Rubenstein
Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.2
Certification of Principal Financial Officer
I, Brian Carroll, certify that:
1. I have reviewed this Annual Report on Form 10-K of Accel Entertainment, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report
financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: March 16, 2021
/s/ Brian Carroll
Brian Carroll
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
Section 1350 Certification of Principal Executive Officer
Exhibit 32.1
In connection with the Annual Report on Form 10-K of Accel Entertainment, Inc. (the “Company”) for the year ended
December 31, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Andrew
Rubenstein, Chief Executive Officer of the Company, certify, to the best of my knowledge and belief, pursuant to 18 U.S.C. §
1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934 (15 U.S.C. 78m(a) or 78o(d)); and
The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
/s/ Andrew Rubenstein
Andrew Rubenstein
Chief Executive Officer
(Principal Executive Officer)
Date: March 16, 2021
This certification accompanies the Annual Report on Form 10-K to which it relates, is not deemed filed with the Securities and
Exchange Commission and is not to be incorporated by reference into any filing of Accel Entertainment, Inc. under the
Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date
of the Annual Report on Form 10-K), irrespective of any general incorporation language contained in such filing.
Section 1350 Certification of Principal Financial Officer
Exhibit 32.2
In connection with the Annual Report on Form 10-K of Accel Entertainment, Inc. (the “Company”) for the year ended
December 31, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Brian Carroll,
Chief Financial Officer of the Company, certify, to the best of my knowledge and belief, pursuant to 18 U.S.C. § 1350, as
adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934 (15 U.S.C. 78m(a) or 78o(d)); and
The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
/s/ Brian Carroll
Brian Carroll
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
Date: March 16, 2021
This certification accompanies the Annual Report on Form 10-K to which it relates, is not deemed filed with the Securities and
Exchange Commission and is not to be incorporated by reference into any filing of Accel Entertainment, Inc. under the
Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date
of the Annual Report on Form 10-K), irrespective of any general incorporation language contained in such filing.
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INVESTOR INFORMATION
BOARD OF DIRECTORS
Andrew Rubenstein
Chief Executive Officer of Accel Entertainment, Inc.
Gordon Rubenstein
Managing Partner at Raine Ventures
Kathleen Philips
Former Chief Legal Officer at Zillow Group
David W. Ruttenberg
Former Chairman and Founder of Belgravia Group Limited
Eden Godsoe
Vice President of Operations at Zeus Living
Kenneth B. Rotman
Chief Executive Officer and Managing Director of Clairvest
Group Inc.
Karl Peterson
Chairman of the Board
Senior Partner of TPG and managing Partner of TPG Pace Group
Dee Robinson
Founder and Chief Executive Officer of Robinson Hill, Inc.
EXECUTIVE OFFICERS
Andrew Rubenstein
Chief Executive Officer and President
Brian Carroll
Chief Financial Officer
Derek Harmer
General Counsel and Chief Compliance Officer
Mark Phelan
Chief Revenue Officer
Michael Marino
Chief Commercial Officer
Ryan Hammer
President of Gaming Operations
REGISTRAR AND TRANSFER AGENT
ACCEL ENTERTAINMENT ANNUAL MEETING
Continental Stock Transfer & Trust Company
1 State Street 30th Floor
New York, New York 10004
https://www.continentalstock.com/
(212) 509-4000
AVAILABLE INFORMATION
Our Annual Report on Form 10-K, our other SEC reports and
filings, our Code of Conduct and Ethics Policy,
Corporate Governance Guidelines, the charters of
our Board committees and other governance documents and
information are available on our website,
https://www.accelentertainment.com/.
STOCK LISTING
Accel Entertainment trades on the New York Stock Exchange
under the ticker symbol “ACEL.”
May 5, 2021 at 1:00 pm. (Central Time)
Virtual only: http://www.virtualshareholdermeeting.com/ACEL2021
COMPANY HEADQUARTERS
140 Tower Drive
Burr Ridge, Illinois 60527
P: (630) 972-2235
E: ir@accelentertainment.com
https://www.accelentertainment.com/
FOR INVESTOR INQUIRIES
Email: ir@accelentertainment.com
SAFE HARBOR STATEMENT
This annual report contains forward-looking statements within the
meaning of the federal securities laws. Please refer to page one of our
Annual Report on Form 10-K filed with the Securities and Exchange
Commission on March 16, 2021, for a fuller description of such forward-
looking statements.
BR00436Q-0321-10KW