2021 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, 2021
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to ______
Commission File Number 001-38136
Accel Entertainment, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(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, 2021, 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 $651.7 million based on the closing price of such stock as reported on The New York Stock
Exchange on such date.
As of March 7, 2022, there were 92,772,928 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 2022 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report on
Form 10-K, as amended, 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, 2021.
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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
[RESERVED]
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
ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 7A.
ITEM 8.
ITEM 9.
ITEM 9A.
ITEM 9B.
ITEM 9C.
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
PART III
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
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 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 (the “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,” the
"Company," “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 (the
“IGB”) since 2012 and holds a license from the Pennsylvania Gaming Control Board (the “PA Board”). In July 2020, the Georgia
Lottery Corporation (the “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. On December 30, 2021, one of the Company's consolidated subsidiaries acquired amusement operations in
Iowa and registered with the Iowa Department of Inspection (the “IDIA”) to conduct operations in Iowa.
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, 2021.
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, Iowa and
Nebraska have a similar but separately regulated amusement machine market. We believe that the distributed gaming industry is
supported by generally favorable trends, including an increasing number of states 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
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believe that the industry has witnessed both a growing player base and increased variety of higher quality game profiles available
through gaming terminals.
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 7,836 licensed establishments operating a total of 41,826 video gaming terminals
(“VGTs”) as of December 31, 2021, according to Scientific Games International’s terminal operator portal and the Video Gaming
Revenue Reports published by the IGB. According to the IGB, approximately 1,390 out of approximately 1,496 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 2021, 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, Iowa, 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
added 11 Georgia COAM Class B locations to the Accel portfolio, as well as a total of 65 Class B COAM terminals. On May 20,
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2021, the Company acquired Island Games, Inc. (“Island”), a southern Georgia amusement operator and Master Licensee in the
state of Georgia. The acquisition of Island added 30 COAM Class B locations to the Accel portfolio, including a total of 89 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 as of December
31, 2021. 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. 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 2022. 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.
On December 30, 2021, one of the Company's consolidated subsidiaries became a registered distributor in the State of Iowa,
which is required to operate amusement concessions in the state. Amusement concessions are regulated by the IDIA under Title
III, Chapter 99B of the Iowa Administrative Code. Amusement concessions fall into two broad categories: games of chance and
games of skill. Games of chance means a game in which the result is determined by chance. An example of a game of chance is
when a player aligns objects or balls in a prescribed pattern in order to win. Certain establishments such as bars, taverns, and
restaurants with a Class B or Class C liquor license are permitted to operate up to four electrical or mechanical games of chance.
The total number of permitted electrical and mechanical games of chance allowed in Iowa is capped at 6,928 devices. Games of
skill means a game in which the result is determined by the player to do a task, such as directing or throwing objects to designated
areas or targets, or by shooting a gun or rifle. The Company operates both games of chance and games of skill as well as other
amusement equipment and ATMs in Iowa.
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, IDIA, 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, North Carolina, Virginia, and Mississippi have proposed legislation permitting gaming terminals or other forms of
gaming in the past. 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;
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state-of-the-art technology-enabled slot machines from leading manufacturers who provide the most captivating
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titles in slots entertainment;
comparatively low capital expenses and a comparatively asset-light operating model, in each case, when
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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
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 15 operator companies, adding
approximately 1,000 licensed establishments to our total portfolio of 2,584 licensed establishment partners as of
December 31, 2021. 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, 2021, Accel’s best-performing licensed establishment accounted for approximately $3.0
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 $0.3 million of gross revenue. Accel’s
voluntary contract renewal rate was approximately 99% for the three-year period ended December 31, 2021. 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 Iowa 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.
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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 approximately 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.
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 and Iowa. 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. On May
20, 2021, the Company acquired Island, a southern Georgia amusement operator and Master Licensee in the state of Georgia.
The acquisition of Island added 30 Georgia COAM Class B locations to the Accel portfolio, including a total of 89 Class B
COAM terminals.
On December 30, 2021, one of the Company's consolidated subsidiaries became a registered distributor in the State of Iowa,
which is required to operate amusement concessions in the state. Amusement concessions are regulated by the IDIA under
Title III, Chapter 99B of the Iowa Administrative Code. Amusement concessions fall into two broad categories: games of
chance and games of skill. Games of chance means a game in which the result is determined by chance. An example of a
game of chance is when a player aligns objects or balls in a prescribed pattern in order to win. Certain establishments such as
bars, taverns, and restaurants with a Class B or Class C liquor license are permitted to operate up to four electrical or
mechanical games of chance. The total number of permitted electrical and mechanical games of chance allowed in Iowa is
capped at 6,928 devices. Games of skill means a game in which the result is determined by the player to do a task, such as
directing or throwing objects to designated areas or targets, or by shooting a gun or rifle. The Company operates both games
of chance and games of skill as well as other amusement equipment and ATMs in Iowa.
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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, 2021, 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, Mississippi, North Carolina and
Virginia. 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.
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
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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.
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.
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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, 2021, 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, 96% 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, 2021, Accel operates 13,639 VGTs in 2,584 licensed establishments in the state of Illinois. 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
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, 2021, 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, 2021 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, 2021, revenue shared with other terminal
operators accounted for less than 1% of gross revenue.
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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
28 different types of gaming terminal models and 242 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 7,836 gaming establishments as of December 31, 2021. The top five terminal
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 Midwest Electronics Gaming, LLC. Together with
Accel, they operate in more than 82% of all licensed establishments in Illinois, and the top 10 terminal operators in Illinois
operate in approximately 91% 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
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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, 2021, Accel owned 12 registered trademarks and 103 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 establishments,
and higher in cold weather between February and April, when players will typically spend more time indoors. Holidays, vacation
seasons and sporting events may also cause Accel’s results to fluctuate.
Employees
As of December 31, 2021, Accel had approximately 900 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 (the “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 continued 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.
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 its related variable interest rate, 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.
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•
Risks Related to Our Business and Industry
The continued outbreak and spread of the novel coronavirus disease known as COVID-19, and its related variants, 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. Since its initial outbreak, the spread of
COVID-19 and its variants, and the measures taken in response to the pandemic, have had a global and national impact, both
direct and indirect, on businesses and commerce. Despite recent progress in the administration of vaccines, the future impact of
the pandemic on global and local economies will continue to depend on future developments such as the emergence of future
variant strains of COVID-19, the availability and distribution of effective medical treatments and vaccines, vaccination rates, as
well as government-imposed restrictions or mandates. As a result, the length of the pandemic and its ultimate economic and
human toll cannot yet be determined
The mandated shutdowns of our licensed establishment partners’ gaming operations and our VGTs by the IGB from March
16, 2020 to July 1, 2020 and from November 19, 2020 to January 16, 2021 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 in response to resurgences of COVID-19 and its variants, 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 significantly impacted, and could continue to impact, travel of customers to our
licensed establishment partners.
While the IGB announced the resumption of all video gaming activities in January 2021, 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. We may be adversely impacted as a result of any future adverse impact of COVID-19 on our licensed establishment
partners.
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 and its related variants, 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
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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. Prior to March 2020, we had not previously experienced a complete cessation of our business
operations, and as a consequence, our ability to predict the impact of any future cessation on our business and future prospects is
limited. 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
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.
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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 2,584 total licensed
establishments as of December 31, 2021. 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
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
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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 depend 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 the initial outbreaks of the COVID-19 occurred and where 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 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
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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.
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 or inflation, 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
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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 and its
variants, inflation 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 granted a license as a terminal operator in
November 2020 but has not commenced gaming operations as of December 31, 2021; Georgia, where Accel acquired Tom’s
Amusement Company, Inc., a Southeastern U.S. amusement operator and Master Licensee, in July 2020, and Island Games, Inc.,
a southern Georgia amusement operator in May 2021; and Iowa, where Accel recently acquired the amusement and ATM assets
of the affiliated companies, Rich and Junnie's Inc. and JBCJ, Inc. These markets are newer 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 newer 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, Georgia and Iowa. In
addition, it is possible that Accel will not be able to commence operations in the Pennsylvania market 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:
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changes in local or regional economic conditions and unemployment rates;
changes in local and state laws and regulations, including gaming laws and regulations;
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. Accel is subject to similar
concentration risks in Georgia and Iowa, if Accel is successful in expanding its operations into Pennsylvania or other gaming
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jurisdictions, it may also 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-
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
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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, as well as maintaining or developing, procedures and policies (including effective internal
control over financial reporting and disclosure controls and procedures). 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. These risks may be heightened when Accel enters into regions where it has no or limited
prior experience. 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
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
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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, Georgia,
or Iowa, adjacent states or jurisdictions where Accel plans to operate in the future, such as Pennsylvania. 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, in
November 2017, Pennsylvania adopted 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”.
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.
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In particular, Mr. Carroll has notified Accel that he will retire as the Company’s Chief Financial Officer by April 30, 2022.
In the interim, Mr. Carroll will remain in his current role while the Company conducts a search for a new Chief Financial
Officer. After April 30, 2022, Mr. Carroll will assist the Company’s Chief Executive Officer and the next Chief Financial
Officer in the transition thereafter until Mr. Carroll’s eventual retirement from the Company at the end of 2023. If we are unable
to recruit and retain a qualified replacement in a timely manner it could result in management, operating and financial reporting
difficulties, which could have an adverse effect on our business.
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 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.
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:
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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. For
example, Accel is currently involved in an administrative hearing process with the IGB related to certain alleged violations of the
Video Gaming Act and related rules. See “Business — Legal Proceedings” for more information. 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), 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, in June
2019, the Illinois legislature 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.
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.
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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 needs 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, 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 (deficit) 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 were not
remediated as of December 31, 2021, 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
•
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
23
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 is currently involved in several lawsuits. See “Business — Legal Proceedings” for more information. Accel may also
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, acquisitions 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
relief that could adversely affect Accel’s ability to conduct business, its results of operations, cash flows and financial condition.
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
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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:
•
•
•
•
•
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.
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, 2021, Accel owned 12 registered trademarks and 103 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.
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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:
•
•
•
•
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.
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”
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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.
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, Salesforce or NetSuite, have
in the past been subject to cyber security incidents. Although these incidents have not had a material impact to date on our
business, results of operations, financial condition or reputation to date, a future failure of these third parties’ security systems
and infrastructure could adversely affect us.
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Risks related to our Financial Condition
Accel’s level of indebtedness and its related variable interest rate could adversely affect results of operations, cash flows and
financial condition.
As of December 31, 2021, Accel had total indebtedness of $350.0 million, all of which was borrowed under its current
Credit Agreement, and had approximately $550.0 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, repurchases of its shares of Class A-1
common stock 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.
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
28
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:
•
incur or guarantee additional indebtedness;
• make loans to others;
• make investments;
• merge or consolidate with another entity;
• make dividends and certain other payments, including payment of junior debt, and repurchases of Accel's A-1 common
stock;
create liens that secure indebtedness and guarantees thereof;
transfer or sell assets;
enter into transactions with affiliates;
•
•
•
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•
•
change the nature of Accel's business;
enter into certain burdensome agreements;
• make certain accounting changes; and
•
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, 2021, 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 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 continues to directly or indirectly own a significant amount of Accel’s outstanding equity interests and 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'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 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
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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, 2021, 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 (together, the “Rubenstein Family”)
collectively beneficially own approximately 12% of the shares of our Class A-1 common stock. Although each of Mr. A.
Rubenstein and Mr. G. 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 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 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 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’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.
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
31
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 future
•
shutdowns of our operations as a result of the ongoing COVID-19 pandemic 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;
•
•
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;
32
• 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.
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
33
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 shares of Class A-1 common stock that are 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 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
Delaware General Corporate Law (“DGCL”), the Charter or the Bylaws (as either may be amended and/or restated from
34
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
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 shares of Class A-1 common stock 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 rent an additional 13 locations in Illinois, three locations in Georgia and one location in Pennsylvania 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 renting additional space as needed to accommodate our
growth.
35
ITEM 3. LEGAL PROCEEDINGS
Lawsuits and claims are filed against Accel from time to time in the ordinary course of business, including related to
employee matters, 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
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 were recently adjudicated by the IGB, largely in Accel’s
favor, and J&J has filed a new lawsuit to challenge the IGB’s rulings. Accel does not have a present estimate regarding the
36
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.
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 million. The parties are engaging in
discovery and we are in the process of defending this lawsuit.
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.
Given the status of the legal proceedings discussed above, we have a determined that a legal liability is probable and
recorded an estimated loss of $0.6 million for the year ended December 31, 2021.
On March 9, 2022, we filed a lawsuit in the Circuit Court of Cook County against Gold Rush relating to the Gold Rush
convertible notes. The complaint seeks damages for breach of contract and the implied covenant of good faith and fair dealing as
well as unjust enrichment. The lawsuit is publicly available.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
37
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 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 public warrants, which were previously listed
under the symbol “ACEL-WS” were delisted from the NYSE.
Stockholders
There were 98 stockholders of record of our Class A-1 common stock, and 110 stockholders of record of our Class A-2
common stock as of March 7, 2022.
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 2022 annual meeting of stockholders to be filed with the SEC within 120 days of the fiscal year ended
December 31, 2021.
Unregistered Sales of Equity Securities and Use of Proceeds
None.
Issuer Purchase of Equity Securities
On November 22, 2021, the Company’s Board of Directors approved a share repurchase program of up to $200 million of
shares of Class A-1 common stock. The timing and actual number of shares repurchased will depend on a variety of factors,
including price, general business and market conditions, and alternative investment opportunities. Under the repurchase program,
repurchases can be made from time to time using a variety of methods, including open market purchases or privately negotiated
transactions, in compliance with the rules of the SEC and other applicable legal requirements. The repurchase program does not
obligate the Company to acquire any particular amount of shares, and the repurchase program may be suspended or discontinued
at any time at the Company’s discretion.
38
The following table provides the shares purchased under the share repurchase program in the fourth quarter of 2021:
Total number of
shares purchased
Average price paid
per share
Cumulative shares
purchased as part of
publicly announced
program
Maximum
approximate dollar
value of shares that
may yet be purchased
under the program
(in millions)
—
99,778
601,527
701,305
$—
$12.54
$12.83
—
99,778
701,305
$200.0
$198.7
$191.0
Period
October 2021
November 2021
December 2021
Total
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, 2021 (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
12/31/2021
Accel Entertainment
$100.00
$119.05
$92.24
$118.90
NASDAQ Composite Index
$100.00
$105.23
$151.52
$183.92
RUSSELL 3000 Casinos & Gambling Industry Index
$100.00
$107.94
$125.07
$123.20
ITEM 6. [RESERVED]
39
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 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 13,639 video gaming terminals across 2,584 locations in
the State of Illinois as of December 31, 2021. 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. On
December 30, 2021, one of the Company's consolidated subsidiaries acquired amusement operations in Iowa and registered with
the IDIA to conduct operations in Iowa. 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 and its related variants are 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 initial COVID-19 outbreak in early 2020, 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 of 2020, 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 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 and 18 of the 365 gaming days (or 5% of gaming days) during the year ended December 31,
2021. 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 these temporary cessation of operations. During the initial shutdown in early 2020, 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 2020, the Company started reinstating employees from furlough in anticipation of
40
resuming operations on July 1, 2020. During the second shutdown between late 2020 and early 2021, the Company furloughed
idle staff as appropriate and deferred certain payments to major vendors.
As a result of these developments, our 2020 revenues, results of operations and cash flows were materially affected. The
COVID-19 situation is rapidly changing as new variant strains continue to pose a threat to public health 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 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 supported these measures to protect the safety of our employees and fellow Illinois citizens, as the health and safety of
players and licensed partner establishments is of paramount importance to us. We were in constant contact with our licensed
partner establishments to keep them aware of current developments and worked 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. employee portion of health insurance
premiums) for furloughed employees during the IGB-mandated COVID-19 shutdown. 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 in January 2021, 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 and its related variants 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.
41
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 over 18 years, which is the expected estimated life of the contract, including expected renewals. The
amortization period begins on the date the location commences operations.
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 15 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 notes from another terminal operator that bear interest at 3% per
annum.
Income tax expense (benefit)
Income tax expense (benefit) consists mainly of taxes payable (receivable) 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.
42
Results of Operations
The following table summarizes Accel’s results of operations on a consolidated basis for the years ended December 31,
2021 and 2020:
(in thousands, except %'s)
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 (loss)
Interest expense, net
Loss (gain) on change in fair value of contingent earnout shares
Gain on change in fair value of warrants
Loss on debt extinguishment
Income (loss) before income tax expense (benefit)
Income tax expense (benefit)
Net income (loss)
Revenues
Year Ended December 31,
Increase / Decrease
2021
2020
Change
Change %
$
705,784 $
300,520 $
405,264
16,667
12,256
9,247
6,585
7,420
5,671
734,707
316,352
418,355
494,032
110,818
24,636
22,040
12,989
211,086
282,946
77,420
20,969
22,608
8,948
33,398
3,667
(568)
4,041
664,515
341,031
323,484
70,192
12,702
9,762
—
1,152
46,576
15,017
(24,679)
13,707
(8,484)
(12,574)
—
(17,328)
(16,918)
$
31,559 $
(410) $
94,871
(1,005)
18,246
12,574
1,152
63,904
31,935
31,969
134.9 %
80.2 %
86.1 %
132.2 %
134.0 %
43.1 %
17.5 %
(2.5) %
45.2 %
94.9 %
(384.4) %
(7.3) %
(215.1) %
(100.0) %
(100.0) %
(368.8) %
(188.8) %
7,797.3 %
Total net revenues for the year ended December 31, 2021 were $734.7 million, an increase of $418.4 million, or 132.2%,
compared to the prior year. The increase was driven by an increase in net gaming revenue of $405.3 million, or 134.9%, an
increase in amusement revenue of $7.4 million, or 80.2%, and an increase in ATM fees and other revenue of $5.7 million, or
86.1%. The increase in net revenues was 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 and 18 of the 365 gaming days (or 5% of gaming days) during the year ended December 31, 2021. The
increase in net gaming revenue for the year ended December 31, 2021, also reflected an increase in gaming terminals and
locations, as well as an increase in location hold-per-day, which was driven by higher bet limit software and the addition of a 6th
VGT.
Cost of revenue
Total cost of revenue for the year ended December 31, 2021 was $494.0 million, an increase of $282.9 million, or 134.0%,
compared to the prior year due primarily to the previously mentioned IGB-mandated temporary shutdowns of Illinois video
gaming due to the COVID-19 outbreak and an increase in the Illinois gaming tax from 33% to 34% on July 1, 2020.
43
General and administrative
Total general and administrative expenses for the year ended December 31, 2021 were $110.8 million, an increase of $33.4
million, or 43.1%, compared to the prior year. The increase was attributable to a reduction in our prior-year monthly expenses
during the previously mentioned IGB-mandated shutdown. General and administrative expenses for the year ended
December 31, 2021 also reflected higher payroll-related costs as we continued to grow our operations and higher professional
fees.
Depreciation and amortization of property and equipment
Depreciation and amortization of property and equipment for the year ended December 31, 2021 was $24.6 million, an
increase of $3.7 million, or 17.5%, compared to the prior year, primarily due to an increased number of licensed establishments
and gaming terminals. In the fourth quarter of 2021, we extended the useful lives of our gaming terminals and equipment from
10 years to 13 years. The impact of this change in estimate was a decrease in depreciation expense of $1.2 million for both the
fourth quarter and the year ended December 31, 2021.
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, 2021
was $22.0 million, a decrease of $0.6 million, or 2.5%, compared to the prior year. In the fourth quarter of 2021, we extended the
useful lives of our route and customer acquisition costs from 12.4 years to 18 years and location contracts acquired from 10 to 15
years. The impact of these changes in estimate was a decrease in amortization expense of $2.7 million for both the fourth quarter
and the year ended December 31, 2021. Partially offsetting this decrease was an increase in business and asset acquisitions.
Other expenses, net
Other expenses, net for the year ended December 31, 2021 were $13.0 million, an increase of $4.0 million, or 45.2%,
compared to the prior-year period. The increase was due to larger fair value adjustments associated with the revaluation of
contingent consideration liabilities due to stronger than anticipated performance from the associated business acquisitions and
higher costs associated with new market development, partially offset by lower non-recurring, one-time expenses attributable to
non-capitalizable public offering costs incurred in the first quarter of 2020 and cost incurred in the second quarter of 2020
totaling $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. employee portion of health insurance premiums) for furloughed employees during the IGB-mandated COVID-19 shutdown.
Interest expense, net
Interest expense, net for the year ended December 31, 2021 was $12.7 million, a decrease of $1.0 million, or 7.3%,
compared to the prior year primarily due to a decrease in average borrowings and lower average interest rates. For the year ended
December 31, 2021, the weighted-average interest rate was approximately 3.2% compared to the weighted-average interest rate
of approximately 3.3% for the prior year.
Loss (gain) 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, 2021 was $9.8 million, a
decrease of $18.2 million, or 215.1%, compared to the prior year which had a gain of $8.5 million. The decrease was primarily
due to the change in the market value of our Class A-1 common stock, which is the primary input to the valuation of the
contingent earnout shares.
Gain on change in fair value of warrants
Gain on change in fair value of warrants for the year ended December 31, 2020 was $12.6 million. The gain was primarily
due to the change in the market value of our public warrants which was the primary input to the valuation of the warrants. In the
third quarter of 2020, we redeemed substantially all of the warrants which resulted in no change to the fair value of the remaining
warrants for the year ended December 31, 2021.
44
Loss on debt extinguishment
Loss on debt extinguishment was $1.2 million for the year ended December 31, 2021 and was recorded in connection with
the entry into Amendment No.2 of our Credit Facility in October 2021. For more information on Amendment No. 2 of our Credit
Facility, see the discussion within the Liquidity and Capital Resources later in this section.
Income tax expense (benefit)
Income tax expense for the year ended December 31, 2021 was $15.0 million, an increase of $31.9 million, or 188.8%,
compared to an income tax benefit of $16.9 million in the prior year. Income tax expense for the year ended December 31, 2021
was impacted by the change in fair value of the contingent earnout shares that are not deductible for tax purposes. 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.
For the discussion of Accel’s results of operations on a consolidated basis for the years ended December 31, 2020 and 2019
please see our 2020 Form 10-K/A that was filed on May 10, 2021.
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.
45
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 Illinois licensed establishments, number of VGTs, average
remaining contract term and location hold-per-day as of and for the years ended December 31.
Licensed establishments
Video gaming terminals
Average remaining contract term (years)
Location hold-per-day (1)
As of and for the year ended
December 31,
Increase / Decrease
2021
2020
Change
Change %
2,584
13,639
6.8
2,435
12,247
6.8
$
806 $
585 $
149
1,392
—
221
6.1 %
11.4 %
— %
37.8 %
(1) Location hold-per day for the year ended December 31, 2021 is computed based on 347 eligible gaming days (excludes 18 non-gaming days due
to the IGB mandated COVID-19 shutdown). 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 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 also believes 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.
46
Adjusted net income and Adjusted EBITDA
(in thousands)
Net income (loss)
Adjustments:
Amortization of route and customer acquisition costs and location
contracts acquired(1)
Stock-based compensation(2)
Loss (gain) on change in fair value of contingent earnout shares(3)
(Gain) loss on change in fair value of warrants(4)
Other expenses, net(5)
Tax effect of adjustments(6)
Adjusted net income
Depreciation and amortization of property and equipment
Interest expense, net
Emerging markets(7)
Income tax expense (benefit)
Loss on debt extinguishment
Adjusted EBITDA
Year Ended December 31,
2021
2020
2019
$
31,559 $
(410) $
(36,764)
22,040
6,403
9,762
—
12,989
22,608
5,538
(8,484)
(12,574)
8,948
17,975
2,236
9,837
21,063
19,649
(11,346)
(9,850)
(11,301)
$
71,407 $
5,776 $
22,695
24,636
12,702
3,403
26,363
1,152
20,969
13,707
517
(7,068)
—
26,398
12,860
—
16,500
1,141
$
139,663 $
33,901 $
79,594
(1) Amortization of route and customer acquisition costs and location contracts acquired 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 15
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) Loss (gain) on change in fair value of contingent earnout shares represents a non-cash fair value adjustment at each reporting period end related to the value
of these contingent shares. Upon achieving such contingency, shares of Class A-2 common stock convert to Class A-1 common stock resulting in a non-
cash settlement of the obligation.
(Gain) loss on change in fair value of warrants represents a non-cash fair value adjustment at each reporting period end related to the value of these
warrants.
(4)
(5) 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.
(6) Calculated by excluding the impact of the non-GAAP adjustments from the current period tax provision calculations.
(7) 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, 2021 was $139.7 million, an increase of $105.8 million, or 312.0%,
compared to the prior year. The increase 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 when compared to 18 of the 365 gaming days (or 5% of gaming days) during the year
ended December 31, 2021. The increase in performance for the year ended December 31, 2021 was also attributable to an
increase in the number of licensed establishments, VGTs, and location hold-per-day.
47
Liquidity and Capital Resources
In order to maintain sufficient liquidity, we review our cash flow projections and available funds with our Board of
Directors to consider modifying our capital structure and seeking additional sources of liquidity, if needed. The availability of
additional liquidity options will depend on the economic and financial environment, our creditworthiness, our historical and
projected financial and operating performance, and our continued compliance with financial covenants. As a result of possible
future economic, financial and operating declines, possible declines in our creditworthiness and potential non-compliance with
financial covenants, we 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.
We believe that our cash and cash equivalents, cash flows from operations and borrowing availability under our senior
secured credit facility will be sufficient to meet our capital requirements for the next twelve months. Our primary short-term cash
needs are paying operating expenses and higher contingent earnout payments, servicing outstanding indebtedness, and funding
our Board approved share repurchase program and near term acquisitions. As of December 31, 2021, Accel had $198.8 million
in cash and cash equivalents.
In response to the decision by the IGB in early 2020 to temporarily suspend all video gaming across the State of Illinois due
to the COVID-19 outbreak, we borrowed $65 million on our delayed draw term loan in March 2020 to increase our cash position
and help preserve our financial flexibility.
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 (as amended, 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.
The additional term loan facility was available for borrowings until November 13, 2020. Each of the revolving loans and the
term loans were scheduled to mature on November 13, 2024.
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. The waivers of financial covenant breach were never utilized as we remained in
compliance with all debt covenants during these periods.
On October 22, 2021, in order to increase the borrowing capacity under the Credit Agreement, we and the other parties
thereto entered into Amendment No. 2 to the Credit Agreement (“Amendment No. 2”). Amendment No. 2, among other things,
provides for:
48
•
•
•
an increase in the amount of the revolving credit facility from $100.0 million to $150.0 million,
$350.0 million initial term loan facility, the proceeds of which were applied to refinancing existing indebtedness, and
$400.0 million delayed draw term loan facility.
The maturity date of the Credit Agreement was extended to October 22, 2026. The interest rate and covenants remained
unchanged. The Company incurred $4.3 million in debt issuance costs associated with Amendment No. 2. The Company also
recognized a loss on debt extinguishment of $1.2 million for the year ended December 31, 2021 in connection with the
amendment.
As of December 31, 2021, there remained approximately $550.0 million of availability under the Credit Agreement.
The obligations under the Credit Agreement are guaranteed by us 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 the assets of the Guarantors, subject to certain exceptions. Certain future-formed or acquired wholly owned domestic
subsidiaries 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 our 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, 2021, the weighted-
average interest rate was approximately 3.2%.
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. We are 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 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 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.
49
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, 2021. Given our assumptions about the future impact of
COVID-19 and its variants 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.
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,
2020
2021
2019
Net cash provided by (used in) operating activities
Net cash used in investing activities
Net cash (used in) provided by financing activities
$
110,755 $
(3,705) $
45,565
(34,544)
(61,435)
(151,532)
(11,876)
74,188
139,141
Net cash provided by (used in) operating activities
For the year ended December 31, 2021, net cash provided by operating activities was $110.8 million, an increase of
$114.5 million over the prior year. In addition to our increase in net income, we had a $6.1 million increase attributable to the
impact of deferred income taxes.
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.
Net cash used in investing activities
For the year ended December 31, 2021, net cash used in investing activities was $34.5 million, a decrease of $26.9 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 anticipate our capital expenditures will be approximately $20-25 million in 2022.
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.
Net cash (used in) provided by financing activities
For the year ended December 31, 2021, net cash used in financing activities was $11.9 million, a decrease of $86.1 million
over the prior year. The decrease reflects repurchases of our Class A-1 common stock of $9.0 million under our share repurchase
program, partially offset by an increase in net borrowings on our Credit Facility and lower payments on consideration payable.
The prior-year period also included $90.4 million of net proceeds from the issuance of Class A-1 common stock.
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 Class A-1 common stock and lower debt issuance costs.
50
Critical Accounting Policies and Estimates
We prepare our 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 us. Material changes in certain of the estimates that
we use could affect, by a material amount, our consolidated financial position and results of operations. Although results may
vary, we believe our estimates are reasonable and appropriate. The following describes certain significant accounting policies
that involve more subjective and complex judgments where the effect on our 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: 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 income (loss). 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 includes expected renewals. Accel records the accretion of
interest on the route installment payments in the consolidated statements of operations and comprehensive income (loss) 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 income (loss) 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
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
51
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 income (loss) 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 income (loss) 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. The
relevance of this policy varies form period to period depending on the volume of applicable acquisitions occurring.
Convertible notes
At acquisition, an entity shall classify debt securities as trading, available-for-sale, or held-to-maturity. While we have no
intention of selling the convertible notes we hold, we cannot classify them as held-to-maturity due to the conversion feature.
Therefore, we have classified our investment in convertible notes as available for sale and they are recorded at their fair market
value. We previously engaged a third-party firm to assist us in determining the fair value of our investment in the convertible
notes. The third-party firm 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 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 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 notes as of the issuance date using the lattice model framework outlined above, we solved
for the discount rate that resulted in a value for the note equal to the total cash consideration. This valuation of our investment in
convertible notes utilized significant inputs that are unobservable and require significant judgment or estimation. Changes in
these inputs or other underlying assumptions could have a significant impact on the fair value of the convertible notes.
On July 30, 2021, we provided notice to the issuer of the convertible notes, Gold Rush Amusements, Inc. ("Gold Rush"),
another terminal operator, that we were exercising our rights to convert the notes into common stock of Gold Rush, subject to
approval from the IGB to transfer the common stock to us. Accordingly, beginning in the third quarter of 2021, given the
pending request for regulatory approval on the transfer of equity interest, the fair value of the convertible notes was estimated
using a probability-weighted approach. Assuming regulatory approval was received, the fair value of the convertible notes was
estimated on an as-converted basis by multiplying the equity value of Gold Rush by the ownership percentage as calculated
pursuant to the terms of the convertible note agreements. In the scenario where regulatory approval was not received, the fair
value of the convertible notes was estimated using a discounted cash flow approach assuming we would request immediate
redemption of the principal and accrued interest and the discount rate was estimated based on comparable public debt rates. This
assumption did not consider legal claims we may have under the convertible notes to receive the economic value of the
conversion shares, even if transfer of the actual ownership interest in Gold Rush to us was not approved by the IGB. After the
IGB Administrator’s denial of the transfer of the equity interest on December 2, 2021, we concluded that the fair value of the
52
convertible notes should be calculated as principal plus accrued interest as of December 31, 2021. For the avoidance of doubt,
the recorded value of $32 million is less than what we maintain as the amount we are legally entitled to under the Gold Rush
convertible notes, but is consistent with the accounting for gain contingencies. This valuation of our investment in convertible
notes utilized significant inputs that are unobservable and require significant judgment or estimation. Changes in in these inputs
or other underlying assumptions could cause the fair value of the convertible notes to be materially higher or lower. For more
information regarding our investment in the convertible notes, see Notes 4, 13 and 22 to our consolidated financial statements
included herein.
Contingent earnout shares liability
Our Class A-2 common stock is classified as a contingent earnout shares liability due to the fact that the conversion of the
Class 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 income (loss). We determine the fair value of the contingent earnout shares based on the market price of our
Class 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 Class 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.
Warrant liability
Certain provisions preclude the warrants from being accounted for as components of stockholders’ equity (deficit), including
certain settlement provisions that differ based on the holder. As a result, the warrants are recorded as liabilities on the
consolidated balance sheets. The warrants were measured at fair value at inception and at each reporting date in accordance with
ASC 820, Fair Value Measurement, with the changes in fair value recognized in the consolidated statement of operations and
comprehensive income (loss) in the period of change. We determined the fair value of our public warrants based on their trading
price (ticker symbol ACEL.WS) on the NYSE. We initially determined the fair value of our private placement warrants by using
the fair value of our public warrants and a Black-Scholes option-pricing model. The Black-Scholes option-pricing model requires
inputs such as the fair value of our common stock, the risk-free interest rate, expected term, expected dividend yield and
expected volatility. Changes in these inputs or other underlying assumptions could have had a significant impact on the fair value
of the warrant liability. Beginning in the second quarter of 2020, the valuation of our private placement warrants was based on
the trading price of our Class A-1 common stock divided by four as the holders of our outstanding warrants were to receive 0.25
shares of Class A-1 common stock in exchange for each warrant tendered in an exchange offer we consummated in August
2020. The estimates used in the valuation of the warrants were critical for the years ended December 31, 2019 and 2020 due to
the number of warrants outstanding in those periods. After substantially all of the warrants were validly tendered in the exchange
offer in the third quarter of 2020, the estimates used in the periodic valuation of the warrants were no longer considered critical.
Changes in estimate
During the fourth quarter of 2021, 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 gaming terminals and equipment from 10
years to 13 years as the equipment is lasting longer than originally estimated. Most of our gaming terminals and equipment that
were purchased when the Company started operations that are still being used today.
Also during the fourth quarter of 2021, the Company conducted a review of its estimate of the amortization periods for its
route and customer acquisition costs and its location contracts. As a result of this review, the Company extended the amortization
period of its route and customer acquisition costs from 12.4 years to 18 years and its location contracts from 10 years to 15 years.
The impact of these changes in estimate for both the fourth quarter and the year ended December 31, 2021, was a net
decrease to depreciation expense of $1.2 million and a $2.7 million decrease to amortization expense of route and customer
acquisition costs and location contracts acquired.
53
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 establishments,
and higher in cold weather between February and April, when players will typically spend more time indoors. Holidays, vacation
seasons, and sporting events may also cause Accel’s results to fluctuate.
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.
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 $350.0 million as of December 31, 2021. 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
$350.0 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.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
54
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
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.
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, 2021 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
55
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, 2021, Accel had 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, 2021. These material weaknesses were previously identified and are summarized
below.
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 and the Company's Annual Report on Form 10-K/A for the fiscal year ended
December 31, 2020.
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 fully 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 fully 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
fully complete.
As discussed elsewhere in this Annual Report on Form 10-K for the fiscal year ended December 31, 2021, 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 continue to evaluate accounting, finance, information technology and internal audit staffing
levels to sufficiently address the size, scope, and complexity of our organization.
• We are developing policies and procedures to assist our finance organization in recording transactions appropriately.
56
• 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 designed, and are in the process of, implementing procedures and controls over the period-end accounting close
process.
We implemented a formal disclosure certification program that requires certain key personnel to complete a disclosure
•
questionnaire to ensure the consolidated financial statements do not contain any untrue statement of a material fact or
omission of a material fact.
• We expanded our training and education related to internal controls to include workshops and training sessions to
improve control awareness and educate all applicable personnel at the business unit level on internal control topics.
• 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.
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, 2021, 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, 2021, 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.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
None.
57
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 with
the SEC pursuant to Regulation 14A of the Exchange Act within 120 days after the end of the fiscal year ended December 31,
2021 in connection with our 2022 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
Our independent registered accounting firm is KPMG LLP, Chicago, IL, Auditor Firm ID: 185.
The information required by this Item is included in our definitive Proxy Statement (see Item 10 above), and is incorporated
herein by reference.
58
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 (Incorporated by reference to Exhibit 4.1 to the Company's Annual Report on Form 10-K for
the year ended December 31, 2020).
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).
59
10.9(B)
10.10**
Amendment No. 2 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(B) to the
Company’s Current Report on Form 8-K dated October 22, 2021)
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).
10.12(B)** Second Amended and Restated Employment Agreement, dated November 10, 2021, by and between Accel
Entertainment, Inc. and Brian Carroll (Incorporated by reference to Exhibit 10.12(B) to the Company's Current
Report on Form 8-K dated November 12, 2021).
10.13**
10.14**
10.15**
10.16**
10.17**
10.18**
10.19
10.20
10.21**
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).
Amended and Restated Executive Employment Agreement, dated March 15, 2021, by and between Accel
Entertainment, Inc., and Mark Phelan. (Incorporated by reference to Exhibit 10.21 to the Quarterly Report on
Form 10-Q filed with the SEC on May 10, 2021.
60
21.1 *
List of Subsidiaries
23 *
24.1
Consent of Independent Registered Public Accounting Firm
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.
61
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 10, 2022
ACCEL ENTERTAINMENT, INC.
By:
/s/ Brian Carroll
Brian Carroll
Chief Financial Officer
62
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 10, 2022
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
March 10, 2022
General Counsel, Chief Compliance Officer and Secretary
March 10, 2022
Chairman of the Board and Director
March 10, 2022
March 10, 2022
March 10, 2022
March 10, 2022
March 10, 2022
March 10, 2022
March 10, 2022
Director
Director
Director
Director
Director
Director
63
[This page intentionally left blank]
INDEX TO FINANCIAL STATEMENTS
ACCEL ENTERTAINMENT, INC.
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations and Comprehensive Income (Loss)
Consolidated Balance Sheets
Consolidated Statements of Stockholders’ Equity (Deficit)
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, 2021 and 2020, the related consolidated statements of operations and comprehensive income (loss),
stockholders’ equity (deficit), and cash flows for each of the years in the three-year period ended December 31, 2021, 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, 2021 and 2020, and the results of its
operations and its cash flows for each of the years in the three-year period ended December 31, 2021, in conformity with U.S.
generally accepted accounting principles.
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 10, 2022
F-2
ACCEL ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS and COMPREHENSIVE INCOME(LOSS)
(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 income (loss)
Interest expense, net
Loss (gain) on change in fair value of contingent earnout shares
(Gain) loss on change in fair value of warrants
Loss on debt extinguishment
Income (loss) before income tax expense (benefit)
Income tax expense (benefit)
Net income (loss)
Earnings (loss) per share:
Basic
Diluted
Weighted average number of shares outstanding:
Basic
Diluted
Comprehensive income (loss)
Net income (loss)
Unrealized (loss) gain on investment in convertible notes (net of
income taxes of $(36) and $36, respectively)
Comprehensive income (loss)
Years ended December 31,
2021
2020
2019
$
705,784 $
300,520 $
410,636
16,667
12,256
734,707
494,032
110,818
24,636
22,040
12,989
664,515
70,192
12,702
9,762
—
1,152
46,576
15,017
9,247
6,585
9,749
8,311
316,352
428,696
211,086
77,420
20,969
22,608
8,948
341,031
(24,679)
13,707
(8,484)
(12,574)
—
(17,328)
(16,918)
282,008
69,330
26,398
17,975
19,649
415,360
13,336
12,860
9,837
21,063
1,141
(31,565)
5,199
$
$
$
$
$
31,559 $
(410) $
(36,764)
0.34 $
0.33
0.00 $
(0.02)
(0.59)
(0.59)
93,781
94,638
83,045
83,113
61,848
61,848
31,559 $
(410) $
(36,764)
(93)
93
—
31,466 $
(317) $
(36,764)
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
Warrant and other long-term liabilities
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, 2021 and December 31, 2020
Class A-1 Common Stock, par value $0.0001; 250,000,000 shares authorized; 93,410,563 shares issued and
outstanding at December 31, 2021; 93,379,508 shares issued and outstanding at December 31, 2020
Treasury stock, at cost
Additional paid-in capital
Accumulated other comprehensive income
Accumulated deficit
Total stockholders' equity
Total liabilities and stockholders' equity
December 31,
2021
2020
$
$
$
$
198,786 $
6,998
—
32,065
10,146
247,995
152,251
15,913
150,672
46,199
—
—
3,043
215,827
616,073 $
17,500 $
2,079
3,969
11,441
14,616
8,886
13,344
71,835
324,022
3,953
12,706
42,831
17
2,248
385,777
—
9
(8,983)
187,656
—
(20,221)
158,461
616,073 $
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
13
—
379,980
—
9
—
179,549
93
(51,780)
127,871
560,241
The accompanying notes are an integral part of these consolidated financial statements
F-4
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F-5
(in thousands)
Cash flows from operating activities:
ACCEL ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended 31,
2021
2020
2019
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating
activities:
$
31,559
$
(410) $
(36,764)
Depreciation and amortization of property and equipment
24,636
20,969
26,398
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
Loss (gain) on change in fair value of contingent earnout shares
(Gain) loss on change in fair value of warrants
(Gain) 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
Payments for debt issuance costs
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
Other assets
Net cash provided by (used in) operating activities
$
Cash flows from investing activities:
Purchases of property and equipment
Proceeds from the sale of property and equipment
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
Proceeds from revolving debt
Payments on revolving debt
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
Proceeds from capital infusion in reverse recapitalization
Tax withholding on share-based payments
Cash and cash equivalents:
Beginning of year
End of year
Net cash (used in) provided by financing activities
Net increase in cash and cash equivalents
$
$
F-6
22,040
2,099
—
6,403
9,762
—
(63)
711
1,152
4,347
(2,566)
2,617
(156)
6,108
(4,982)
3,341
(3,077)
97
3,738
3,033
(44)
110,755
$
(29,753)
1,405
—
—
(6,196)
(34,544) $
12,338
(9,000)
—
(4,688)
42,000
(42,000)
(364)
(8,983)
—
1,704
(2,792)
—
—
(91)
(11,876) $
64,335
22,608
2,064
—
5,538
(8,484)
(12,574)
47
910
—
(584)
(1,766)
2,030
—
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(2,904)
566
(603)
(780)
(16,876)
3,452
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(3,705) $
(25,761)
394
—
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(35,769)
(61,435) $
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65,000
(5,438)
49,000
(107,500)
(677)
—
90,422
847
(5,448)
—
—
(18)
74,188
9,048
$
$
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655
2,891
2,236
9,837
21,063
100
342
1,141
6,723
—
1,623
—
4,081
(3,507)
(1,804)
(5,438)
(1,342)
(899)
494
(240)
45,565
(20,796)
121
(30,000)
—
(100,857)
(151,532)
240,000
(115,625)
169,000
(159,000)
179,250
(187,750)
(9,374)
—
—
3,583
(2,321)
(531)
27,030
(5,121)
139,141
33,174
92,229
125,403
134,451
198,786
$
125,403
134,451
ACCEL ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
(in thousands)
Supplemental disclosures of cash flow information:
Cash payments for:
Interest
Income taxes
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
Accrued debt issuance costs
Acquisition of businesses and assets:
Total identifiable net assets acquired
Less cash acquired
Less contingent consideration
Less promissory note
Cash purchase price
Year Ended 31,
2021
2020
2019
$
$
$
$
$
$
$
$
9,647 $
8,589 $
12,854 $
— $
12,024
1,759
2,718 $
— $
— $
3,956 $
6,948 $
(646)
(106)
—
6,196 $
14,992 $
364 $
(19,924) $
— $
39,731 $
(716)
(3,246)
—
35,769 $
11,501
—
—
—
119,178
(8,861)
(7,216)
(2,244)
100,857
The accompanying notes are an integral part of these consolidated financial statements
F-7
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1. Description of Business
Accel Entertainment, Inc., and its subsidiaries (“the Company”), through its 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. On December 30, 2021, one of the Company's
consolidated subsidiaries began amusement operations in Iowa. The Company is subject to various federal, state and local laws
and regulations in addition to gaming regulations.
The Company operates 13,639 and 12,247 VGTs across 2,584 and 2,435 locations in the State of Illinois as of December 31,
2021 and 2020, 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 3.
The Company is an emerging growth company ("EGC") 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 EGC 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 of 2020, 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
F-8
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Company's senior management decided to voluntarily forgo their base salaries until the resumption of video gaming operations.
Beginning in early June 2020, 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 were materially affected. The COVID-19 situation is rapidly changing as new variant strains continue to pose a threat to
the public health and additional impacts to the business and financial results 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., employee portion of health
insurance premiums) for furloughed employees during the IGB-mandated COVID-19 shutdown. 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.
While the IGB announced the resumption of all video gaming activities in January 2021, 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 and its related variants or other events.
If this were to occur, the Company's revenues, results of operations and cash flows could be materially affected and the Company
could recognize impairment losses which could be material.
Note 2. 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 reclassified to conform
to the current period presentation.
Previously adopted accounting pronouncements: In May 2014, the Financial Accounting Standards Board (“FASB”) issued
Accounting Standards Update (“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 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
F-9
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
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 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 upon adoption. The Company recorded a cumulative effect adjustment, net of taxes, to
accumulated deficit of $2.6 million for the year ended December 31, 2019, 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, the valuation of contingent earnout shares and warrants, 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 fourth quarter of 2021, the Company conducted a review of its estimate of depreciable lives for
its gaming terminals and equipment. As a result of this review, the Company extended the useful lives of its gaming terminals and
equipment from 10 years to 13 years as the equipment is lasting longer than originally estimated. The Company has many gaming
terminals and equipment that were purchased when the Company started operations in 2012 that are still being used today.
Also during the fourth quarter of 2021, the Company conducted a review of its estimate of the amortization periods for its route
and customer acquisition costs and its location contracts. As a result of this review, the Company extended the amortization
period of its route and customer acquisition costs from 12.4 years to 18 years and its location contracts from 10 years to 15 years.
In both cases the extended useful lives reflect the Company's strong relationship with its licensed establishment partners as
demonstrated by continued high contract renewal rates.
The impact of these changes in estimate for the year ended December 31, 2021, was as follows (in thousands):
Decrease to depreciation expense
Decrease to amortization expense
Increase to net income
Increase to net income per share
Year ended
December 31, 2021
$
$
$
$
1,232
2,688
3,920
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.
F-10
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
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:
Gaming terminals and equipment
Amusement and other equipment
Office equipment and furniture
Computer equipment and software
Leasehold improvements
Vehicles
Buildings and improvements
Years
13
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 investment in convertible notes on a recurring basis
based on Level 3 inputs. 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.
F-11
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
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 Company's Contingent earnout shares liability and warrant liability is measured at fair value on a recurring basis based on
Level 2 inputs.
For further discussion on how the Company determines the fair value of its investment in convertible notes, contingent
consideration, contingent earnout shares and warrants, see Note 13.
Revenue recognition: The Company generates revenues from the following types of services: 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 income (loss).
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,
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 over 18 years beginning on the date the location goes live and amortized over the life of the contract, which 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 income (loss) 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 income (loss) 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.
F-12
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
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 15 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
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 income
(loss) 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 2021, 2020, or 2019.
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 income (loss) as a
component of interest expense.
F-13
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Contingent earnout shares liability: The Company's Class A-2 common stock is classified as a contingent earnout shares
liability due to the fact that the conversion of the Company's Class 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 the Company’s consolidated statements of operations and comprehensive income (loss).
Warrant liability: The Company's Warrants are classified as a liability due to the fact that certain provisions preclude the
Warrants from being accounted for as components of stockholders’ equity, including certain settlement provisions that differ
based on the holder of the Warrants. The Warrants are measured at fair value at each reporting date in accordance with ASC 820,
Fair Value Measurement. The changes in fair value are recognized in the consolidated statement of operations and comprehensive
income (loss) in the period of change.
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 files tax returns 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
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. 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 income (loss).
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 income (loss).
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 income (loss).
Advertising costs were $4.8 million, $3.2 million, and $3.0 million for the years ended December 31, 2021, 2020, and 2019,
respectively.
F-14
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
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 income statement. Based on its status as an EGC, the Company expects the new standard
will be effective for the Company's fiscal year beginning after December 15, 2021. 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 the impact of
the standard on its condensed consolidated financial statements, as well as evaluating the impact on arrangements within potential
future acquisitions.
Other recently issued accounting standards or pronouncements have been excluded because they are either not relevant to the
Company, or are not expected to have, or did not have, a material effect on its consolidated financial statements.
Note 3. 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 Private Placement Warrants (as defined in Note 12), 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 Private Placement 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 TPG Pace Holdings Corp. 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.
F-15
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
In accounting for the reverse recapitalization, the net equity deficit from the reverse recapitalization was $68.4 million as
shown in the table below (in thousands):
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
Less impact from issuance of warrants
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)
(45,993)
(31,006)
(68,383)
10
(68,373)
(7,414)
(75,787)
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 public warrants began trading on the New York Stock Exchange.
F-16
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Note 4. Investment in Convertible Notes
On July 19, 2019, the Company entered into an agreement to purchase up to $30.0 million in convertible notes bearing
interest at 3% per annum from Gold Rush Amusements, Inc. (“Gold Rush”), another terminal operator in Illinois. The convertible
notes each included an option to convert the notes to common stock of Gold Rush prior to the maturity date upon written notice
from the Company. At closing, the Company purchased a $5.0 million note which was subordinated to Gold Rush’s credit facility
and matured six months following the satisfaction of administrative conditions.
On October 11, 2019, the Company purchased an additional $25.0 million note which was also subordinated to Gold Rush’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 Gold Rush entered into the Omnibus Amendment (the “Amendment”) to the original
agreement to purchase convertible notes from Gold Rush. 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 Gold Rush 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, extended 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 July 30, 2021, the Company provided notice to Gold Rush that it was exercising its rights under each of the convertible
notes to convert the entire aggregate principal amount and accrued interest into common stock of Gold Rush, subject to approval
from the IGB to transfer the common stock to the Company and receipt of other customary closing deliverables.
On December 2, 2021, the Company received notice from the administrator of the IGB that he was denying the requested
transfer of Gold Rush common stock to the Company. The Company disagreed with the administrator’s ruling and requested that
the matter be put before the IGB for a public vote. On January 27, 2022, the IGB affirmed the administrator’s denial. Although
the Company is pursuing all administrative remedies available to contest the IGB’s ruling, this denial has impacted the conversion
assumptions previously used in the accounting valuation of the convertible notes.
Based on the IGB denying the Company’s request to transfer Gold Rush common stock despite the Company’s unilateral
conversions rights, the convertible notes continue to be accounted for as available for sale debt securities, at fair value, with gains
and losses recorded in other comprehensive income (loss). The carrying amount of the investment in the convertible notes of
$32.1 million approximates the accounting fair value, in all material respects, as of December 31, 2021. The Company is
evaluating its legal remedies with respect to its rights to receive the Gold Rush common stock or equivalent amounts it is entitled
to receive with respect to the convertible notes, the value of which could be materially in excess of the current accounting fair
value. The Company recognized an unrealized loss of $0.1 million and a $0.1 million gain, net of taxes, within comprehensive
income (loss) for the years ended December 31, 2021 and 2020, respectively. For more information on how the Company
determined the fair value of the convertible notes, see Note 13.
F-17
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Note 5. Property and Equipment
Property and equipment consists of the following at December 31 (in thousands):
Gaming 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
2021
2020
$
225,692 $
197,533
18,547
1,731
14,319
4,127
11,518
10,997
911
3,898
23,049
1,526
12,793
1,707
9,430
10,845
911
1,886
291,740
259,680
(139,489)
(116,115)
$
152,251 $
143,565
Depreciation and amortization of property and equipment amounted to $24.6 million, $21.0 million and $26.4 million during
the years ended December 31, 2021, 2020 and 2019, respectively. Depreciation expense in 2021 reflects a change in estimate as
the Company extended the useful lives of its gaming terminals and equipment from 10 years to 13 years in the fourth quarter of
2021.
Note 6. 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 $6.8 million and $6.4
million as of December 31, 2021 and 2020, 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 $6.0 million and $5.7 million as of December 31, 2021 and 2020, respectively,
of which approximately $2.1 million and $1.6 million is included in current liabilities in the accompanying consolidated balance
sheets as of December 31, 2021 and 2020, respectively. The route and customer acquisition cost asset is comprised of upfront
payments made on the contracts of $18.0 million and $17.7 million as of December 31, 2021 and 2020, 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
$1.5 million and $1.7 million as of December 31, 2021 and 2020, respectively.
Route and customer acquisition costs consist of the following at December 31 (in thousands):
Cost
Accumulated amortization
Route and customer acquisition costs, net
2021
2020
$
$
28,902 $
(12,989)
15,913 $
27,364
(12,113)
15,251
Amortization expense of route and customer acquisition costs was $1.7 million, $1.8 million and $1.7 million for the years
ended December 31, 2021, 2020 and 2019, respectively. Amortization expense of route and customer acquisition costs is slightly
lower in 2021 when compared to the prior year as the Company extended the amortization period of its route and customer
acquisition costs from 12.4 years to 18 years in the fourth quarter of 2021.
F-18
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Note 7. 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
2021
2020
$
$
229,287 $
226,012
(78,615)
(58,278)
150,672 $
167,734
Each asset is amortized over the expected useful life of 15 years. Estimated amortization expense related to location contracts
acquired for the next five years and thereafter is as follows:
Year ending December 31:
2022
2023
2024
2025
2026
Thereafter
Total
$
13,151
13,151
13,151
13,151
13,006
85,062
$
150,672
Amortization expense of location contracts acquired was $20.3 million, $20.8 million and $16.2 million, during the years
ended December 31, 2021, 2020 and 2019, respectively. Amortization expense of location contracts is slightly lower in 2021
when compared to the prior year as the Company extended the amortization period of its location contracts from 10 years to 15
years in the fourth quarter of 2021.
Note 8. Goodwill
The Company had goodwill of $46.2 million as of December 31, 2021, of which $37.2 million is deductible for tax purposes.
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 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 $11.2 million. See Note 10 for more
information on how the amount of goodwill was calculated.
On December 30, 2021, the Company entered into an agreement with Rich and Junnie's Coin, Inc., an Iowa corporation, and
JBCJ, Inc., also an Iowa corporation (collectively referred to as "Rich and Junnie's") to acquire all of Rich and Junnie's operating
assets in Iowa and Illinois. The acquisition 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 $0.4 million. See Note 10 for more information on how the amount of
goodwill was calculated.
The Company conducted its annual goodwill impairment test on October 1, 2021. The Company conducted a qualitative
assessment, or step zero analysis, 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.
F-19
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
The Company also referenced its forecasts of revenue, operating income, and capital expenditures and concluded it is more likely
than not, that the carrying value of its goodwill was not impaired as of October 1, 2021.
The following is a roll forward of the Company's goodwill (in thousands):
Goodwill balance as of January 1, 2020
Addition to goodwill for acquisition of AVG
Goodwill balance as of December 31, 2020
Addition to goodwill for acquisition of Rich and Junnie's
Goodwill balance as of December 31, 2021
Note 9. Debt
The Company’s debt as of December 31, consisted of the following (in thousands):
Senior Secured Credit Facility (as amended):
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
Senior Secured Credit Facility
$
$
$
34,511
11,243
45,754
445
46,199
2021
2020
$
— $
350,000
—
350,000
(8,478)
341,522
(17,500)
—
228,000
119,562
347,562
(7,421)
340,141
(18,250)
$
324,022 $
321,891
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,
$240.0 million initial term loan facility and
$125.0 million additional term loan facility.
The additional term loan facility was available for borrowings until November 13, 2020. Each of the revolving loans and the
term loans were scheduled to mature on November 13, 2024. The Company incurred $8.8 million of debt issuance costs related to
the Senior Secured Credit Facility, which are being amortized over the life of the Facility.
Given the uncertainty of COVID-19 and its variants and the resulting potential impact to the gaming industry, as well as to
provide additional financial flexibility, the Company and the other parties thereto amended the Credit Agreement on August 4,
2020 ("Amendment No. 1") 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). Amendment No. 1 also raised the floor for the adjusted LIBOR rate to 0.50% and the floor for the Base Rate to
F-20
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
1.50%. The Company incurred costs of $0.4 million associated with Amendment No.1 of the Credit Agreement, of which $0.3
million was capitalized and is being amortized over the remaining life of the Credit Agreement. The waivers of financial covenant
breach were never utilized as the Company remained in compliance with all debt covenants during these periods.
On October 22, 2021, in order to increase the borrowing capacity under the Credit Agreement, the Company and the other
parties thereto entered into Amendment No. 2 to the Credit Agreement (“Amendment No. 2”). Amendment No. 2, among other
things, provides for
•
•
•
an increase in the amount of the revolving credit facility from $100.0 million to $150.0 million,
$350.0 million initial term loan facility, the proceeds of which were applied to refinancing existing indebtedness and
$400.0 million delayed draw term loan facility.
The maturity date of the Credit Agreement was extended to October 22, 2026. The interest rate and covenants remain
unchanged. The Company incurred $4.3 million in debt issuance costs associated with Amendment No. 2. The debt issuance costs
are presented as a non-cash item on the consolidated statements of cash flows (less the portion impacting net income which are
presented within operating activities) as they were financed with borrowings under the term loan. The Company also recognized a
loss on debt extinguishment of $1.2 million for the year ended December 31, 2021 due to a partial extinguishment associated with
certain lenders whose borrowing capacity decreased with the amendment.
As of December 31, 2021, there remained approximately $550.0 million of availability under the Credit Agreement.
The obligations under the Credit Agreement are guaranteed by the Company and its wholly-owned domestic subsidiaries
(collectively, the “Guarantors”), subject to certain exceptions. The obligations under the Credit Agreement are secured by
substantially all of the 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 their 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 0.5%) 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, 2021, the weighted-
average interest rate was approximately 3.2%.
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 (150 bps floor) plus a margin of 1.75% or (b) LIBOR (50 bps floor) plus a
margin of 2.75%, at the option of the Company.
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
F-21
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
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.
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 was in compliance with all debt covenants as of December 31, 2021.
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 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, 2021 are as follows (in thousands):
Year ending December 31:
2022
2023
2024
2025
2026
Total debt
$
$
17,500
17,500
17,500
17,500
280,000
350,000
The fair value of the Company’s debt at December 31, 2021 and 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 carrying value and estimated fair value the Company's debt at December 31, was as follows (in thousands):
Carrying value
Estimated fair value
2021
2020
$
350,000 $
331,122
340,141
309,528
F-22
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Note 10. Business and Asset Acquisitions
2021 Pending Acquisitions
On March 2, 2021, the Company announced that it had 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.
The transaction was approved by the board of directors of each of the Company and Century, and is expected to close in the first
half of 2022, subject to the satisfaction of customary closing conditions, including regulatory approvals from applicable gaming
authorities. The transaction is expected to 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 approximately 450,000 shares of common stock.
2021 Completed Business Acquisitions
On May 20, 2021, the Company acquired Island Games, Inc. (“Island”), a southern Georgia amusement operator and Master
Licensee in the state of Georgia. The acquisition of Island adds 30 Georgia Coin Operated Amusement Machine (“COAM”) Class
B locations to the Accel portfolio, including a total of 89 Class B COAM terminals. The total purchase price was approximately
$2.9 million, of which the Company paid $2.8 million in cash at closing. The remaining $0.1 million of contingent consideration
is to be paid in cash if certain operating metrics are achieved. The acquisition was accounted for as a business combination using
the acquisition method of accounting in accordance with Topic 805. The purchase price was allocated to the tangible assets and
identifiable intangible assets acquired and liabilities assumed based upon their estimated fair values. The results of operations for
Island is not material to the consolidated financial statements of the Company for the year ended December 31, 2021.
On December 30, 2021, the Company entered into an agreement to acquire all of Rich and Junnie's operating assets in Iowa
and Illinois. Rich and Junnie's operations in Iowa and Illinois consists of the ownership and operation of amusement devices and
ATMs in certain establishments. Total consideration was $4.2 million of which $3.6 million which was paid in cash at closing and
$0.6 million was recorded in short-term 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 was
allocated to the following assets: i) video game terminals and equipment totaling $0.3 million; ii) amusement and other equipment
totaling $1.3 million; iii) location contracts totaling $1.6 million; iv) cash totaling $0.6 million; and v) goodwill of $0.4 million.
The results of operations for Rich and Junnie's are not material to the consolidated financial statements of the Company as the
acquisition date (December 30, 2021) was one day prior to year end.
2020 Business Acquisitions
Tom's Amusements
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, 2021 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
F-23
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
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.
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 Company paid $2.3 million of the contingent consideration during the year ended
December 31, 2021. The fair value of the remaining contingent consideration payments 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 were not material to the consolidated financial statements of the Company for the year
ended December 31, 2020 as the acquisition date (December 30, 2020) was one day prior to year end and gaming was suspended
in Illinois for that one day.
F-24
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
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.
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-25
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 income (loss) 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. 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.
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, 2021, 2020 and 2019 as if the acquisitions of Rich and Junnie's, Island, AVG, Tom's Amusements,
and Grand River Jackpot, 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).
F-26
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Revenues
Net income
Consideration Payable
2021
2020
2019
$
738,295 $
327,090 $
31,812
(626)
466,466
(33,498)
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, 2021 and 2020. The
contingent consideration accrued is measured at fair value on a recurring basis.
Current and long-term portions of consideration payable consist of the following at December 31 (in thousands):
TAV*
Fair Share Gaming*
Family Amusement*
Skyhigh*
G3*
Grand River Jackpot
IGS
Island
Tom's Amusements
Rich and Junnie's
AVG
Total
2021
2020
Current
Long-Term
Current
Long-Term
$
490 $
2,858 $
490 $
1,875
677
801
414
6,479
—
100
1,491
646
371
508
1,944
7,396
—
—
—
—
—
—
—
1,096
391
601
355
—
80
—
—
—
—
$
13,344 $
12,706 $
3,013 $
3,206
523
2,609
5,789
100
5,755
—
—
1,455
—
1,506
20,943
•
Acquisitions that occurred prior to 2019.
Note 11. Contingent Earnout Share Liability
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 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's Class A-2 common stock
is classified as a contingent earnout shares liability due to the fact that the conversion of the Company's Class A-2 common stock
would be accelerated on a change of control regardless of the transaction value.
As discussed in Note 3, 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
F-27
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
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
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 12. Warrant liability
As discussed in Note 3, 7,333,326 private placement warrants to purchase shares of Class A-1 Common Stock were issued
with other consideration prior to the reverse recapitalization (the “Private Placement Warrants”). As a part of the reverse
recapitalization, 2,444,437 Private Placement Warrants were canceled and reissued under the same terms and conditions to Accel
F-28
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
legacy stockholders. Each Private Placement Warrants expires five years from issuance and entitles the holder to purchase one
share of Class A-1 Common Stock 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 Public Warrant expires five years from issuance and entitles the holder to
purchase one share of Class A-1 Common Stock 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 Private Placement Warrants were validly tendered representing approximately 99.93%
of the total Private Placement Warrants outstanding. The Company accepted all such Private Placement Warrants and issued an
aggregate of 1,797,474 shares of its Class A-1 Common Stock in exchange for the Private Placement Warrants tendered.
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:
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.
F-29
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
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, 2021
Assets:
Investment in convertible notes
$
32,065 $
—
$
32,065
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 (1)
$
31,266 $
— $
— $
31,266
(1) The fair value on the Company's investment in convertible notes for the year ended December 31, 2020 includes accrued
interest of $1.1 million, which is presented within other current assets on the consolidated balance sheets.
Investment in convertible notes
The Company previously engaged a third-party firm to assist it in determining the fair value of its investment in convertible
notes. The valuation as of December 31, 2020, 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 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 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 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. This valuation of the
Company's investment in convertible notes is considered to be a Level 3 fair value measurement as the significant inputs are
unobservable and require significant judgment or estimation.
As described in Note 4, on July 30, 2021, the Company provided notice to Gold Rush that it was exercising its rights to
convert the notes into common stock of Gold Rush, subject to approval from the IGB to transfer the common stock to the
Company. Accordingly, beginning in the third quarter of 2021, given the pending request for regulatory approval on the transfer
of equity interest, the fair value of the convertible notes was estimated using a probability-weighted approach. Assuming
F-30
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
regulatory approval was received, the fair value of the convertible notes was estimated on an as-converted basis by multiplying
the equity value of Gold Rush by the ownership percentage as calculated pursuant to the terms of the convertible note agreements.
In the scenario where regulatory approval was not received, the fair value of the convertible notes was estimated using a
discounted cash flow approach assuming the Company would request immediate redemption of the principal and accrued interest
and the discount rate was estimated based on comparable public debt rates. This assumption did not consider legal claims the
Company may have under the convertible notes to receive the economic value of the conversion shares, even if transfer of the
actual ownership interest in Gold Rush to Accel was not approved by the IGB. After the IGB Administrator’s denial of the
transfer of the equity interest on December 2, 2021, the Company concluded that the fair value of the convertible notes should be
calculated as principal plus accrued interest as of December 31, 2021. For the avoidance of doubt, this value is less than what
Accel maintains Gold Rush owes Accel under the convertible notes, but is consistent with ASC Topic 820. This valuation of the
Company's investment in convertible notes is considered to be a Level 3 fair value measurement as the significant inputs are
unobservable and the Company is evaluating its remedies with respect to the amounts owed by Gold Rush.
The following table provides a roll-forward of the fair value of recurring Level 3 fair value measurements for assets for the
year ended December 31 (in thousands):
Assets:
Beginning of year balance
Accrued interest
Fair value adjustments
Ending balance
2021
2020
$
$
31,266 $
30,234
928
(129)
903
129
32,065 $
31,266
Changes in the fair value of the investment in convertible notes is included within comprehensive income (loss) on the
accompanying consolidated statements of operations and comprehensive income (loss).
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
Warrants
Total
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, 2021
$
$
19,434 $
— $
— $
19,434
42,831
13
—
—
42,831
13
—
—
62,278 $
— $
42,844 $
19,434
F-31
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
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 $
— $
— $
17,260
33,069
13
—
—
33,069
13
—
—
50,342 $
— $
33,082 $
17,260
Liabilities:
Contingent consideration
Contingent earnout shares
Warrants
Total
Contingent consideration
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. 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 income (loss).
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 loss (gain) on change in fair value of
contingent earnout shares on the accompanying consolidated statements of operations and comprehensive income (loss).
Warrants
The Company determines the fair value of its Public Warrants based on their trading price (ticker symbol ACEL.WS) on the
NYSE and is considered to be a Level 1 fair value measurement. The Company initially determined the fair value of its Private
Placement Warrants by using the fair value of its Public Warrants and a Black-Scholes option-pricing model. The Black-Scholes
option-pricing model requires inputs such as the fair value of the Company's A-1 Common Stock, the risk-free interest rate,
expected term, expected dividend yield and expected volatility. Beginning in the second quarter of 2020, the valuation of the
Private Placement Warrants was based on the trading price of the Company's A-1 Common Stock divided by four as the holders
of its outstanding Warrants were to receive 0.25 shares of Class A-1 Common Stock in exchange for each Warrant tendered in an
exchange offer the Company consummated in August 2020. The Company's valuation of its Private Placement Warrants is
considered to be a Level 2 fair value measurement. Changes in the fair value of the Warrants are included within (gain) loss on
change in fair value of warrants on the accompanying consolidated statements of operations and comprehensive income (loss).
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):
F-32
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
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
2021
2020
2019
$
17,260 $
17,327 $
6,782
105
(4,358)
6,427
3,245
(4,420)
1,108
$
19,434 $
17,260 $
7,216
(1,658)
4,987
17,327
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).
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. During the year ended December 31, 2019, 190,575 warrants were exercised
prior to the reverse recapitalization for proceeds of $3.4 million.
F-33
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Treasury Stock
On November 22, 2021, the Company’s Board of Directors approved a share repurchase program of up to $200 million of
shares of common stock. The timing and actual number of shares repurchased will depend on a variety of factors, including price,
general business and market conditions, and alternative investment opportunities. Under the repurchase program, repurchases can
be made from time to time using a variety of methods, including open market purchases or privately negotiated transactions, in
compliance with the rules of the United States Securities and Exchange Commission and other applicable legal requirements. The
repurchase program does not obligate the Company to acquire any particular amount of shares, and the repurchase program may
be suspended or discontinued at any time at the Company’s discretion. As of December 31, 2021, the Company purchased
701,305 shares under the plan at a cost of $9.0 million.
At December 31, 2021 and 2020, 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
2021
5,411
3,150,215
3,333,363
6,488,989
2020
5,411
3,885,360
3,333,363
7,224,134
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. A 0.8513% administrative fee is payable to a third-party at the direction of the State of Illinois Gaming Board (the
“administrative fee”). Gaming terminal fees, which consist of the tax and administrative fee, totaled $245.7 million, $103.6
million and $133.2 million for the years ended December 31, 2021, 2020 and 2019, 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 $230.4 million, $98.3 million and $138.8 million for the years ended December 31, 2021, 2020 and 2019,
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 income (loss).
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 $0.9 million, $0.6
million and $0.6 million for the years ended December 31, 2021, 2020 and 2019, 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 $11.2 million, $1.9 million and $2.1 million for the years ended December 31, 2021, 2020 and 2019,
respectively. Accrued bonuses totaled $5.1 million and $2.5 million at December 31, 2021 and 2020, respectively.
F-34
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
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, 2021, 2020 and 2019, was $6.4 million, $5.5 million and $2.2 million,
respectively. As of December 31, 2021, and 2020, there was approximately $17.8 million and $20.0 million, respectively, of
unrecognized compensation expense related to stock-based awards, which is expected to be recognized through 2026.
During the years ended December 31, 2021, 2020 and 2019, the Company recognized gross excess tax benefits (expense)
from stock-based compensation of $2.3 million, $5.2 million, and $(0.1) million, respectively. 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
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 262,097 stock options to eligible officers and employees of the Company during
the year ended December 31, 2021, which will vest over a period of 4 years. The estimated grant date fair value of these options
totaled $1.8 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,
are as follows:
F-35
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Expected approximate volatility
Expected dividends
Expected term (in years)
Risk-free rate
2021
60%
None
7
2020
38%
None
7
0.72% -1.17% 0.44% - 1.19%
2019 *
—%
None
None
—%
* 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)
2021
262,097
4
2020
1,449,779
4 - 5
2019 *
0
0
The following table sets forth the activities of the Company’s outstanding stock options for the years ended December 31,
2021, 2020 and 2019.
Outstanding options
Outstanding at January 1, 2019
Granted
Exercised
Forfeited/expired
Outstanding at December 31, 2019
Granted
Exercised
Forfeited/expired
Outstanding at December 31, 2020
Granted
Exercised
Forfeited/expired
Outstanding at December 31, 2021
Weighted
Average Grant
Date Fair Value
Weighted
Average
Exercise Price
Shares
3,832,424 $
0.73 $
—
(2,590,274)
(13,751)
1,228,399
1,449,779
(359,987)
(68,580)
2,249,611
262,097
(577,719)
(377,503)
1,556,486
—
0.62
0.77
0.96
4.49
0.69
1.32
3.25
6.90
0.96
4.08
4.51
2.16
—
1.84
2.33
2.91
11.20
2.33
3.85
8.32
11.75
2.95
10.03
10.47
F-36
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
A summary of the status of the activities of the Company’s nonvested stock options for the years ended December 31, 2021,
2020 and 2019 is as follows.
Nonvested options
Nonvested at January 1, 2019
Granted
Vested
Forfeited
Nonvested at December 31, 2019
Granted
Vested
Forfeited
Nonvested at December 31, 2020
Granted
Vested
Forfeited
Nonvested at December 31, 2021
Weighted
Average Grant
Date Fair Value
Shares
1,709,589 $
—
(547,537)
(13,751)
1,148,301
1,449,779
(496,464)
(68,580)
2,033,036
262,097
(506,299)
(377,503)
1,411,331
0.82
—
0.85
0.77
0.95
4.49
0.08
1.32
3.49
6.90
1.23
4.08
4.77
As of December 31, 2021, and 2020, a total of 145,555 and 216,575 options with a weighted-average remaining contractual
term of 3.5 and 1.6 years, respectively, granted to key employees were vested. The fair value of options that vested during 2021,
2020 and 2019 was $0.3 million, $0.4 million, and $1.2 million, respectively. As of December 31, 2021, and 2020, the weighted-
average exercise price of the non-vested awards was $10.98 and $8.87, respectively. As of December 31, 2021, and 2020, the
weighted-average remaining contractual term of the outstanding awards was 7.5 years and 6.5 years, respectively. The total
intrinsic value of options that were exercised during the years ended December 31, 2021, 2020 and 2019 was approximately $5.2
million, $2.2 million and $20.7 million, respectively. The aggregate intrinsic value of options outstanding as of December 31,
2021 is $4.0 million.
Grant of restricted stock units (“RSUs”)
The Company issued 558,193 RSUs to eligible employees and Directors of the Company during the year ended
December 31, 2021, which will vest over a period of 4 to 5 years for employees and a period of 1 year for Directors. The RSUs
are valued using the stock price on the grant date and had an estimated grant date fair value of $6.7 million.
The following table sets forth the activities of the Company’s RSUs for the years ended December 31, 2021 and 2020. There
were no RSUs granted prior to 2020.
F-37
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Non-vested RSUs
Nonvested at January 1, 2020
Granted
Vested
Forfeited
Nonvested at December 31, 2020
Granted
Vested (1)
Forfeited
Nonvested at December 31, 2021
(1) Includes 154,641 RSUs that are vested and issued.
Note 18. Income Taxes
Weighted
Average Grant
Date Fair Value
Shares
— $
1,665,968
(4,960)
(25,259)
1,635,749
558,193
(343,579)
(256,634)
1,593,729
—
11.16
10.08
11.66
11.15
11.96
10.82
10.87
11.55
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 expense (benefit) of $15.0 million, $(16.9) million and $5.2 million during the years
ended December 31, 2021, 2020 and 2019, 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 expense (benefit)
2021
2020
2019
$
1,489 $
— $
7,418
8,907
—
—
8,363
(12,286)
(2,253)
(4,632)
6,110
(16,918)
$
15,017 $
(16,918) $
(85)
43
(42)
3,740
1,501
5,241
5,199
F-38
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
A reconciliation of the “expected” income taxes computed by applying the federal statutory income tax rate to the total
expense (benefit) is as follows (in thousands):
Computed “expected” tax expense (benefit)
Increase (decrease) in income taxes resulting from:
State income taxes
Return-to-provision
Change in fair value of contingent earnout shares
Change in fair value of warrants
Permanently non-deductible transaction costs
Officer's compensation
Other permanent items
Enacted rate change
Other
2021
2020
2019
$
9,781 $
(3,639) $
(6,629)
3,659
(258)
2,050
—
215
23
18
(28)
(442)
(2,848)
(7,613)
(1,782)
(2,640)
485
—
220
(6)
905
1,634
(340)
2,066
4,423
2,079
1,991
(16)
—
(9)
Total income tax expense (benefit)
$
15,017 $
(16,918) $
5,199
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
2021
2020
$
20,934 $
31,215
8,150
2,513
2,107
5,829
1,428
394
33,704
38,866
35,952
—
35,952
35,005
37
35,042
Total deferred tax (liability) asset, net
$
(2,248) $
3,824
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.
F-39
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
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, 2021, that the positive evidence outweighed the negative
evidence and that it is more likely than not that its deferred tax assets will be realized
As of December 31, 2021, and 2020, the Company did 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,
2021, the Company was subject to U.S federal income tax examinations for the years 2018 through 2020 and income tax
examinations from state jurisdictions for the years 2018 through 2020. The Company's 2017 federal income tax return was under
examination but the audit concluded in the fourth quarter of 2021 with no adjustments.
The following table summarizes carryforwards of net operating losses as of December 31 (in thousands):
Federal net operating losses
State net operating losses
2021
2020
Amount
Expiration
Amount
Expiration
$
61,514
Indefinite
$
108,830
106,810
2030
106,004
2033
2030
Significant equity restructuring often results in an Internal Revenue Section 382 ownership change that limits the future use
of net operating loss (“NOL”) carryforwards and other tax attributes. The Company has determined that it has undergone an
ownership change in 2019 (as defined by Section 382 of the Internal Revenue Code). As a result, the Company's use of NOL
carryforwards on an annual basis will be limited. Neither the amount of the Company's NOL carryforwards nor the amount of
limitation of such carryforwards claimed by the Company have been audited or otherwise validated by the Internal Revenue
Service, which could challenge the amount the Company has calculated. The recognition and measurement of the Company's tax
benefit includes estimates and judgment by the Company's management, which includes subjectivity. Changes in estimates may
create volatility in the Company's tax rate in future periods based on new information about particular tax positions that may
cause management to change its estimates.
The Company also had a credit carryforward of approximately $0.4 million as of December 31, 2020, which was 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 operational 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 income (loss) for the year ended December
31, 2020. 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 2022 through July 2028. Total rent
expense under these leases approximated $0.6 million, $0.5 million and $0.3 million for the years ended December 31, 2021,
2020 and 2019, 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 income (loss).
F-40
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Future minimum payments under these leases are as follows for the years ending December 31 (in thousands):
2022
2023
2024
2025
2026
Thereafter
Total
$
671
525
314
133
135
91
$
1,869
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.
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
F-41
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
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
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.
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 and the Company is in the process of defending this lawsuit.
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.
Given the status of the legal proceedings discussed above, the Company has determined that a legal liability is probable and
recorded an estimated loss of $0.6 million for the year ended December 31, 2021.
F-42
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Note 20. Related-Party Transactions
Subsequent to the Company's acquisitions of Fair Share, G3, Tom's Amusements and AVG, the sellers became employees of
the Company.
Consideration payable to the Fair Share seller was $2.4 million and $1.6 million as of December 31, 2021 and 2020,
respectively. Payments to the Fair Share seller under the acquisition agreement were $1.0 million for the year ended
December 31, 2021 and $0.9 million for both of the years ended December 31, 2020 and 2019.
Consideration payable to the G3 sellers was $0.4 million and $0.5 million as of December 31, 2021 and 2020, respectively.
Payments to the G3 seller under the acquisition agreement were $0.3 million, $2.5 million, and $0.4 million during the years
ended December 31, 2021, 2020 and 2019, respectively.
Consideration payable to the Tom's Amusements seller was $1.5 million as of December 31, 2021 and 2020, respectively.
There were no payments made to the Tom's Amusements seller for the years ended December 31, 2021and 2020.
Consideration payable to the AVG seller was $0.4 million and $1.5 million as of December 31, 2021 and 2020, respectively.
Payments to the AVG seller under the acquisition agreement were $2.3 million for the year ended December 31, 2021. There were
no payments to the AVG seller during 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, 2021, 2020, and
2019, Accel paid Much Shelist $0.2 million, $0.1 million, and $0.6 million, respectively. These payments were included in
general and administrative expenses within the consolidated statements of operations and comprehensive income (loss), however,
$0.2 million of the amounts paid in the fourth quarter of 2020 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.
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 (deficit). 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 income (loss) and contributed capital in the consolidated statement of
stockholders’ equity (deficit).
F-43
Accel Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)
Note 21. Earnings Per Share
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, unvested RSUs, contingent earnout shares, 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):
Net income (loss)
Less: Net income applicable to contingently issuable shares
Net income (loss) on which diluted earnings per share is calculated
2021
2020
2019
$
$
31,559 $
(410) $
(36,764)
—
909
—
31,559 $
(1,319) $
(36,764)
Basic weighted average outstanding shares of common stock
93,781
83,045
61,848
Dilutive effect of stock-based awards for common stock
Dilutive effect of contingent earnout shares before conversion
857
—
—
68
—
—
Diluted weighted average outstanding shares of common stock
94,638
83,113
61,848
Earnings (loss) per share:
Basic
Diluted
$
$
0.34 $
0.33 $
— $
(0.02) $
(0.59)
(0.59)
Anti-dilutive stock-based awards, contingent earnout shares and warrants excluded from the calculations of diluted EPS were
4,506,988, 7,224,134, and 28,561,724 for the years ended December 31, 2021, 2020 and 2019, respectively.
Note 22. Subsequent Events
As of the filing of the financial statements, the Gold Rush convertible notes (which the Company converted under the terms
of the convertible notes to shares of common stock of Gold Rush, but the IGB has currently denied the distribution of shares to
the Company) are deemed in default for disclosure and presentation purposes, assuming non-conversion of the convertible notes,
as no repayment or installment payments have been received. The Company has classified the entire $32.1 million accounting fair
value of the convertible notes as current on the consolidated balance sheets as the Company hopes to resolve this matter within the
next year. The Company did not further adjust the valuation of the convertible notes downward as the Company believes,
assuming for accounting purposes that the notes have not been converted, the recorded amounts approximate the accounting fair
value. The Company is evaluating its legal remedies with respect to its rights to receive the Gold Rush common stock or
equivalent amounts it is entitled to receive with respect to the convertible notes, the value of which could be materially in excess
of the current accounting fair value.
On March 9, 2022, the Company filed a lawsuit in the Circuit Court of Cook County against Gold Rush relating to the Gold
Rush convertible notes. The complaint seeks damages for breach of contract and the implied covenant of good faith and fair
dealing as well as unjust enrichment. The lawsuit is publicly available. For more information on the Gold Rush convertible notes,
See Note 4.
F-44
ACCEL ENTERTAINMENT, INC.
SUBSIDIARIES OF THE REGISTRANT
Exhibit 21.1
Name of Subsidiary
State or Jurisdiction of Incorporation/Organization
Accel Entertainment LLC
Accel Entertainment Gaming, LLC
Accel Entertainment Gaming (PA), LLC
Accel Entertainment Gaming (MO), LLC
Bulldog Holding, LLC
Bulldog Gaming, LLC
Hawkeye Gaming, LLC
Accel Abraham Facility, LLC
Accel Momence Watseka LLC
Grand River Jackpot, LLC
Grand River Amusements LLC
Delaware
Illinois
Pennsylvania
Missouri
Georgia
Georgia
Iowa
Illinois
Illinois
Illinois
Illinois
Consent of Independent Registered Public Accounting Firm
Exhibit 23
We consent to the incorporation by reference in the registration statement (No. 333-236049) on Form S-8 and the registration
statement (No. 333-236501) on Form S-3 of our report dated March 10, 2022, with respect to the consolidated financial
statements of Accel Entertainment, Inc.
/s/ KPMG LLP
Chicago, Illinois
March 10, 2022
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 10, 2022
/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 10, 2022
/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, 2021 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 10, 2022
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, 2021 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 10, 2022
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.
Karl Peterson
Chairman of the Board
Senior Partner of TPG and managing Partner of TPG Pace Group
Gordon Rubenstein
Vice Chairman of the Board
Managing Partner at Raine Ventures
Eden Godsoe
Chief Revenue Officer and Chief Operating Officer at Towne (Qvale Technologies)
Kathleen Philips
Former Chief Legal Officer and Chef Financial Officer at Zillow Group
Dee Robinson
Founder and Chief Executive Officer of Robinson Hill, Inc.
Kenneth B. Rotman
Chief Executive Officer and Managing Director of Clairvest
Group Inc.
David W. Ruttenberg
Founder
and
Former Chairman
of Belgravia Group Limited
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
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, 2022 at 1:00 pm (Central Time)
Virtual only: http://www.virtualshareholdermeeting.com/ACEL2022
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 11, 2022, for a fuller description of such forward-
looking statements.