Accel Entertainment 10Q 2024 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to ______

Commission File Number 001-38136

Accel Entertainment, Inc.

(Exact Name of Registrant as specified in its charter)


Delaware						98-1350261
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

140 Tower Drive
Burr Ridge, Illinois 60527
(Address of principal executive offices) (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	Trading Symbols	Name of each exchange on which registered
Class A-1 Common Stock, par value $.0001 per share	ACEL	The New York Stock Exchange

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

☐

Accelerated filer

☒

Non-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 is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

As of May 6, 2024, there were 83,746,192 shares outstanding of the registrant’s Class A-1 Common Stock, par value $.0001 per share.

ACCEL ENTERTAINMENT, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2024

TABLE OF CONTENTS


PART I.	FINANCIAL INFORMATION	1
ITEM 1.	FINANCIAL STATEMENTS	1
	Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited) for the three months ended March 31, 2024 and 2023	1
	Condensed Consolidated Balance Sheets as of March 31, 2024 (Unaudited) and December 31, 2023	2
	Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) for the three months ended March 31, 2024 and 2023	3
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the three months ended March 31, 2024 and 2023	4
	Notes to the Condensed Consolidated Financial Statements (Unaudited)	6
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	21
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	30
ITEM 4.	CONTROLS AND PROCEDURES	31

PART II.	OTHER INFORMATION	32
ITEM 1.	LEGAL PROCEEDINGS	32
ITEM 1A.	RISK FACTORS	32
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	32
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	33
ITEM 4.	MINE SAFETY DISCLOSURES	33
ITEM 5.	OTHER INFORMATION	33
ITEM 6.	EXHIBITS	34

SIGNATURES		35

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

ACCEL ENTERTAINMENT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Unaudited)


(In thousands, except per share amounts)	Three Months Ended March 31,
	2024		2023
Net revenues:
Net gaming	$	288,137	$	279,380
Amusement	6,129		6,798
Manufacturing	2,209		2,122
ATM fees and other	5,342		4,908
Total net revenues	301,817		293,208
Operating expenses:
Cost of revenue (exclusive of depreciation and amortization expense shown below)	209,167		203,554
Cost of manufacturing goods sold (exclusive of depreciation and amortization expense shown below)	1,159		1,408
General and administrative	47,634		43,018
Depreciation and amortization of property and equipment	10,434		9,063
Amortization of intangible assets and route and customer acquisition costs	5,438		5,242
Other expenses, net	2,426		3,251
Total operating expenses	276,258		265,536
Operating income	25,559		27,672
Interest expense, net	8,660		7,888
Loss on change in fair value of contingent earnout shares	4,716		4,602

Income before income tax expense	12,183		15,182
Income tax expense	4,767		6,000
Net income	$	7,416	$	9,182
Earnings per common share:
Basic	$	0.09	$	0.11
Diluted	0.09		0.11
Weighted average number of common shares outstanding:
Basic	84,298		86,885
Diluted	85,300		87,132

Comprehensive income
Net income	$	7,416	$	9,182

Unrealized gain (loss) on interest rate caplets (net of income taxes of $405 and $(829), respectively)	1,081		(2,166)
Comprehensive income	$	8,497	$	7,016

The accompanying notes are an integral part of these condensed consolidated financial statements

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ACCEL ENTERTAINMENT, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS


(In thousands, except par value and share amounts)	March 31,		December 31,
	2024		2023
Assets	(Unaudited)
Current assets:
Cash and cash equivalents	$	253,919	$	261,611
Accounts receivable, net	13,737		13,467
Prepaid expenses	8,092		6,287
Inventories	7,841		7,681

Interest rate caplets	8,912		8,140

Other current assets	16,763		15,408
Total current assets	309,264		312,594
Property and equipment, net	271,414		260,813
Noncurrent assets:
Route and customer acquisition costs, net	20,458		19,188
Location contracts acquired, net	173,206		176,311
Goodwill	101,554		101,554
Other intangible assets, net	19,933		20,542
Interest rate caplets, net of current	5,342		4,871

Other assets	17,956		17,020
Total noncurrent assets	338,449		339,486
Total assets	$	919,127	$	912,893
Liabilities and Stockholders’ Equity
Current liabilities:
Current maturities of debt	$	28,485	$	28,483

Current portion of route and customer acquisition costs payable	1,480		1,505
Accrued location gaming expense	9,352		9,350
Accrued state gaming expense	19,076		18,364
Accounts payable and other accrued expenses	39,046		36,012
Accrued compensation and related expenses	8,900		12,648
Current portion of consideration payable	2,791		3,288
Total current liabilities	109,130		109,650
Long-term liabilities:
Debt, net of current maturities	511,425		514,091
Route and customer acquisition costs payable, less current portion	4,702		4,955
Consideration payable, less current portion	4,252		4,201
Contingent earnout share liability	36,544		31,827
Other long-term liabilities	7,144		7,015
Deferred income tax liability, net	43,801		42,750
Total long-term liabilities	607,868		604,839
Stockholders’ equity:
Preferred Stock, par value of $0.0001; 1,000,000 shares authorized; 0 shares issued and outstanding at March 31, 2024 and December 31, 2023	—		—
Class A-1 Common Stock, par value $0.0001; 250,000,000 shares authorized; 95,266,660 shares issued and 83,778,268 shares outstanding at March 31, 2024; 95,016,960 shares issued and 84,123,385 shares outstanding at December 31, 2023	8		8

Additional paid-in capital	204,456		203,046
Treasury stock, at cost	(118,252)		(112,070)
Accumulated other comprehensive income	9,017		7,936
Accumulated earnings	106,900		99,484
Total stockholders' equity	202,129		198,404
Total liabilities and stockholders' equity	$	919,127	$	912,893

The accompanying notes are an integral part of these condensed consolidated financial statements

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ACCEL ENTERTAINMENT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)


(In thousands, except shares)									Accumulated
	Class A-1			Additional		Treasury			Other				Total
	Common Stock			Paid-In		Stock			Comprehensive		Accumulated		Stockholders’
	Shares	Amount		Capital		Shares	Amount		Income		Earnings		Equity
Balance, January 1, 2024	84,123,385	$	8	$	203,046	(10,893,575)	$	(112,070)	$	7,936	$	99,484	$	198,404
Repurchase of common stock	(594,817)	—		—		(594,817)	(6,182)		—		—		(6,182)
Stock-based compensation	—	—		2,350		—	—		—		—		2,350
Exercise of stock-based awards, net of shares withheld	249,700	—		(940)		—	—		—		—		(940)
Unrealized gain on interest rate caplets, net of taxes	—	—		—		—	—		1,081		—		1,081
Net income	—	—		—		—	—		—		7,416		7,416
Balance, March 31, 2024	83,778,268	$	8	$	204,456	(11,488,392)	$	(118,252)	$	9,017	$	106,900	$	202,129


(In thousands, except shares)									Accumulated
	Class A-1			Additional		Treasury			Other				Total
	Common Stock			Paid-In		Stock			Comprehensive		Accumulated		Stockholders’
	Shares	Amount		Capital		Shares	Amount		Income		Earnings		Equity
Balance, January 1, 2023	86,674,390	$	9	$	194,157	(7,829,661)	$	(81,697)	$	12,240	$	53,881	$	178,590
Repurchase of common stock	(476,718)	—		—		(476,718)	(4,206)		—		—		(4,206)
Stock-based compensation	—	—		1,688		—	—		—		—		1,688
Exercise of stock-based awards, net of shares withheld	247,153	—		(602)		—	—		—		—		(602)
Unrealized loss on interest rate caplets, net of taxes	—	—		—		—	—		(2,166)		—		(2,166)
Net income	—	—		—		—	—		—		9,182		9,182
Balance, March 31, 2023	86,444,825	$	9	$	195,243	(8,306,379)	$	(85,903)	$	10,074	$	63,063	$	182,486

The accompanying notes are an integral part of these condensed consolidated financial statements

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ACCEL ENTERTAINMENT, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)	Three Months Ended March 31,
	2024		2023
Cash flows from operating activities:
Net income	$	7,416	$	9,182
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property and equipment	10,434		9,063
Amortization of intangible assets and route and customer acquisition costs	5,438		5,242
Amortization of debt issuance costs	455		449
Loss on change in fair value of contingent earnout shares	4,716		4,602

Stock-based compensation	2,350		1,688
Loss (gain) on disposal of property and equipment	42		(9)
Net loss on write-off of route and customer acquisition costs and route and customer acquisition costs payable	118		321

Remeasurement of contingent consideration	288		162
Payments on consideration payable	(823)		(551)
Accretion of interest on route and customer acquisition costs payable, contingent consideration, and contingent stock consideration	296		383
Deferred income taxes	646		2,315
Changes in operating assets and liabilities:
Prepaid expenses and other current assets	(1,634)		589
Accounts receivable, net	(270)		3,426
Inventories	(160)		(529)
Route and customer acquisition costs	(1,883)		(730)
Route and customer acquisition costs payable	(353)		(424)
Accounts payable and accrued expenses	4,951		5,588
Accrued compensation and related expenses	(3,748)		(3,903)
Other assets	471		1,119
Net cash provided by operating activities	28,750		37,983
Cash flows from investing activities:
Purchases of property and equipment	(20,635)		(21,461)
Proceeds from the sale of property and equipment	180		476


Advances against a portion of the purchase price on a pending business acquisition	(1,800)		—
Business and asset acquisitions, net of cash acquired	(3,641)		(2,600)
Net cash used in investing activities	(25,896)		(23,585)
Cash flows from financing activities:
Proceeds from debt	15,000		8,000
Payments on debt	(17,875)		(12,625)

Payments for repurchase of common stock	(6,121)		(4,206)
Payments on interest rate caplets	(244)		(240)
Proceeds from exercise of stock-based awards	68		—
Payments on finance leases	(54)		—
Payments on consideration payable	(132)		(168)
Tax withholding on stock-based payments	(1,188)		(743)
Net cash used in financing activities	(10,546)		(9,982)
Net (decrease) increase in cash and cash equivalents	(7,692)		4,416
Cash and cash equivalents:
Beginning of period	261,611		224,113
End of period	$	253,919	$	228,529

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ACCEL ENTERTAINMENT, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued) (Unaudited)
(In thousands)	Three Months Ended March 31,
	2024		2023
Supplemental disclosures of cash flow information:
Cash payments for:
Interest, net	$	7,685	$	9,275
Income taxes	$	—	$	—
Supplemental schedules of noncash investing and financing activities:
Purchases of property and equipment in accounts payable and accrued liabilities	$	14,022	$	10,885
Deferred premium on interest rate caplets	$	1,815	$	2,784


Acquisition of businesses and assets:
Total identifiable net assets acquired	$	3,641	$	2,600



Cash purchase price	$	3,641	$	2,600

The accompanying notes are an integral part of these condensed consolidated financial statements

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ACCEL ENTERTAINMENT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1. Description of Business

Accel Entertainment, Inc. (and together with its subsidiaries, the “Company” or “Accel”) is a leading distributed gaming operator in the United States (“U.S.”). The Company has operations in Illinois, Montana, Nevada, Nebraska, Georgia, Iowa, and Pennsylvania. The Company is subject to the various gaming regulations in the states in which it operates, as well as various other federal, state and local laws and regulations.

The Company’s business primarily consists of the installation, maintenance, operation and servicing of gaming terminals and related equipment, redemption devices that disburse winnings and contain automated teller machine (“ATM”) functionality, and amusement devices in authorized non-casino locations such as restaurants, bars, taverns, convenience stores, liquor stores, truck stops, and grocery stores. The Company also operates stand-alone ATMs in gaming and non-gaming locations.

Note 2. Summary of Significant Accounting Policies

Basis of presentation and preparation: The condensed consolidated financial statements and accompanying notes were prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”). The condensed 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. In the opinion of management, the condensed consolidated financial statements include all recurring adjustments and normal accruals necessary for a fair presentation of the Company’s financial position, results of operations and cash flows for the dates and periods presented. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (the “Form 10-K”). In preparing our condensed consolidated financial statements, we applied the same significant accounting policies as described in Note 2 to the consolidated financial statements in the Form 10-K. Any significant changes to those accounting policies are discussed below. Interim results are not necessarily indicative of results for a full year.

Use of estimates: The preparation of the condensed 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 condensed 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 acquisitions, the selection of useful lives for depreciable and amortizable assets in conjunction with business acquisitions, the valuation of level 3 investments, the valuation of contingent earnout shares and warrants, the valuation of interest rate caplets, contingencies, and the expected term of share-based compensation awards and stock price volatility when computing stock-based compensation expense. Actual results may differ from those estimates.

Segment information: The Company operates as a single reportable 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 its 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.

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Accel Entertainment, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements — (Continued)

Revenue recognition: The Company generates revenues from the following types of services: gaming terminals, amusements, and ATMs. The Company also generates manufacturing revenue from the sales of gaming terminals and associated software. Revenue is disaggregated by type of revenue and is presented on the face of the condensed consolidated statements of operations and comprehensive income.

Total net revenues for the three months ended March 31, 2024 and 2023 are further disaggregated by the primary states in which the Company operates.


(in thousands)	Three Months Ended March 31,
	2024		2023
Net revenues by state:
Illinois	$	224,863	$	219,843
Montana	38,141		36,451
Nevada	29,209		29,961
Nebraska	5,834		3,924
Other	3,770		3,029
Total net revenues	$	301,817	$	293,208

Recent accounting pronouncements: On November 27, 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires public entities to disclose information about their reportable segments’ significant expenses regularly provided to the CODM. The amendments in this ASU enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure requirements for entities with a single reportable segment, and contain other disclosure requirements. The ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Entities must adopt the changes to the segment reporting guidance on a retrospective basis. The Company is currently evaluating the potential effect that this ASU will have on its financial statement disclosures.

On December 14, 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The ASU requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid disaggregated by jurisdiction. The new requirements will be effective for annual periods beginning after December 15, 2024, and will be applied on a prospective basis with the option to apply the standard retrospectively. The Company is currently evaluating the potential effect that this ASU will have on its financial statement disclosures.

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 condensed consolidated financial statements.

Note 3. Inventories

Inventories consist of the following as of March 31, 2024 and December 31, 2023 (in thousands):


	March 31, 2024		December 31, 2023
Raw materials and manufacturing supplies	$	5,906	$	5,693
Finished products	1,935		1,988
Total inventories	$	7,841	$	7,681

As of March 31, 2024 and December 31, 2023, no inventory valuation allowance was determined to be necessary.

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Accel Entertainment, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements — (Continued)

Note 4. Investment in Convertible Notes

On May 31, 2023, the Company and Gold Rush Amusements, Inc. (“Gold Rush”), another terminal operator in Illinois, entered into a settlement agreement which resolved any and all lawsuits and all outstanding obligations under the Company’s investment in Gold Rush’s convertible notes. As part of the settlement, the Company received $32.5 million from Gold Rush in June 2023, which included the repayment of the face value of the convertible notes plus accrued interest as well as a $0.4 million prepayment on future amounts due. In addition, the Company has a receivable from Gold Rush of $1.4 million as of March 31, 2024, which represents the present value of the remaining $1.5 million due from Gold Rush by May 2025, and is presented within other assets in the condensed consolidated balance sheets.

Note 5. Property and Equipment

Property and equipment consist of the following as of March 31, 2024, and December 31, 2023 (in thousands):


	March 31, 2024		December 31, 2023
Gaming terminals, software and equipment	$	380,641	$	361,662
Amusement, ATM and other equipment	28,536		27,182
Office equipment and furniture	3,618		3,385
Computer equipment and software	21,064		20,592
Leasehold improvements	9,349		8,281
Vehicles	20,387		19,862
Buildings and improvements	15,367		14,047
Land	2,998		2,469
Construction in progress	1,320		5,480
Total property and equipment	483,280		462,960
Less accumulated depreciation and amortization	(211,866)		(202,147)
Total property and equipment, net	$	271,414	$	260,813

Depreciation and amortization of property and equipment was $10.4 million and $9.1 million for the three months ended March 31, 2024 and 2023, respectively.

Note 6. Route and Customer Acquisition Costs

The Company enters into contracts with third parties and its gaming locations to install and operate gaming terminals. Payments are due when gaming operations commence and then on a periodic basis for a specified period of time thereafter. Gross payments due, based on the number of live locations, were approximately $7.1 million and $7.4 million as of March 31, 2024 and December 31, 2023, 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 was $6.2 million and $6.5 million as of March 31, 2024 and December 31, 2023, respectively, of which approximately $1.5 million was included in current liabilities in the accompanying condensed consolidated balance sheets as of both March 31, 2024 and December 31, 2023. The route and customer acquisition cost asset was comprised of payments made on the contracts of $21.7 million and $20.0 million as of March 31, 2024 and December 31, 2023, 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 clawback provision if the customer cancels the contract prior to completion. The payments subject to a clawback were $1.0 million as of both March 31, 2024 and December 31, 2023.

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Accel Entertainment, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements — (Continued)

Route and customer acquisition costs consisted of the following as of March 31, 2024 and December 31, 2023 (in thousands):


	March 31, 2024		December 31, 2023
Cost	$	35,390	$	33,855
Accumulated amortization	(14,932)		(14,667)
Route and customer acquisition costs, net	$	20,458	$	19,188

Amortization expense of route and customer acquisition costs was $0.5 million and $0.4 million for the three months ended March 31, 2024 and 2023, respectively.

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 consisted of the following as of March 31, 2024 and December 31, 2023 (in thousands):


	March 31, 2024		December 31, 2023
Cost	$	287,958	$	286,728
Accumulated amortization	(114,752)		(110,417)
Location contracts acquired, net	$	173,206	$	176,311

Amortization expense of location contracts acquired was $4.3 million for both the three months ended March 31, 2024 and 2023.

Note 8. Goodwill and Other Intangible Assets

The Company acquired various companies which were accounted for as a business combination using the acquisition method of accounting in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“Topic 805”). The total excess of the purchase price over the tangible and intangible assets acquired and liabilities assumed was recorded as goodwill of $101.6 million as of both March 31, 2024 and December 31, 2023, of which $38.0 million was deductible for tax purposes as of March 31, 2024.

Other intangible assets

Other intangible assets consist of definite-lived trade names, customer relationships, and software applications. The Company determines the fair value of trade name assets acquired in acquisitions using a relief from royalty valuation method which requires assumptions such as projected revenue and a royalty rate. Other intangible assets are amortized over their estimated 7 to 20-year useful lives.

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Accel Entertainment, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements — (Continued)

Other intangible assets consist of the following as of March 31, 2024 and December 31, 2023 (in thousands):


		March 31, 2024						December 31, 2023
	Amortization Period	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount

Customer Relationships	7 years	$	6,800	$	(1,781)	$	5,019	$	6,800	$	(1,538)	$	5,262
Software Applications	8 years	7,800		(1,788)		6,012		7,800		(1,544)		6,256
Trade Names	20 years	9,800		(898)		8,902		9,800		(776)		9,024
		$	24,400	$	(4,467)	$	19,933	$	24,400	$	(3,858)	$	20,542

Amortization expense of other intangible assets was $0.6 million for both the three months ended March 31, 2024 and 2023.

Indefinite-lived intangible assets

The Company also has indefinite-lived intangible assets related to operating licenses totaling $3.7 million and $2.8 million as of March 31, 2024 and December 31, 2023, respectively, which are recorded within other assets on the condensed consolidated balance sheets.

Note 9. Debt

The Company’s debt as of March 31, 2024 and December 31, 2023, consisted of the following (in thousands):


	March 31, 2024		December 31, 2023
Senior Secured Credit Facility:
Revolving credit facility	$	50,000	$	46,000
Term Loan	306,250		310,625
Delayed Draw Term Loan	186,250		188,750
Total borrowings	542,500		545,375
Add: Remaining premium on interest rate caplets financed as debt	1,815		2,059
Less: Debt issuance costs	(4,405)		(4,860)
Total debt, net of debt issuance costs	539,910		542,574
Less: Current maturities	(28,485)		(28,483)
Total debt, net of current maturities	$	511,425	$	514,091

As of March 31, 2024, the weighted-average interest rate on the Company’s borrowings was approximately 7.7%.

Interest rate caplets

The Company manages its exposure to some of its interest rate risk through the use of interest rate caplets, which are derivative financial instruments. On January 12, 2022, the Company hedged the variability of the cash flows attributable to changes in the 1-month LIBOR/SOFR interest rates on the first $300 million of the term loan under the Company’s existing credit agreement, as amended, by entering into a 4-year series of 48 deferred premium caplets (“caplets”)

The Company recognized an unrealized gain, net of taxes, on the change in fair value of the caplets of $1.1 million for the three months ended March 31, 2024, and an unrealized loss of $2.2 million, net of taxes, for the three months ended 2023. For more information on how the Company determines the fair value of the caplets, see Note 12. The Company also recognized interest income on the caplets of $2.6 million and $1.9 million for the three months ended March 31, 2024 and 2023, respectively,

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Notes to Condensed Consolidated Financial Statements — (Continued)

which is reflected in interest expense, net in the condensed consolidated statements of operations and other comprehensive income.

Note 10. Business Acquisitions

2024 Business Acquisitions

Great Lakes Vending

On February 22, 2024, the Company acquired certain assets of Great Lakes Vending Corporation (“GLV”), an Illinois-based terminal operator. The Company acquired one operational location, as well as gaming and redemption terminal equipment. The acquisition was accounted for as an asset acquisition in accordance with Topic 805. The total purchase price was approximately $1.3 million, which the Company paid in cash at closing. The total purchase price of $1.3 million was allocated to the following assets: i) location contracts totaling $1.2 million and ii) gaming and redemption equipment totaling $0.1 million. The results of operations for GLV are included in the condensed consolidated financial statements of the Company from the date of acquisition and were not material.

Doc & Eddy’s

On January 10, 2024, the Company acquired Doc & Eddy’s West (“D&E”), a hospitality operation in Montana. The hospitality operation is set to be a Century-vended operation. The acquisition was accounted for as an asset purchase acquisition in accordance with Topic 805. The total purchase price was approximately $2.3 million, which the Company paid in cash at closing, and was allocated to the following assets: i) buildings totaling $1.0 million, ii) indefinite long lived assets totaling $0.9 million and iii) land totaling $0.4 million. The results of operations for D&E are included in the condensed consolidated financial statements of the Company from the date of acquisition and were not material.

Subsequent event - Illinois Gaming Entertainment

On May 1, 2024, the Company acquired certain assets of Illinois Gaming Entertainment LLC (“IGE”), an Illinois-based terminal operator. The Company acquired 16 operational locations, as well as gaming equipment. The total purchase price was approximately $13.7 million, of which the Company paid $11.2 million in cash at closing. The remaining $2.5 million of consideration is payable in three installments of $0.6 million which are due on the first, second and third anniversary of the acquisition with the remaining $0.7 million due on the fourth anniversary. All payments are subject to the acquired locations still being in operation on the respective anniversary date.

Pending Business Acquisition

On April 11, 2023, the Company entered into an agreement to acquire a distributed gaming operator in the state of Louisiana with an option to acquire a second distributed gaming operator in the state of Louisiana. In connection therewith, the Company has paid $8.2 million through the three months ended March 31, 2024, as an advance against a portion of the purchase price and is recorded within other assets on the condensed consolidated balance sheets. Furthermore, on August 10, 2023, the Company loaned the distributed gaming operator $0.3 million. The Company agreed to pay an additional $0.7 million in April 2024, against the final purchase price.

2023 Business Acquisitions

Illinois Video Slot Management

On December 27, 2023, the Company acquired certain assets of Illinois Video Slot Management Corp. (“IVSM”), an Illinois-based terminal operator. The Company acquired a gaming location, as well as gaming equipment. The acquisition was accounted for as an asset acquisition in accordance with Topic 805. The total purchase price was approximately $1.0 million, of which the

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Accel Entertainment, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements — (Continued)

Company paid $0.7 million in cash at closing. The remaining $0.3 million of consideration is payable in three installments of $0.1 million which are due on the first, second and third anniversary of the acquisition assuming the location is still in operation. The total purchase price of $1.0 million was allocated to the following assets: i) a location contract totaling $0.9 million and ii) gaming equipment totaling $0.1 million. The results of operations for the IVSM acquisition is included in the condensed consolidated financial statements of the Company from the date of acquisition and were not material.

Illinois Gaming Entertainment

On May 23, 2023, the Company acquired four operational locations from IGE, as well as gaming equipment. The acquisition was accounted for as an asset acquisition in accordance with Topic 805. The total purchase price was approximately $1.5 million, which the Company paid in cash at closing. The total purchase price of $1.5 million was allocated to the following assets: i) location contracts totaling $1.1 million and ii) gaming equipment totaling $0.4 million.

On October 3, 2023, the Company acquired three additional operational locations from IGE, as well as gaming equipment. The acquisition was accounted for as an asset acquisition in accordance with Topic 805. The total purchase price was approximately $2.3 million, which the Company paid in cash at closing. The total purchase price of $2.3 million was allocated to the following assets: i) location contracts totaling $2.0 million and ii) gaming equipment totaling $0.3 million.

The results of operations for both IGE acquisitions are included in the condensed consolidated financial statements of the Company from the date of acquisition and were not material.

Rendezvous

On February 13, 2023, the Company acquired Rendezvous, a hospitality operation in Billings, Montana. The hospitality operation is set to be a Century vended location. The acquisition was accounted for as a business combination using the acquisition method of accounting in accordance with Topic 805. The total purchase price of $2.6 million was paid in cash at closing and was allocated to the following assets: i) indefinite-lived intangible assets totaling $0.8 million; ii) land totaling $0.5 million; iii) buildings totaling $0.4 million; iv) gaming equipment totaling $0.1 million, and v) goodwill totaling $0.8 million. The results of operations for Rendezvous are included in the condensed consolidated financial statements of the Company from the date of acquisition and were not material.

Consideration Payable

The Company has a contingent consideration payable related to certain locations, as defined in each 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 consideration payable on the condensed consolidated balance sheets as of March 31, 2024 and December 31, 2023. The contingent consideration accrued is measured at fair value on a recurring basis. The Company presents on its statement of cash flows, payments for consideration payable within 90-days in investing activities, payments after 90-days and up to the acquisition date fair value in financing activities, and payments in excess of the acquisition date fair value in operating activities.

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Accel Entertainment, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements — (Continued)

Current and long-term portions of consideration payable consist of the following as of March 31, 2024 and December 31, 2023 (in thousands):


	March 31, 2024				December 31, 2023
	Current		Long-Term		Current		Long-Term
TAV*	$	1,512	$	—	$	2,005	—
Fair Share Gaming*	474		87		504		92

Skyhigh*	553		3,994		528		3,941


IVSM	95		171		94		168

Tom's Amusements*	57		—		57		—


Island*	100		—		100		—


Total	$	2,791	$	4,252	$	3,288	$	4,201

* Acquisitions that occurred prior to 2023.

Note 11. Contingent Earnout Share Liability

Pursuant to the terms of the Company’s Amended and Restated Certificate of Incorporation, the Company authorized and has available for issuance 10,000,000 shares of Class A-2 common stock. The holders of the Class A-2 common stock do not have voting rights and are not entitled to receive or participate in any dividends or distributions when and if declared from time to time. The Company concluded that the Class A-2 common stock should be reflected as a contingent earnout share liability due to the fact that such shares are not entitled to dividends, voting rights, or a stake in the Company in the case of liquidation. The contingent earnout share liability is recorded at fair value. For more information on how the fair value is determined, see Note 12.

In 2019, 5,000,000 shares of Class A-2 common stock were issued, subject to the conditions set forth in a restricted stock agreement (the “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 specified triggers, based either on the Company achieving certain last twelve month EBITDA (“LTM EBITDA”) thresholds in certain periods or the closing sale price of Class A-1 common stock exceeding certain prices over certain trading periods.

In 2020, the market condition for the settlement of Tranche I was satisfied. As a result, 1,666,636 shares of the 1,666,666 shares of Class A-2 common stock were converted into Class A-1 common stock.

The current thresholds, as approved by a disinterested committee of the Company's board of directors made up of independent directors who do not hold any Class A-2 common stock, for the remaining two Tranches are as follows:

•Tranche II, equal to 1,666,667 shares of Class A-2 common stock, will be exchanged for Class A-1 common stock if the closing sale price of Class A-1 common stock on the New York Stock Exchange (“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 shares of Class A-2 common stock, will be exchanged for Class A-1 common stock if either (i) the LTM EBITDA threshold as of March 31, 2024 or June 30, 2024 is $198.6 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.

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Notes to Condensed Consolidated Financial Statements — (Continued)

Note 12. 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, 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 NYSE. Level 1 also includes U.S. Treasury and federal agency securities and federal agency mortgage-backed securities, which are traded by dealers or brokers in active markets. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 2: Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third-party pricing services for identical or similar assets or liabilities.

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

March 31, 2024

Quoted Prices in Active Markets for Identical Assets
(Level 1)

Significant Other Observable Inputs (Level 2)

Significant Unobservable Inputs (Level 3)

Assets:

Interest rate caplets

14,254

—

14,254

—

Fair Value Measurement at Reporting Date Using

December 31, 2023

Quoted Prices in Active Markets for Identical Assets
(Level 1)

Significant Other Observable Inputs (Level 2)

Significant Unobservable Inputs (Level 3)

Assets:

Interest rate caplets

13,011

—

13,011

—

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Accel Entertainment, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements — (Continued)

Interest rate caplets

The Company determines the fair value of the interest rate caplets using quotes that are based on models whose inputs are observable LIBOR/SOFR forward interest rate curves. The valuation of the interest rate caplets is considered to be a Level 2 fair value measurement as the significant inputs are observable. Unrealized changes in the fair value of the interest rate caplets are classified within other comprehensive income on the accompanying condensed consolidated statements of operations and comprehensive income. Realized gains on the interest rate caplets are recorded to interest expense, net on the accompanying condensed consolidated statements of operations and comprehensive income and included within cash payments for interest, net on the condensed consolidated statements of cash flow.

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):


			Fair Value Measurement at Reporting Date Using
	March 31, 2024		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Liabilities:
Contingent consideration	$	5,265	$	—	$	—	$	5,265
Contingent earnout shares	36,544		—		36,544		—
Warrants	13		—		13		—
Total	$	41,822	$	—	$	36,557	$	5,265


			Fair Value Measurement at Reporting Date Using
	December 31, 2023		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Liabilities:
Contingent consideration	$	5,484	$	—	$	—	$	5,484
Contingent earnout shares	31,827		—		31,827		—
Warrants	13		—		13		—
Total	$	37,324	$	—	$	31,840	$	5,484

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 used 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 condensed consolidated statements of operations and comprehensive income.

Contingent earnout shares

The Company determined the fair value of the contingent earnout shares based on the market price of the Company's Class 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 Class A-1 common stock. The valuation of the Company's contingent consideration is considered to be a Level 2 fair

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Accel Entertainment, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements — (Continued)

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 condensed consolidated statements of operations and comprehensive income.

Warrants

The Company has 5,144 warrants outstanding as of March 31, 2024, which will expire in November 2024. The liability for the Company’s warrants is included in other long-term liabilities on the condensed consolidated balance sheets. The Company determined the fair value of its warrants by using a Black-Scholes option-pricing model. The Black-Scholes option-pricing model requires inputs such as the fair value of the Company's Class A-1 common stock, the risk-free interest rate, expected term, expected dividend yield and expected volatility. The Company's valuation of its warrants is considered to be a Level 2 fair value measurement. Changes in the fair value of the warrants are included within gain on change in fair value of warrants on the accompanying condensed consolidated statements of operations and comprehensive income, if applicable. There was no change in the fair value of the warrants for the three months ended March 31, 2024 and 2023.

There were no transfers in or out of Level 3 for the periods presented.

Note 13. Stockholders’ Equity

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:

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.

Treasury Stock

On November 22, 2021, the Company’s Board of Directors approved a share repurchase program of up to $200 million 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. As of March 31, 2024, the Company acquired a total of 12,004,014 shares under the plan at a total purchase price of $124.2 million, of which 594,817 shares at a total purchase price of $6.1 million were acquired during the three months ended March 31, 2024.

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Accel Entertainment, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements — (Continued)

Note 14. Stock-based Compensation

The Company grants various types of stock-based compensation awards. The Company measures its stock-based compensation expense based on the grant date fair value of the award and recognizes the expense over the requisite service period for the respective award.

Under the Accel Entertainment, Inc. Long Term Incentive Plan, the Company issued 319,731 restricted stock units (“RSUs”) to the Board of Directors and certain eligible employees during the first quarter of 2024, which will vest over a period of 3 to 4 years for employees and by the end of 2024 for the Board of Directors. The Company also issued 149,381 performance-based restricted stock units (“PSUs”) to certain eligible employees during the first quarter of 2024, which will vest after 3 years. The numbers of shares earned upon vesting of the PSUs, if any, is based on the attainment of performance goals over the performance period, subject to continued service, except for employees who are retirement eligible and in certain other limited circumstances. The estimated grant date fair value of these RSUs and PSUs totaled $5.3 million.

Stock-based compensation expense, which pertains to the Company’s stock options, RSUs and PSUs, was $2.4 million and $1.7 million for the three months ended March 31, 2024 and 2023, respectively. Stock-based compensation expense is included within general and administrative expenses in the condensed consolidated statements of operations and other comprehensive income.

Note 15. Income Taxes

The Company recognized income tax expense of $4.8 million and $6.0 million for the three months ended March 31, 2024 and 2023, respectively.

The Company calculates its provision for income taxes during interim reporting periods by applying an estimate of the annual effective tax rate to its year-to-date pretax book income or loss. The effective tax rate (income taxes as a percentage of income before income taxes) was 39.1% and 39.5% for the three months ended March 31, 2024, and 2023, respectively.

Note 16. Commitments and Contingencies

Lawsuits and claims are filed against the Company from time to time in the ordinary course of business, including related to employee matters, 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.

The Company has been involved in a series of related litigated matters stemming from claims that it 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 gaming terminals 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 an exclusive location agreement with Accel. In late August and early September 2012, each of the Defendant Establishments signed a separate location agreement with the Company, purporting to grant the Company 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 Illinois Gaming Board (the “IGB”).

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Accel Entertainment, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements — (Continued)

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, Illinois (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, 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 judgments 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 gaming terminals at each of the Defendant Establishments as a result of the J&J Assigned Agreements. The Company was granted leave to intervene in all of the declaratory judgments. The circuit courts found that the J&J Assigned Agreements were valid because each of the underlying location agreements were between an unlicensed establishment and an unlicensed terminal operator, and therefore did not constitute use agreements that were otherwise precluded from assignment under the IGB’s regulations. Upon the Company’s appeal, the Illinois Appellate Court, Fifth District (the “District Court”), vacated the circuit courts’ judgments and dismissed the appeals, holding that the IGB had exclusive jurisdiction over the matter that formed the basis of the parties’ claims, and declined to consider the merits of the parties’ disputes. On September 22, 2016, and after the IGB intervened, the Supreme Court of Illinois issued a judgment in Wild, affirming the District Court’s decision vacating the circuit courts’ judgments for lack of subject matter jurisdiction and dismissing the appeals, determining that the IGB has exclusive jurisdiction to decide the validity and enforceability of gaming terminal 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 were recently adjudicated by the IGB, largely in the Company’s favor, and J&J has filed a new lawsuit to challenge the IGB’s rulings. The Company does not have a present estimate regarding the potential damages, if any, that could potentially be awarded in this litigation and, accordingly, has 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, Illinois against Jason Rowell and other parties related to Mr. Rowell’s breaches of his non-compete agreement with Accel. 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, Illinois 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. Pre-trial discovery is ongoing as of the date of this report. 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 violated his non-competition agreement with Illinois Gaming Investors, LLC, and together with the Company, wrongfully solicited prohibited licensed video gaming locations. The parties settled this dispute in April 2022.

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 sought to fine the Company in the amount of $5 million. On July 6, 2023, the IGB and the Company entered into a settlement agreement for $1.1 million of which $1.0 million is the fine for the alleged conduct and $0.1 million is for reimbursement of administrative and investigative costs. The amount was paid in the third quarter of 2023. As a result of the settlement agreement, the Company has agreed to review

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Accel Entertainment, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements — (Continued)

similar initiatives with the IGB before implementing a new program or making any public announcements, require additional annual training of its employees, and provide additional compliance disclosures to the IGB.

On March 9, 2022, the Company filed a lawsuit in the Circuit Court of Cook County, Illinois against Gold Rush relating to the Gold Rush convertible notes. The complaint sought damages for breach of contract and the implied covenant of good faith and fair dealing as well as unjust enrichment. On June 22, 2022, Gold Rush filed a lawsuit in the Circuit Court of Cook County, Illinois against the Company. The lawsuit alleged that the Company tortiously interfered with Gold Rush’s business activities and engaged in misconduct with respect to the Gold Rush convertible notes. On April 22, 2022, the Company filed a petition in the Circuit Court of Cook County, Illinois to judicially review the IGB's decision to deny the requested transfer of Gold Rush common stock in respect of the Company’s conversion of the convertible notes. Discovery ensued on these lawsuits but both suits were dismissed with prejudice as a result of the previously mentioned settlement between the Company and Gold Rush on the convertible notes. The Company also withdrew its petition to judicially review the IGB's decision. For more information, see Note 4.

On March 25, 2022, Midwest Electronics Gaming LLC (“Midwest”) filed an administrative review action against the Illinois Gaming Board, the Company and J&J in the Circuit Court of Cook County, Illinois seeking administrative review of decisions of the IGB ruling in favor of the Company and J&J and against Midwest regarding the validity of certain use agreements covering locations currently serviced by Midwest. No monetary damages are sought against the Company. The Company filed a motion to dismiss Midwest’s amended complaint, which was granted in part and denied in part.

In July 2022, an enforcement action was brought against the Company by an Illinois municipality related to an alleged violation of an ordinance requiring the collection of an additional tax, the enforceability of which is currently being contested by the Illinois Gaming Machine Operators Association. Rather than litigate the alleged violation, the Company pled no contest and paid an initial penalty to the municipality in October 2022 and for the remaining months of 2022. The Company continued to negotiate with and voluntarily make the appropriate payments to the municipality during 2023 and 2024.

In February 2023, an Illinois municipality issued an order against the Company for the alleged failure to pay a terminal operator tax (“TO Tax”) for the privilege of operating gaming terminals within the municipality. The TO Tax was adopted by the municipality on June 8, 2021, but there was no enforcement of this tax until the Company was issued a notice of hearing in February 2023. In April 2023, the Company, along with numerous other terminal operators, filed a complaint in the Circuit Court of Cook County, Illinois contesting the validity and enforceability of the TO Tax and won a temporary restraining order to stay the order. Currently, the matter remains pending as a result of a motion to consolidate and to finalize the assignment of the judge.

The results for both the three months ended March 31, 2024 and 2023 included a loss totaling $0.1 million related to these matters, which is included within general and administrative expenses in the condensed consolidated statements of operations and other comprehensive income.

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Notes to Condensed Consolidated Financial Statements — (Continued)

Note 17. Earnings Per Share

The components of basic and diluted earnings per share (“EPS”) were as follows for the three months ended March 31 (in thousands, except per share amounts):


	Three Months Ended March 31,
	2024		2023

Net income	$	7,416	$	9,182



Basic weighted average outstanding shares of common stock	84,298		86,885
Dilutive effect of stock-based awards for common stock	1,002		247



Diluted weighted average outstanding shares of common stock	85,300		87,132

Earnings per common share:
Basic	$	0.09	$	0.11
Diluted	$	0.09	$	0.11

Anti-dilutive stock-based awards, contingent earnout shares and warrants excluded from the calculations of diluted EPS were 4,339,250 and 4,907,216 as of March 31, 2024 and 2023, respectively.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our unaudited condensed consolidated financial statements and the related notes and other financial information included in this Quarterly Report on Form 10-Q. This discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from the forward-looking statements. Factors that could cause or contribute to such differences include those discussed in the section titled “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2023. This discussion and analysis should also be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, set forth in our Annual Report on Form 10-K for the year ended December 31, 2023.

Company Overview

We are a leading distributed gaming operator in the United States (“U.S.”) and a preferred partner for local business owners in the markets we serve. We offer turnkey, full-service gaming solutions to bars, restaurants, convenience stores, truck stops, and fraternal and veteran establishments across the country. Our focus is providing unmatched customer support, guidance, and expertise so our location partners can grow their businesses with incremental revenue.

We install, maintain, operate and service gaming terminals and related equipment for our location partners as well as redemption devices that have automated teller machine (“ATM”) functionality and stand-alone ATMs. We offer amusement devices, including jukeboxes, dartboards, pool tables, and other entertainment related equipment. These operations provide a complementary source of lead generation for our gaming business by offering a “one-stop” source of additional equipment for our location partners. We also design and manufacture gaming terminals and related equipment. We are continuously evaluating additional opportunities that are complementary to our core business.

We currently operate as a distributed gaming operator in the following states:

State

Year Operations Started or Year of Acquisition

Branding

Operations

Illinois

2012

Accel Entertainment

•Establishments with a liquor license (Up to 6 gaming terminals)

–Bars/restaurants/retail

–Gaming cafes

–Fraternal organizations

–Veterans’ organizations

•Truck stops (Up to 6 gaming terminals)

•Large truck stops (Up to 10 gaming terminals)

Montana

2022

Century Gaming

•Business locations licensed to sell alcoholic beverages for on-premises consumption only, including locations restricted to offering a maximum of 20 gaming terminals

Montana

2022

Grand Vision Gaming

•Designs and manufactures gaming terminals and software that are sold to Montana, South Dakota, West Virginia, and Louisiana

•Develops proprietary gaming terminals and related software as well as other ancillary equipment for our distributed gaming routes in Montana, Nevada, Nebraska and Georgia

Nevada

2022

Century Gaming

•Non-casino locations where gaming is incidental to the primary business being conducted at the location, including:

–Grocery/drug/convenience stores

–Bars/restaurants/taverns

–Liquor stores

•Games are generally limited to 15 or fewer gaming terminals with no other forms of gaming activity permitted

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State

Year Operations Started or Year of Acquisition

Branding

Operations

Nebraska

2022

Accel Entertainment

•Operate cash devices in retail locations throughout the state

•Retail establishments include any business location that is open to the public for the sale of goods other than gaming terminals and that possesses a valid sales tax permit

Georgia

2020

Bulldog Gaming

•Operate gaming terminals which are skill-based coin-operated amusement machines with winnings paid in points that may be redeemed for noncash merchandise, prizes, toys, gift cards, or novelties

Iowa

2021

Accel Entertainment

•Operate amusement concessions, including games of chance and games of skill, which we define as gaming terminals

•Bars, taverns, and restaurants with a certain class of liquor license are permitted to operate up to four electrical or mechanical games of chance

Pennsylvania

2023

Accel Entertainment

•Operate gaming terminals at qualified truck stops

•We are live with a partner truck stop

Macroeconomic Factors

Ongoing interest rate uncertainty, persistent inflation and actual or perceived instability in the U.S. and global banking systems may increase the risk of an economic recession and volatility in the capital or credit markets in the U.S. and other markets globally. Our location partners may be adversely impacted by changes in overall economic and financial conditions, and certain location partners may cease operations in the event of a recession or inability to access financing. Furthermore, our revenue is largely driven by players’ disposable incomes and level of gaming activity, and economic conditions that adversely impact players’ ability and desire to spend disposable income at our locations partners may adversely affect our results of operations and cash flows.

To date, we have not observed material impacts in our business or outlook, outside of observed increases in our costs related to higher wages and increased interest expense on our debt. In 2023, we accelerated certain of our capital expenditures related to gaming machines and related components to manage our supply chain.

We intend to continue to monitor macroeconomic conditions closely and may determine to take certain financial or operational actions in response to such conditions to the extent our business begins to be adversely impacted.

Components of Performance

Net 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 our location partners and is recognized at the time of gaming play.

Amusement. Amusement revenue represents amounts collected from amusement devices operated at various location partners and is recognized at the point the amusement device is used.

Manufacturing. Manufacturing revenue represents sales of gaming terminals and related equipment.

ATM fees and other. ATM fees and other primarily represents fees charged for the withdrawal of funds from our redemption devices and stand-alone ATMs and is recognized at the time of the ATM transaction.

Operating expenses

Cost of revenue. Cost of revenue consists of (i) taxes on net gaming revenue that is payable to the appropriate jurisdiction, (ii) licenses, permits and other fees required for the operation of gaming terminals and other equipment, (iii) location revenue

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share, which is governed by local governing bodies and location contracts, (iv) ATM and amusement commissions payable to locations, and (v) ATM and amusement fees.

Cost of manufacturing goods sold. Cost of manufacturing goods sold consists of costs associated with the sale of gaming terminals and related equipment.

General and administrative. General and administrative expenses consist of operating expense and general and administrative 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 locations and gaming terminals. General and administrative expense includes payroll and related expense for account managers, business development managers, marketing, and other corporate personnel. In addition, general and administrative 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 intangible assets and route and customer acquisition costs. Route and customer acquisition costs consist of fees paid at the inception of contracts entered into with third parties and our gaming locations, which allows us 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 our 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.

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.

Other intangible assets acquired in a business acquisition are recorded at fair value and then amortized as an intangible asset on a straight-line basis over their estimated 7 to 20-year useful lives.

Interest expense, net

Interest expense, net consists of interest on our current credit facilities, amortization of financing fees, accretion of interest on route and customer acquisition costs payable, and interest (income) expense on the interest rate caplets. Interest on the current credit facility is payable monthly on unpaid balances at the variable per annum LIBOR/SOFR 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.

Income tax expense

Income tax expense consists mainly of taxes payable to federal, 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.

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Results of Operations

The following table summarizes our results of operations on a consolidated basis for the three months ended March 31, 2024 and 2023:


(in thousands, except %'s)	Three Months Ended March 31,				Increase / (Decrease)
	2024		2023		Change ($)		Change (%)
Net revenues:
Net gaming	$	288,137	$	279,380	$	8,757	3.1	%
Amusement	6,129		6,798		(669)		(9.8)	%
Manufacturing	2,209		2,122		87		4.1	%
ATM fees and other	5,342		4,908		434		8.8	%
Total net revenues	301,817		293,208		8,609		2.9	%
Operating expenses:
Cost of revenue (exclusive of depreciation and amortization expense shown below)	209,167		203,554		5,613		2.8	%
Cost of manufacturing goods sold (exclusive of depreciation and amortization expense shown below)	1,159		1,408		(249)		(17.7)	%
General and administrative	47,634		43,018		4,616		10.7	%
Depreciation and amortization of property and equipment	10,434		9,063		1,371		15.1	%
Amortization of intangible assets and route and customer acquisition costs	5,438		5,242		196		3.7	%
Other expenses, net	2,426		3,251		(825)		(25.4)	%
Total operating expenses	276,258		265,536		10,722		4.0	%
Operating income	25,559		27,672		(2,113)		(7.6)	%
Interest expense, net	8,660		7,888		772		9.8	%
Loss on change in fair value of contingent earnout shares	4,716		4,602		114		2.5	%

Income before income tax expense	12,183		15,182		(2,999)		(19.8)	%
Income tax expense	4,767		6,000		(1,233)		(20.6)	%
Net income	$	7,416	$	9,182	$	(1,766)	(19.2)	%

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Net revenues

Total net revenues for the three months ended March 31, 2024 were $301.8 million, an increase of $8.6 million, or 2.9%, compared to the prior-year period. This increase was primarily driven by higher net gaming revenue of $8.8 million, which reflected an increase in gaming locations and terminals. Net revenues by state are presented below (in thousands):


(in thousands)	Three Months Ended March 31,				Increase / (Decrease)
	2024		2023		Change ($)		Change (%)
Net revenues by state:
Illinois	$	224,863	$	219,843	$	5,020	2.3	%
Montana	38,141		36,451		1,690		4.6	%
Nevada	29,209		29,961		(752)		(2.5)	%
Nebraska	5,834		3,924		1,910		48.7	%
Other	3,770		3,029		741		24.5	%
Total net revenues	$	301,817	$	293,208	$	8,609	2.9	%

Cost of revenue

Cost of revenue for the three months ended March 31, 2024 was $209.2 million, an increase of $5.6 million, or 2.8%, compared to the prior-year period, driven by higher net gaming revenue, as described above.

Cost of manufacturing goods sold

Cost of manufacturing goods sold for the three months ended March 31, 2024 was $1.2 million, a decrease of $0.2 million, or 17.7%, compared to the prior-year period due to lower costs associated with software sales.

General and administrative

General and administrative expenses for the three months ended March 31, 2024 were $47.6 million, an increase of $4.6 million, or 10.7%, compared to the prior-year period. The increase was attributable to higher payroll-related costs, as we continue to grow our operations, as well as higher stock-based compensation expense and parts and repair expense.

Depreciation and amortization of property and equipment

Depreciation and amortization of property and equipment for the three months ended March 31, 2024 was $10.4 million, an increase of $1.4 million, or 15.1%, compared to the prior-year period due to an increased number of gaming terminals.

Amortization of intangible assets and route and customer acquisition costs

Amortization of intangible assets and route and customer acquisition costs for the three months ended March 31, 2024 were $5.4 million, an increase of $0.2 million, or 3.7%, compared to the prior-year period.

Other expenses, net

Other expenses, net for the three months ended March 31, 2024 were $2.4 million, a decrease of $0.8 million, or 25.4%, compared to the prior-year period. The decrease was primarily attributable to lower non-recurring expenses and lower fair value adjustments associated with the revaluation of contingent consideration liabilities.

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Interest expense, net

Interest expense, net for the three months ended March 31, 2024 was $8.7 million, an increase of $0.8 million, or 9.8%, compared to the prior-year period primarily due to higher interest rates, partially offset by a decrease in average outstanding debt and the benefit realized on our interest rate caplets. For the three months ended March 31, 2024, the weighted average interest rate, excluding the impact of our interest rate caplets, was approximately 7.7% compared to a rate of approximately 6.8% for the prior-year period.

Loss on change in fair value of contingent earnout shares

Loss on the change in fair value of contingent earnout shares for the three months ended March 31, 2024 was $4.7 million, an increase of $0.1 million, or 2.5%, compared to the prior-year period. The change 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.

Income tax expense

Income tax expense for the three months ended March 31, 2024 was $4.8 million, a decrease of $1.2 million, or 20.6%, compared to the prior-year period. The effective tax rate for the three months ended March 31, 2024 was 39.1% compared to 39.5% in the prior-year period. Our effective income tax rate can vary from period to period depending on, among other factors, the amount of permanent tax adjustments and discrete items. The change in the fair value of the contingent earnout shares is considered a discrete item for tax purposes and can be the primary driver for the fluctuations in the tax rate year over year.

Key Business Metrics

We use 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 U.S. GAAP, and therefore should not be viewed as indicators of operational performance. Our management uses these key business metrics for financial planning, strategic planning and employee compensation decisions. The key business metrics include:

•Number of locations and;

•Number of gaming terminals

•Location hold-per-day

We also periodically review and revise our key business metrics to reflect changes in our business.

Number of locations

The number of locations is based on a combination of third-party portal data and data from our internal systems. We utilize this metric to continually monitor growth from existing locations, organic openings, purchased locations, and competitor conversions. Competitor conversions occur when a location chooses to change terminal operators.

The following table sets forth information with respect to our primary locations:


	As of March 31,		Increase / (Decrease)
	2024	2023	Change	Change (%)
Illinois	2,786	2,663	123	4.6	%
Montana	609	620	(11)	(1.8)	%
Nevada	355	345	10	2.9	%
Nebraska	237	165	72	43.6	%
Total	3,987	3,793	194	5.1	%

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Number of gaming terminals

The number of gaming terminals in operation is based on a combination of third-party portal data and data from our internal systems. We utilize this metric to continually monitor growth from existing locations, organic openings, purchased locations, and competitor conversions.

The following table sets forth information with respect to the number of gaming terminals in our primary locations:


	As of March 31,		Increase / (Decrease)
	2024	2023	Change	Change (%)
Illinois	15,494	14,546	948	6.5	%
Montana	6,280	6,247	33	0.5	%
Nevada	2,714	2,704	10	0.4	%
Nebraska	833	488	345	70.7	%
Total	25,321	23,985	1,336	5.6	%

Location hold-per-day

Location hold-per-day is calculated by dividing net gaming revenue in the period by the average number of locations. Then divide the calculated amount by the number of operational days. We utilize this metric to compare market and location performance on a normalized basis. The percent change in location hold-per-day is the underlying metric we use to determine the change in same-store sales.

The following table sets forth information with respect to our location hold-per-day in our primary locations:


	Three Months Ended March 31,				Increase / (Decrease)
	2024		2023		Change ($)		Change (%)
Illinois	$	860	$	887	$	(27)	(3.0)	%
Montana	594		567		27		4.8	%
Nevada	847		866		(19)		(2.2)	%
Nebraska	233		228		5		2.2	%

Non-GAAP Financial Measures

Adjusted EBITDA and Adjusted net income are non-GAAP financial measures, but are key metrics management uses to monitor ongoing core operations. Adjusted EBITDA and Adjusted net income exclude the effects of certain non-cash items or represent certain nonrecurring items that are unrelated to core performance. Management believes these non-GAAP financial measures enhance the understanding of our underlying drivers of profitability, trends in our business, and facilitate company-to-company and period-to-period comparisons. 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 our ability to fund capital expenditures, service debt obligations and meet working capital requirements.

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Adjusted net income and Adjusted EBITDA


(in thousands)	Three Months Ended March 31,				Increase / (Decrease)
	2024		2023		Change ($)		Change (%)

Net income	$	7,416	$	9,182	$	(1,766)	(19.2)	%
Adjustments:
Amortization of intangible assets and route and customer acquisition costs (1)	5,438		5,242		196		3.7	%
Stock-based compensation (2)	2,350		1,688		662		39.2	%
Loss on change in fair value of contingent earnout shares (3)	4,716		4,602		114		2.5	%

Other expenses, net (4)	2,426		3,251		(825)		(25.4)	%
Tax effect of adjustments (5)	(2,841)		(2,901)		60		2.1	%
Adjusted net income	19,505		21,064		(1,559)		(7.4)	%
Depreciation and amortization of property and equipment	10,434		9,063		1,371		15.1	%
Interest expense, net	8,660		7,888		772		9.8	%
Emerging markets (6)	40		(798)		838		105.0	%
Income tax expense	7,608		8,901		(1,293)		(14.5)	%
Adjusted EBITDA	$	46,247	$	46,118	$	129	0.3	%

(1)Amortization of intangible assets and route and customer acquisition costs consist of upfront cash payments and future cash payments to third-party sales agents to acquire the location partners that are not connected with a business acquisition, as well as the amortization of other intangible assets. We amortize the upfront cash payment over the life of the contract, including expected renewals, beginning on the date the location goes live, and recognize 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 the 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 we do 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 intangible assets and route and customer acquisition costs” aggregates the non-cash amortization charges relating to upfront route and customer acquisition cost payments and location contracts acquired, as well as the amortization of other intangible assets.

(2)Stock-based compensation consists of options, restricted stock units, and performance-based restricted stock units.

(3)Loss 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.

(4)Other expenses, net consists of (i) non-cash expenses including the remeasurement of contingent consideration liabilities, (ii) non-recurring lobbying and legal expenses related to distributed gaming expansion in current or prospective markets, and (iii) other non-recurring expenses.

(5)Calculated by excluding the impact of the non-GAAP adjustments from the current period tax provision calculations.

(6)Emerging markets consist of the results, on an Adjusted EBITDA basis, for non-core jurisdictions where our operations are developing. Markets are no longer considered emerging when we have installed or acquired at least 500 gaming terminals in the jurisdiction, or when 24 months have elapsed from the date we first install or acquire gaming terminals in the jurisdiction, whichever occurs first. We currently view Pennsylvania as an emerging market. Prior to January 2024, Iowa was considered an emerging market. Prior to April 2023, Nebraska was considered an emerging market.

Adjusted EBITDA for the three months ended March 31, 2024, was $46.2 million, and was essentially flat compared to the prior-year period.

Liquidity and Capital Resources

We believe that our cash and cash equivalents, cash flows from operations and borrowing availability under the Credit Agreement (as defined below) will be sufficient to meet our capital requirements for the next twelve months. Our primary short-term cash needs are paying operating expenses and contingent earnout payments, purchases of property and equipment, servicing outstanding indebtedness, and funding our Board of Directors approved share repurchase program and near term acquisitions. As of March 31, 2024, we had $253.9 million in cash and cash equivalents.

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Senior Secured Credit Facility

We have entered into a credit agreement (as amended the “Credit Agreement”) as borrower, with our wholly-owned domestic subsidiaries, as guarantors, 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:

•$150.0 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,

•a $350.0 million initial term loan facility, and

•a $400.0 million delayed draw term loan facility, which is available for borrowing until October 22, 2024.

The maturity date of the Credit Agreement is October 22, 2026.

As of March 31, 2024, there remained $299 million of availability under the Credit Agreement and the weighted-average interest rate on our borrowings under the Credit Agreement was approximately 7.7%.

We were in compliance with all debt covenants under the Credit Agreement as of March 31, 2024 and expect to remain in compliance for the next 12 months.

Interest rate caplets

We manage our exposure to some of our interest rate risk through the use of interest rate caplets, which are derivative financial instruments. On January 12, 2022, we hedged the variability of the cash flows attributable to the changes in the 1-month LIBOR/SOFR interest rate on the first $300 million of the term loan under the Credit Agreement by entering into a 4-year series of 48 deferred premium caplets (“caplets”).

We recognized an unrealized gain, net of taxes, on the change in fair value of the caplets of $1.1 million for the three months ended March 31, 2024 and an unrealized loss $2.2 million, net of taxes, for the three months ended March 31, 2023. We also recognized interest income on the caplets of $2.6 million and $1.9 million for the three months ended March 31, 2024 and 2023, respectively, which are reflected in interest expense, net in the condensed consolidated statements of operations and other comprehensive income.

Cash Flows

The following table summarizes 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 condensed consolidated financial statements and the notes thereto included in this filing:


(in thousands)	Three Months Ended March 31,				Increase / (Decrease)
	2024		2023		Change ($)		Change (%)

Net cash provided by operating activities	$	28,750	$	37,983	$	(9,233)	(24.3)	%
Net cash used in investing activities	(25,896)		(23,585)		(2,311)		(9.8)	%
Net cash used in financing activities	(10,546)		(9,982)		(564)		(5.7)	%

Net cash provided by operating activities

For the three months ended March 31, 2024, net cash provided by operating activities was $28.8 million, a decrease of $9.2 million compared to the prior-year period due primarily to lower working capital adjustments.

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Net cash used in investing activities

For the three months ended March 31, 2024, net cash used in investing activities was $25.9 million, an increase of $2.3 million compared to the prior-year period and was primarily attributable to more cash used for advances against a portion of the purchase price on pending business and asset acquisitions. We anticipate our capital expenditures will be approximately $55–65 million in 2024.

Net cash used in financing activities

For the three months ended March 31, 2024, net cash used in financing activities was $10.5 million, an increase of $0.6 million compared to the prior-year period. The change reflects an increase in stock repurchases, partially offset by lower net repayments on borrowings.

Critical Accounting Policies and Estimates

In preparing our condensed consolidated financial statements, we applied the same critical accounting policies as described in our Annual Report on Form 10-K for the year ended December 31, 2023, that affect judgments and estimates of amounts recorded for certain assets, liabilities, revenues, and expenses.

Seasonality

Our 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 our locations, and higher in cold weather between February and April, when players will typically spend more time indoors at our locations. Holidays, vacation seasons, and sporting events may also cause our results to fluctuate.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk represents the risk of loss that may impact our 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

We are exposed to interest rate risk in the ordinary course of business. Borrowings under our senior secured credit facility were $542.5 million as of March 31, 2024. If the underlying interest rates were to increase by 1.0%, or 100 basis points, the increase in interest expense on our floating rate debt would negatively impact future earnings and cash flows by approximately $2.4 million annually, assuming the balance outstanding under the credit facility remained at $542.5 million. In order to protect against higher interest rates in the future on our credit facility, we hedged the variability of the cash flows attributable to the changes in the 1-month LIBOR/SOFR interest rate on the first $300 million of the term loan by entering into a 4-year series of 48 deferred premium caplets (“caplets”) on January 12, 2022. The caplets mature at the end of each month and are used to protect our exposure as the 1-month LIBOR/SOFR interest rate exceeded 2%.

Cash and cash equivalents are held in cash vaults, highly liquid checking and money market accounts, gaming terminals, redemption terminals, ATMs, and amusement equipment. As a result, these amounts are not materially affected by changes in interest rates.

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ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

In connection with the filing of this Form 10-Q for the quarter ended March 31, 2024, our Chief Executive Officer (“CEO”, serving as our Principal Executive Officer) and our Chief Financial Officer (“CFO”, serving as our Principal Financial Officer) conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”)). As a result of this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2024.

Changes in Internal Control Over Financial Reporting

There were no changes during the quarter ended March 31, 2024, in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Information required by this Item is incorporated by reference to the discussion in Note 16, Commitments and Contingencies, of the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

ITEM 1A. RISK FACTORS

An investment in our Class A-1 common stock involves a high degree of risk. You should carefully consider the risk factors described under Part I - Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023 and our condensed consolidated financial statements and related notes contained in this Quarterly Report on Form 10-Q in analyzing an investment in our Class A-1 common stock. If any such risks occur, our business, financial condition, and results of operations would likely suffer, the trading price of our Class A-1 common stock would decline, and you could lose all or part of your investment. In addition, the risk factors and uncertainties could cause our actual results to differ materially from those projected in our forward-looking statements, whether made in this report or other documents we file with the SEC, or our annual report to stockholders, future press releases, or orally, whether in presentations, responses to questions, or otherwise. 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.

There have been no material changes in the risk factors described in Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

On November 22, 2021, our Board of Directors approved a share repurchase program of up to $200 million shares of our 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 us to acquire any particular amount of shares, and the repurchase program may be suspended or discontinued at any time at our discretion.

All share repurchases were made under our publicly announced program, and there are no other programs under which we repurchase shares. Repurchases under our program, during applicable restricted trading windows that we periodically establish, are executed under the terms of a pre-set trading plan meeting the requirements of Rule 10b5-1(c) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

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The following table presents a summary of share repurchases made during the first quarter of 2024:


Period	Total number of shares purchased	Average price paid per share	Maximum approximate dollar value of shares that may yet be purchased under the program (in millions)

January 1, 2024 - January 31, 2024	302,007	$10.11	$78.9

February 1, 2024 - February 29, 2024	241,078	$10.28	$76.4

March 1, 2024 - March 31, 2024	51,732	$11.40	$75.8

Total	594,817	$10.60

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

On March 15, 2024, Andrew Rubenstein, our President and Chief Executive Officer, entered into a pre-arranged written stock sale plan in accordance with Rule 10b5-1 (the “Rubenstein Rule 10b5-1 Plan”) under the Exchange Act, for the sale of shares of our Class A-1 common stock. The Rubenstein Rule 10b5-1 Plan was entered into during an open trading window in accordance with our insider trading policy and is intended to satisfy the affirmative defense of Rule 10b5-1(c) under the Exchange Act. The Rubenstein Rule 10b5-1 Plan provides for the potential sale of up to 580,000 shares of our Class A-1 common stock, so long as the market price of our Class A-1 common stock is higher than certain minimum threshold prices specified in the Rubenstein Rule 10b5-1 Plan between June 14, 2024 and December 31, 2024.

The Rubenstein Rule 10b5-1 Plan included a representation from Mr. Rubenstein to the broker administering the Rubenstein Rule 10b5-1 Plan that he was not in possession of any material nonpublic information regarding us or our securities subject to the Rubenstein Rule 10b5-1 Plan at the time the Rubenstein Rule 10b5-1 Plan was entered into. A similar representation was made to us in a certification Mr. Rubenstein provided to us in connection with the adoption of the Rubenstein Rule 10b5-1 Plan under our insider trading policy. Those representations were made as of the date of adoption of the Rubenstein Rule 10b5-1 Plan or the certification, as applicable, and speak only as of those dates. In making those representations, there is no assurance with respect to any material nonpublic information of which the officer was unaware, or with respect to any material nonpublic information acquired by the officer or us after the applicable date of the representation.

Once executed, transactions under the Rubenstein Rule 10b5-1 Plan will be disclosed publicly through Form 4 and/or Form 144 filings with the Securities and Exchange Commission in accordance with applicable securities laws, rules, and regulations. Except as may be required by law, we do not undertake any obligation to update or report any modification, termination, or other activity under current or future Rule 10b5-1 plans that may be adopted by Mr. Rubenstein or our other officers or directors.

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ITEM 6. EXHIBITS


Exhibit No.						Exhibit









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)

** Indicates management contract or compensation plan or agreement.

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SIGNATURES

Pursuant to the requirements 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.


	ACCEL ENTERTAINMENT, INC.

Date: May 8, 2024	By:	/s/ Christie Kozlik
		Christie Kozlik Chief Accounting Officer

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Accel Entertainment (ACEL) 10-Q2024 Q1 Quarterly report

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