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What changed in Accel Entertainment, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Accel Entertainment, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+396 added−592 removedSource: 10-K (2024-02-28) vs 10-K (2023-03-01)

Top changes in Accel Entertainment, Inc.'s 2023 10-K

396 paragraphs added · 592 removed · 346 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeWhen compared with traditional gaming businesses such as casinos, Accel believes its distributed gaming platform benefits from the following advantages: • “business-to-business” model secured by long-term, exclusive contracts that are typically renewed, allowing for predictable, highly recurring revenue streams with low churn; • operating a scalable business in fast-growing gaming segments that are primarily served by fragmented, sub-scale providers; • state-of-the-art technology-enabled slot machines from leading manufacturers who provide the most captivating titles in slots entertainment; • lower capital expenses and an asset-light operating model, in each case, when compared to casinos, which typically provide significantly higher capital-intensive offerings such as hotel accommodations, restaurants and stage-based entertainment; • highly localized footprint that provides more access to gaming and convenience for consumers, as compared to regional casinos that market to players who may live up to several hours away and are thus prone to disruption of their feeder markets; and • data reporting solutions and analytics, offering insight and advice to help location partners maximize revenues and ultimately grow their businesses; • strong marketing, legal, compliance, cash management, financial and technical support systems, all of which remain in-house to boost efficiency and enhance the ability to serve as a premier gaming-as-a-service provider.
Biggest changeOur gaming-as-a-service platform provides our local partners with a turnkey, full-service, capital-efficient gaming solution, including: • Business-to-business model secured by long-term, exclusive contracts, allowing for predictable, highly recurring revenue streams with strong loyalty and retention. • Technology-enabled gaming equipment from leading manufacturers and our own proprietary Grand Vision Gaming equipment that provide the most captivating titles in slots entertainment; specifically, we offer our players 135 different types of gaming terminal models and almost 2,000 different games, one of the broadest selections of high quality offerings in distributed gaming. • Data reporting solutions and analytics, offering insight and advice to help maximize revenues and grow. • Strong marketing, compliance, cash management, financial and technical support systems, all of which remain in-house to boost efficiency and enhance our ability to provide best-in-class service.
Culture Each employee shapes Accel’s culture through behaviors and practices. We ask everyone to lead with our core values and behave according to our Code of Conduct. Our Code of Conduct features the fundamental behaviors that help anchor, inform and guide us and applies to all employees.
Culture Each employee shapes our culture through behaviors and practices. We ask everyone to lead with our core values and behave according to our Code of Conduct. Our Code of Conduct features the fundamental behaviors that help anchor, inform and guide us and applies to all employees.
Even Internet wagering services that may be illegal under federal and state law but operate from overseas locations, may nevertheless sometimes be accessible to domestic gamblers and divert players from visiting location partners to play on Accel’s gaming terminals. The availability of other forms of gaming could increase substantially in the future.
Even Internet wagering services that may be illegal under federal and state law but operate from overseas locations, may nevertheless sometimes be accessible to domestic gamblers and divert players from visiting location partners to play on our gaming terminals. The availability of other forms of gaming could increase substantially in the future.
We also prohibit unlawful discrimination based on the perception that anyone has any of those characteristics, or is associated with a person who has or is perceived as having any of those characteristics. Available Information Our principal executive offices are located at 140 Tower Drive, Burr Ridge, Illinois 60527, and our telephone number is (630) 972-2235.
We also prohibit unlawful discrimination based on the perception that anyone has any of those characteristics or is associated with a person who has or is perceived as having any of those characteristics. 7 Table of Contents Available Information Our principal executive offices are located at 140 Tower Drive, Burr Ridge, Illinois 60527, and our telephone number is (630) 972-2235.
Our benefits program is designed to help keep our employees and their families healthy and provide important protection in the event of illness or injury. • Annual company bonus initiative that is applicable to all eligible employees.
Our benefits program is designed to help keep our employees and their families healthy and provide important protection in the event of illness or injury. • Annual bonus program that is applicable to all eligible employees.
In addition, Internet-based lotteries, sweepstakes, and fantasy sports, and Internet-based or mobile-based gaming platforms, which allow their customers to wager on a wide variety of sporting events and/or play casino games from home or in non-casino settings and could divert players from using Accel’s products in its locations.
In addition, Internet-based lotteries, sweepstakes, and fantasy sports, and Internet-based or mobile-based gaming platforms, which allow their customers to wager on a wide variety of sporting events and/or play casino games from home or in non-casino settings and could divert players from using our products in their locations.
Our core values and Code of Conduct are aligned with our deep commitment to partnerships with local business owners and our goal of always delivering the best service to our customers and an entertaining experience for our players. Accel is an equal opportunity employer.
Our core values and Code of Conduct are aligned with our deep commitment to partnerships with local business owners and our goal of always delivering the best service to our customers and an entertaining experience for our players. We are an equal opportunity employer.
Accel believes that its distributed gaming operations facilitate a low revenue concentration per gaming location, and that its low-limit slots are more resilient to economic downturn as consumers typically continue to engage in locally convenient, lower cost forms of entertainment in such circumstances.
Distributed gaming operations facilitate a low revenue concentration per gaming location, and low-limit slots are more resilient to economic downturn as consumers typically continue to engage in locally convenient, lower cost forms of entertainment in such circumstances.
We strive to achieve an injury-free work environment and continue to have zero tolerance for unsafe work conditions for our frontline employees who continue to move, support and sell our products and services. Accel’s human capital management focuses on the following priorities: Talent Recruitment and Management Accel seeks to provide employees with rewarding work, professional growth and educational opportunities.
We strive to achieve an injury-free work environment and continue to have zero tolerance for unsafe work conditions for our employees who continue to move, support and sell our products and services. Our human capital management focuses on the following priorities: Talent Recruitment and Management We seek to provide employees with rewarding work, professional growth and educational opportunities.
In addition to competition from other forms of gaming and entertainment and the expansion thereof, Accel’s business faces significant competition from suppliers and other terminal operators, stand-alone ATMs, jukeboxes, dartboards, pool tables, and 7 Table of Contents other related entertainment machines.
In addition to competition from other forms of gaming and entertainment and the expansion thereof, our business faces significant competition from suppliers and other terminal operators, stand-alone ATMs, jukeboxes, dartboards, pool tables, and other related entertainment machines.
The SEC maintains an Internet site ( www.sec.gov ) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. 9 Table of Contents
The SEC maintains an Internet site ( www.sec.gov ) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.
We strive to promote a welcoming workplace that fosters partnership with location owners and encourage our employees to bring their best ideas to work every day. As of December 31, 2022, Accel employs approximately 1,300 people nationwide, and protecting the safety, health, and well-being of our employees is a top priority.
We strive to promote a welcoming workplace that fosters partnership with location owners and encourages our employees to bring their best ideas to work every day. As of December 31, 2023, we employ approximately 1,330 people nationwide, and protecting the safety, health, and well-being of our employees is a top priority.
Established gaming jurisdictions could also award additional gaming licenses or permit the expansion or relocation of existing gaming operations, including gaming terminals. While Accel believes it is well positioned to take advantage of certain of these opportunities, expansion of gaming in other jurisdictions, both legal and illegal, could further compete with its gaming terminals.
Established gaming jurisdictions could also award additional gaming licenses or permit the expansion or relocation of existing gaming operations, including gaming terminals. While we believe we are well positioned to take advantage of certain of these opportunities, expansion of gaming in other jurisdictions, both legal and illegal, could further compete with our gaming terminals.
Generally, a gaming terminal is any electronic video game machine that, upon insertion of cash, electronic cards or vouchers, or any combination thereof, is available to play or simulate the play of a video game, including but not limited to video poker and slots, and utilizes a video display and microprocessors in which players may receive free games or credits that can be redeemed for cash or merchandise.
Upon insertion of cash, electronic cards or vouchers, or any combination thereof, the gaming terminal is available to play or simulate the play a video game such as video poker, slots and keno, and in which players may receive free games or credits that can be redeemed for cash or merchandise.
We believe that the distributed gaming industry is supported by generally favorable trends, including an increasing number of states contemplating approving gaming to increase tax revenues, broader acceptance in the U.S. of gaming generally, including online and digital gaming, an aging population that appreciates the convenience of gaming entertainment close to home, expected resilience through economic downturns and attractive revenue and return on invested capital profiles when compared to traditional gaming venues, such as casinos.
Distributed gaming is supported by generally favorable trends, including an increasing number of states contemplating approving gaming to increase tax revenues, broader acceptance in the U.S. of gaming generally, including online and digital gaming, an aging population that appreciates the convenience of gaming entertainment close to home, expected resilience through economic downturns and attractive revenue and return on invested capital profiles when compared to traditional gaming venues, such as casinos. 4 Table of Contents Competition We compete on the basis of the responsiveness of our service to our locations and players, and the popularity, content, features, quality, functionality and reliability of our products.
We also offer employee development programs and training opportunities, including our: • Executive Development Program: This program focuses on accelerating the leadership development of high-potential employees while they remain in their current roles.
These programs include: • Executive Development Program: This program focuses on accelerating the leadership development of high-potential employees while they remain in their current roles.
In addition to our gaming business, we also install, operate and service redemption devices that have ATM functionality, stand-alone ATMs and amusement devices, including jukeboxes, dartboards, pool tables, and other related entertainment equipment. These operations provide a complementary source of lead generation for our gaming business by offering a “one-stop” source of additional equipment for our location partners.
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.
The goal of this program is to prepare the participants for promotion or a strategic lateral movement within 12 months of graduation. • Employee Development Program: This program focuses on creating opportunity and exposure for a broader cross-functional team, while they also remain in their current roles. In this program, individuals focus on individual development and team engagement.
The goal of this program is to prepare the participants for more complex leadership roles throughout the organization. • Employee Development Program: This program focuses on creating opportunity and exposure for a broader cross-functional team, while they also remain in their current roles.
Human Capital Resources Accel believes that human capital management, including attracting, developing and retaining a high-quality workforce is critical to our long-term success. Our board of directors is charged with oversight of human capital management.
Holidays, vacation seasons and sporting events may also cause our revenues to fluctuate. Human Capital Resources We believe that human capital management, including attracting, developing and retaining a high-quality workforce is critical to our long-term success. Our Board of Directors (the “Board”) is charged with oversight of human capital management.
For example, our operations in colder climates typically experience lower revenues in the summer when players typically spend less time indoors, and higher revenues in cold weather, specifically between February and April, when players will typically spend more time indoors. Holidays, vacation seasons and sporting events may also cause Accel’s revenues to fluctuate in the jurisdictions in which it operates.
Seasonality Our results of operations can fluctuate due to seasonal trends and other factors. For example, our operations in colder climates typically experience lower revenues in the summer when players typically spend less time indoors, and higher revenues in cold weather, specifically between February and April, when players will typically spend more time indoors.
Formal new hire training ranges from 2 weeks to 6 months, depending on the employee's job function. We utilize continuous coaching conversations that we believe helps all employees and managers work more effectively together. For further growth and development of our workforce, we broadly make available skill training and development to increase individual productivity.
Formal new hire training ranges from 2 weeks to 6 months, depending on the employee's job function. We leverage a Performance Management Program that supports the unique development of each employee and utilize continuous coaching conversations to help all employees and managers work more effectively together.
The program is focused on rewarding employees for company performance and the contributions that each employee has in delivering those results. • Paid time off program that balances the needs of our employee population and offers wellness days to supplement our national paid holiday schedule. • 401(k) company match program supports our employees to achieve their financial goals. • Employee assistance program that provides free and confidential counseling to all employees and their families. • Military leave benefits that support employees whose family members are on active duty or who need to care for a service member. • Support for our employees’ health and wellness goals through free access to our full-scale gym at our headquarters office. • ACES, a peer-to-peer employee recognition program, rewards individuals who exceed expectations and consistently demonstrate Accel's core values.
The program is focused on rewarding employees for company performance and the contributions that each employee has made in delivering those results. • Paid time off program that balances the needs of our employee population that offers two wellness days and a floating holiday to supplement our paid holiday schedule. • 401(k) company match program helps our employees to achieve their financial retirement goals. • Employee assistance program that provides free and confidential counseling to all employees and their families. • Various employee leave programs including: ◦ Fully paid parental/adoption leave ◦ Company paid short-term disability for 12-weeks of paid leave at 60% of weekly earnings ◦ Voluntary long-term disability benefits ◦ FMLA availability ◦ Military family leave benefits that support employees whose family members are on active duty or who need to care for a service member • Adoption assistance which provides for the reimbursement of eligible costs up to a predetermined maximum per adoption • An employee referral bonus program to incentivize our employees to help us recruit strong candidates in their network • ACES, a peer-to-peer employee recognition program, rewards individuals who exceed expectations and consistently demonstrate Accel's core values. • CareShare Program which allows eligible employees to share commissions with other employees.
As such, we continue to pursue expansion and acquisition opportunities in gaming and related businesses. We may also realize the benefits of potential municipal ordinance changes that would permit our business to operate in new municipalities. Expand into new states that allow distributed gaming that we do not operate in.
Our ability to succeed in implementing our growth strategy will depend to some degree upon our ability to grow inorganically. As such, we continue to pursue expansion and acquisition opportunities in gaming and related businesses. We may also realize the benefits of potential municipal ordinance changes that would permit our business to operate in new locations. Evaluate additional business opportunities.
While Accel experiences business disruptions each year due to business failures or natural disasters affecting gaming locations, many of these sites reopen in subsequent years under new owners. Accel believes it is best-positioned to reengage with those locations because of its reputation and leading market position.
While distributed gaming can experience business disruptions each year due to business failures or natural disasters affecting gaming locations, many of these sites reopen in subsequent years under new owners.
Our Industry We operate within the U.S. distributed gaming industry, which consists of the installation and service of gaming terminals at non-casino locations.
We believe we would be a preferred partner in any of these markets given our track record of success and compliance in the states in which we currently operate. Our Industry We operate within the U.S. distributed gaming industry, which consists of the installation and service of gaming terminals at non-casino locations.
Compensation and benefits programs 8 Table of Contents Accel provides compensation and benefits programs designed to support our employees’ health, wealth and life. We seek to provide comprehensive, competitive and equitable pay and benefits to our employees.
The workshop supports the foundation for building successful teams and reinforces the culture that all our people leaders maintain. 6 Table of Contents Compensation and benefits programs We provide compensation and benefits programs designed to support our employees’ health, wealth and life. We seek to provide comprehensive, competitive and equitable pay and benefits to our employees.
ITEM 1. BUSINESS Overview We believe we are the leading distributed gaming operator in the United States (“U.S.”) on an Adjusted EBITDA basis, and a preferred partner for local business owners in the markets we serve.
ITEM 1. BUSINESS Who We Are 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.
These licenses may not continue to be available to Accel on commercially reasonable terms in the future and as a result, Accel may be required to obtain substitute software or technologies. Seasonality Accel’s results of operations can fluctuate due to seasonal trends and other factors.
As of December 31, 2023, we owned 129 registered trademarks. We also rely on software or technologies that we license from third parties. These licenses may not continue to be available to us on commercially reasonable terms in the future and as a result, we may be required to obtain substitute software or technologies.
Various states and other jurisdictions have proposed legislation permitting gaming terminals or other forms of gaming in the past. These states include Indiana, Kansas, Maine, Michigan, Missouri, Mississippi, New Mexico, New York, New Jersey, New Hampshire, North Carolina, Ohio, Virginia and Wyoming.
We continue to evaluate where to expand our distributed gaming operations, including: • Making investments in Louisiana to potentially expand our presence there in mid-2024. • Evaluating other mature gaming jurisdictions where gaming terminals are currently legal, such as Oregon, South Dakota and West Virginia. • Monitoring various states and other jurisdictions that have proposed legislation to permit gaming terminals or other forms of gaming, such as Alabama, Indiana, Kansas, Maine, Michigan, Missouri, Mississippi, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio, Virginia and Wyoming.
We have been successful in the past growing organically by signing competitors’ locations and continue to identify prospects for engagement after current contracts with other partners expire. We also strive to further optimize revenues for gaming terminals we currently operate through refined data analysis, marketing and other initiatives.
We believe that there is potential for additional growth in the markets we serve, including: • Signing competitors’ locations. • Identifying prospects for engagement after current contracts with other partners expire. • Optimizing revenues for gaming terminals we currently operate through refined data analysis, marketing and other initiatives. • Increasing distribution possibilities through corporate partners who operate multiple locations, such as chain stores.
Under agreements with these manufacturers, Accel is able to provide 32 different types of gaming terminal models and 288 different games to its location partners. Accel believes its efforts to procure gaming terminals from various sources better enables it to meet the needs of location partners and players.
Games include different varieties of slots, poker, and keno games. We believe our efforts to procure gaming terminals from various sources better enables us to meet the needs of our location partners and players.
When seeking to sign a new location, Accel’s marketing team employs a data-driven sales process to identify and nurture leads using a variety of digital and traditional strategies to drive organic gaming partnerships and preference. Accel engages with its locations through every step of the gaming terminal installation process.
Our Growth Opportunities Our experienced leadership team and motivated sales team, including internal and external sales agents, drive the sourcing of new locations and opportunities for us. When seeking a new opportunity, we employ a data-driven process to identify leads using a variety of digital and traditional strategies to drive organic gaming partnerships and preferences.
In the highly competitive gaming industry, trademarks, service marks, trade names and logos are important to the success of its business. As of December 31, 2022, Accel owned 125 registered trademarks and 126 registered domain names. Accel also relies on software or technologies that it licenses from third parties.
Intellectual Property We own or have the right to use the trademarks, service marks or trade names that we use or will use in conjunction with the operation of our business. In the highly competitive gaming industry, trademarks, service marks, trade names and logos are important to the success of our business.
Accel also purchases redemption devices, amusement devices and stand-alone ATMs from reputable suppliers such as NRT, Touch Tunes, Arachnid, and Diamond. Competition Accel competes on the basis of the responsiveness of its services to players, and the popularity, content, features, quality, functionality, accuracy and reliability of its products.
We routinely meet with existing and potential manufacturers in the market to discuss performance, service trends, and feedback from location partners and players. 5 Table of Contents We also purchase redemption terminals, amusement devices and stand-alone ATMs from reputable suppliers such as NRT, Touch Tunes, Arachnid, and Diamond.
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Our business primarily consists of the installation, maintenance and operation of gaming terminals, redemption devices that disburse winnings and contain automated teller machine (“ATM”) functionality, and other amusement devices in authorized non-casino locations such as restaurants, bars, taverns, convenience stores, liquor stores, truck stops, and grocery stores. Our gaming-as-a-service platform provides local businesses with a turnkey, capital efficient gaming solution.
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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.
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We own all of our gaming equipment and manage the entire operating process for our location partners. We also offer our location partners gaming solutions that appeal to players who patronize those businesses.
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We are continuously evaluating additional opportunities that are complementary to our core business.
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We devote significant resources to location partner retention, and seek to provide prompt, personalized player service and support, which we believe is unparalleled among other distributed gaming operators.
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Where We Operate 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 slot machines 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 slot machines with no other forms of gaming activity permitted 1 Table of Contents 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 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 • 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 Our Strategic Core Competencies Our strategic core competencies support our local business model and contribute to our industry-leading position: Gaming-as-a-service platform.
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Dedicated relationship managers assist location partners with regulatory applications and compliance onboarding, train location partners on how to engage with players and potential players, monitor individual gaming areas for compliance, cleanliness and comfort and recommend potential changes to improve both player gaming experience and overall revenue for each licensed establishment.
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We have prioritized establishing strong, lasting relationships with our location partners since our inception, providing unparalleled support, such as: • Dedicated relationship managers assisting with regulatory applications and compliance onboarding, training on how to engage with players and potential players, monitoring individual gaming areas for compliance, cleanliness and comfort and recommend potential changes to improve player gaming. • Providing individualized weekly gaming revenue reports analyzing and comparing gaming results, which can be used to determine an optimal selection of games, layouts and other ideas to generate foot traffic. • Offering value-added services such as amusement solutions, dart leagues, prize pools, and ATMs, which are a key competitive advantage. 2 Table of Contents Dedication to the customer experience.
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We also provide weekly gaming revenue reports to our location partners and analyze and compare gaming results within individual licensed establishment partners. This information is used to determine an optimal selection of games, layouts and other ideas to generate foot traffic for ourlocation partners with the goal of generating increased gaming revenue.
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We focus on our customers both the location partners and players to provide a smooth and seamless experience, including: • Engaging locations through every step of onboarding, including assistance with the license application process and ongoing regulatory compliance support and education. • Assisting in the design and construction of gaming areas, including the selection of the optimal gaming equipment, which is owned by us and provided at no cost to the location. • Providing highly secured cash management services through our in-house collections, processing and security personnel. • Best-in-class customer service, with a dedicated 24/7 call center and highly skilled local technicians who quickly resolve issues and ensure minimal downtime through proactive service and routine maintenance.
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Further, our in-house collections and security personnel provide highly secure cash transportation and vault management services. Our best-in-class technicians ensure minimal downtime through proactive service and routine maintenance.
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Our leading market position has led to strong relationships within the industry and with equipment suppliers, leading to: • Offering premium, high-quality equipment, which gives our location partners a competitive advantage by limiting downtime to maximize revenue and player retention. • Receiving favorable pricing and ample supply of key gaming machines. • Our ability to procure machines and parts easily, so that we are able to rotate machines quickly to our gaming locations on an optimized basis. • Established proprietary player rewards systems that we continue to enhance to further player retention and engagement across our locations and markets.
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We are also a designer and manufacturer of gaming terminals and related equipment. If we are presented with appropriate opportunities, we may acquire other additional businesses, services, resources, or assets, including hospitality operations, that are accretive to our core gaming business.
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Our key growth strategies include: Grow in current markets both organically and inorganically.
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We believe that the distributed gaming industry has witnessed both a growing player base and increased variety of higher quality and well-known game profiles available through gaming terminals. 1 Table of Contents States in Which We Operate Illinois Our operations are based primarily in Illinois.
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If we are presented with advantageous opportunities, we may acquire or develop other businesses that are complementary to our core gaming business, including: 3 Table of Contents • Establishing close to home, convenient gaming parlors, casinos, hospitality/retail locations and other gaming operations that highlight our technology-enabled gaming equipment and have an attractive offering of food and beverage options. • Offering versatile and customer-friendly player rewards programs that can be tailored to the markets we operate in based on statutory regulations, including: bonus games, promotions for players based on the frequency of play, increased daily redemption amounts, and promotions. • Expanding amusement operations, including jukeboxes, dartboards, pool tables, dart leagues and other amusement equipment to provide our local businesses with a wide array of quality devices to help attract more customers.
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We have been licensed as a terminal operator in Illinois under the Illinois Gaming Act since 2012. We were one of the first terminal operators licensed in Illinois. According to the IGB, approximately 1,403 out of approximately 1,497 municipalities in Illinois permit the operation of gaming terminals.
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Expand into new states that we do not operate in.
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Gaming terminals in Illinois can be played in licensed bars, restaurants, gaming cafes, truck stops, fraternal organizations, veterans’ organizations, and other retail establishments, including some convenience stores, in areas accessible only to players who are 21 years of age or older. Gaming revenue in Illinois from gaming terminals generates significant tax revenue.
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Generally, a gaming terminal is an electronic video game machine that utilizes a video display and microprocessors.
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The Illinois marginal tax rate on gaming is currently 34% and the remaining net terminal income is split evenly with the locations. The IGB generally oversees gambling and video gaming operations in the state of Illinois.
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In the distributed gaming industry, we generally operate in markets where our terminal revenue splits are either statutorily determined or negotiated, as follows: Statutory Splits Negotiated Splits Net terminal income splits are statutorily predetermined; minimum and maximum wagers are mandated by the applicable governing bodies Net terminal income splits are negotiated Pricing is not considered a factor as revenue splits with our locations are mandated by law Pricing is driver in contract negotiations as all revenue splits are negotiated Location and customer experience are key differentiating factors for selecting us over our competitors Our focus on player appeal, customer service and reputation are also key factors impacting competition Our markets with statutory splits are: Illinois, Georgia, Pennsylvania Our markets with negotiated splits are: Montana, Nevada, Nebraska, Iowa We face particularly robust competition from other forms of gaming.
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The Illinois Gaming Board (“IGB”) is authorized to issue licenses to distributed gaming operators and has broad disciplinary authority over Illinois’s distributed gaming industry which includes the power to fine operators and licensed establishments for non-compliance with IGB regulations. In addition, Illinois’ governor is empowered to appoint board members to the IGB and select its administrator.
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Our operations also face competition from many other forms of leisure and entertainment activities, including shopping, athletic events, television and movies, concerts, and travel. Suppliers We purchase multi-game gaming terminals from leading manufacturers such as Light & Wonder, Inc., IGT, Aristocrat and Novomatic. We purchase gaming terminals in upright, slant and bar-top varieties.
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Not only do new appointments have the potential to change the composition of the IGB, they can impact current rules, regulations, policies and agendas of the IGB, which may result in increased enforcement measures or further delays in licensing new establishments.
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For further growth and development of our workforce, we broadly make available skill training and development to increase individual productivity. We also offer more targeted training opportunities as part of the Accel Academy that focus on developing our people in our prioritized leadership competencies.
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The IGB dictates the maximum bet, maximum win, and approves payout percentages for games played on gaming terminals which are required by regulation to exceed 80%. Generally, suppliers have designed gaming terminals to include between approximately 10 and 40 games.
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In this program, individuals focus on individual development and cross-functional collaboration. • First Time Manager Training: This class is offered to those who are new to managing people or simply new to managing people at Accel.
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Illinois legislation allows licensed establishments to operate up to six gaming terminals, with certain qualifying truck stop licensed establishments allowed to operate up to ten gaming terminals. The maximum wager that may be placed on a gaming terminal is currently $4.00 and the maximum win from a single play is $1,199.
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All gaming terminals are monitored and controlled by the IGB through a central communications system. The IGB established minimum standards that licensed establishment partner contracts must meet, including limiting the length of contracts to a maximum of eight years with no automatic renewals.
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Montana We were granted a manufacturer, distributor and route operator license in June 2022 by the Gambling Control Division of the Montana Department of Justice through June 2023. The Montana license is perpetual, but is subject to an annual renewal fee.
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Distributed gaming in Montana is governed by the Montana Video Gaming Machine Control Act and is enforced by the Montana Department of Justice. Under Montana law, gaming operations are limited to business locations licensed to sell alcoholic beverages for on-premises consumption only, with such locations restricted to offering a maximum of 20 slot machines.
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In Montana, the maximum bet is $2 and the maximum win from a single play is $800. Net terminal income is subject to a 15% state gaming tax and the remaining net terminal income splits with locations are individually negotiated. Our contracts with our locations may include incentives which may take the form of promotional participation or annual bonuses.
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In addition to our distributed gaming route operations in Montana, we also operate as a Class III video gaming machine manufacturer that is licensed in Montana, South Dakota, West Virginia, and Louisiana. We develop proprietary gaming terminals and related software for our distributed gaming routes in Montana and Nevada.
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Nevada We were granted a two-year terminal operator license from the Nevada Gaming Commission (the “NGC”) in June 2022. This license will be up for renewal in June 2024. Distributed gaming in Nevada is governed by the Nevada Gaming Control Act and is enforced by the Gaming Control Board and the NGC.
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Nevada law limits distributed gaming operations (also known as “restricted gaming” operations) to certain types of non-casino locations, including grocery stores, drug stores, convenience stores, restaurants, bars, taverns and liquor stores, where gaming is incidental to the primary business being conducted at the location.
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Games are generally limited to 15 or fewer slot machines with no other forms of gaming activity permitted. The gaming area in bars and taverns typically requires the installation of slot machines into the physical bar (also known as “bar top” slot machines).
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In Nevada, there are no maximum bet limits and the max payout from a single spin must be less than $250,000. State and local 2 Table of Contents government share of net terminal income is based on a fixed license fee, and the remaining net terminal income splits with locations are individually negotiated.
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Our contracts with our locations may include incentives, which may take the form of promotional participation or annual bonuses. Georgia One of our consolidated subsidiaries has a Class B Master License in the State of Georgia, which is required to operate coin-operated amusement machines (“COAMs”) in the state.
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The operation of COAMs in Georgia has been regulated by the Georgia Lottery Corporation (“GLC”) since April 2013. Class B COAMs provide skill-based games with winnings paid in points that may be redeemed for noncash merchandise, prizes, toys, gift cards, or novelties. The most common type of establishment licensees are convenience stores.
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Licensed establishments are limited to a maximum of nine machines, unless a municipality specifically limits licensed establishments to a maximum of six machines. In addition, any local governing authority may vote to remove coin operated amusement machines from its jurisdiction upon 60 days’ advance notice.
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Net terminal income is subject to a 10% state gaming tax and the remaining net terminal income is split evenly with the locations. Nebraska One of our consolidated subsidiaries was granted a Cash Device Distributor License by the Nebraska Department of Revenue on March 23, 2022.
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That license was renewed on December 8, 2022 for an annual term expiring on December 31, 2023. A cash device is any mechanical amusement device capable of awarding (a) cash, (b) anything redeemable for cash, or (c) gift cards, credit or other instruments that have a value denominated by reference to an amount of currency.
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We operate our cash devices in retail establishments throughout the state. A retail establishment includes any business location that is open to the public for the sale of goods other than cash devices and that possesses a valid sales tax permit. Currently, Nebraska does not tax net terminal income on cash devices.
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The net terminal income split with the retail establishments are individually negotiated. Iowa One of our consolidated subsidiaries is a registered distributor in the State of Iowa, which is required to operate amusement concessions in the state. Amusement concessions are regulated by the Iowa Department of Inspections and Appeals (“IDIA”) under Title III, Chapter 99B of the Iowa Administrative Code.
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Amusement concessions fall into two broad categories: games of chance and games of skill. Games of chance are games in which the result is determined by chance. An example of a game of chance is when a player aligns objects or balls in a prescribed pattern in order to win.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeOur revenue growth and future success depends on our ability to expand into new markets, which may not occur as anticipated or at all. • Our industry is highly competitive and we must accurately predict, prepare for and respond promptly to technological and market developments and changing end-customer needs, including by acquiring and integrating other businesses, products and technologies that address a fast-changing technology and threat landscape and that achieve sufficient market acceptance, in order to maintain or improve our competitive position. • We are subject to strict government regulations that are constantly evolving and may be amended, repealed, or subject to new interpretations, which may limit existing operations, have an adverse impact on the ability to grow or may expose us to fines or other penalties. • We have identified material weaknesses in our internal control over financial reporting and if remediation of these material weaknesses is not effective, or if we fail to develop and maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable laws and regulations could be impaired and our reputation and business could be adversely affected.
Biggest changeOur revenue growth and future success depends on our ability to expand into new markets, which may not occur as anticipated or at all. • Our industry is highly competitive and we must accurately predict, prepare for and respond promptly to technological and market developments and changing end-customer needs, including by acquiring and integrating other businesses, 8 Table of Contents products and technologies that address a fast-changing technology and threat landscape and that achieve sufficient market acceptance, in order to maintain or improve our competitive position. • We are subject to strict government regulations that are constantly evolving and may be amended, repealed, or subject to new interpretations, which may limit existing operations, have an adverse impact on the ability to grow or may expose us to fines or other penalties. • Our business depends on the protection of intellectual property and proprietary information. • Gaming opponents persist in their efforts to curtail the expansion of legalized gaming, which, if successful, could limit our growth of operations. • Our success depends on the security and integrity of the systems and products offered, and security breaches or other disruptions could compromise certain information and expose us to liability. • Our level of indebtedness and its related variable interest rate, and any increase thereto, could adversely affect results of operations, cash flows and financial condition. • Certain stockholders own a significant portion of Class A-1 common stock and they may have interests that differ from those of other stockholders.
Additional discussion of the risks summarized in this risk factor summary, and other risks that we face, can be found below under the heading “Risk Factors” and should be carefully considered, together with other information in this Form 10-K and our other filings with the SEC, before making an investment decision regarding our common stock • Our operating results are likely to vary significantly and be unpredictable. • Our success depends on our ability to offer new and innovative products and services that fulfill the needs of location partners and create strong and sustained player appeal. • We are dependent on relationships with key manufacturers, developers and third parties to obtain gaming terminals, amusement machines, and related supplies, programs, and technologies for our business on acceptable terms. • Our future results of operations may be negatively impacted by slow growth in demand for gaming terminals and by the slow growth of new gaming jurisdictions and related regulations. • We depend heavily on our ability to win, maintain and renew contracts with location partners. • Adverse economic conditions or decreased discretionary spending may adversely impact our business. • Our ability to operate in existing markets or expand into new jurisdictions could be adversely affected by difficulties, delays, or failures by us or our stakeholders in obtaining or maintaining required licenses or approvals. • Our business is geographically concentrated, which subjects us to greater risks from changes in local or regional conditions.
Additional discussion of the risks summarized in this risk factor summary, and other risks that we face, can be found below under the heading “Risk Factors” and should be carefully considered, together with other information in this Form 10-K and our other filings with the SEC, before making an investment decision regarding our Class A-1 common stock • Our operating results are likely to vary significantly and be unpredictable. • Our success depends on our ability to offer new and innovative products and services that fulfill the needs of location partners and create strong and sustained player appeal. • We are dependent on relationships with key manufacturers, developers and third parties to obtain gaming terminals, amusement machines, and related supplies, programs, and technologies for our business on acceptable terms. • Our future results of operations may be negatively impacted by slow growth in demand for gaming terminals and by the slow growth of new gaming jurisdictions and related regulations. • We depend heavily on our ability to win, maintain and renew contracts with location partners. • Adverse economic conditions or decreased discretionary spending may adversely impact our business. • Our ability to operate in existing markets or expand into new jurisdictions could be adversely affected by difficulties, delays, or failures by us or our stakeholders in obtaining or maintaining required licenses or approvals. • Our business is geographically concentrated, which subjects us to greater risks from changes in local or regional conditions.
The gaming industry is characterized by an increasingly high degree of competition among a large number of participants on both a local and national level, including casinos, Internet gaming, sports betting, sweepstakes and poker machines not located in casinos, horse racetracks, including those featuring slot machines and/or table games, fantasy sports, real money iGaming, and other forms of gaming, such as, Internet-based lotteries, sweepstakes, and fantasy sports, and Internet-based or mobile-based gaming platforms, which allow their players to wager on a wide variety of sporting events and/or play 18 Table of Contents casino games from home or in non-casino settings.
The gaming industry is characterized by an increasingly high degree of competition among a large number of participants on both a local and national level, including casinos, Internet gaming, sports betting, sweepstakes and poker machines not located in casinos, horse racetracks, including those featuring slot machines and/or table games, fantasy sports, real money iGaming, and other forms of gaming, such as, Internet-based lotteries, sweepstakes, and fantasy sports, and Internet-based or mobile-based gaming platforms, which allow their players to wager on a wide variety of sporting events and/or play casino games from home or in non-casino settings.
In particular, the enactment of unfavorable legislation or government efforts affecting or directed at gaming terminal manufacturers or gaming operators, such as referendums to increase gaming taxes or requirements to use local distributors, would likely have a negative impact on operations.
In particular, the enactment of unfavorable legislation or government efforts affecting or directed at gaming terminal manufacturers or gaming operators, such as referendums to increase gaming taxes or requirements to use local distributors, would likely have a negative impact on our operations.
For any cause deemed reasonable by the gaming authorities, subject to certain administrative proceeding requirements, gaming regulators in Illinois, Pennsylvania, Montana, Nevada or elsewhere would have the authority to (i) deny any application; (ii) limit, condition, restrict, revoke, or suspend any license, registration, finding of suitability or approval, including revoking any licenses held by Accel to conduct business in the state or (iii) fine any person licensed, registered, or found suitable or approved.
For any cause deemed reasonable by the gaming authorities, subject to certain administrative proceeding requirements, gaming regulators in Illinois, Pennsylvania, Montana, Nevada or elsewhere would have the authority to (i) deny any application; (ii) limit, condition, restrict, revoke, or suspend any license, registration, finding of suitability or approval, including revoking any licenses held by us to conduct business in the state or (iii) fine any person licensed, registered, or found suitable or approved.
However, stockholders will not be deemed to have waived Accel’s compliance with the federal securities laws and the rules and regulations thereunder and this provision would not apply to suits brought to enforce a duty or liability created by the Exchange Act, which provides for the exclusive jurisdiction of the federal courts with respect to all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder.
However, stockholders will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder and this provision would not apply to suits brought to enforce a duty or liability created by the Exchange Act, which provides for the exclusive jurisdiction of the federal courts with respect to all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder.
However, these measures may not be sufficient to prevent future attacks, breaches or disruptions. There is a risk that Accel’s products, services or systems may be used to defraud, launder money or engage in other illegal activities at its location s. Accel’s gaming machines have also experienced anomalies in the past.
However, these measures may not be sufficient to prevent future attacks, breaches or disruptions. There is a risk that our products, services or systems may be used to defraud, launder money or engage in other illegal activities at its location s. Our gaming machines have also experienced anomalies in the past.
Part of Accel’s strategy is to take advantage of the liberalization of regulations covering these industries on a municipality and state basis, which can be a protracted process. To varying degrees, governments have taken steps to change the regulation of gaming terminals through the implementation of new or revised licensing and taxation regimes.
Part of our strategy is to take advantage of the liberalization of regulations covering these industries on a municipality and state basis, which can be a protracted process. To varying degrees, governments have taken steps to change the regulation of gaming terminals through the implementation of new or revised licensing and taxation regimes.
Accel’s revenue is largely driven by players’ disposable incomes and level of gaming activity. Unfavorable economic conditions may reduce the disposable incomes of players at location partners and may result in fewer players visiting location partners, reduced play levels, and lower amounts spent per visit, adversely affecting Accel’s results of operations and cash flows.
Our revenue is largely driven by players’ disposable incomes and level of gaming activity. Unfavorable economic conditions may reduce the disposable incomes of players at location partners and may result in fewer players visiting location partners, reduced play levels, and lower amounts spent per visit, adversely affecting our results of operations and cash flows.
In addition, any expected cost synergies associated with such acquisitions may not be fully realized in the anticipated amounts or within the contemplated timeframes or cost expectations, which could result in increased costs and have an adverse effect on Accel’s results of operations, cash flows and financial condition.
In addition, any expected cost synergies associated with such acquisitions may not be fully realized in the anticipated amounts or within the contemplated timeframes or cost expectations, which could result in increased costs and have an adverse effect on our results of operations, cash flows and financial condition.
These programs and technologies could be an important aspect of products and services because they can confirm certain information with respect to players and prospective players, such as age, identity and location. Payment processing programs and technologies, typically provided by third parties, are also a necessary feature of Accel’s products and services.
These programs and technologies could be an important aspect of products and services because they can confirm certain information with respect to players and prospective players, such as age, identity and location. Payment processing programs and technologies, typically provided by third parties, are also a necessary feature of our products and services.
These gaming authorities are authorized to: • adopt additional rules and regulations under the implementing statutes; • investigate violations of gaming regulations; • enforce gaming regulations and impose disciplinary sanctions for violations of such laws, including fines, penalties and revocation of gaming licenses; • review the character and fitness of manufacturers, distributors and operators of gaming services and equipment and make determinations regarding their suitability or qualification for licensure; • review and approve transactions (such as acquisitions, material commercial transactions, securities offerings and debt transactions); and • establish and collect related fees and/or taxes.
These gaming authorities are authorized to: • adopt additional rules and regulations under the implementing statutes; • investigate violations of gaming regulations; • enforce gaming regulations and impose disciplinary sanctions for violations of such laws, including fines, penalties and revocation of gaming licenses; • review the character and fitness of manufacturers, distributors and operators of gaming services and equipment and make determinations regarding their suitability or qualification for licensure; 16 Table of Contents • review and approve transactions (such as acquisitions, material commercial transactions, securities offerings and debt transactions); and • establish and collect related fees and/or taxes.
Any security breach or incident could result in unauthorized access to, misuse of, or unauthorized acquisition of certain data, the loss, corruption or alteration of this data, interruptions in operations or damage to computers or systems or those of certain players or third-party platforms. Any of these incidents could expose Accel to claims, litigation, fines and potential liability.
Any security breach or incident could result in unauthorized access to, misuse of, or unauthorized acquisition of certain data, the loss, corruption or alteration of this data, interruptions in operations or damage to computers or systems or those of certain players or third-party platforms. Any of these incidents could expose us to claims, litigation, fines and potential liability.
Clairvest's influence over Accel’s management could have the effect of delaying or preventing a change in control or otherwise discouraging a potential acquirer from attempting to obtain control of us, which could cause the market price of Class A-1 common stock to decline or prevent public stockholders from realizing a premium over the market price for Class A-1 common stock.
Clairvest’s influence over our management could have the effect of delaying or preventing a change in control or otherwise discouraging a potential acquirer from attempting to obtain control of us, which could cause the market price of our Class A-1 common stock to decline or prevent public stockholders from realizing a premium over the market price for our Class A-1 common stock.
While each registration rights holder (as defined in the registration rights agreement) has agreed not to effect any sale or distribution of its registrable shares if such sale or distribution would, or would reasonably be expected to, constitute or result in a “change of control” or similar event under Accel or its subsidiaries’ credit facilities, as contractual restrictions on resale end, the sale or possibility of sale of these shares could have the effect of increasing the volatility in the market price of our common stock or decreasing the market price itself.
While each registration rights holder (as defined in the registration rights agreement) has agreed not to effect any sale or distribution of its registrable shares if such sale or distribution would, or would reasonably be expected to, constitute or result in a “change of control” or similar event under our or our subsidiaries’ credit facilities, as contractual restrictions on resale end, the sale or possibility of sale of these shares could have the effect of increasing the volatility in the market price of our Class A-1 common stock or decreasing the market price itself.
Moreover, even with the expansion of gaming into new jurisdictions, the opening of new location s and the addition of new gaming terminals and amusement machines in existing location s, demand for Accel’s services could decline due to the desires of location partners, unfavorable economic conditions, failure to obtain regulatory approvals and the availability of financing.
Moreover, even with the expansion of gaming into new jurisdictions, the opening of new location s and the addition of new gaming terminals and amusement machines in existing location s, demand for our services could decline due to the desires of location partners, unfavorable economic conditions, failure to obtain regulatory approvals and the availability of financing.
Unfavorable economic conditions or decreased discretionary spending due to other factors such as terrorist activity or threat thereof, epidemics, pandemics or other public health issues, civil unrest or other economic or political uncertainties, may adversely affect Accel’s business, results of operations, cash flows and financial condition.
Unfavorable economic conditions or decreased discretionary spending due to other factors such as terrorist activity or threat thereof, epidemics, pandemics or other public health issues, civil unrest or other economic or political uncertainties, may adversely affect our business, results of operations, cash flows and financial condition.
Accel’s suppliers’ products may fail to meet the needs of location partners due to changes in consumer preference or Accel’s suppliers may be unable to maintain a sufficient inventory to satisfy the requirements of location partners. In addition, suppliers must obtain regulatory approvals for new products, and such approvals may be delayed or denied.
Our suppliers’ products may fail to meet the needs of location partners due to changes in consumer preference or our suppliers may be unable to maintain a sufficient inventory to satisfy the requirements of location partners. In addition, suppliers must obtain regulatory approvals for new products, and such approvals may be delayed or denied.
Any claims brought against Accel by location partners or players may result in the diversion of management’s time and attention, expenditure of large amounts of cash on legal fees and payment of damages, lower demand for products or services, or injury to reputation.
Any claims brought against us by location partners or players may result in the diversion of management’s time and attention, expenditure of large amounts of cash on legal fees and payment of damages, lower demand for products or services, or injury to reputation.
The licensing procedures and background investigations of the authorities that regulate Accel’s businesses may inhibit potential investors from becoming significant stockholders, inhibit existing stockholders from retaining or increasing their ownership, or inhibit existing stockholders from selling their shares to potential investors who are found unsuitable to hold Accel stock by gaming authorities or whose stock ownership may adversely affect Accel’s ability to obtain, maintain, renew or qualify for a license, contract, franchise or other regulatory approval from a gaming authority.
The licensing procedures and background investigations of the authorities that regulate our businesses may inhibit potential investors from becoming significant stockholders, inhibit existing stockholders from retaining or increasing their ownership, or inhibit existing stockholders from selling their shares to potential investors who are found unsuitable to hold our stock by gaming authorities or whose stock ownership may adversely affect our ability to obtain, maintain, renew or qualify for a license, contract, franchise or other regulatory approval from a gaming authority.
Socio-political factors such as terrorist activity or threat thereof, civil unrest or other economic or political uncertainties that contribute to consumer unease may also result in decreased discretionary spending by players and have a negative effect on Accel.
Socio-political factors such as terrorist activity or threat thereof, civil unrest or other economic or political uncertainties that contribute to consumer unease may also result in decreased discretionary spending by players and have a negative effect on us.
If a holder is found unsuitable by a gaming authority, that holder would not be able to, directly or indirectly, beneficially own common stock. Gaming authorities have very broad discretion in determining whether an applicant should be deemed suitable.
If a holder is found unsuitable by a gaming authority, that holder would not be able to, directly or indirectly, beneficially own Class A-1 common stock. Gaming authorities have very broad discretion in determining whether an applicant should be deemed suitable.
Expanded use of the Internet and other interactive technologies may result in increased security risks for Accel and its location partners because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and often are not foreseeable or recognized until launched against a target and Accel may be unable to anticipate these techniques or to implement adequate preventative measures.
Expanded use of the Internet and other interactive technologies may result in increased security risks for us and our location partners because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and often are not foreseeable or recognized until launched against a target and Accel may be unable to anticipate these techniques or to implement adequate preventative measures.
Any delay, difficulty or failure by Accel to obtain or retain a required license or approval in one jurisdiction could negatively impact the ability to obtain or retain required licenses and approvals in other jurisdictions, or affect eligibility for a license in other jurisdictions, which can negatively affect opportunities for growth.
Any delay, difficulty or failure by us to obtain or retain a required license or approval in one jurisdiction could negatively impact the ability to obtain or retain required licenses and approvals in other jurisdictions, or affect eligibility for a license in other jurisdictions, which can negatively affect opportunities for growth.
The success of such content is dependent on these suppliers’ ability to anticipate changes in consumer tastes, preferences and requirements and deliver to Accel in sufficient quantities and on a timely basis a desirable, high-quality and price-competitive mix of products.
The success of such content is dependent on these suppliers’ ability to anticipate changes in consumer tastes, preferences and requirements and deliver to us in sufficient quantities and on a timely basis a desirable, high-quality and price-competitive mix of products.
Certain of Accel’s key business metrics, including number of locations, number of gaming terminals and other measures to evaluate growth trends and the quality of marketing and player behaviors, are calculated using data from Light & Wonder, Inc., a contractor of the IGB.
Certain of our key business metrics, including number of locations, number of gaming terminals and other measures to evaluate growth trends and the quality of marketing and player behaviors, are calculated using data from Light & Wonder, Inc., a contractor of the IGB.
Additionally, Clairvest and its affiliates are in the business of making investments in companies and owning real estate, and may from time to time acquire and hold interests in businesses that compete directly or indirectly with Accel or that supply Accel with goods and services.
Additionally, Clairvest and its affiliates are in the business of making investments in companies and owning real estate, and may from time to time acquire and hold interests in businesses that compete directly or indirectly with us or that supply us with goods and services.
The supply of Accel’s gaming terminals, stand-alone ATMs, redemption devices and amusement devices depend upon the manufacture, development, assembly, design, maintenance and repair of such products by certain key providers, as well as regulatory approval for these products.
The supply of our gaming terminals, stand-alone ATMs, redemption devices and amusement devices depend upon the manufacture, development, assembly, design, maintenance and repair of such products by certain key providers, as well as regulatory approval for these products.
In addition, the occurrence of errors in, or fraudulent manipulation of, Accel’s products or software may give rise to claims by location partners or by players, including claims by location partners for lost revenues and related litigation that could result in significant liability.
In addition, the occurrence of errors in, or fraudulent manipulation of, our products or software may give rise to claims by location partners or by players, including claims by location partners for lost revenues and related litigation that could result in significant liability.
Further, because there exists a limited number of suppliers in the distributed gaming business, an increase in supplier pricing may limit Accel’s ability to seek alternate sources of gaming content and may result in increased operating expenses.
Further, because there exists a limited number of suppliers in the distributed gaming business, an increase in supplier pricing may limit our ability to seek alternate sources of gaming content and may result in increased operating expenses.
In connection with the signing or renewal of a gaming or amusement contract, Accel may provide new equipment or impose new service requirements at a location , which may require additional capital expenditures in order to enter into or retain the contract.
In connection with the signing or renewal of a gaming or amusement contract, we may provide new equipment or impose new service requirements at a location , which may require additional capital expenditures in order to enter into or retain the contract.
A breach of the covenants or restrictions under the agreements governing Accel's indebtedness could result in an event of default under the applicable indebtedness. Such a default may allow Accel's lenders to accelerate the related indebtedness, which may result in the acceleration of other indebtedness to which a cross-acceleration or cross-default provision applies.
A breach of the covenants or restrictions under the agreements governing our indebtedness could result in an event of default under the applicable indebtedness. Such a default may allow our lenders to accelerate the related indebtedness, which may result in the acceleration of other indebtedness to which a cross-acceleration or cross-default provision applies.
Accel’s future results of operations may be negatively impacted by slow growth in demand for gaming terminals and by the slow growth of new gaming jurisdictions. Slow growth or declines in the demand for gaming terminals could reduce the demand for Accel’s services and negatively impact results of operations, cash flows and financial condition.
Our future results of operations may be negatively impacted by slow growth in demand for gaming terminals and by the slow growth of new gaming jurisdictions. Slow growth or declines in the demand for gaming terminals could reduce the demand for our services and negatively impact our results of operations, cash flows and financial condition.
Additionally, in the event of the occurrence of any such issues with Accel’s products and services, substantial resources may be diverted from other projects to correct these issues, which may delay other projects and the achievement of strategic objectives.
Additionally, in the event of the occurrence of any such issues with our products and services, substantial resources may be diverted from other projects to correct these issues, which may delay other projects and the achievement of strategic objectives.
Holders of common stock are subject to certain gaming regulations, and if a holder is found unsuitable by a gaming authority, that holder would not be able to, directly or indirectly, beneficially own common stock. Holders of common stock are subject to certain gaming regulations.
Holders of Class A-1 common stock are subject to certain gaming regulations, and if a holder is found unsuitable by a gaming authority, that holder would not be able to, directly or indirectly, beneficially own Class A-1 common stock. Holders of common stock are subject to certain gaming regulations.
As a result, the Rubenstein Family may be able to significantly influence the outcome of matters submitted for director action, subject to Accel’s director’s obligation to act in the interest of all of Accel’s stakeholders, and for stockholder action, including the designation and appointment of the Company Board (and committees thereof) and approval of significant corporate transactions, including business combinations, consolidations and mergers.
As a result, the Rubenstein Family may be able to significantly influence the outcome of matters submitted for director action, subject to our director’s obligation to act in the interest of all of our stakeholders, and for stockholder action, including the designation and appointment of the Board (and committees thereof) and approval of significant corporate transactions, including business combinations, consolidations and mergers.
Summary of Risk Factors Below is a summary of the principal factors that make an investment in our common stock speculative or risky. This summary does not address all of the risks that we face.
Summary of Risk Factors Below is a summary of the principal factors that make an investment in our Class A-1 common stock speculative or risky. This summary does not address all of the risks that we face.
Such opposition could also lead these jurisdictions to adopt legislation or impose a regulatory framework to govern gaming that restricts Accel’s ability to advertise games or substantially increases costs to comply with these regulations.
Such opposition could also lead these jurisdictions to adopt legislation or impose a regulatory framework to govern gaming that restricts our ability to advertise games or substantially increases costs to comply with these regulations.
Accel’s recent hires and planned hires may not become productive as quickly as expected and if new sales employees and agents do not become fully productive on the timelines that have been projected or at all, Accel’s revenue may not increase at anticipated levels and its ability to achieve long-term projections may be negatively impacted.
Our recent hires and planned hires may not become productive as quickly as expected and if new sales employees and agents do not become fully productive on the timelines that have been projected or at all, our revenue may not increase at anticipated levels and our ability to achieve long-term projections may be negatively impacted.
This could divert players from using Accel’s products in location partners, and adversely affect its business. Even Internet wagering services that are illegal under federal and state law but operate from overseas locations, may nevertheless be accessible to domestic gamblers and divert players from visiting location partners to play on Accel’s gaming terminals .
This could divert players from using our products in location partners, and adversely affect our business. Even Internet wagering services that are illegal under federal and state law but operate from overseas locations, may nevertheless be accessible to domestic gamblers and divert players from visiting location partners to play on our gaming terminals .
Resales of the securities, or issuances of Class A-1 common stock following the conversion of Class A-2 common stock could depress the market price of Accel’s Class A-1 common stock. There may be a large number of Accel’s securities sold in the market in the near future.
Resales of the securities, or issuances of Class A-1 common stock following the conversion of Class A-2 common stock could depress the market price of our Class A-1 common stock. There may be a large number of our securities sold in the market in the near future.
Provisions in Accel’s Charter designate the Court of Chancery of the State of Delaware, to the fullest extent permitted by law, as the sole and exclusive forum for certain times of actions and proceedings that may be initiated by Accel’s stockholders, and provisions in Accel’s Bylaws also provide that the federal district courts will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act which could limit the ability of Accel’s stockholders to obtain a favorable judicial forum for disputes with Accel or with its directors, officers or employees and may discourage stockholders from bringing such claims.
Provisions in our Charter designate the Court of Chancery of the State of Delaware, to the fullest extent permitted by law, as the sole and exclusive forum for certain times of actions and proceedings that may be initiated by our stockholders, and provisions in our Bylaws also provide that the federal district courts will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act which could limit the ability of our stockholders to obtain a favorable judicial forum for disputes with us or with our directors, officers or employees and may discourage stockholders from bringing such claims.
Any successful effort to curtail the expansion of, or limit or prohibit, legalized gaming could have an adverse effect on Accel’s results of operations, cash flows and financial condition.
Any successful effort to curtail the expansion of, or limit or prohibit, legalized gaming could have an adverse effect on our results of operations, cash flows and financial condition.
While Accel’s subsidiaries (including those holding gaming licenses) manage their respective operations in the ordinary course, Clairvest may be able to significantly influence the outcome of matters submitted for action by directors of the Board, subject to the Company’s directors’ obligation to act in the interest of all of the Company’s stakeholders, and for stockholder action, including the designation and appointment of the Company Board (and committees thereof) and approval of significant corporate transactions, including business combinations, consolidations and mergers.
While our subsidiaries (including those holding gaming licenses) manage their respective operations in the ordinary course, Clairvest may be able to significantly influence the outcome of matters submitted for action by directors of the Board, subject to our directors’ obligation to act in the interest of all of our stakeholders, and for stockholder action, including the designation and appointment of the Board (and committees thereof) and approval of significant corporate transactions, including business combinations, consolidations and mergers.
Further, third party-hosted solution providers that provide services to Accel, such as Rackspace , Salesforce or NetSuite, have in the past been subject to cyber security incidents.
Further, third party-hosted solution providers that provide services to us, such as Rackspace , Salesforce or NetSuite, have in the past been subject to cyber security incidents.
Accel and certain of its affiliates, major stockholders (generally persons and entities beneficially owning a specified percentage (typically 5% or more) of equity securities), directors, officers and key employees are subject to extensive background investigations, personal and financial disclosure obligations and suitability standards in its businesses. Certain jurisdictions may require the same from Accel’s lenders or key business partners.
We and certain of our affiliates, major stockholders (generally persons and entities beneficially owning a specified percentage (typically 5% or more) of equity securities), directors, officers and key employees are subject to extensive background investigations, personal and financial disclosure obligations and suitability standards in its businesses. Certain jurisdictions may require the same from our lenders or key business partners.
Accel’s contracts with its location partners generally contain initial multi-year terms. Contracts entered into with Illinois-based location partners prior to February 2018 typically contain automatic renewal provisions that provide the individual partner with an option to terminate within a specified time frame.
Our contracts with our location partners generally contain initial multi-year terms. Contracts entered into with Illinois-based location partners prior to February 2018 typically contain automatic renewal provisions that provide the individual partner with an option to terminate within a specified time frame.
In some cases, Accel may need to develop or expand its sales channels and leverage the relationships with its location partners in order to execute this strategy.
In some cases, we may need to develop or expand its sales channels and leverage the relationships with its location partners in order to execute this strategy.
Games and gaming machines may be replaced by Accel and other gaming machine operators if they do not perform according to expectations, or they may be shut down by regulators.
Games and gaming machines may be replaced by us and other gaming machine operators if they do not perform according to expectations, or they may be shut down by regulators.
Accel’s ability to achieve significant revenue growth will depend, in large part, on its success in recruiting, training, and retaining sufficient numbers of in-house and independent sales personnel to support growth. New sales personnel require significant training and can take a number of months to achieve full productivity.
Our ability to achieve significant revenue growth will depend, in large part, on our success in recruiting, training, and retaining sufficient numbers of in-house and independent sales personnel to support growth. New sales personnel require significant training and can take a number of months to achieve full productivity.
As a result of new standards, changes to existing standards, and changes in interpretation, Accel may be required to change accounting policies, alter operational policies and implement new or enhance existing systems so that they reflect new or amended financial reporting standards, or it may be required to restate published financial statements.
As a result of new standards, changes to existing standards, and changes in interpretation, we may be required to change accounting policies, alter operational policies and implement new or enhance existing systems so that they reflect new or amended financial reporting standards, or we may be required to restate published financial statements.
In addition, the Credit Agreement contains financial covenants that require Accel to maintain (a) a ratio of consolidated first lien net debt to consolidated EBITDA no greater than 4.50 to 1.00 and (b) a ratio of consolidated EBITDA to consolidated fixed charges no less than 1.20 to 1.00, in each case, tested as of the last day of each full fiscal quarter ending after November 20, 2019 and determined on the basis of the four most recently ended fiscal quarters of Accel for which financial statements have been or are required to have been delivered pursuant to the Credit Agreement, subject to customary “equity cure” rights.
In addition, the Credit Agreement contains financial covenants that require us to maintain (a) a ratio of consolidated first lien net debt to consolidated EBITDA no greater than 4.50 to 1.00 and (b) a ratio of consolidated EBITDA to consolidated fixed charges no less than 1.20 to 1.00, in each case, tested as of the last day of each full fiscal quarter ending after November 20, 2019 and determined on the basis of our four most recently ended fiscal quarters for which financial statements have been delivered pursuant to the Credit Agreement, subject to customary “equity cure” rights.
In addition, certain gaming products and technologies must be certified or approved in certain jurisdictions in which Accel operates, and these regulatory requirements vary from jurisdiction to jurisdiction. The scope of the approvals required can be extensive. Regulators review many facets of an applicant or holder of a license, including its financial stability, integrity and business experience.
In addition, certain gaming products and technologies must be certified or approved in certain jurisdictions in which we operate, and these regulatory requirements vary from jurisdiction to jurisdiction. The scope of the approvals required can be extensive. Regulators review many facets of an applicant or holder of a license, including its financial stability, integrity and business experience.
The difficulty or inability of location partners to generate or obtain adequate levels of capital to finance their ongoing operations may cause some to close or ultimately declare bankruptcy. Accel cannot fully predict the effects that unfavorable social, political and economic conditions and economic uncertainties and decreased discretionary spending could have on its business.
The difficulty or inability of location partners to access their funds or generate or obtain adequate levels of capital to finance their ongoing operations may cause some to close or ultimately declare bankruptcy. We cannot fully predict the effects that unfavorable social, political and economic conditions and economic uncertainties and decreased discretionary spending could have on its business.
High-quality user and location education and customer service to the licensed establishments have been key to Accel’s brand and is important for the successful marketing and sale of its products and services and to increase the number of gaming terminals and amusement machines at its location s.
High-quality user and location education and customer service to the licensed establishments have been key to our brand and is important for the successful marketing and sale of our products and services and to increase the number of gaming terminals and amusement machines at our location s.
In addition to regulatory compliance risk, Illinois, Montana, Nevada or any other states or other jurisdiction in which Accel operates or may operate (including jurisdictions at the county, district, municipal, town or borough level), may amend or repeal gaming enabling legislation or regulations.
In addition to regulatory compliance risk, Illinois, Montana, Nevada or any other states or other jurisdiction in which we operate or may operate (including jurisdictions at the county, district, municipal, town or borough level), may amend or repeal gaming enabling legislation or regulations.
Due to this geographic concentration, Accel’s results of operations, cash flows and financial condition are subject to greater risks from changes in local and regional conditions, such as: • changes in local or regional economic conditions and unemployment rates; • changes in local and state laws and regulations, including gaming laws and regulations; • a decline in the number of residents in or near, or visitors to, location partners; 15 Table of Contents • changes in the local or regional competitive environment; and • adverse weather conditions and natural disasters (including weather or road conditions that limit access to locations).
Due to this geographic concentration, our results of operations, cash flows and financial condition are subject to greater risks from changes in local and regional conditions, such as: • changes in local or regional economic conditions and unemployment rates; • changes in local and state laws and regulations, including gaming laws and regulations; • a decline in the number of residents in or near, or visitors to, location partners; • changes in the local or regional competitive environment; and • adverse weather conditions and natural disasters (including weather or road conditions that limit access to locations).
Significant assumptions and estimates used in preparing consolidated financial statements include among other things, the useful lives for depreciable and amortizable assets, income tax provisions, the evaluation of the future realization of deferred tax assets, projected cash flows in assessing the initial valuation of intangible assets in conjunction with business acquisitions, the initial selection of useful lives for depreciable and amortizable assets in conjunction with business acquisitions, the fair value of convertible note investments, contingencies, and the expected term of share-based compensation awards and stock price volatility when computing share-based compensation expense.
Significant assumptions and estimates used in preparing consolidated financial statements include among other things, the useful lives for depreciable and amortizable assets, income tax provisions, the evaluation of the future realization of deferred tax assets, projected cash flows in assessing the initial valuation of intangible assets in conjunction with business acquisitions, the initial selection of useful lives for depreciable and amortizable assets in conjunction with business acquisitions, contingencies, and the expected term of share-based compensation awards and stock price volatility when computing share-based compensation expense.
For example, if Accel’s license to operate in Illinois is not renewed as a result of a failure to satisfy suitability requirements or otherwise, its ability to obtain or maintain a license in Montana, Nevada, Nebraska, Pennsylvania, Georgia or Pennsylvania may be harmed.
For example, if our license to operate in Illinois is not renewed as a result of a failure to satisfy suitability requirements or otherwise, our ability to obtain or maintain a license in Montana, Nevada, Nebraska, Pennsylvania, Georgia or Pennsylvania may be harmed.
The termination, expiration or failure to renew one or more of its contracts with its location partners could cause it to lose substantial revenue, which could have an adverse effect on its ability to win or renew other contracts or pursue growth initiatives.
The termination, expiration or failure to renew one or more of its contracts with its location partners could cause us to lose substantial revenue, which could have an adverse effect on our ability to win or renew other contracts or pursue growth initiatives.
Accel’s ability to make payments on and to refinance indebtedness and other obligations depends on its results of operations, cash flows and financial condition, which in turn are subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond its control.
Our ability to make payments on and to refinance our indebtedness and other obligations depends on our results of operations, cash flows and financial condition, which in turn are subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.
Accel’s business depends on content for gaming terminals, stand-alone ATMs, redemption devices, and amusement devices that is developed by third-party suppliers.
Our business depends on content for gaming terminals, stand-alone ATMs, redemption devices, and amusement devices that is developed by third-party suppliers.
Failure of key suppliers to meet their delivery commitments could result in Accel being in breach of and subsequently losing contracts with key location partners.
Failure of key suppliers to meet their delivery commitments could result in our being in breach of and subsequently losing contracts with key location partners.
The occurrence of anomalies in, or fraudulent manipulation of, Accel’s gaming machines or other products and services, may give rise to claims from players or location partners, may lead to claims for lost revenue and profits and related litigation by location partners and may subject Accel to investigation or other action by regulatory authorities, including suspension or revocation of licenses or other disciplinary action.
The occurrence of anomalies in, or fraudulent manipulation of, our gaming machines or other products and services, may give rise to claims from players or location partners, may lead to claims for lost revenue and profits and related litigation by location partners and may subject us to investigation or other action by regulatory authorities, including suspension or revocation of licenses or other disciplinary action.
Software bugs or malfunctions, errors in distribution or installation of Accel’s software, failure of products to perform as approved by the appropriate regulatory bodies or other errors or malfunctions, may subject Accel to investigation or other action by gaming regulatory authorities, including fines. Litigation may adversely affect Accel’s business, results of operations, cash flows and financial condition.
Software bugs or malfunctions, errors in distribution or installation of our software, failure of products to perform as approved by the appropriate regulatory bodies or other errors or malfunctions, may subject us to investigation or other action by gaming regulatory authorities, including fines. Litigation may adversely affect our business, results of operations, cash flows and financial condition.
The Rubenstein Family’s influence over Accel’s management could have the effect of delaying or preventing a change in control or otherwise discouraging a potential acquirer from attempting to obtain control of Accel, which could cause the market price of Class A-1 common stock to decline or prevent public stockholders from realizing a premium over the market price for Class A-1 common stock.
The Rubenstein Family’s influence over our management could have the effect of delaying or preventing a change in control or otherwise discouraging a potential acquirer from attempting to obtain control of us, which could cause the market price of our Class A-1 common stock to decline or prevent public stockholders from realizing a premium over the market price for our Class A-1 common stock.
These sales, or the perception in the market that the holders of a large number of securities intend to sell securities, could reduce the market price of Accel’s securities.
These sales, or the perception in the market that the holders of a large number of securities intend to sell securities, could reduce the market price of our securities.
Insolvency, financial difficulties, supply chain delays, regulatory issues or other factors may result in Accel’s suppliers not being able to fulfill the terms of their agreements. Further, such factors may render suppliers unwilling to extend contracts that provide favorable terms to Accel or may force them to seek to renegotiate existing contracts.
Insolvency, financial difficulties, supply chain delays, regulatory issues or other factors may result in our suppliers not being able to fulfill the terms of their agreements. Further, such factors may render suppliers unwilling to extend contracts that provide favorable terms to us or may force them to seek to renegotiate existing contracts.
Rubenstein, each disclaim legal or beneficial ownership of any shares of Class A-1 common stock owned or controlled by the others, the Rubenstein Family have and may exert significant influence over corporate actions requiring stockholder approval. In addition, each of Mr. A. Rubenstein and Mr. G. Rubenstein are members of the Company Board.
Gordon Rubenstein, each disclaim legal or beneficial ownership of any shares of Class A-1 common stock owned or controlled by the others, the Rubenstein Family have and may exert significant influence over corporate actions requiring stockholder approval. In addition, each of Mr. Andrew Rubenstein and Mr. Gordon Rubenstein are members of the Board.
This influence over Accel’s management could have the effect of delaying or preventing a change in control or otherwise discouraging a potential acquirer from attempting to obtain control of Accel, which could cause the market price of Class A-1 common stock to decline or prevent public stockholders from realizing a premium over the market price for Class A-1 common stock.
This influence over our management could have the effect of delaying or preventing a change in control or otherwise discouraging a potential acquirer from attempting to obtain control of us, which could cause the market price of our Class A-1 common stock to decline or prevent public stockholders from realizing a premium over the market price for our Class A-1 common stock.
In the past, securities class-action litigation has often been instituted against companies following periods of volatility in the market price of their shares. This type of litigation could result in substantial costs and divert Accel’s management’s attention and resources, which could have a material adverse effect on Accel.
In the past, securities class-action litigation has often been instituted against companies following periods of volatility in the market price of their shares. This type of litigation could result in substantial costs and divert our management’s attention and resources, which could have a material adverse effect on us.
If a court were to find the choice of forum provision contained in the Charter to be inapplicable or unenforceable in an action, Accel may incur additional costs associated with resolving such action in other jurisdictions, which could harm Accel’s business, results of operations and financial condition.
If a court were to find the choice of forum provision contained in the Charter to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, results of operations and financial condition.
In addition, borrowings under Accel’s existing revolving credit facilities may be subject to capacity under an available borrowing base. Agreements governing Accel’s indebtedness impose certain restrictions that may affect the ability to operate its business.
In addition, borrowings under our existing revolving credit facilities may be subject to capacity under an available borrowing base. The agreements governing our indebtedness impose certain restrictions that may affect the ability to operate our business.
The fast-changing environment in these industries can make it difficult to plan strategically and can provide opportunities for competitors to grow their businesses at Accel’s expense. Consequently, future results of operations, cash flows and financial condition are difficult to predict and may not grow at expected rates.
The fast-changing environment in these industries can make it difficult to plan strategically and can provide opportunities for competitors to grow their businesses at our expense. Consequently, our future results of operations, cash flows and financial condition may be difficult to predict and may not grow at expected rates.
Clairvest or its affiliates may also pursue acquisition opportunities that may be complementary to (or competitive with) Accel’s business, and as a result those acquisition opportunities may not be available to Accel. Prospective investors should consider that the interests of Clairvest may differ from their interests in material respects.
Clairvest or its affiliates may also pursue acquisition opportunities that may be complementary to (or competitive with) our business, and as a result those acquisition opportunities may not be available to us. Prospective investors should consider that the interests of Clairvest may differ from their interests in material respects.
Accel may not be able to capitalize on the expansion of gaming or other trends and changes in the gaming industries, including due to laws and regulations governing these industries, and other factors. Accel participates in new and evolving aspects of the gaming industries. These industries involve significant risks and uncertainties, including legal, business and financial risks.
We may not be able to capitalize on the expansion of gaming or other trends and changes in the gaming industries, including changes due to laws and regulations governing these industries, and other factors. We participate in new and evolving aspects of the gaming industries. These industries involve significant risks and uncertainties, including legal, business and financial risks.
Accel’s ability to generate revenue and to continue to procure new contracts will depend on, among other things, its then present liquidity levels or its ability to obtain additional financing on commercially reasonable terms.
Our ability to generate revenue and to continue to procure new contracts will depend on, among other things, our then present liquidity levels or our ability to obtain additional financing on commercially reasonable terms.
Additionally, disruptions experienced by Accel’s regulators due to natural disasters or otherwise could delay the introduction of new products or entry into new jurisdictions where regulatory approval is necessary. While Accel insures against certain business interruption risks, there can be no assurance that such insurance will adequately compensate for any losses incurred as a result of natural or other disasters.
Additionally, disruptions experienced by our regulators due to natural disasters or otherwise could delay the introduction of new products or entry into new jurisdictions where regulatory approval is necessary. While we insure against certain business interruption risks, there can be no assurance that such insurance will adequately compensate for any losses incurred as a result of natural or other disasters.
This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with Accel or any of its directors, officers, or other employees, which may discourage lawsuits with respect to such claims.
This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our directors, officers, or other employees, which may discourage lawsuits with respect to such claims.
In addition, Accel may not be able to obtain new or renewed contracts with location partners that contain terms that are as favorable as Accel’s current terms in its current contracts, and any less favorable contract terms or diminution in scope could negatively impact Accel’s business.
In addition, we may not be able to obtain new or renewed contracts with location partners that contain terms that are as favorable as our current terms in its current contracts, and any less favorable contract terms or diminution in scope could negatively impact our business.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeIn this facility there is an IGB-approved secured storage site for sensitive gaming equipment and materials. In Illinois, we own facilities in Peoria, Springfield, Glen Carbon and Rockford that support our operations We also own two properties in Billings, Montana, one of which is used to support our operations and the other of which is a gaming location.
Biggest changeIn this facility there is an IGB-approved secured storage site for sensitive gaming equipment and materials. 27 In Illinois, we own facilities in Peoria, Springfield and Rockford that support our operations. We also own two properties in Billings, Montana, one of which is used to support our operations and the other of which is a gaming location.
The facility supports Accel’s 24/7 Service Solutions Call Center, as well as onsite route management and collection processing in Illinois. This facility also contains Accel’s largest warehouse, from which equipment installations, preparation, programming, and repairs occur, as well as gaming terminal quality assurance processes and general storage.
The facility supports our 24/7 Service Solutions Call Center, as well as onsite route management and collection processing in Illinois. This facility also contains our largest warehouse, from which equipment installations, preparation, programming, and repairs occur, as well as gaming terminal quality assurance processes and general storage.
We also rent an additional fourteen locations in Illinois, nine locations in Montana, eight locations in Nevada, four locations in Georgia, two locations in Iowa, two locations in Nebraska, and one location in Pennsylvania, that are used to support our operations and provide warehousing for our equipment.
We also rent an additional fifteen locations in Illinois, thirteen locations in Montana, eight locations in Nevada, three locations in Georgia, two locations in Iowa, three locations in Nebraska, and one location in Pennsylvania, which are used to support our operations and provide warehousing for our equipment.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeSee Note 20 to the consolidated financial statements included herein for discussion of the financial impact of these matters. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 36 Table of Contents PART II
Biggest changeITEM 3. LEGAL PROCEEDINGS Information required by this Item is incorporated by reference from the discussion in Note 19, Commitments and Contingencies, of the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 28 Table of Contents PART II
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ITEM 3. LEGAL PROCEEDINGS Lawsuits and claims are filed against Accel from time to time in the ordinary course of business, including related to employee matters, employment agreements and non-compete clauses and agreements. Other than settled matters explained as follows, these actions are in various stages, and no judgments or decisions have been rendered.
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Management, after reviewing matters with legal counsel, believes that the outcome of such matters are not expected to have a material adverse effect on our financial position or results of operations.
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Accel has been involved in a series of related litigated matters stemming from claims that Accel wrongly contracted with 10 different licensed establishments (the “Defendant Establishments”) in 2012 in violation of the contractual rights held by J&J Ventures Gaming, LLC (“J&J”), as further described below.
Removed
On August 21, 2012, one of Accel’s operating subsidiaries entered into certain agreements with Jason Rowell (“Rowell”), a member of Action Gaming LLC (“Action Gaming”), which was an unlicensed terminal operator that had exclusive rights to place and operate gaming terminals within a number of establishments, including the Defendant Establishments.
Removed
Under agreements with Rowell, Accel agreed to pay him for each licensed establishment which decided to enter into exclusive location agreements with Accel. In late August and early September 2012, each of the Defendant Establishments signed separate location agreements with Accel, purporting to grant it the exclusive right to operate gaming terminals in those establishments.
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Separately, on August 24, 2012, Action Gaming sold and assigned its rights to all its location agreements to J&J, including its exclusive rights with the Defendant Establishments (the “J&J Assigned Agreements”). At the time of the assignment of such rights to J&J, the Defendant Establishments were not yet licensed by the IGB.
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Action Gaming, J&J, and other parties, collectively, the Plaintiffs, filed a complaint against Accel, Rowell, and other parties in the Circuit Court of Cook County, 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.
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The complaint seeks damages and injunctive and equitable relief. On January 24, 2018, Accel filed a motion to dismiss for lack of subject matter jurisdiction, as further described below.
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On May 14, 2018, the Circuit Court denied Accel’s motion to dismiss and granted a stay to the case, pending a ruling from the IGB on the validity of the J&J Assigned Agreements. 34 Table of Contents From 2013 to 2015, the Plaintiffs filed additional claims, including J&J Ventures Gaming, LLC et al. v. Wild, Inc.
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(“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. Accel was granted leave to intervene in all of the declaratory judgments.
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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.
Removed
Upon Accel’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.
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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.
Removed
Between May 2017 and September 2017, both Accel and J&J filed petitions with the IGB seeking adjudication of the rights of the parties and the validity of the use agreements. Those petitions were recently adjudicated by the IGB, largely in Accel’s favor, and J&J has filed a new lawsuit to challenge the IGB’s rulings.
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Accel does not have a present estimate regarding the potential damages, if any, that could potentially be awarded in this litigation and, accordingly, have established no reserves relating to such matters. There are also petitions pending with the IGB which could lead to Accel obtaining new locations.
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On October 7, 2019, Accel 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. Accel alleged that Mr. Rowell and a competitor were working together to interfere with Accel’s customer relationships. On November 7, 2019, Mr.
Removed
Rowell filed a lawsuit in the Circuit Court of Cook County, Illinois against Accel alleging that he had not received certain equity interests in Accel to which he was allegedly entitled under his agreement. Accel has answered the complaint and asserted a counterclaim, and intends to defend itself against the allegations. Discovery is ensuing. Mr.
Removed
Rowell's claims and Accel'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 Accel.
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The lawsuit alleges that a current employee violated his non-competition agreement with Illinois Gaming Investors, LLC, and together with Accel, wrongfully solicited prohibited licensed video gaming locations. The parties settled this dispute in April 2022.
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On December 18, 2020, we received a disciplinary complaint from the IGB alleging violations of the Video Gaming Act and the IGB’s Adopted Rules for Video Gaming. The disciplinary complaint seeks to fine us in the amount of $5 million. We filed our initial answer to the IGB’s complaint on January 11, 2021.
Removed
On July 22, 2022, both parties filed motions for summary judgment. We expect decisions on the motions in the first quarter of 2023. On March 9, 2022, we filed a lawsuit in the Circuit Court of Cook County, Illinois against Gold Rush relating to the Gold Rush convertible notes.
Removed
The complaint sought damages for breach of contract and the implied covenant of good faith and fair dealing, as well as unjust enrichment. The Court granted Gold Rush’s motion to dismiss, with leave to amend, on November 16, 2022.
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We filed an amended complaint on December 22, 2022, and asked the court to summarily dismiss the repealed claims to allow us to seek appeal of their dismissal by the Circuit Court. On June 22, 2022, Gold Rush filed a lawsuit in the Circuit Court of Cook County, Illinois against us.
Removed
The lawsuit alleges that we tortiously interfered with Gold Rush’s business activities and engaged in misconduct with respect to the Gold Rush convertible notes. The complaint seeks declaratory judgment and damages related to the allegations. Following our motion to dismiss, on November 16, 2022, the Court dismissed two of Gold Rush’s claims against us, but allowed four claims to proceed.
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We answered the complaint on December 14, 2022. The parties are currently engaged in the discovery process and no trial date has been set.
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We intend to vigorously defend ourself against the allegations in the complaint and deny any allegations of wrongdoing. 35 Table of Contents On March 25, 2022, Midwest Electronics Gaming LLC (“Midwest”) filed an administrative review action against the Illinois Gaming Board, Accel and J&J in the Circuit Court of Cook County, Illinois seeking administrative review of decisions of the IGB ruling in favor of Accel and J&J and against Midwest regarding the validity of certain use agreements covering locations currently serviced by Midwest.
Removed
No monetary damages are sought against Accel. A responsive pleading is not yet due. On April 22, 2022, we 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 our conversion of the convertible notes.
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In July 2022, an enforcement action was brought against us 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.
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Rather than litigate the alleged violation, we pled no contest and paid an initial penalty to the municipality in October 2022. We paid a similar penalty each month for the remaining months of 2022 and we anticipate such payments to continue in 2023.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

8 edited+1 added−2 removed2 unchanged
Biggest changeThe 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. 37 Table of Contents The following table provides the shares purchased under the share repurchase program in the fourth quarter of 2022: Period Total number of shares purchased Average price paid per share Cumulative shares purchased as part of publicly announced program Maximum approximate dollar value of shares that may yet be purchased under the program (in millions) October 2022 1,035,358 $8.84 7,416,171 $119.9 November 2022 489,922 $9.00 7,906,093 $115.5 December 2022 439,188 $8.03 8,345,281 $112.0 Total 1,964,468 Performance Graph The following stock price performance graph should not be deemed incorporated by reference by any general statement incorporating by reference this Annual Report on Form 10‑K into any filing under the Exchange Act or the Securities Act, except to the extent that we specifically incorporate this information by reference, and shall not otherwise be deemed filed under such acts.
Biggest changeRepurchases under our program during our restricted trading windows 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”). 29 Table of Contents The following table provides the shares purchased under the share repurchase program in the fourth quarter of 2023: 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) October 2023 559,684 $10.32 $90.6 November 2023 521,627 $10.40 $85.2 December 2023 317,512 $10.13 $81.9 Total 1,398,823 $10.31 Performance Graph The following stock price performance graph should not be deemed incorporated by reference by any general statement incorporating by reference this Annual Report on Form 10‑K into any filing under the Exchange Act or the Securities Act, except to the extent that we specifically incorporate this information by reference, and shall not otherwise be deemed filed under such acts.
Securities Authorized for Issuance Under Equity Compensation Plans The information required by this item with respect to our equity compensation plans is incorporated by reference to our Proxy Statement for the 2023 annual meeting of stockholders to be filed with the SEC within 120 days of the fiscal year ended December 31, 2022.
Securities Authorized for Issuance Under Equity Compensation Plans The information required by this item with respect to our equity compensation plans is incorporated by reference to our Proxy Statement for the 2024 annual meeting of stockholders to be filed with the SEC within 120 days of the fiscal year ended December 31, 2023.
The following stock performance graph compares, for the period November 20, 2019 (the day prior to our Class A-1 common stock being traded on the NYSE) through December 31, 2022 (the last trading day of our fiscal year), the cumulative total stockholder return for (1) Accel’s Class A-1 common stock, (2) the NASDAQ Composite Index and (3) Russell 3000 Casinos & Gambling Industry Index assuming a hypothetical $100 investment in our stock or respective index on November 20, 2019.
The following stock performance graph compares, for the period November 20, 2019 (the day prior to our Class A-1 common stock being traded on the NYSE) through December 31, 2023 (the last trading day of our fiscal year), the cumulative total stockholder return for (1) our Class A-1 common stock, (2) the NASDAQ Composite Index and (3) Russell 3000 Casinos & Gambling Industry Index assuming a hypothetical $100 investment in our stock or respective index on November 20, 2019.
Unregistered Sales of Equity Securities and Use of Proceeds None. Issuer Purchase of Equity Securities On November 22, 2021, the Company’s Board of Directors approved a share repurchase program of up to $200 million of shares of Class A-1 common stock.
Unregistered Sales of Equity Securities and Use of Proceeds None. Issuer Purchase of Equity Securities On November 22, 2021, the Board approved a share repurchase program of up to $200 million shares of Class A-1 common stock.
The stock price performance below is not necessarily indicative of future stock price performance. 11/20/2019 12/31/2019 12/31/2020 12/31/2021 12/31/2022 Accel Entertainment $100.00 $119.05 $92.24 $118.90 $70.32 NASDAQ Composite Index $100.00 $105.23 $151.52 $183.92 $123.05 RUSSELL 3000 Casinos & Gambling Industry Index $100.00 $107.94 $125.07 $123.20 $91.96 ITEM 6. [RESERVED] 38 Table of Contents
The stock price performance below is not necessarily indicative of future stock price performance. 11/20/2019 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 Accel Entertainment $100.00 $119.05 $92.24 $118.90 $70.32 $93.79 NASDAQ Composite Index $100.00 $105.23 $151.52 $183.92 $123.05 $176.48 RUSSELL 3000 Casinos & Gambling Industry Index $100.00 $107.94 $125.07 $123.20 $91.96 $115.15 ITEM 6. [RESERVED] 30 Table of Contents
Stockholders There were 100 stockholders of record of our Class A-1 common stock, and 111 stockholders of record of our Class A-2 common stock as of February 24, 2023. Dividends We have not paid any cash dividends on our shares to date, nor do we intend to pay cash dividends.
Stockholders There were 89 stockholders of record of our Class A-1 common stock, and 111 stockholders of record of our Class A-2 common stock as of February 26, 2024. Dividends We have not paid any cash dividends on our shares to date, nor do we intend to pay cash dividends.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information on Common Stock Our Class A-1 common stock has traded on the NYSE under the ticker symbol “ACEL” since November 21, 2019. Prior to that time, our Class A ordinary shares were listed under the symbols “TPGH”.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information on Common Stock Our Class A-1 common stock has traded on the NYSE under the ticker symbol “ACEL” since November 21, 2019.
The payment of cash dividends in the future will be dependent upon our revenues and earnings, if any, capital requirements and general financial condition. The payment of any cash dividends will be within the discretion of the Company Board.
The payment of cash dividends in the future will be dependent upon our revenues and earnings, if any, capital requirements and general financial condition. The payment of any cash dividends is within the discretion of the Board. Further, our credit facility restricts our ability to declare dividends, subject to certain exceptions.
Removed
On November 21, 2019, we delisted the units offered in our initial public offering, each consisting of one Class A ordinary share and one-third of a warrant, which were listed under the symbol “TPGH.U”, and the units ceased to trade. In August of 2020, our public warrants, which were previously listed under the symbol “ACEL-WS” were delisted from the NYSE.
Added
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.
Removed
Further, if the Company incurs any indebtedness, its ability to declare dividends may be limited by restrictive covenants it may agree to in connection therewith.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

77 edited+15 added−34 removed22 unchanged
Biggest changeDeferred 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. 41 Table of Contents Results of Operations The following table summarizes Accel’s results of operations on a consolidated basis for the years ended December 31, 2022 and 2021: (in thousands, except %'s) Year Ended December 31, Increase / Decrease 2022 2021 Change Change % Revenues: Net gaming $ 925,009 $ 705,784 $ 219,225 31.1 % Amusement 21,106 16,667 4,439 26.6 % Manufacturing 7,621 — 7,621 N/A ATM fees and other revenue 16,061 12,256 3,805 31.0 % Total net revenues 969,797 734,707 235,090 32.0 % Operating expenses: Cost of revenue (exclusive of depreciation and amortization expense shown below) 670,901 494,032 176,869 35.8 % General and administrative 145,942 110,818 35,124 31.7 % Depreciation and amortization of property and equipment 29,295 24,636 4,659 18.9 % Amortization of intangible assets and route and customer acquisition costs 17,484 22,040 (4,556) (20.7) % Other expenses, net 9,320 12,989 (3,669) (28.2) % Total operating expenses 872,942 664,515 208,427 31.4 % Operating income 96,855 70,192 26,663 38.0 % Interest expense, net 21,637 12,702 8,935 70.3 % (Gain) loss on change in fair value of contingent earnout shares (19,544) 9,762 (29,306) (300.2) % Loss on debt extinguishment — 1,152 (1,152) (100.0) % Income before income tax expense 94,762 46,576 48,186 103.5 % Income tax expense 20,660 15,017 5,643 37.6 % Net income $ 74,102 $ 31,559 $ 42,543 (134.8) % Revenues Total net revenues for the year ended December 31, 2022 were $969.8 million, an increase of $235.1 million, or 32.0%, compared to the prior year .
Biggest changeDeferred 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. 33 Table of Contents Results of Operations The following table summarizes our results of operations on a consolidated basis for the years ended December 31, 2023 and 2022: (in thousands, except %s) Year Ended December 31, Increase / (Decrease) 2023 2022 Change Change % Revenues: Net gaming $ 1,113,573 $ 925,009 $ 188,564 20.4 % Amusement 23,973 21,106 2,867 13.6 % Manufacturing 13,353 7,621 5,732 75.2 % ATM fees and other 19,521 16,061 3,460 21.5 % Total net revenues 1,170,420 969,797 200,623 20.7 % Operating expenses: Cost of revenue (exclusive of depreciation and amortization expense shown below) 809,524 666,126 143,398 21.5 % Cost of manufacturing goods sold (exclusive of depreciation and amortization expense shown below) 7,671 4,775 2,896 60.6 % General and administrative 180,248 145,942 34,306 23.5 % Depreciation and amortization of property and equipment 37,906 29,295 8,611 29.4 % Amortization of intangible assets and route and customer acquisition costs 21,211 17,484 3,727 21.3 % Other expenses, net 6,453 9,320 (2,867) (30.8) % Total operating expenses 1,063,013 872,942 190,071 21.8 % Operating income 107,407 96,855 10,552 10.9 % Interest expense, net 33,144 21,637 11,507 53.2 % Loss (gain) on change in fair value of contingent earnout shares 8,539 (19,544) 28,083 143.7 % Income before income tax expense 65,724 94,762 (29,038) (30.6) % Income tax expense 20,121 20,660 (539) (2.6) % Net income $ 45,603 $ 74,102 $ (28,499) (38.5) % Revenues Total net revenues for the year ended December 31, 2023 were $1,170.4 million, an increase of $200.6 million, or 20.7%, compared to the prior year .
On January 12, 2022, we hedged the variability of the cash flows attributable to the changes in the 1-month LIBOR 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 ”) .
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 ”) .
Interest on the current credit facility is payable monthly on unpaid balances at the variable per annum LIBOR rate plus an applicable margin, as defined under the terms of the credit facility, ranging from 1.75% to 2.75% depending on the first lien net leverage ratio.
Interest on 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.
The maturity date of the Credit Agreement was extended to October 22, 2026. The interest rate and covenants remained unchanged. The Company incurred $4.3 million in debt issuance costs associated with Amendment No. 2. The Company also recognized a loss on debt extinguishment of $1.2 million for the year ended December 31, 2021 in connection with the amendment.
The maturity date of the Credit Agreement was extended to October 22, 2026. The interest rate and covenants remained unchanged. We incurred $4.3 million in debt issuance costs associated with Amendment No. 2. We also recognized a loss on debt extinguishment of $1.2 million for the year ended December 31, 2021 in connection with the amendment.
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 acquisition are recorded at fair value and then amortized as an intangible asset on a straight-line basis over the expected useful life of primarily 15 years.
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.
ABR is a fluctuating rate per annum equal to the highest of (i) the Federal Funds Effective Rate plus 1/2 of 1.0%, (ii) the prime rate announced from time to time by Capital One, National Association and (iii) LIBOR for a 1-month Interest Period on such day plus 1.0%.
ABR is a fluctuating rate per annum equal to the highest of (i) the Federal Funds Effective Rate plus 1/2 of 1.0%, (ii) the prime rate announced from time to time by Capital One, National Association and (iii) SOFR for a 1-month Interest Period on such day plus 1.0%.
Management also believes that these non-GAAP financial measures are used by investors, analysts and other interested parties as measures of financial performance and to evaluate Accel’s ability to fund capital expenditures, service debt obligations and meet working capital requirements.
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.
Borrowings under the Credit Agreement bear interest, at our option, at a rate per annum equal to either (a) the adjusted LIBOR rate (“LIBOR”) (which cannot be less than zero) for interest periods of 1, 2, 3 or 6 months (or if consented to by (i) each applicable Lender, 12 months or any period shorter than 1 month or (ii) the Agent, a shorter period necessary to ensure that the end of the relevant interest period would coincide with any required amortization payment ) plus the applicable LIBOR margin or (b) the alternative base rate (“ABR”) plus the applicable ABR margin.
Borrowings under the Credit Agreement bear interest, at our option, at a rate per annum equal to either (a) the adjusted term SOFR rate (which cannot be less than zero) for interest periods of 1, 2, 3 or 6 months (or if consented to by (i) each applicable Lender, 12 months or any period shorter than 1 month or (ii) the Agent, a shorter period necessary to ensure that the end of the relevant interest period would coincide with any required amortization payment ) plus the applicable SOFR margin or (b) the alternative base rate (“ABR”) plus the applicable ABR margin.
Location contract intangibles, which represent the acquisition-date fair value of the preexisting relationships between the acquired company and gaming locations, are generally measured at fair value using an income approach which measures the fair value based on the estimated future cash flows using certain projected financial information such as revenue projections, cost of revenue margins and 49 Table of Contents other assumptions such as discount rates.
Location contract intangibles, which represent the acquisition-date fair value of the preexisting relationships between the acquired company and gaming locations, are generally measured at fair value using an income approach which measures the fair value based on the estimated future cash flows using certain projected financial information such as revenue projections, cost of revenue margins and other assumptions such as discount rates.
The route and customer acquisition costs and route and customer acquisition costs payable are recorded at the net present value of the future payments using a discount rate equal to Accel’s incremental borrowing rate associated with its long-term debt.
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.
Our actual results may differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those set forth under Item 1A. “Risk Factors.” A discussion of Accel’s results of operations on a consolidated basis for the years ended December 31, 2022 and 2021 are presented below.
Our actual results may differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those set forth under Item 1A. “Risk Factors.” A discussion of our results of operations on a consolidated basis for the years ended December 31, 2023 and 2022 are presented below.
The relevance of this policy and the described methods and assumptions vary from period to period depending on the volume of applicable acquisitions occurring. Seasonality Accel’s results of operations can fluctuate due to seasonal trends and other factors.
The relevance of this policy and the described methods and assumptions vary from period to period depending on the volume of applicable acquisitions occurring. Seasonality Our results of operations can fluctuate due to seasonal trends and other factors.
Acquisition-related costs, such as professional fees, are excluded from the consideration transferred and are expensed as incurred. Any contingent consideration is measured at its fair value on the acquisition date, recorded as a liability and accreted over its payment term in Accel’s consolidated statements of operations and comprehensive income (loss) as other expenses, net.
Acquisition-related costs, such as professional fees, are excluded from the consideration transferred and are expensed as incurred. Any contingent consideration is measured at its fair value on the acquisition date, recorded as a liability and accreted over its payment term in our consolidated statements of operations and comprehensive income as other expenses, net.
Liquidity and Capital Resources In order to maintain sufficient liquidity, we review our cash flow projections and available funds with our Board of Directors to consider modifying our capital structure and seeking additional sources of liquidity, if needed.
Liquidity and Capital Resources In order to maintain sufficient liquidity, we review our cash flow projections and available funds with the Board to consider modifying our capital structure and seeking additional sources of liquidity, if needed.
Management believes Adjusted EBITDA and Adjusted net income enhance the understanding of Accel’s underlying drivers of profitability and trends in Accel’s business and facilitate company-to-company and period-to-period comparisons, because these non-GAAP financial measures exclude the effects of certain non-cash items or represent certain nonrecurring items that are unrelated to core performance.
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.
G&A expense includes payroll and related expense for account managers, business development managers, marketing, and other corporate personnel. In addition, G&A expense also includes marketing, information technology, insurance, rent and professional fees. Depreciation and amortization of property and equipment. Depreciation is computed using the straight-line method over the estimated useful lives of the individual assets.
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.
We currently operate as a distributed gaming operator in the following states: • Illinois - we are a licensed terminal operator by the Illinois Gaming Board (“IGB”) since 2012, • Montana - we were granted a manufacturer, distributor and route operator license in June 2022 by the Gambling Control Division of the Montana Department of Justice effective through June 2023, • Nevada - we were granted a two-year terminal operator license in June 2022 by the Nevada Gaming Commission, • Georgia - we received approval from the Georgia Lottery Corporation as a Master Licensee in July 2020, • Iowa - we are registered with the Iowa Department of Inspections and Appeals to conduct operations in Iowa, • Nebraska - we became a licensed distributor of mechanical amusement devices (“MADs”) in Nebraska in June 2022, and commenced operations in this market, • Pennsylvania - we have held a license from the Pennsylvania Gaming Control Board since November 2020.
We currently operate as a distributed gaming operator in the following states: • Illinois - we are a licensed terminal operator by the Illinois Gaming Board (“IGB”) since 2012, • Montana - we were granted a manufacturer, distributor and route operator license in June 2022 by the Gambling Control Division of the Montana Department of Justice in June 2022, which has been renewed through June 2024, • Nevada - we were granted a two-year terminal operator license in June 2022 by the Nevada Gaming Commission, • Nebraska - we became a licensed distributor of mechanical amusement devices in Nebraska in June 2022, and commenced operations in this market, • Georgia - we received approval from the Georgia Lottery Corporation as a Master Licensee in July 2020, • Iowa - we are registered with the Iowa Department of Inspections and Appeals to conduct operations in Iowa, • Pennsylvania - we have held a license from the Pennsylvania Gaming Control Board since November 2020.
“Amortization of intangible assets and route and customer acquisition 45 Table of Contents 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 warrants.
“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, performance-based stock units, and warrants.
ATM fees and other revenue represents fees charged for the withdrawal of funds from Accel’s redemption devices and stand-alone ATMs and is recognized at the time of the ATM transaction. Operating Expenses Cost of revenue.
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.
Future cash payments do not include cash costs associated with renewing customer contracts as Accel does not generally incur significant costs as a result of extension or renewal of an existing contract.
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.
Senior Secured Credit Facility On November 13, 2019, in order to refinance our prior credit facility, for working capital and other general purposes, we entered into a credit agreement (as amended, the “Credit Agreement”) as borrower, Accel and our wholly-owned domestic subsidiaries, as a guarantor, the banks, financial institutions and other lending institutions from time to time party thereto, as lenders, the other parties from time to time party thereto and Capital One, National Association, as administrative agent (in such capacity, the “Agent”), collateral agent, issuing bank and swingline lender, providing for a: • $100.0 million revolving credit facility, including a letter of credit facility with a $10.0 million sublimit and a swing line facility with a $10.0 million sublimit, • $240.0 million initial term loan facility and • $125.0 million additional term loan facility.
Senior Secured Credit Facility On November 13, 2019, we 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: • $100.0 million revolving credit facility, including a letter of credit facility with a $10.0 million sublimit and a swing line facility with a $10.0 million sublimit, • $240.0 million initial term loan facility and • $125.0 million additional term loan facility.
(3) (Gain) 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.
(3) Loss (gain) on change in fair value of contingent earnout shares represents a non-cash fair value adjustment at each reporting period end related to the value of these contingent shares. Upon achieving certain exchange conditions, shares of Class A-2 common stock convert to Class A-1 common stock resulting in a non-cash settlement of the obligation.
Cost of revenue consists of (i) taxes on net video 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 share, which is governed by local governing bodies and location contracts, (iv) ATM and amusement commissions payable to locations, (v) ATM and amusement fees, and (vi) costs associated with the sale of gaming terminals.
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 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.
(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, (iii) non-recurring costs associated with COVID-19 and (iv) other non-recurring expenses. (5) Calculated by excluding the impact of the non-GAAP adjustments from the current period tax provision calculations.
(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.
Accel amortizes the upfront cash payment over the life of the contract, including expected renewals, beginning on the date the location goes live, and recognizes non-cash amortization charges with respect to such items.
We amortize the upfront cash payment over the life of the contract, including expected renewals, beginning on the date the location goes live, and recognizes non-cash amortization charges with respect to such items.
General and administrative. General and administrative expenses consist of operating expense and general and administrative (“G&A”) expense. Operating expense includes payroll and related expense for service technicians, route technicians, route security, and preventative maintenance personnel. Operating expense also includes vehicle fuel and maintenance, and non-capitalizable parts expenses. Operating expenses are generally proportionate to the number of locations and gaming terminals.
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.
The failure to pay certain amounts owing under the Credit Agreement may result in an increase in the interest rate applicable thereto. We were in compliance with all debt covenants as of December 31, 2022 and we expect to remain in compliance with all debt covenants for the next 12 months.
The failure to pay certain amounts owing under the Credit Agreement may result in an increase in the interest rate applicable thereto. We were in compliance with all debt covenants as of December 31, 2023. We expect to meet our cash obligations and remain in compliance with all debt covenants for the next 12 months.
For the discussion of Accel’s results of operations on a consolidated basis for the years ended December 31, 2021 and 2020 please see our Annual Report on Form 10-K for the year ended December 31, 2021 that was filed on March 11, 2022.
For the discussion of our results of operations on a consolidated basis for the years ended December 31, 2022 and 2021, please see our Annual Report on Form 10-K for the year ended December 31, 2022 that was filed on March 1, 2023.
The effective tax rate for the year ended December 31, 2022 was 21.8% compared to 32.2% 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 effective tax rate for the year ended December 31, 2023 was 30.6% compared to 21.8% 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 applicable LIBOR and ABR margins and the commitment fee rate are calculated based upon the first lien net leverage ratio of the Company and its restricted subsidiaries on a consolidated basis, as defined in the Credit Agreement.
The applicable SOFR and ABR margins and the commitment fee rate are calculated based upon the first lien net leverage ratio of us and our restricted subsidiaries on a consolidated basis, as defined in the Credit Agreement.
For the year ended December 31, 2022, the weighted-average interest rate was approximately 4.4% compared to the weighted-average interest rate of approximately 3.2% for the prior year.
For the year ended December 31, 2023, the weighted-average interest rate was approximately 7.3% compared to the weighted-average interest rate of approximately 4.4% for the prior year.
The consideration paid is determined on the acquisition date and is the sum of the fair values of the assets acquired by Accel and the liabilities assumed by Accel, including the fair value of any asset or liability resulting from a deferred consideration arrangement.
The acquisition date is the date on which we obtain operating control over the acquired business. The consideration paid is determined on the acquisition date and is the sum of the fair values of the assets we acquired and the liabilities we assumed, including the fair value of any asset or liability resulting from a deferred consideration arrangement.
As of December 31, 2022, there remained $329 million of availability under the Credit Agreement. The obligations under the Credit Agreement are guaranteed by us and our wholly-owned domestic subsidiaries, subject to certain exceptions (collectively, the “Guarantors”). The obligations under the Credit Agreement are secured by substantially all of the assets of the Guarantors, subject to certain exceptions.
The obligations under the Credit Agreement are guaranteed by us and our wholly-owned domestic subsidiaries, subject to certain exceptions (collectively, the “Guarantors”). The obligations under the Credit Agreement are secured by substantially all of the assets of the Guarantors, subject to certain exceptions.
Our primary short-term cash needs are paying operating expenses, contingent earnout payments and equipment purchase commitments, servicing outstanding indebtedness, and funding our Board of Directors approved share repurchase program and near-term acquisitions. As of December 31, 2022, we had $224.1 million in cash and cash equivalents.
Our primary short-term cash needs are paying operating expenses and contingent earnout payments, purchases of property and equipment, servicing outstanding indebtedness, and funding the Board approved share repurchase program and near term acquisitions. As of December 31, 2023, we had $261.6 million in cash and cash equivalents.
(Gain) loss on change in fair value of contingent earnout shares Gain on change in fair value of contingent earnout shares for the year ended December 31, 2022 was $19.5 million, an increase of $29.3 million, or 300.2%, compared to the prior year which had a loss of $9.8 million.
Loss (gain) on change in fair value of contingent earnout shares Loss on change in fair value of contingent earnout shares for the year ended December 31, 2023 was $8.5 million, compared to the prior year, which had a gain of $19.5 million.
In addition, the Credit Agreement requires Accel to maintain (a) a ratio of consolidated first lien net debt to consolidated EBITDA no greater than 4.50 to 1.00 and (b) a ratio of consolidated EBITDA to consolidated fixed charges no less than 1.20 to 1.00, in each case, tested as of the last day of each full fiscal quarter ending after the Closing Date and determined on the basis of the four most recently ended fiscal quarters of Accel for which financial statements have been delivered pursuant to the Credit Agreement, subject to customary “equity cure” rights.
The Credit Agreement contains certain customary affirmative and negative covenants and events of default and requires us and certain of our affiliates obligated under the Credit Agreement to make customary representations and warranties in connection with credit extensions thereunder. 39 Table of Contents In addition, the Credit Agreement requires us to maintain (a) a ratio of consolidated first lien net debt to consolidated EBITDA no greater than 4.50 to 1.00 and (b) a ratio of consolidated EBITDA to consolidated fixed charges no less than 1.20 to 1.00, in each case, tested as of the last day of each full fiscal quarter ending after the Closing Date and determined on the basis of the four most recently ended fiscal quarters for which financial statements have been delivered pursuant to the Credit Agreement, subject to customary “equity cure” rights.
Markets are no longer considered emerging when Accel has installed or acquired at least 500 gaming terminals in the jurisdiction, or when 24 months have elapsed from the date Accel first installs or acquires gaming terminals in the jurisdiction, whichever occurs first. The Company currently views Nebraska, Iowa and Pennsylvania as its emerging markets.
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 Iowa and Pennsylvania as emerging markets.
Interest expense, net Interest expense, net for the year ended December 31, 2022 was $21.6 million, an increase of $8.9 million, or 70.3%, compared to the prior year primarily due to an increase in average outstanding debt and higher interest rates, partially offset by the benefit realized on our interest rate caplets.
Interest expense, net Interest expense, net for the year ended December 31, 2023 was $33.1 million, an increase of $11.5 million, or 53.2%, compared to the prior year, primarily due to higher interest rates and an increase in average outstanding debt, partially offset by the benefit realized on our interest rate caplets.
Fu rther, as the 1-month LIBOR interest rate exceeded 2% in second half of 2022, the Company recognized interest income on the caplets of $1.5 million for the year ended December 31, 2022, which is reflected in interest expense, net in the consolidated statements of operations and other comprehensive income (loss).
Fu rther, as the 1-month LIBOR/SOFR interest rate began to exceed 2% starting in second half of 2022, we recognized interest income on the caplets of $9.2 million and $1.5 million for the years ended December 31, 2023 and 2022, respectively, which is reflected in interest expense, net in the consolidated statements of operations and other comprehensive income.
Amendment No. 2, among other things, provides for: • an increase in the amount of the revolving credit facility from $100.0 million to $150.0 million, • $350.0 million initial term loan facility, the proceeds of which were applied to refinancing existing indebtedness, and • $400.0 million delayed draw term loan facility, which is available for borrowings until October 22, 2023.
Amendment No. 2, among other things, provided for: 38 Table of Contents • an increase in the amount of the revolving credit facility from $100.0 million to $150.0 million, • $350.0 million initial term loan facility, the proceeds of which were applied to refinancing existing indebtedness, and • $400.0 million delayed draw term loan facility, which was originally available for borrowing until October 22, 2023 and was extended to October 22, 2024 by Amendment No. 4 (as described below).
Depreciation and amortization of property and equipment Depreciation and amortization of property and equipment for the year ended December 31, 2022 was $29.3 million, an increase of $4.7 million, or 18.9%, compared to the prior year, primarily due to an increased number of locations and gaming terminals.
Depreciation and amortization of property and equipment Depreciation and amortization of property and equipment for the year ended December 31, 2023 was $37.9 million, an increase of $8.6 million, or 29.4%, compared to the prior year due to an increased number of gaming terminals primarily attributable to the acquisition of Century .
The increase reflects an increase in net borrowings on our Credit Facility, partially offset by purchases of our Class A-1 common stock under our share repurchase program and higher payments on consideration payable. Critical Accounting Policies and Estimates We prepare our consolidated financial statements in accordance with U.S. GAAP. In applying accounting principles, it is often required to use estimates.
The change reflects a reduction in borrowings to fund business and asset acquisitions, partially offset by lower repurchases of our Class A-1 common stock and payments on consideration payable. Critical Accounting Policies and Estimates We prepare our consolidated financial statements in accordance with U.S. GAAP. In applying accounting principles, it is often required to use estimates.
The following table sets forth information with respect to our primary locations: As of December 31, Increase / (Decrease) 2022 2021 Change Change % Illinois 2,648 2,584 64 2.5 % Montana 610 — 610 N/A Nevada 340 — 340 N/A Total locations 3,598 2,584 1,014 39.2 % 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.
The following table sets forth information with respect to our primary locations: As of December 31, Increase / (Decrease) 2023 2022 Change Change % Illinois 2,762 2,648 114 4.3 % Montana 609 610 (1) (0.2) % Nevada 352 340 12 3.5 % Nebraska 238 143 95 66.4 % Total locations 3,961 3,741 220 5.9 % 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.
Interest expense, net Interest expense, net consists of interest on Accel’s current and prior credit facilities, amortization of financing fees, and accretion of interest on route and customer acquisition costs payable.
Interest expense, net Interest expense, net consists of interest on our current credit facility, amortization of financing fees, accretion of interest on route and customer acquisition costs payable, and interest (income) expense on the interest rate caplets.
Interest is payable quarterly in arrears for ABR loans, at the end of the applicable interest period for LIBOR loans (but not less frequently than quarterly) and upon the prepayment or maturity of the underlying loans.
As of December 31, 2023, the weighted-average interest rate was approximately 7.3%. Interest is payable quarterly in arrears for ABR loans, at the end of the applicable interest period for SOFR loans (but not less frequently than quarterly) and upon the prepayment or maturity of the underlying loans.
We anticipate our capital expenditures will be approximately $40–45 million in 2023. Net cash provided by (used in) financing activities For the year ended December 31, 2022, net cash provided by financing activities was $106.6 million, an increase of $118.5 million over the prior year.
We anticipate our capital expenditures will be approximately $55–65 million in 2024. Net cash (used in) provided by financing activities For the year ended December 31, 2023, net cash used in financing activities was $35.2 million, compared to cash provided by financing activities of $106.6 million in the prior year.
The change in the fair value of the contingent earnout shares does not create tax expense and is the primary driver for the fluctuations in the tax rate year over year.
The change in the fair value of the contingent earnout shares is considered a discrete item for tax purposes and was the primary driver for the fluctuations in the tax rate year over year.
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.
In addition, during 2022 and 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.
The following describes certain significant accounting policies that involve more subjective and complex judgments where the effect on our consolidated financial position and operating performance could be material.
The following describes certain significant accounting policies that involve more subjective and complex judgments where the effect on our consolidated financial position and operating performance could be material. Business combinations and goodwill For acquisitions meeting the definition of a business combination, the acquisition method of accounting is used.
Cash Flows The following table summarizes Accel’s net cash provided by or used in operating activities, investing activities and financing activities for the periods indicated and should be read in conjunction with our consolidated financial statements and the notes thereto included in Part II, Item 8 of this Annual Report on Form 10-K : (in thousands) Year Ended December 31, 2022 2021 Change Net cash provided by operating activities $ 107,999 $ 110,755 $ (2,756) Net cash used in investing activities (189,263) (34,544) (154,719) Net cash provided by (used in) financing activities 106,591 (11,876) 118,467 Net cash provided by operating activities Fo r the year ended December 31, 2022, net cash provided by operating activities was $108.0 million, a decrease of $2.8 million over the prior year.
Cash Flows The following table summarizes our net cash provided by or used in operating activities, investing activities and financing activities for the periods indicated and should be read in conjunction with our consolidated financial statements and the notes thereto included in Part II, Item 8 of this Annual Report on Form 10-K : (in thousands) Year Ended December 31, 2023 2022 Change Net cash provided by operating activities $ 132,530 $ 107,999 $ 24,531 Net cash used in investing activities (59,793) (189,263) (129,470) Net cash (used in) provided by financing activities (35,239) 106,591 (141,830) Net cash provided by operating activities Fo r the year ended December 31, 2023, net cash provided by operating activities was $132.5 million, an increase of $24.5 million over the prior year.
For example, the gross revenue per machine per day is typically lower in the summer when players will typically spend less time indoors at licensed establishments, and higher in cold weather between February and April, when players will typically spend more time indoors. Holidays, vacation seasons, and sporting events may also cause Accel’s results to fluctuate.
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.
To date, we have not observed material impacts in our business or outlook, but there can be no assurance that, in the event of a recession, levels of gaming activity would not be adversely affected.
To date, we have not observed material impacts in our business or outlook, but there can be no assurance that, in the event of a recession, levels of gaming activity would not be adversely affected. Further, as described in more detail below, we have observed certain increases in our costs, particularly higher wages and increased interest expense on our debt.
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 our various location partners and is recognized at the point the amusement device is used. Manufacturing.
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.
This decrease was partially offset by an increase in location contracts acquired and amortization expense on other intangible assets acquired with Century. Other expenses, net Other expenses, net for the year ended December 31, 2022 were $9.3 million, a decrease of $3.7 million, or 28.2%, compared to the prior- year period .
Amortization of intangible assets and route and customer acquisition costs Amortization of intangible assets and route and customer acquisition costs for the year ended December 31, 2023 was $21.2 million, an increase of $3.7 million, or 21.3%, compared to the prior year due to an increase in location contracts acquired and amortization expense on other intangible assets acquired with Century.
General and administrative Total general and administrative expenses for the year ended December 31, 2022 were $145.9 million, an increase of $35.1 million, or 31.7%, compared to the prior year .
General and administrative Total general and administrative expenses for the year ended December 31, 2023 were $180.2 million, an increase of $34.3 million, or 23.5%, compared to the prior year.
Route and customer acquisition costs consist of fees paid at the inception of contracts entered into with third parties and the gaming locations in the states we serve, which allow us to install and operate gaming terminals.
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 allow us to install and operate gaming terminals.
The following table sets forth information with respect to the number of gaming terminals in our primary locations: As of December 31, Increase / (Decrease) 2022 2021 Change Change % Illinois 14,397 13,639 758 5.6 % Montana 6,108 — 6,108 N/A Nevada 2,645 — 2,645 N/A Total gaming terminals 23,150 13,639 9,511 69.7 % Non-GAAP Financial Measures Adjusted EBITDA and Adjusted net income are non-GAAP financial measures and are key metrics used to monitor ongoing core operations.
The following table sets forth information with respect to the number of gaming terminals in our primary locations: As of December 31, Increase / (Decrease) 2023 2022 Change Change % Illinois 15,276 14,397 879 6.1 % Montana 6,276 6,108 168 2.8 % Nevada 2,704 2,645 59 2.2 % Nebraska 827 391 436 111.5 % Total gaming terminals 25,083 23,541 1,542 6.6 % 36 Table of Contents 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.
The waivers of financial covenant breach were never utilized as we remained in compliance with all debt covenants during these periods. On October 22, 2021, in order to increase the borrowing capacity under the Credit Agreement, we and the other parties thereto entered into Amendment No. 2 to the Credit Agreement (“Amendment No. 2”).
On October 22, 2021, in order to increase the borrowing capacity under the Credit Agreement, we and the other parties thereto entered into Amendment No. 2 to the Credit Agreement (“Amendment No. 2”).
The revolving loans and term loans bear interest at either (a) ABR (150 bps floor) plus a margin up to 1.75% or (b) LIBOR (50 bps floor) plus a margin up to 2.75%, at the option of the Company.
The revolving loans and term loans bear interest at either (a) ABR (150 bps floor) plus a margin up to 1.75% or (b) SOFR (50 bps floor) plus a margin up to 2.75%, at our option. The term loans and, once drawn, the additional term loans will amortize at an annual rate equal to 5.00% per annum.
The Company recognized an unrealized gain on the change in fair value of the interest rate caplets of $12.2 million, net of income taxes, for the year ended December 31, 2022. For more information on how we determine the fair value of the caplets, se e Note 13 to our consolidated financial statements included herein.
We recognized an unrealized loss on the change in fair value of the interest rate caplets of $4.3 million, net of income taxes, for the year ended December 31, 2023 and an unrealized gain of $12.2 million, net of income taxes, for the year ended December 31, 2022.
Adjusted net income and Adjusted EBITDA (in thousands) Year Ended December 31, Increase / (Decrease) 2022 2021 Change Change % Net income (loss) $ 74,102 $ 31,559 $ 42,543 134.8 % Adjustments: Amortization of intangible assets and route and customer acquisition costs (1) 17,484 22,040 (4,556) (20.7) % Stock-based compensation (2) 6,840 6,403 437 6.8 % (Gain) loss on change in fair value of contingent earnout shares (3) (19,544) 9,762 (29,306) (300.2) % Other expenses, net (4) 9,320 12,989 (3,669) (28.2) % Tax effect of adjustments (5) (8,327) (11,346) 3,019 (26.6) % Adjusted net income 79,875 71,407 8,468 11.9 % Depreciation and amortization of property and equipment 29,295 24,636 4,659 18.9 % Interest expense, net 21,637 12,702 8,935 70.3 % Emerging markets (6) 2,598 3,403 (805) (23.7) % Income tax expense (benefit) 28,987 26,363 2,624 10.0 % Loss on debt extinguishment — 1,152 (1,152) N/A Adjusted EBITDA $ 162,392 $ 139,663 $ 22,729 16.3 % (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.
Adjusted net income and Adjusted EBITDA (in thousands, except %s) Year Ended December 31, Increase / (Decrease) 2023 2022 Change Change % Net income $ 45,603 $ 74,102 $ (28,499) (38.5) % Adjustments: Amortization of intangible assets and route and customer acquisition costs (1) 21,211 17,484 3,727 21.3 % Stock-based compensation (2) 9,416 6,840 2,576 37.7 % Loss (gain) on change in fair value of contingent earnout shares (3) 8,539 (19,544) 28,083 143.7 % Other expenses, net (4) 6,453 9,320 (2,867) (30.8) % Tax effect of adjustments (5) (8,702) (8,327) (375) 4.5 % Adjusted net income 82,520 79,875 2,645 3.3 % Depreciation and amortization of property and equipment 37,906 29,295 8,611 29.4 % Interest expense, net 33,144 21,637 11,507 53.2 % Emerging markets (6) (948) 2,598 (3,546) (136.5) % Income tax expense 28,823 28,987 (164) (0.6) % Adjusted EBITDA $ 181,445 $ 162,392 $ 19,053 11.7 % (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.
The decrease can be attributed to lower working capital adjustments and payments made on our contingent consideration, partially offset by higher net income and an increase in deferred income taxes. 48 Table of Contents Net cash used in investing activities For the year ended December 31, 2022, net cash used in investing activities was $189.3 million, an increase in cash used of $154.7 million over the prior year and was primarily attributable to cash used for business and asset acquisitions in addition to higher purchases of property and equipment.
The increase can be attributed to higher working capital adjustments primarily due to an increase in accounts payable and accrued expenses, partially offset by a lower increase in deferred income taxes. 40 Table of Contents Net cash used in investing activities For the year ended December 31, 2023, net cash used in investing activities was $59.8 million, a decrease in cash used of $129.5 million over the prior year.
Each of the revolving loans and the term loans were scheduled to mature on November 13, 2024. 46 Table of Contents Given the uncertainty of COVID-19 and the resulting potential impact to the gaming industry and our future assumptions, as well as to provide additional financial flexibility, we and the other parties thereto amended the Credit Agreement on August 4, 2020 to provide a waiver of financial covenant breach for the periods ended September 30, 2020 through March 31, 2021 of the First Lien Net Leverage Ratio and Fixed Charge Coverage Ratio (each as defined under the Credit Agreement).
On August 4, 2020, in order to provide a waiver of financial covenant breach for the periods ended September 30, 2020 through March 31, 2021 of the First Lien Net Leverage Ratio and Fixed Charge Coverage Ratio (each as defined under the Credit Agreement), we and the other parties thereto entered into Amendment No. 1 to the Credit Agreement (“Amendment No. 1”) .
We utilize this metric to continually monitor growth from organic openings, purchased locations, and competitor conversions. Competitor conversions occur when a location chooses to change terminal operators. In January 2022, the IGB began enforcing the 72-hour rule. The 72-hour rule requires terminal operators to disconnect and remove their equipment from a location if there is no activity for 72 hours.
We utilize this metric to continually monitor growth from organic openings, purchased locations, and competitor conversions. Competitor conversions occur when a location chooses to change terminal operators.
The increase 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. 43 Table of Contents Loss on debt extinguishment Loss on debt extinguishment was $1.2 million for the year ended December 31, 2021 and was recorded in connection with the entry into Amendment No.2 of our Credit Facility in October 2021.
The change was primarily due to the fluctuations in the market value of our Class A-1 common stock, which is the primary input to the valuation of the contingent earnout shares. 35 Table of Contents Income tax expense Income tax expense for the year ended December 31, 2023 was $20.1 million, a decrease of $0.5 million, or 2.6%, compared to the prior year .
Prior to July 2022, Georgia was considered an emerging market. Adjusted EBITDA for the year ended December 31, 2022 was $162.4 million, an increase of $22.7 million, or 16.3%, compare d to the prior year. The increase in performance was attributable to an increase in the number of locations and gaming terminals, due primarily to the acquisition of Century.
Prior to April 2023, Nebraska was considered an emerging market. Prior to July 2022, Georgia was considered an emerging market. 37 Table of Contents Adjusted EBITDA for the year ended December 31, 2023 was $181.4 million, an increase of $19.1 million, or 11.7%, compare d to the prior year.
The decrease was primarily attributable to lower fair value adjustments associated with the revaluation of contingent consideration liabilities, partially offset by higher non-recurring expenses relating to lobbying efforts and new market development.
The decrease was due to lower non-recurring expenses related to new market development and a $1.7 million gain recognized in the second quarter of 2023 on the convertible note settlement as discussed in Note 4 to the consolidated financial statements, partially offset by higher fair value adjustments associated with the revaluation of contingent consideration liabilities.
Our financial results for the year ended December 31, 2022 includes the results of Century from the date of acquisition. 39 Macroeconomic Factors Ongoing interest rate increases and persistent inflation may increase the risk of an economic recession and volatility and dislocation in the capital or credit markets in the United States and other markets globally.
Macroeconomic Factors Interest rate volatility, 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 and dislocation in the capital or credit markets in the U.S. and other markets globally.
Net revenues by state are presented below (in thousands): Year Ended December 31, 2022 2021 Net revenues by state: Illinois $ 808,652 $ 730,244 Nevada 66,989 — Montana 79,639 — All other 14,517 4,463 Total net revenues $ 969,797 $ 734,707 42 Table of Contents Cost of revenue Total cost of revenue for the year ended December 31, 2022 was $670.9 million, an increase of $176.9 million, or 35.8%, compared to the prior year due primarily to higher revenue, described above.
Total net revenues by state are presented below (in thousands, except %s): Year Ended December 31, Increase / (Decrease) 2023 2022 Change Change % Total net revenues by state: Illinois $ 867,200 $ 808,652 $ 58,548 7.2 % Montana 154,402 79,639 74,763 93.9 % Nevada 117,074 66,989 50,085 74.8 % Nebraska 19,043 5,217 13,826 265.0 % All other 12,701 9,300 3,401 36.6 % Total net revenues $ 1,170,420 $ 969,797 $ 200,623 20.7 % 34 Table of Contents Cost of revenue Total cost of revenue for the year ended December 31, 2023 was $809.5 million, an increase of $143.4 million, or 21.5%, compared to the prior year due primarily to higher net gaming revenue, described above.
Century Acquisition On June 1, 2022, we completed our previously announced acquisition of all of the outstanding equity interests of Century Gaming, Inc., a Montana corporation.
W e are subject to the various gaming regulations in the states in which we operate, as well as various other federal, state and local laws and regulations. 31 Century Acquisition On June 1, 2022, we completed our acquisition of all of the outstanding equity interests of Century Gaming, Inc., a Montana corporation (“Century”).
The term loans and, once drawn, the additional term loans will amortize at an annual rate equal to approximately 5.00% per annum. Upon the consummation of certain non-ordinary course asset sales, we may be required to apply the net cash proceeds 47 Table of Contents thereof to prepay outstanding term loans and additional term loans.
Upon the consummation of certain non-ordinary course asset sales, we may be required to apply the net cash proceeds thereof to prepay outstanding term loans and additional term loans. The loans under the Credit Agreement may be prepaid without premium or penalty, subject to customary SOFR “breakage” costs.
Company Overview We believe we are a leading distributed gaming operator in the United States on an Adjusted EBITDA basis, and a preferred partner for local business owners in the markets we serve.
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.
The increase in net gaming revenue for the year ended December 31, 2022 reflected an increase in gaming terminals and locations due primarily to the acquisition of Century.
The increase was driven primarily by an increase in net gaming revenue of $188.6 million, or 20.4%. The increase in net gaming revenue for the year ended December 31, 2023 was driven by the Century acquisition, adding new locations and 3% same store sales growth in Illinois.
Amortization of intangible assets and route and customer acquisition costs Amortization of intangible assets and route and customer acquisition costs for the year ended December 31, 2022 was $17.5 million, a decrease of $4.6 million, or 20.7%, compared to the prior year .
Other expenses, net Other expenses, net for the year ended December 31, 2023 were $6.5 million, a decrease of $2.9 million, or 30.8%, compared to the prior year .
We utilize this metric to continually monitor growth from existing locations, organic openings, purchased locations, and competitor conversions. 44 Table of Contents As a result of the previously mentioned 72-hour rule, the removal of gaming terminals did not materially impact gaming revenue but reduced our reported number of gaming terminals.
We utilize this metric to continually monitor growth from existing locations, organic openings, purchased locations, and competitor conversions.
As such, there may be additional operational and financial impacts on the business from future resurgences of COVID-19 and its variant strains, which we cannot reasonably anticipate. Components of Performance Revenues Net gaming. Net gaming revenue represents net cash received from gaming activities, which is the difference between gaming wins and losses.
Components of Performance Revenues Net gaming. Net gaming revenue represents net cash received from gaming activities, which is the difference between gaming wins and losses. Net gaming revenue includes the amounts earned by our location partners and is recognized at the time of gaming play. Amusement.
The caplets mature at the end of each month and protect us if interest rates exceed 2% of 1-month LIBOR. The maturing dates of these caplets coincide with the timing of our interest payments and each caplet is expected to be highly effective at offsetting changes in interest payment cash flows.
The caplets mature at the end of each month and protect us if interest rates exceed 2% of 1-month LIBOR. The aggregate premium for these caplets was $3.9 million, and was financed as additional debt. In connection with the entry into Amendment No. 3, the referenced rate in the caplets was simultaneously changed from LIBOR to SOFR.
Removed
Our business consists of the installation, maintenance and operation of gaming terminals, redemption devices that disburse winnings and contain automated teller machine (“ATM”) functionality, and other amusement devices in authorized non-casino locations such as restaurants, bars, taverns, convenience stores, liquor stores, truck stops, and grocery stores. We also operate stand-alone ATMs in gaming and non-gaming locations.
Added
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.
Removed
Century is also a manufacturer of gaming terminals in the Montana, Nevada, South Dakota, Louisiana and West Virginia markets. W e are also subject to various other federal, state and local laws and regulations in addition to gaming regulations.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risk represents the risk of loss that may impact Accel’s financial position due to adverse changes in financial market prices and rates. Market risk exposure is primarily the result of fluctuations in interest rates.
Biggest changeITEM 7A. 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. Our market risk exposure is primarily the fluctuations in interest rates. Interest rate risk We are exposed to interest rate risk in the ordinary course of our business.
If the underlying interest rates were to increase by 1.0%, or 100 basis points, the increase in interest expense on Accel’s floating rate debt would negatively impact Accel’s future earnings and cash flows by approximately $2.5 million annually, assuming the balance outstanding under Accel’s Credit Facility remained at $545.4 million.
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 our future earnings and cash flows by approximately $2.5 million annually, assuming the balance outstanding under our Credit Facility remained at $545.4 million.
Our exposure to higher interest rates is partially mitigated as the Company hedged the variability of the cash flows attributable to the changes in the 1-month LIBOR 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 ”) on January 12, 2022.
Our exposure to higher interest rates is partially mitigated as 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 ”) on January 12, 2022.
The caplets mature at the end of each month and are used to protect the Company's exposure as the 1-month LIBOR interest rate exceeded 2% in the second half of 2022. C ash and cash equivalents are held in cash vaults, highly liquid, checking and money market accounts, gaming terminals, redemption terminals, ATMs, and amusement equipment.
The caplets mature at the end of each month and are used to protect our exposure as the 1-month LIBOR/SOFR interest rate began to exceed 2% starting in second half of 2022. C ash and cash equivalents are held in cash vaults, highly liquid, checking and money market accounts, gaming terminals, redemption terminals, ATMs, and amusement equipment.
Interest rate risk Accel is exposed to interest rate risk in the ordinary course of its business. Accel’s borrowings under its senior secured credit facility were $545.4 million as of December 31, 2022.
Our borrowings under our senior secured credit facility were $545.4 million as of December 31, 2023.

Other ACEL 10-K year-over-year comparisons