UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

For the Quarterly Period Ended ~~September 30, 2022~~March 31, 2023

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

For the transition period from _______ to ______

Commission File Number 001-38136

Accel Entertainment, Inc.

(Exact Name of Registrant as Specified in Its Charter)


Delaware						98-1350261
(State or Other Jurisdiction of Incorporation or Organization)						(I.R.S. Employer Identification No.)

140 Tower Drive
Burr Ridge, Illinois 60527
(Address of Principal Executive Offices) (Zip Code)

(630) 972-2235

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbols	Name of Each Exchange on Which Registered
Class A-1 Common Stock, par value $.0001 per share	ACEL	The New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☒☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

As of ~~November 4, 2022,~~May 1, 2023, there were ~~87,467,078~~86,005,125 shares outstanding of the registrant’s Class A-1 Common Stock, par value $.0001 per share.

ACCEL ENTERTAINMENT, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED ~~SEPTEMBER 30, 2022~~MARCH 31, 2023

TABLE OF CONTENTS


PART I.	FINANCIAL INFORMATION	1
ITEM 1.	FINANCIAL STATEMENTS	1
	Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited) for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~	1
	Condensed Consolidated Balance Sheets at ~~September 30, 2022~~March 31, 2023 (Unaudited) and December 31, ~~2021~~2022	2
	Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~	3
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~	54
	Notes to the Condensed Consolidated Financial Statements (Unaudited)	76
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	3024

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	4435

ITEM 4.	CONTROLS AND PROCEDURES	4535

PART II.	OTHER INFORMATION	4637
ITEM 1.	LEGAL PROCEEDINGS	4637
ITEM 1A.	RISK FACTORS	4737
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	5338
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	5339
ITEM 4.	MINE SAFETY DISCLOSURES	5339
ITEM 6.	EXHIBITS	5440

SIGNATURES		5541

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

ACCEL ENTERTAINMENT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Unaudited)


(In thousands, except per share amounts)	(In thousands, except per share amounts)	Three Months Ended September 30,				Nine Months Ended September 30,				(In thousands, except per share amounts)	Three Months Ended March 31,
		2022		2021		2022		2021				2023		2022
Revenues:	Revenues:									Revenues:
Net gaming	Net gaming	$	255,606	$	186,017	$	662,491	$	520,915	Net gaming		$	279,380	$	188,462
Amusement	Amusement	4,860		4,010		14,543		12,338		Amusement		6,798		4,990
Manufacturing	Manufacturing	2,489		—		3,408		—		Manufacturing		2,122		—
ATM fees and other		4,012		3,324		11,285		9,141
ATM fees and other revenue										ATM fees and other revenue		4,908		3,439
Total net revenues	Total net revenues	266,967		193,351		691,727		542,394		Total net revenues		293,208		196,891
Operating expenses:	Operating expenses:									Operating expenses:
Cost of revenue (exclusive of depreciation and amortization expense shown below)	Cost of revenue (exclusive of depreciation and amortization expense shown below)	185,878		129,739		473,164		364,402		Cost of revenue (exclusive of depreciation and amortization expense shown below)		203,554		132,620
Cost of manufacturing goods sold (exclusive of depreciation and amortization expense shown below)	Cost of manufacturing goods sold (exclusive of depreciation and amortization expense shown below)	1,656		—		2,421		—		Cost of manufacturing goods sold (exclusive of depreciation and amortization expense shown below)		1,408		—
General and administrative	General and administrative	39,796		28,053		103,634		78,641		General and administrative		43,018		31,119
Depreciation and amortization of property and equipment	Depreciation and amortization of property and equipment	8,136		6,518		20,575		18,820		Depreciation and amortization of property and equipment		9,063		5,841
Amortization of intangible assets and route and customer acquisition costs	Amortization of intangible assets and route and customer acquisition costs	5,156		6,221		12,278		18,489		Amortization of intangible assets and route and customer acquisition costs		5,242		3,548
Other expenses, net	Other expenses, net	3,106		4,173		7,894		8,913		Other expenses, net		3,251		2,556
Total operating expenses	Total operating expenses	243,728		174,704		619,966		489,265		Total operating expenses		265,536		175,684
Operating income	Operating income	23,239		18,647		71,761		53,129		Operating income		27,672		21,207
Interest expense, net	Interest expense, net	6,239		3,016		14,031		9,736		Interest expense, net		7,888		4,001
(Gain) loss on change in fair value of contingent earnout shares		(10,358)		888		(19,497)		6,867
Loss (gain) on change in fair value of contingent earnout shares										Loss (gain) on change in fair value of contingent earnout shares		4,602		(3,417)

Income before income tax expense	Income before income tax expense	27,358		14,743		77,227		36,526		Income before income tax expense		15,182		20,623
Income tax expense	Income tax expense	4,914		3,936		16,531		11,773		Income tax expense		6,000		4,835
Net income	Net income	$	22,444	$	10,807	$	60,696	$	24,753	Net income		$	9,182	$	15,788
Net income per common share:
Earnings per common share:										Earnings per common share:
Basic	Basic	$	0.25	$	0.11	$	0.66	$	0.26	Basic		$	0.11	$	0.17
Diluted	Diluted	0.25		0.11		0.66		0.26		Diluted		0.11		0.17
Weighted average number of shares outstanding:	Weighted average number of shares outstanding:									Weighted average number of shares outstanding:
Basic	Basic	89,992		94,004		91,299		93,607		Basic		86,885		92,993
Diluted	Diluted	90,528		94,728		91,945		94,469		Diluted		87,132		93,741

Comprehensive income	Comprehensive income									Comprehensive income
Net income	Net income	$	22,444	$	10,807	$	60,696	$	24,753	Net income		$	9,182	$	15,788
Unrealized (loss) gain on investment in convertible notes (net of income taxes of $(126) and $2,135, respectively)		—		(315)		—		5,358
Unrealized gain on interest rate caplets (net of income taxes of $2,317 and $5,011, respectively)		5,925		—		12,696		—

Unrealized (loss) gain on interest rate caplets (net of income taxes of $(829) and $1,934, respectively)										Unrealized (loss) gain on interest rate caplets (net of income taxes of $(829) and $1,934, respectively)		(2,166)		4,864
Comprehensive income	Comprehensive income	$	28,369	$	10,492	$	73,392	$	30,111	Comprehensive income		$	7,016	$	20,652

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

Table of Contents

ACCEL ENTERTAINMENT, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS


(In thousands, except par value and share amounts)	(In thousands, except par value and share amounts)	September 30,		December 31,		(In thousands, except par value and share amounts)	March 31,		December 31,
		2022		2021			2023		2022
Assets	Assets	(Unaudited)				Assets	(Unaudited)
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	212,063	$	198,786	Cash and cash equivalents	$	228,529	$	224,113
Accounts receivable, net	Accounts receivable, net	8,854		5,121		Accounts receivable, net	7,740		11,166
Prepaid expenses						Prepaid expenses	7,078		7,407
Inventories						Inventories	7,476		6,941
Income taxes receivable	Income taxes receivable	1,502		—		Income taxes receivable	—		538
Inventories		6,873		—
Prepaid expenses		7,827		6,998
Interest rate caplets	Interest rate caplets	6,893		—		Interest rate caplets	8,205		8,555
Investment in convertible notes	Investment in convertible notes	32,065		32,065		Investment in convertible notes	32,065		32,065
Other current assets	Other current assets	7,630		5,025		Other current assets	8,166		8,427
Total current assets	Total current assets	283,707		247,995		Total current assets	299,259		299,212
Property and equipment, net	Property and equipment, net	206,767		152,251		Property and equipment, net	225,758		211,844
Other noncurrent assets:
Noncurrent assets:						Noncurrent assets:
Route and customer acquisition costs, net	Route and customer acquisition costs, net	17,769		15,913		Route and customer acquisition costs, net	18,378		18,342
Location contracts acquired, net	Location contracts acquired, net	189,382		150,672		Location contracts acquired, net	185,083		189,343
Goodwill	Goodwill	99,490		46,199		Goodwill	101,554		100,707
Other intangible assets, net	Other intangible assets, net	23,588		—		Other intangible assets, net	22,370		22,979
Interest rate caplets, net of current	Interest rate caplets, net of current	14,048		—		Interest rate caplets, net of current	8,471		11,364

Other assets	Other assets	3,598		3,043		Other assets	9,455		8,978
Total other noncurrent assets		347,875		215,827
Total noncurrent assets						Total noncurrent assets	345,311		351,713
Total assets	Total assets	$	838,349	$	616,073	Total assets	$	870,328	$	862,769
Liabilities and Stockholders’ Equity	Liabilities and Stockholders’ Equity					Liabilities and Stockholders’ Equity
Current liabilities:	Current liabilities:					Current liabilities:
Current maturities of debt	Current maturities of debt	$	23,463	$	17,500	Current maturities of debt	$	23,469	$	23,466

Current portion of route and customer acquisition costs payable	Current portion of route and customer acquisition costs payable	3,040		2,079		Current portion of route and customer acquisition costs payable	1,513		1,487
Accrued location gaming expense	Accrued location gaming expense	5,763		3,969		Accrued location gaming expense	6,614		7,791
Accrued state gaming expense	Accrued state gaming expense	15,736		11,441		Accrued state gaming expense	18,517		16,605
Accounts payable and other accrued expenses	Accounts payable and other accrued expenses	21,596		14,616		Accounts payable and other accrued expenses	28,287		22,302
Accrued compensation and related expenses	Accrued compensation and related expenses	10,228		8,886		Accrued compensation and related expenses	6,704		10,607
Current portion of consideration payable	Current portion of consideration payable	12,854		13,344		Current portion of consideration payable	7,760		7,647
Total current liabilities	Total current liabilities	92,680		71,835		Total current liabilities	92,864		89,905
Long-term liabilities:	Long-term liabilities:					Long-term liabilities:
Debt, net of current maturities	Debt, net of current maturities	497,976		324,022		Debt, net of current maturities	514,146		518,566
Route and customer acquisition costs payable, less current portion	Route and customer acquisition costs payable, less current portion	4,285		3,953		Route and customer acquisition costs payable, less current portion	4,751		5,137
Consideration payable, less current portion	Consideration payable, less current portion	4,377		12,706		Consideration payable, less current portion	6,521		6,872
Contingent earnout share liability	Contingent earnout share liability	23,334		42,831		Contingent earnout share liability	27,890		23,288
Warrant and other long-term liabilities		17		17
Deferred income tax liability		34,798		2,248
Other long-term liabilities						Other long-term liabilities	3,164		3,390
Deferred income tax liability, net						Deferred income tax liability, net	38,506		37,021
Total long-term liabilities	Total long-term liabilities	564,787		385,777		Total long-term liabilities	594,978		594,274
Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:
Preferred Stock, par value of $0.0001; 1,000,000 shares authorized; 0 shares issued and outstanding at September 30, 2022 and December 31, 2021		—		—
Class A-1 Common Stock, par value $0.0001; 250,000,000 shares authorized; 94,434,865 shares issued and 88,569,672 shares outstanding at September 30, 2022; 94,111,868 shares issued and 93,410,563 shares outstanding at December 31, 2021		9		9

Preferred Stock, par value of $0.0001; 1,000,000 shares authorized; 0 shares issued and outstanding at March 31, 2023 and December 31, 2022						Preferred Stock, par value of $0.0001; 1,000,000 shares authorized; 0 shares issued and outstanding at March 31, 2023 and December 31, 2022	—		—
Class A-1 Common Stock, par value $0.0001; 250,000,000 shares authorized; 94,751,204 shares issued and 86,444,825 shares outstanding at March 31, 2023; 94,504,051 shares issued and 86,674,390 shares outstanding at December 31, 2022						Class A-1 Common Stock, par value $0.0001; 250,000,000 shares authorized; 94,751,204 shares issued and 86,444,825 shares outstanding at March 31, 2023; 94,504,051 shares issued and 86,674,390 shares outstanding at December 31, 2022	9		9

Additional paid-in capital	Additional paid-in capital	192,314		187,656		Additional paid-in capital	195,243		194,157
Treasury stock, at cost	Treasury stock, at cost	(64,612)		(8,983)		Treasury stock, at cost	(85,903)		(81,697)
Accumulated other comprehensive income	Accumulated other comprehensive income	12,696		—		Accumulated other comprehensive income	10,074		12,240
Accumulated earnings (deficit)		40,475		(20,221)
Accumulated earnings						Accumulated earnings	63,063		53,881
Total stockholders' equity	Total stockholders' equity	180,882		158,461		Total stockholders' equity	182,486		178,590
Total liabilities and stockholders' equity	Total liabilities and stockholders' equity	$	838,349	$	616,073	Total liabilities and stockholders' equity	$	870,328	$	862,769

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

Table of Contents

ACCEL ENTERTAINMENT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

(In thousands, except shares) Accumulated
Class A-1 Additional Treasury Other Total
Common Stock Paid-In Stock Comprehensive Accumulated Stockholders’
Shares Amount Capital Shares Amount Income Earnings (Deficit) Equity
Balance, January 1, 2022 93,410,563 $ 9 $ 187,656 (701,305) $ (8,983) $ — $ (20,221) $ 158,461
Repurchase of common stock (1,087,990) — — (1,087,990) (13,934) — — (13,934)
Stock-based compensation — — 1,605 — — — — 1,605
Exercise of stock-based awards 161,969 — 38 — — — — 38
Unrealized gain on interest rate caplets — — — — — 4,864 — 4,864
Net income — — — — — — 15,788 15,788
Balance, March 31, 2022 92,484,542 9 189,299 (1,789,295) (22,917) 4,864 (4,433) 166,822
Repurchase of common stock (2,326,413) — — (2,326,413) (25,498) — — (25,498)
Reissuance of treasury stock in business combination 515,622 — (705) 515,622 6,289 — — 5,584
Stock-based compensation — — 2,281 — — — — 2,281
Exercise of stock-based awards 85,580 — 315 — — — — 315
Unrealized gain on interest rate caplets — — — — — 1,907 — 1,907
Net income — — — — — — 22,464 22,464
Balance, June 30, 2022 90,759,331 9 191,190 (3,600,086) (42,126) 6,771 18,031 173,875
Repurchase of common stock (2,265,107) — — (2,265,107) (22,486) — — (22,486)
Stock-based compensation — — 1,070 — — — — 1,070
Exercise of stock-based awards 75,448 — 54 — — — — 54
Unrealized gain on interest rate caplets — — — — — 5,925 — 5,925
Net income — — — — — — 22,444 22,444
Balance, September 30, 2022 88,569,672 $ 9 $ 192,314 (5,865,193) $ (64,612) $ 12,696 $ 40,475 $ 180,882


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


(In thousands, except shares)									Accumulated
	Class A-1			Additional		Treasury			Other				Total
	Common Stock			Paid-In		Stock			Comprehensive		Accumulated		Stockholders’
	Shares	Amount		Capital		Shares	Amount		Income		Deficit		Equity
Balance, January 1, 2022	93,410,563	$	9	$	187,656	(701,305)	$	(8,983)	$	—	$	(20,221)	$	158,461
Repurchase of common stock	(1,087,990)	—		—		(1,087,990)	(13,934)		—		—		(13,934)
Stock-based compensation	—	—		1,605		—	—		—		—		1,605
Exercise of stock-based awards	161,969	—		38		—	—		—		—		38
Unrealized gain on interest rate caplets	—	—		—		—	—		4,864		—		4,864
Net income	—	—		—		—	—		—		15,788		15,788
Balance, March 31, 2022	92,484,542	$	9	$	189,299	(1,789,295)	$	(22,917)	$	4,864	$	(4,433)	$	166,822

~~Table of Contents~~

~~ACCEL ENTERTAINMENT, INC.~~

~~CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY - (Continued)~~

~~(Unaudited)~~

(In thousands, except shares) Accumulated
Class A-1 Additional Other Total
Common Stock Paid-In Comprehensive Accumulated Stockholders’
Shares Amount Capital Income Deficit Equity
Balance, January 1, 2021 93,379,508 $ 9 $ 179,549 $ 93 $ (51,780) $ 127,871
Stock-based compensation — — 1,593 — — 1,593
Unrealized gain on investment in convertible notes — — — 469 — 469
Net income — — — — 1,501 1,501
Balance, March 31, 2021 93,379,508 9 181,142 562 (50,279) 131,434
Exercise of common stock options 281,245 — 685 — — 685
Stock-based compensation — — 2,148 — — 2,148
Unrealized gain on investment in convertible notes — — — 5,204 — 5,204
Net income — — — — 12,445 12,445
Balance, June 30, 2021 93,660,753 9 183,975 5,766 (37,834) 151,916
Exercise of common stock options 381,588 — 770 — — 770
Stock based compensation — — 966 — — 966
Unrealized gain on investment in convertible notes — — — (315) — (315)
Net income — — — — 10,807 10,807
Balance, September 30, 2021 94,042,341 $ 9 $ 185,711 $ 5,451 $ (27,027) $ 164,144

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

Table of Contents


ACCEL ENTERTAINMENT, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)	ACCEL ENTERTAINMENT, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)					ACCEL ENTERTAINMENT, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)	(In thousands)	Nine Months Ended September 30,				(In thousands)	Three Months Ended March 31,
		2022		2021			2023		2022
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income	Net income	$	60,696	$	24,753	Net income	$	9,182	$	15,788
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property and equipment	Depreciation and amortization of property and equipment	20,575		18,820		Depreciation and amortization of property and equipment	9,063		5,841
Amortization of intangible assets and route and customer acquisition costs	Amortization of intangible assets and route and customer acquisition costs	12,278		18,489		Amortization of intangible assets and route and customer acquisition costs	5,242		3,548
Amortization of debt issuance costs	Amortization of debt issuance costs	1,652		1,514		Amortization of debt issuance costs	449		626
(Gain) loss on change in fair value of contingent earnout shares		(19,497)		6,867
Loss (gain) on change in fair value of contingent earnout shares						Loss (gain) on change in fair value of contingent earnout shares	4,602		(3,417)

Stock-based compensation	Stock-based compensation	4,956		4,707		Stock-based compensation	1,688		1,605
(Gain) on disposal of property and equipment	(Gain) on disposal of property and equipment	(706)		(96)		(Gain) on disposal of property and equipment	(9)		(105)
Net loss on write-off of route and customer acquisition costs and route and customer acquisition costs payable	Net loss on write-off of route and customer acquisition costs and route and customer acquisition costs payable	410		326		Net loss on write-off of route and customer acquisition costs and route and customer acquisition costs payable	321		174

Remeasurement of contingent consideration	Remeasurement of contingent consideration	(1,992)		3,679		Remeasurement of contingent consideration	162		(385)
Payments on consideration payable	Payments on consideration payable	(2,282)		(666)		Payments on consideration payable	(551)		(1,116)
Accretion of interest on route and customer acquisition costs payable, contingent consideration, and contingent stock consideration	Accretion of interest on route and customer acquisition costs payable, contingent consideration, and contingent stock consideration	1,991		1,904		Accretion of interest on route and customer acquisition costs payable, contingent consideration, and contingent stock consideration	383		708
Deferred income taxes	Deferred income taxes	10,958		6,186		Deferred income taxes	2,315		2,775

Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Prepaid expenses and other current assets	Prepaid expenses and other current assets	(605)		(3,421)		Prepaid expenses and other current assets	589		199
Accounts receivable, net	Accounts receivable, net	661		—		Accounts receivable, net	3,426		—
Inventories	Inventories	(432)		—		Inventories	(529)		—
Income taxes receivable	Income taxes receivable	(1,314)		2,618		Income taxes receivable	538		—
Route and customer acquisition costs	Route and customer acquisition costs	(3,170)		(2,153)		Route and customer acquisition costs	(730)		(469)
Route and customer acquisition costs payable	Route and customer acquisition costs payable	1,115		(354)		Route and customer acquisition costs payable	(424)		(184)
Accounts payable and accrued expenses	Accounts payable and accrued expenses	(6,205)		(4,677)		Accounts payable and accrued expenses	5,588		1,173
Accrued compensation and related expenses	Accrued compensation and related expenses	(284)		1,826		Accrued compensation and related expenses	(3,903)		(4,642)
Other assets	Other assets	(555)		(60)		Other assets	581		(58)
Net cash provided by operating activities	Net cash provided by operating activities	78,250		80,262		Net cash provided by operating activities	37,983		22,061
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Purchases of property and equipment	Purchases of property and equipment	(32,978)		(18,767)		Purchases of property and equipment	(21,461)		(6,752)
Proceeds from the sale of property and equipment	Proceeds from the sale of property and equipment	1,735		806		Proceeds from the sale of property and equipment	476		365

Business and asset acquisitions, net of cash acquired	Business and asset acquisitions, net of cash acquired	(137,628)		(3,259)		Business and asset acquisitions, net of cash acquired	(2,600)		—
Net cash used in investing activities	Net cash used in investing activities	(168,871)		(21,220)		Net cash used in investing activities	(23,585)		(6,387)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Payments on term loan		(17,500)		(9,000)
Proceeds from delayed draw term loans		100,000		—
Payments on delayed draw term loans		(2,500)		(4,688)
Proceeds from line of credit		99,000		47,000
Payments on line of credit		(4,000)		(47,000)
Proceeds from debt						Proceeds from debt	8,000		—
Payments on debt						Payments on debt	(12,625)		(4,375)

Payments for repurchase of common stock	Payments for repurchase of common stock	(61,917)		—		Payments for repurchase of common stock	(4,206)		(13,934)
Payments on interest rate caplets	Payments on interest rate caplets	(633)		—		Payments on interest rate caplets	(240)		(157)
Proceeds from exercise of stock options and warrants		407		1,455
Proceeds from exercise of stock options						Proceeds from exercise of stock options	—		38
Payments on consideration payable	Payments on consideration payable	(8,892)		(1,377)		Payments on consideration payable	(168)		(1,084)
Tax withholding on share-based payments		(67)		—
Net cash provided by (used in) financing activities		103,898		(13,610)
Net increase in cash and cash equivalents		13,277		45,432
Tax withholding on stock-based payments						Tax withholding on stock-based payments	(743)		(50)
Net cash used in financing activities						Net cash used in financing activities	(9,982)		(19,562)
Net increase (decrease) in cash and cash equivalents						Net increase (decrease) in cash and cash equivalents	4,416		(3,888)
Cash and cash equivalents:	Cash and cash equivalents:					Cash and cash equivalents:
Beginning of period	Beginning of period	198,786		134,451		Beginning of period	224,113		198,786
End of period	End of period	$	212,063	$	179,883	End of period	$	228,529	$	194,898

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ACCEL ENTERTAINMENT, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued) (Unaudited)	ACCEL ENTERTAINMENT, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued) (Unaudited)					ACCEL ENTERTAINMENT, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued) (Unaudited)
Supplemental disclosures of cash flow information:	Supplemental disclosures of cash flow information:					Supplemental disclosures of cash flow information:
Cash payments for:
Interest, net		$	11,964	$	8,818
Cash payments (refunds) for:						Cash payments (refunds) for:
Interest						Interest	$	9,275	$	3,386
Income taxes	Income taxes	$	7,041	$	6,307	Income taxes	$	—	$	(204)
Supplemental schedules of noncash investing and financing activities:	Supplemental schedules of noncash investing and financing activities:					Supplemental schedules of noncash investing and financing activities:
Purchases of property and equipment in accounts payable and accrued liabilities	Purchases of property and equipment in accounts payable and accrued liabilities	$	8,128	$	4,202	Purchases of property and equipment in accounts payable and accrued liabilities	$	10,885	$	4,338

Deferred premium on interest rate caplets	Deferred premium on interest rate caplets	$	3,265	$	—	Deferred premium on interest rate caplets	$	2,784	$	3,898
Fair value of treasury stock issued in business combination		$	5,584	$	—

Acquisition of businesses and assets:	Acquisition of businesses and assets:					Acquisition of businesses and assets:
Total identifiable net assets acquired	Total identifiable net assets acquired	$	179,015	$	3,364	Total identifiable net assets acquired	$	2,600	$	—
Less cash acquired		(33,270)		—
Less consideration payable		(2,533)		(105)
Less fair value of treasury stock issued		(5,584)		—

Cash purchase price	Cash purchase price	$	137,628	$	3,259	Cash purchase price	$	2,600	$	—

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

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ACCEL ENTERTAINMENT, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1. Description of Business

Accel Entertainment, Inc. (and together with its subsidiaries, the “Company” or “Accel”) is a leading distributed gaming operator in the United States. The Company's wholly owned subsidiary, Accel Entertainment Gaming, LLC, has been licensed by the State of Illinois Gaming Board (“IGB”) since March 15, 2012 to be a terminal operator in the State of Illinois. Its Illinois terminal operator license allows the Company to install and operate gaming terminals in licensed ~~video~~ gaming locations throughout the State of Illinois as approved by individual municipalities. The Illinois terminal operator license, which is not transferable or assignable, requires compliance with applicable regulations and the license is renewable annually unless sooner cancelled or terminated.

In July 2020, the Georgia Lottery Corporation approved one of the Company's consolidated subsidiaries as a licensed operator, or Master Licensee, which allows the Company to install and operate coin operated amusement machines for commercial use by the public for play throughout the State of Georgia. The Company also holds a license from the Pennsylvania Gaming Control Board. On December 30, 2021, one of the Company's consolidated subsidiaries acquired amusement and automated teller machines (“ATMs”) operations in Iowa and registered with the Iowa Department of Inspections and Appeals to conduct such operations in Iowa.

On June 1, 2022, the Company acquired Century Gaming, Inc. (“Century”), which is a leading distributed gaming operator in the Montana and Nevada gaming markets. Century is also a manufacturer of gaming terminals in the Montana, Nevada, South Dakota, Louisiana and West Virginia markets. In connection with the acquisition, Accel was granted a two-year terminal operator license by the Nevada Gaming Commission and a manufacturer, distributor and route operator license by the Gambling Control Division of the Montana Department of Justice through June 2023. The Montana license is renewable annually.

In June 2022, the Company became a licensed distributor of mechanical amusement devices (“MADs”) in Nebraska and commenced operations in this market. The Company also operates redemption terminals, which also function as ATMs at its ~~licensed video~~ gaming locations, and amusement equipment at certain locations.

The Company is also subject to various other federal, state and local laws and regulations in addition to gaming regulations.

~~The Company is an emerging growth company~~ ~~(“EGC”)~~ under the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”) following the consummation of a reverse recapitalization that occurred on November 20, 2019. The Company has elected to use this extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act and as a result of this election, its financial statements may not be comparable to companies that comply with public company effective dates. The Company expects to remain an EGC until December 31, 2022.

~~Impact of COVID-19 on the Condensed Consolidated Financial Statements~~

The ongoing COVID-19 outbreak and its related variants are having a significant impact on global markets as a result of prior and current government-mandated business closures, supply chain and production disruptions, workforce restrictions, travel restrictions, reduced consumer spending and sentiment, amongst other factors, which are, individually or in the aggregate, negatively affecting the financial performance, liquidity and cash flow projections of many companies in the United States and abroad.

A surge of COVID-19 infections occurred in the fall of 2020, as the virus spread in every geographical region (currently 11 regions) in the State of Illinois. In response, the IGB suspended all video gaming operations across the entire state of Illinois starting at 11:01 PM on Thursday, November 19, 2020. Video gaming operations resumed in certain regions of the state beginning on January 16, 2021, and fully resumed in all regions on January 23, 2021. Even though video gaming operations resumed across all regions, certain regions still had government-imposed restrictions that, among other things, limited hours of operation and restricted the number of patrons allowed within the licensed establishments. Given the staggered reopening by region in January of 2021, the temporary shutdown impacted, on average, 18 of the 273 gaming days (or 7% of gaming days)

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~~Accel Entertainment, Inc. and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements — (Continued)~~

during the nine months ended September 30, 2021. In light of these events and their effect on the Company’s employees and licensed establishment partners, the Company took action to help mitigate the potential effects caused by the temporary cessation of operations by furloughing idle staff as appropriate and deferring certain payments to major vendors.

~~As a result of these developments, the Company's revenues, results of operations and cash flows were materially affected for the nine months ended September 30, 2021.~~

Note 2. Summary of Significant Accounting Policies

Basis of presentation and preparation: The condensed consolidated financial statements and accompanying notes were prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”). The condensed consolidated financial statements include the accounts of the Company and of its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. ~~Certain prior period amounts have been reclassified to conform to the current period presentation.~~ In the opinion of management, the condensed consolidated financial statements include all recurring adjustments and normal accruals necessary for a fair presentation of the Company’s financial position, results of operations and cash flows for the dates and periods presented. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 (the “Form 10-K”). In preparing our condensed consolidated financial statements, we applied the same significant accounting policies as described in Note 2 to the consolidated financial statements in the Form 10-K. Any significant changes to those accounting policies are discussed below. Interim results are not necessarily indicative of results for a full year.

Use of estimates: The preparation of condensed consolidated financial statements requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities, (ii) disclosure of contingent assets and liabilities at the

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Accel Entertainment, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements — (Continued)

date of the condensed consolidated financial statements and (iii) the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates used by the Company include, among other things, the useful lives for depreciable and amortizable assets, income tax provisions, the evaluation of the future realization of deferred tax assets, projected cash flows in assessing the initial valuation of ~~certain~~ intangible ~~and tangible~~ assets in conjunction with business acquisitions, the selection of useful lives for depreciable and amortizable assets in conjunction with business ~~combinations,~~acquisitions, the valuation of level 3 investments, the valuation of contingent earnout shares and interest rate caplets, contingencies, and the expected term of ~~share- based~~share-based compensation awards and stock price volatility when computing share-based compensation expense. The contingent consideration in a business combination is measured at its fair value on the acquisition date, recorded as a liability and accreted over its payment term in Accel’s condensed consolidated ~~statements of operations and comprehensive income~~ as other expenses, net. Location contract intangibles 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 and costs projections and other assumptions such as estimated attrition rates and discount rates. Acquired tangible personal property such as gaming equipment is generally measured at fair value using a cost approach which measures the fair value based on the cost to reproduce or replace the asset. Goodwill is measured as the excess of the consideration transferred over the fair value of the net identifiable assets acquired and liabilities assumed.Actual results may differ from those estimates.

~~Change in estimate:~~ During the fourth quarter of 2021, the Company conducted a review of its estimate of depreciable lives for its gaming terminals and equipment. As a result of this review, the Company extended the useful lives of its gaming terminals and equipment from 10 years to 13 years as the equipment is lasting longer than originally estimated. The Company has many gaming terminals and equipment that were purchased when the Company started operations in 2012 that are still being used today.

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~~Accel Entertainment, Inc. and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements — (Continued)~~

Also, during the fourth quarter of 2021, the Company conducted a review of its estimate of the amortization periods for its route and customer acquisition costs and its location contracts. As a result of this review, the Company extended the amortization period of its route and customer acquisition costs from 12.4 years to 18 years and its location contracts from 10 years to 15 years. In both cases the extended useful lives reflect the Company's strong relationship with its licensed establishment partners as demonstrated by continued high contract renewal rates.

~~The impact of these changes in estimate for the three and nine months ended September 30, 2022, was as follows (in thousands):~~

Three months ended Nine months ended
September 30, 2022 September 30, 2022
Decrease to depreciation expense $ 1,228 $ 3,685
Decrease to amortization expense $ 2,770 $ 8,215
Increase to net income $ 2,859 $ 8,511
Increase to net income per share $ 0.03 $ 0.09

Segment information: The Company operates as a single reportable operating segment. The Company’s chief operating decision maker (“CODM”) is the chief executive officer, who has ultimate responsibility for the operating performance of the Company and the allocation of resources. The CODM assesses the Company’s performance and allocates resources based on consolidated results, and ~~while revenue information by state exists, the Company has determined consolidated information~~this is the only discrete financial information that is regularly reviewed by the CODM.

~~Accounts receivable:~~ Revenue recognitionAccounts receivable represent amounts due from third-party locations serviced by the Company and amounts due for machines, software and equipment sold by the Company. The carrying amount of receivables is reduced by a valuation allowance that reflects management’s best estimate of the amounts that will not be collected. Management determines the allowance for doubtful accounts by regularly evaluating individual receivables from third-party locations and considering a customer’s financial condition, credit history and current economic conditions. The Company generally does not charge interest on past due accounts receivable.

~~Inventories:~~: Inventories consist of gaming machines for sale to third-parties, raw materials, and manufacturing supplies. Inventories are stated at the lower of average cost and net realizable value (generally, estimated selling price). Labor and overhead associated with the assembly of gaming machines for sales to third-parties are capitalized and allocated to inventory.

~~Derivative instruments:~~ The Company may manage its exposure to certain financial risks through the use of derivative financial instruments (“derivatives”). The Company does not use derivatives for speculative purposes. For a derivative that is designated as a cash flow hedge, changes in the fair value of the derivative are recognized in accumulated other comprehensive income to the extent the derivative is effective at offsetting the changes in the cash flows being hedged until the hedged item affects earnings.

~~Revenue recognition:~~The Company generates revenues from the following types of services: gaming terminals, amusements, manufacturingand ATMs. ~~It also generates manufacturing revenue from the~~ ~~sales of gaming terminals and associated software by Grand Vision Gaming, a wholly-owned subsidiary of Century, which is a designer and manufacturer of gaming terminals.~~ Revenue is disaggregated by type of revenue and is presented on the face of the ~~condensed~~ consolidated statements of operations and comprehensive income.

~~Manufacturing revenue represents~~Total net revenues for the ~~sale of gaming terminals and is recognized at the time the goods are delivered to the customer.~~

three months ended
March 31,

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~~Accel Entertainment, Inc. and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements — (Continued)~~

~~Revenue~~ is disaggregated in the following table by the primary states in which the Company operates given the geographic economic factors that affect the revenues in the states.


(in thousands)	(in thousands)	Three Months Ended September 30,				Nine Months Ended September 30,				(in thousands)	Three Months Ended March 31,
		2022		2021		2022		2021			2023		2022
Net revenues by state:	Net revenues by state:									Net revenues by state:
Illinois	Illinois	$	200,914	$	192,205	$	601,735	$	539,211	Illinois	$	219,843	$	194,859
Montana										Montana	36,451		—
Nevada	Nevada	28,439		—		37,359		—		Nevada	29,961		—
Montana		33,456		—		44,282		—
Other	Other	4,158		1,146		8,351		3,183		Other	6,953		2,032
Total net revenues	Total net revenues	$	266,967	$	193,351	$	691,727	$	542,394	Total net revenues	$	293,208	$	196,891

Recent accounting pronouncements: In ~~February 2016, the~~ ~~Financial Accounting Standards Board~~ (“~~FASB”) issued~~ ~~Accounting Standards Update~~ (“~~ASU”) No. 2016-02,~~ ~~Leases (Topic 842). The guidance in this ASU supersedes the leasing guidance in Topic 840,~~ ~~Leases. In July 2018, the FASB also issued ASU No. 2018-11,~~ ~~Leases (Topic 842): Targeted Improvements~~, which provides an optional transition method allowing the standard to be applied at the adoption date. Under the new guidance, lessees are required to recognize lease assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. Based on its status as an EGC, the Company expects the new standard will be ~~effective for the Company's fiscal year beginning after December 15, 2021~~. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is assessing the impact of the standard on its condensed consolidated financial statements, as well as evaluating the impact on arrangements within potential future acquisitions, including an assessment of whether certain location arrangements represent a lease transaction or contract with a customer. The impact of this determination is not expected to impact the timing or pattern of income recognition, but could impact certain presentation and disclosure.

In October 2021, the FASB issued ~~ASU~~Accounting Standards Update (“ASU”) No. 2021-08, Business Combinations (Topic 805). The guidance in this ASU improves the accounting for revenue contracts with customers acquired in a business combination by addressing diversity in practice and inconsistency related to recognition of contract assets and liabilities acquired in a business combination. The provisions of this ASU require that an acquiring entity accounts for the related revenue contracts in accordance with Accounting Standards Codification ~~("ASC"~~(“ASC”) 606 as if it had originated the contracts. The standard is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years with early adoption permitted. The Company does not expect the impact of the adoption of this ASU to be material to its financial statements or disclosures.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848). This ASU provides temporary guidance to ease the potential burden in accounting for reference rate reform primarily resulting from the discontinuation of ~~LIBOR,~~the London Inter-Bank Offered Rate (“LIBOR”), which began phasing out on December 31, 2021. The amendments in ASU 2020-04 are elective and apply to all entities that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued. The new guidance (i) simplifies accounting analyses under current GAAP for contract modifications; (ii) simplifies the assessment of hedge effectiveness and allows hedging relationships affected by reference rate reform to continue; and (iii) allows a one-time election to sell or transfer debt securities classified as held to maturity that reference a rate affected by reference rate reform. An entity may elect to apply the amendments prospectively from March 12,

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Accel Entertainment, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements — (Continued)

2020, through December 31, 2022 by accounting topic. The Company currently references LIBOR for certain debt and hedging arrangements. While no material impacts are expected from the transition from LIBOR to the Secured Overnight Financing Rate (“SOFR”), the Company will continue to evaluate the provisions of this ASU and the impacts of transitioning to ~~an alternative rate.~~

~~Table~~the SOFR rate in the second quarter of ~~Contents~~

~~Accel Entertainment, Inc. and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements — (Continued)~~

2023.

Other recently issued accounting standards or pronouncements have been excluded because they are either not relevant to the Company, or are not expected to have, or did not have, a material effect on its condensed consolidated financial statements.

Note 3. Inventories

Inventories were as follows (in thousands):


	~~September 30, 2022~~
~~Raw materials and manufacturing supplies~~	$	~~4,990~~
~~Finished products~~	~~1,883~~
~~Total inventories~~	$	~~6,873~~


	March 31, 2023		December 31, 2022
Raw materials and manufacturing supplies	$	6,003	$	4,977
Finished products	1,473		1,964
Total inventories	$	7,476	$	6,941

At ~~September 30,~~March 31, 2023 and December 31, 2022, no inventory valuation allowance was determined to be necessary.

Note 4. Investment in Convertible Notes

On July 19, 2019, the Company entered into an agreement to purchase up to $30.0 million in convertible notes from Gold Rush Amusements, Inc. (“Gold Rush”), another terminal operator in Illinois, that bore interest at 3% per annum through December 31, 2021. The convertible notes each included an option to convert the notes to common stock of Gold Rush prior to the maturity date upon written notice from the Company. At closing, the Company purchased a $5.0 million convertible promissory note which was subordinated to Gold Rush’s credit facility and matured six months following the satisfaction of administrative conditions.

On October 11, 2019, the Company purchased an additional $25.0 million convertible note which was also subordinated to Gold Rush’s credit facility and, beginning on July 1, 2020, the balance of this note, if not previously converted, was payable in equal $1,000,000 monthly installments until all principal has been repaid in full.

On July 30, 2020, the Company and Gold Rush entered into the Omnibus Amendment (the “Amendment”) to the original agreement to purchase convertible notes from Gold Rush. The Amendment, among other things, extended the maturity date of the $5.0 million convertible note and the beginning of the payback period for the $25.0 million convertible note until December 31, 2020.

On March 9, 2021, the Company and Gold Rush entered into the Second Omnibus Amendment (the “Second Amendment”) to both of the convertible notes and the agreement to purchase the convertible notes. The Second Amendment, among other things, extended the December 31, 2020, maturity and conversion feature of the $5.0 million convertible note to December 31, 2021, the maturity and conversion feature of the $25.0 million convertible note to June 1, 2024 and the beginning of the payback period for the $25.0 million convertible note from December 31, 2020 to January 1, 2022.

On July 30, 2021, the Company provided notice to Gold Rush that it was exercising its rights under each of the convertible notes to convert the entire aggregate principal amount and accrued interest into common stock of Gold Rush, subject to approval from the IGB to transfer the common stock to the Company and receipt of other customary closing deliverables.

On December 2, 2021, the Company received notice from the administrator of the IGB that he was denying the requested transfer of Gold Rush common stock to the Company. The Company disagreed with the administrator’s ruling and requested that

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Accel Entertainment, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements — (Continued)

the matter be put before the IGB for a public vote. On January 27, 2022, the IGB affirmed the administrator’s denial. Although the Company is pursuing all administrative remedies available to contest the IGB’s ruling, this denial has impacted the conversion assumptions previously used in the accounting valuation of the convertible notes.

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~~Accel Entertainment, Inc. and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements — (Continued)~~

On March 9, 2022, the Company filed a lawsuit in the Circuit Court of Cook County, Illinois against Gold Rush relating to the Gold Rush convertible notes. The complaint seeks damages for breach of contract and the implied covenant of good faith and fair dealing as well as unjust enrichment. The lawsuit is publicly available. On April 22, 2022, the Company filed a petition in the Circuit Court of Cook County, Illinois to judicially review the IGB's decision to deny the requested transfer of Gold Rush common stock in respect of the Company's conversion of its convertible notes.

On June 22, 2022, Gold Rush filed a lawsuit in the Circuit Court of Cook County, Illinois against the Company. The lawsuit alleges that the Company 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. The Company intends to vigorously defend itself against the allegations in the complaint and denies any allegations of wrongdoing.

Based on the IGB denying the Company’s request to transfer Gold Rush common stock despite the Company’s unilateral conversion rights, the convertible notes continue to be accounted for as available for sale debt securities, at fair value, with gains and losses recorded in other comprehensive ~~income.~~income (loss). As of the filing of the financial statements, the Gold Rush convertible notes (which the Company converted under the terms of the convertible notes to shares of common stock of Gold Rush, but the IGB has currently denied the distribution of shares to the Company) are deemed in default for disclosure and presentation purposes, assuming non-conversion of the convertible notes, as no repayment or installment payments have been received. The Company has classified the entire $32.1 million accounting fair value of the convertible notes as current on the condensed consolidated balance sheets as the Company hopes to resolve this matter within the next year. The Company did not further adjust the valuation of the convertible notes downward as the Company believes, assuming for accounting purposes that the notes have not been converted, the recorded amounts approximate the accounting fair value. If successful, the Company's legal remedies with respect to its rights to receive the Gold Rush common stock or equivalent amounts it is entitled to receive with respect to the convertible notes could be materially in excess of the current accounting fair value. ~~The Company recognized~~Changes in the fair value of the convertible notes are included within comprehensive income ~~an unrealized loss~~on the accompanying condensed consolidated statements of ~~$0.3 million for the three months ended September 30, 2021~~operations and ~~an unrecognized gain of~~ ~~$5.4 million, net of~~comprehensive income, ~~taxes, for the nine months ended September 30, 2021, related to the valuation of the convertible notes.~~if applicable. For more information on how the Company determined the fair value of the convertible notes, see Note ~~13.~~12.

Note 5. Property and Equipment

Property and equipment consist of the following at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 (in thousands):


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022
Gaming terminals and equipment	Gaming terminals and equipment	$	283,727	$	225,692	Gaming terminals and equipment	$	310,209	$	266,972
Amusement and other equipment	Amusement and other equipment	25,246		18,547		Amusement and other equipment	26,227		39,249
Office equipment and furniture	Office equipment and furniture	2,375		1,731		Office equipment and furniture	2,704		6,996
Computer equipment and software	Computer equipment and software	17,450		14,319		Computer equipment and software	18,823		21,515
Leasehold improvements	Leasehold improvements	6,586		4,127		Leasehold improvements	7,362		11,945
Vehicles	Vehicles	15,221		11,518		Vehicles	17,083		2,534
Buildings and improvements	Buildings and improvements	11,945		10,997		Buildings and improvements	12,259		1,143
Land	Land	1,143		911		Land	1,663		14,531
Construction in progress	Construction in progress	2,378		3,898		Construction in progress	4,642		13,950
Total property and equipment	Total property and equipment	366,071		291,740		Total property and equipment	400,972		378,835
Less accumulated depreciation and amortization	Less accumulated depreciation and amortization	(159,304)		(139,489)		Less accumulated depreciation and amortization	(175,214)		(166,991)
Property and equipment, net	Property and equipment, net	$	206,767	$	152,251	Property and equipment, net	$	225,758	$	211,844

Depreciation and amortization of property and equipment was $9.1 million and $5.8 million for the three months ended March 31, 2023, and 2022, respectively. The year-over-year increase in depreciation expense is due to an increased number of locations and gaming terminals primarily attributable to the acquisition of Century in the second quarter of 2022.

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Accel Entertainment, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements — (Continued)

~~Depreciation and amortization of property and equipment was $8.1 million and $20.6 million~~ ~~for the three and nine months ended~~ ~~September 30, 2022. In comparison, depreciation and amortization of property and equipment was $6.5 million and $18.8 million~~ ~~for the three and nine months ended September 30, 2021. While depreciation expense in 2022 has increased primarily due to acquisitions, a change in estimate partially offsets the increase as the Company~~ ~~extended the useful lives of its gaming terminals and equipment from 10 years to 13 years in the fourth quarter of 2021.~~

Note 6. Route and Customer Acquisition Costs

The Company enters into contracts with third parties and ~~licensed video~~its gaming locations ~~throughout the State of Illinois that allow the Company~~ to install and operate ~~video~~ gaming terminals. When ~~video~~ gaming operations commence, payments are due monthly or quarterly. Gross payments due, based on the number of live locations, were approximately ~~$8.1~~$7.2 million and ~~$6.8~~$7.6 million as of ~~September 30, 2022~~March 31, 2023, and December 31, ~~2021,~~2022, respectively. Payments are due over varying terms of the individual agreements and are discounted at the Company’s incremental borrowing rate associated with its long-term debt at the time the contract is acquired. The net present value of payments due was ~~$7.3~~$6.3 million and ~~$6.0~~$6.6 million as of ~~September 30, 2022~~March 31, 2023, and December 31, ~~2021,~~2022, respectively, of which approximately ~~$3.0 million and $2.1~~$1.5 million is included in current liabilities in the accompanying condensed consolidated balance sheets as of ~~September 30, 2022~~both March 31, 2023, and December 31, ~~2021, respectively.~~2022. The route and customer acquisition cost asset was comprised of payments made on the contracts of ~~$17.9~~$18.3 million and ~~$18.0~~$17.9 million as of ~~September 30, 2022~~March 31, 2023, and December 31, ~~2021,~~2022, respectively. The Company has upfront payments of commissions paid to the third parties for the acquisition of the customer contracts that are subject to a clawback provision if the customer cancels the contract prior to completion. The payments subject to a clawback were ~~$1.2~~$1.0 million and ~~$1.5~~$1.2 million as of ~~September 30, 2022~~March 31, 2023, and December 31, ~~2021,~~2022, respectively.

Route and customer acquisition costs consisted of the following at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 (in thousands):


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022
Cost	Cost	$	31,198	$	28,902	Cost	$	32,112	$	31,805
Accumulated amortization	Accumulated amortization	(13,429)		(12,989)		Accumulated amortization	(13,734)		(13,463)
Route and customer acquisition costs, net	Route and customer acquisition costs, net	$	17,769	$	15,913	Route and customer acquisition costs, net	$	18,378	$	18,342

Amortization expense of route and customer acquisition costs was ~~$0.3~~$0.4 million and ~~$0.9~~$0.3 million for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023, and . ~~In comparison, amortization expense of route and customer acquisition costs~~ ~~was $0.5 million and $1.4 million~~ ~~for the three and nine months ended September 30, 2021.~~ ~~Amortization expense of~~ ~~route and customer acquisition costs~~ ~~was lower in~~ 2022, ~~when compared to the prior year as~~ ~~the Company extended the amortization period of its route and customer acquisition costs from 12.4 years to 18 years in the fourth quarter of 2021.~~respectively.

Note 7. Location Contracts Acquired

Location contract assets acquired in business acquisitions are recorded at acquisition at fair value based on an income approach. Location contracts acquired consisted of the following at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 (in thousands):

September 30,
2022 December 31,
2021
Cost $ 278,560 $ 229,287
Accumulated amortization (89,178) (78,615)
Location contracts acquired, net $ 189,382 $ 150,672

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~~Accel Entertainment, Inc. and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements — (Continued)~~


	March 31, 2023		December 31, 2022
Cost	$	282,653	$	282,653
Accumulated amortization	(97,570)		(93,310)
Location contracts acquired, net	$	185,083	$	189,343

Amortization expense of location contracts acquired was ~~$4.0~~$4.3 million and ~~$10.6~~$3.3 million for the three ~~and nine~~ months ended ~~September 30, 2022.~~ ~~In comparison, amortization expense of location contracts acquired was $5.7 million~~March 31, 2023, and ~~$17.1 million~~ ~~for the three and nine months ended September 30, 2021.~~ ~~Amortization expense of location contracts is lower in~~ 2022, ~~when compared to the prior year as~~ the Company extended the amortization period of its location contracts from 10 years to 15 years in the fourth quarter of 2021. This decrease was partially offset by an increase in location contracts acquired.respectively.

Note 8. Goodwill and Other ~~intangible assets~~

~~Goodwill~~Intangible Assets

~~On June 1, 2022, the~~The Company acquired ~~Century,~~various companies which ~~was~~were accounted for as a business combination using the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations~~("Topic 805")~~. The total excess of the purchase price over the tangible and intangible assets acquired and liabilities assumed ~~has been~~was recorded as goodwill of ~~$53.3 million. See Note 10 for more information on how the amount of goodwill was calculated.~~

~~The Company had total goodwill of $99.5~~$101.6 million and $100.7 million as of ~~September 30,~~March 31, 2023, and December 31, 2022, respectively, of which ~~$42.6~~$41.6 million was deductible for tax ~~purposes.~~purposes as of March 31, 2023.

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Accel Entertainment, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements — (Continued)

On February 13, 2023, the Company acquired Rendezvous Casino and Burger Bar (“Rendezvous”), a hospitality operation in Billings, Montana, for a total purchase price of $2.6 million. The purchase price included the cost of the land, building and the related Montana All-Alcoholic Beverage License. The hospitality operation is set to be a Century vended location.

The following is a roll forward of the Company's goodwill (in thousands):




Goodwill balance as of January 1, ~~2022~~2023	$	~~46,199~~100,707
Addition to goodwill for acquisition of ~~Century~~Rendezvous	~~53,291~~847
Goodwill balance as of ~~September 30, 2022~~March 31, 2023	$	~~99,490~~101,554

Other intangible assets

Other intangible assets, net of ~~$23.6~~$22.4 million and $23.0 million as of ~~September 30,~~March 31, 2023 and December 31, 2022, ~~consist~~respectively, consisted of definite-lived trade names, customer relationships, and software applications. Other intangible assets are related to the acquisition of ~~Century. See Note 10 for more information on how~~Century which occurred in the ~~amount~~second quarter of ~~other intangible~~2022. The Company determines the fair value of trade name assets ~~was calculated.~~acquired in acquisitions using a relief from royalty valuation method which requires assumptions such as projected revenue and a royalty rate. Other intangible assets are amortized over their estimated 7 to 20-year useful lives. Amortization expense of other intangible assets was ~~$0.8~~$0.6 million for the three ~~and nine~~ months ended ~~September 30, 2022.~~March 31, 2023.

Note 9. Debt

The Company’s debt as of ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, consisted of the following (in thousands):

September 30,
2022 December 31,
2021
Senior Secured Credit Facility:
Revolving credit facility $ 95,000 $ —
Term Loan 332,500 350,000
Delayed Draw Term Loan (DDTL) 97,500 —
Total debt on credit facility 525,000 350,000
Add: Interest rate caplet liability 3,265 —
Less: Debt issuance costs (6,826) (8,478)
Total debt, net of debt issuance costs 521,439 341,522
Less: Current maturities (23,463) (17,500)
Total debt, net of current maturities $ 497,976 $ 324,022

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~~Accel Entertainment, Inc. and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements — (Continued)~~

~~Senior Secured Credit Facility~~

On November 13, 2019, the Company entered into a credit agreement (the “Credit Agreement”) as borrower, with the Company and its 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.~~

The additional term loan facility was available for borrowings until November 13, 2020. Each of the revolving loans and the term loans were scheduled to mature on November 13, 2024. The Company incurred $8.8 million of debt issuance costs, which are being amortized over the life of the ~~Credit Agreement~~.

Given the uncertainty of COVID-19 and its variants and the resulting potential impact to the gaming industry, as well as to provide additional financial flexibility, the Company and the other parties thereto amended the Credit Agreement on August 4, 2020 (“Amendment No. 1”) to provide a waiver of financial covenant breach for the periods ended September 30, 2020 through March 31, 2021 of the First Lien Net Leverage Ratio and Fixed Charge Coverage Ratio (each as defined under the Credit Agreement). Amendment No. 1 also raised the floor for the adjusted LIBOR rate to 0.50% and the floor for the Base Rate to 1.50%. The Company incurred costs of $0.4 million associated with Amendment No.1 of the Credit Agreement, of which $0.3 million was capitalized and is being amortized over the remaining life of the Credit Agreement. The waivers of financial covenant breach were never utilized as the Company remained ~~in compliance with all debt covenants during these periods.~~

On October 22, 2021, in order to increase the borrowing capacity under the Credit Agreement, the Company and the other parties thereto entered into Amendment No. 2 to the Credit Agreement (“Amendment No. 2”). Amendment No. 2, among other things, provides for

•~~an increase in the amount of the revolving credit facility from $100.0 million to $150.0 million,~~

•~~$350.0 million initial term loan facility, the proceeds of which were applied to refinancing existing indebtedness and~~

•~~$400.0 million delayed draw term loan facility.~~

The additional term loan facility is available for borrowings until October 21, 2023. The maturity date of the Credit Agreement was extended to October 22, 2026. The interest rate and covenants remain unchanged. The Company incurred $4.3 million in debt issuance costs associated with Amendment No. 2, of which $4.2 million was capitalized and is being amortized over the remaining life of the Credit Agreement.

~~As of~~ ~~September 30, 2022, there remained approximately $355 million of availability under the Credit Agreement.~~

The obligations under the Credit Agreement are guaranteed by the Company and its wholly-owned domestic subsidiaries (collectively, the “Guarantors”), subject to certain exceptions. The obligations under the Credit Agreement are secured by substantially all of the assets of the Guarantors, subject to certain exceptions. Certain future-formed or acquired wholly-owned domestic subsidiaries of the Company will also be required to guarantee the Credit Agreement and grant a security interest in substantially all of their assets, subject to certain exceptions, to secure the obligations under the Credit Agreement.

Borrowings under the Credit Agreement bear interest, at the Company’s option, at a rate per annum equal to either (a) the adjusted LIBOR rate (“LIBOR”) (which cannot be less than 0.5%) for interest periods of 1, 2, 3 or 6 months (or if consented to by (i) each applicable Lender, 12 months or any period shorter than 1 month or (ii) the Agent, a shorter period necessary to ensure

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~~Accel Entertainment, Inc. and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements — (Continued)~~

that the end of the relevant interest period would coincide with any required amortization payment) plus the applicable LIBOR margin or (b) the alternative base rate (“ABR”) plus the applicable ABR margin. ABR is a fluctuating rate per annum equal to the highest of (i) the Federal Funds Effective Rate plus 1/2 of 1.0%, (ii) the prime rate announced from time to time by Capital One, National Association and (iii) LIBOR for a 1-month interest period on such day plus 1.0%. The Credit Agreement also includes provisions for determining a replacement rate when LIBOR is no longer available. As of ~~September 30, 2022, the weighted-average interest rate was approximately 3.7%.~~

Interest is payable quarterly in arrears for ABR loans, at the end of the applicable interest period for LIBOR loans (but not less frequently than quarterly) and upon the prepayment or maturity of the underlying loans. The Company is required to pay a commitment fee quarterly in arrears in respect of unused commitments under the revolving credit facility and the additional term loan facility.

The applicable LIBOR and ABR margins and the commitment fee rate are calculated based upon the first lien net leverage ratio of the Company and its restricted subsidiaries on a consolidated basis, as defined in the Credit Agreement. The revolving loans and term loans bear interest at either (a) ABR (150 bps floor) plus a margin up to 1.75% or (b) LIBOR (50 bps floor) plus a margin up to 2.75%, at the option of the Company.

The term loans and, once drawn, the additional term loans will amortize at an annual rate equal to approximately 5.00% per annum. Upon the consummation of certain non-ordinary course asset sales, the Company may be required to apply the net cash proceeds thereof to prepay outstanding term loans and additional term loans. The loans under the Credit Agreement may be prepaid without premium or penalty, subject to customary LIBOR “breakage” costs.

The Credit Agreement contains certain customary affirmative and negative covenants and events of default, and requires the Company and certain of its affiliates obligated under the Credit Agreement to make customary representations and warranties in connection with credit extensions thereunder.

In addition, the Credit Agreement requires the Company to maintain (a) a ratio of consolidated first lien net debt to consolidated EBITDA no greater than 4.50 to 1.00 and (b) a ratio of consolidated EBITDA to consolidated fixed charges no less than 1.20 to 1.00, in each case, tested as of the last day of each full fiscal quarter ending after the Closing Date and determined on the basis of the four most recently ended fiscal quarters of the Company for which financial statements have been delivered pursuant to the Credit Agreement, subject to customary “equity cure” rights.

If an event of default (as such term is defined in the Credit Agreement) occurs, the lenders would be entitled to take various actions, including the acceleration of amounts due under the Credit Agreement, termination of the lenders’ commitments thereunder, foreclosure on collateral, and all other remedial actions available to a secured creditor. The failure to pay certain amounts owing under the Credit Agreement may result in an increase in the interest rate applicable thereto.

~~The Company was in compliance with all debt covenants as of~~ ~~September 30, 2022 and expects to remain in compliance for the next 12 months.~~


	March 31, 2023		December 31, 2022
Senior Secured Credit Facility:
Revolving credit facility	$	122,000	$	121,000
Term Loan	323,750		328,125
Delayed Draw Term Loan	95,000		96,250
Total debt on credit facility	540,750		545,375
Add: Interest rate caplet liability	2,784		3,025
Less: Debt issuance costs	(5,919)		(6,368)
Total debt, net of debt issuance costs	537,615		542,032
Less: Current maturities	(23,469)		(23,466)
Total debt, net of current maturities	$	514,146	$	518,566

Interest rate caplets

The Company manages its exposure to some of its interest rate risk through the use of interest rate caplets, which are derivative financial instruments. On January 12, 2022, the Company hedged the variability of the cash flows attributable to 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”). The ~~caplets mature at~~Company recognized an unrealized loss on the end of each month and protect the Company if interest rates exceed 2% of 1-month LIBOR. The maturing dates of these caplets coincide with the timing of the Company's interest payments and each caplet is expected to be highly effective at offsetting changeschange in ~~interest payment cash flows. The aggregate premium for these caplets was $3.9 million, which was the initial~~ fair value of the caplets ~~recorded in the Company's financial statements,~~ of $2.2 million and ~~was financed as additional debt. The Company recognized~~ an unrealized gain of $4.9 million, net of taxes, for the three months ended March 31, 2023 and 2022, respectively. For more information on how the Company determines the fair value of the caplets, see Note 12. Further, as the 1-month LIBOR interest rate exceeded 2% beginning in the second half of 2022, the Company recognized interest income on the ~~change~~caplets of $1.9 million for the three months ended March 31, 2023, which is reflected in ~~fair value~~interest expense, net in the condensed consolidated statements of operations and other comprehensive income.

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Accel Entertainment, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements — (Continued)

~~of the interest rate caplets of $5.9 million and~~ ~~$12.7~~ ~~million, net of income taxes,~~ ~~for the three and nine months ended~~ September 30, 2022. For more information on how the Company determines the fair value of the caplets, see Note 13. Further, as the 1-month LIBOR interest rate exceeded 2% in the third quarter of 2022, the Company realized a gain on the caplets of $0.2 million for the ~~three and nine months ended~~ ~~September 30, 2022, which is reflected in interest expense, net~~ ~~in the condensed consolidated statements of operations and other comprehensive income.~~

Note 10. Business and Asset Acquisitions

2023 Business Acquisitions

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

2022 Business Acquisitions

Progressive

On December 15, 2022, Century, the Company’s wholly owned subsidiary, acquired from DEP, Inc. (“Progressive”), a gaming operator in Montana, certain gaming assets and locations. The acquisition of Progressive adds 26 Montana gaming locations and approximately 300 gaming terminals to the Century portfolio. The total purchase price was $6.4 million, which Century paid in cash at closing. The acquisition was accounted for as a business combination using the acquisition method of accounting in accordance with Topic 805. The purchase price was allocated to the following assets: i) gaming terminals and amusement equipment totaling $0.9 million; ii) location contracts totaling $4.3 million; and iii) goodwill totaling $1.2 million. The results of operations for Progressive are included in the condensed consolidated financial statements of the Company for the three months ended March 31, 2023 and were not material.

River City

On September 9, 2022, the Company acquired from River City Amusement Company (“River City”) all of its operating assets in Nebraska, Iowa and South Dakota. River City's operations in these states consist of the ownership and operation of MAD and amusement equipment, as well as ATMs in the approximately 120 locations it serves. The total purchase price was approximately $2.8 million, which the Company paid in cash at closing. The acquisition was accounted for as a business combination using the acquisition method of accounting in accordance with Topic 805. The purchase price was allocated to the following assets: i) ~~video game~~gaming terminals and equipment totaling $0.1 million; ii) amusement and other equipment totaling $0.9 million; iii) location contracts totaling $1.7 million; and iv) cash totaling $0.1 million. The results of operations for River City are included in the condensed consolidated financial statements of the Company for the three months ended March 31, 2023 and were not material.

VVS

On August 1, 2022, the Company acquired from VVS, Inc. (“VVS”), a licensed distributor of MADs in Nebraska, substantially all of its MAD and ATM assets. The acquisition of VVS adds approximately 250 locations in the greater Lincoln area. The total purchase price was approximately ~~$12~~$12.0 million, of which the Company paid approximately $9.5 million in cash at closing. The remaining $2.5 million of contingent consideration is to be paid in cash if a net revenue target is achieved as of the first anniversary of the consummation of the transaction. The fair value of the contingent consideration was $2.4 million as of ~~September 30,~~December 31, 2022 and is included within consideration payable on the ~~condensed~~ consolidated balance ~~sheets.~~sheet. The acquisition was accounted for as a business combination using the acquisition method of accounting in accordance with Topic 805. The purchase price was allocated to the following assets: i) ~~video game~~gaming terminals and equipment totaling $0.9 million; ii) amusement and other equipment totaling $3.9 million; and iii) location contracts totaling $7.2 million. The results of operations for VVS are included in the condensed consolidated financial statements of the Company for the three months ended March 31, 2023 and were not material.

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Accel Entertainment, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements — (Continued)

Century ~~Gaming~~

On June 1, 2022, the Company completed its previously announced acquisition of all of the outstanding equity interests of Century pursuant to the terms of a Securities Purchase Agreement (the “Purchase Agreement”), dated March 2, 2021, by and among Century, the shareholders of Century, and the Company. Century is Montana’s largest gaming operator and a leader in the Nevada gaming market as well as a manufacturer of gaming terminals.

The acquisition aggregate purchase consideration transferred totaled $164.3 million, which included: i) a cash payment made at closing of $45.5 million to the equity holders of Century; ii) repayment of $113.2 million of Century's indebtedness; and iii) 515,622 shares of the Company’s Class A-1 common stock issued to certain members of Century’s management with a fair value of $5.6 million on the acquisition date. The cash payments were financed using cash from a draw of approximately $160 million from the Company’s revolving credit facility and delayed draw term loan facility under the Credit Agreement.

The acquisition was accounted for as a business combination using the acquisition method of accounting in accordance with ASC Topic ~~805,~~ ~~Business Combinations~~ (“~~Topic 805~~”).805. The purchase price has been preliminarily allocated to the tangible assets and identifiable intangible assets acquired and liabilities assumed based upon their estimated fair values. The areas of the purchase price allocation that are not yet finalized are primarily related to the valuation of location contracts, inventory, property and equipment, and final adjustments to working capital. The excess of the purchase price over the tangible and intangible assets

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~~Accel Entertainment, Inc. and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements — (Continued)~~

acquired and liabilities assumed of ~~$53.3~~$53.4 million has been recorded as goodwill. The Century acquisition resulted in recorded goodwill as a result of a higher consideration paid driven by the maturity and quality of Century's operations, industry and workforce. Management integrated Century into its existing business structure, which is comprised of a single reporting unit.

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Accel Entertainment, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements — (Continued)

The following table summarizes the fair value of consideration transferred and the ~~estimated~~ fair values of the assets acquired and liabilities assumed at the date of acquisition (in thousands):



Cash paid	$	158,681
Fair value of stock issued	5,584
Total consideration	$	164,265
Cash and cash equivalents	$	33,229
Prepaid expenses	1,563
Accounts receivable	4,394
Inventories	6,441
Income taxes receivable	189
Other current assets	475
Property and equipment	29,302
Location contracts acquired	40,400
Other intangible assets	24,400
Accounts payable and other accrued expenses	(10,766)
Accrued compensation and related expenses	(1,626)
Other long-term liabilities	(446)
Deferred income tax liability	~~(16,582)~~(16,646)
Net assets acquired	$	~~110,974~~110,909
Goodwill	$	~~53,291~~53,356

The Company incurred $0.3 million in acquisition related costs that are included in other operating expenses within the condensed consolidated statements of operations and comprehensive income for the nine months ended ~~September 30, 2022~~.

The results of operations for Century are included in the condensed consolidated financial statements of the Company from the date of acquisition. Century's acquired assets generated revenues and net income of ~~$81.6~~$66.3 million and ~~$2.1~~$1.7 million for the ~~nine~~three months ended ~~September 30, 2022~~.

~~2021 Business Acquisitions~~

~~Island~~

On May 20, 2021, the Company acquired Island Games, Inc. (“Island”), a southern Georgia amusement operator and Master Licensee in the state of Georgia. The acquisition of Island adds 30 Georgia Coin Operated Amusement Machine (“COAM”) Class B locations to the Accel portfolio, including a total of 89 Class B COAM terminals. The total purchase price was approximately $2.9 million, of which the Company paid $2.8 million in cash at closing. The remaining $0.1 million of contingent consideration is to be paid in cash if certain operating metrics are achieved. The acquisition was accounted for as a business combination using the acquisition method of accounting in accordance with Topic 805. The purchase price was allocated to the tangible assets and identifiable intangible assets acquired and liabilities assumed based upon their estimated fair values.

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~~Accel Entertainment, Inc. and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements — (Continued)~~

~~Rich and Junnie's~~

On December 30, 2021, the Company entered into an agreement with Rich and Junnie's Coin, Inc., an Iowa corporation, and JBCJ, Inc., also an Iowa corporation (collectively referred to as “Rich and Junnie's”), to acquire all of Rich and Junnie's operating assets in Iowa and Illinois. Rich and Junnie's operations in Iowa and Illinois consist of the ownership and operation of amusement devices and ATMs in certain locations. Total consideration was $4.2 million of which $3.6 million was paid in cash at closing and $0.6 million was recorded in short-term consideration payable on the consolidated balance sheets as of DecemberMarch 31, ~~2021. The $0.6 million of consideration payable was paid in the first quarter of 2022. The acquisition~~ ~~was accounted for as a business combination using the acquisition method of accounting in accordance with Topic 805.The purchase price was allocated to the following assets: i) video game terminals and equipment totaling~~ ~~$0.3~~ ~~million; ii) amusement and other equipment totaling~~ ~~$1.3~~ ~~million; iii) location contracts totaling~~ ~~$1.6~~ ~~million; iv) cash totaling~~ ~~$0.6~~ ~~million; and v) goodwill of~~ ~~$0.4~~ ~~million.~~2023.

Pro Forma Results

The following unaudited pro forma consolidated financial information reflects the results of operations of the Company for the three ~~and nine~~ months ended September 30, 2021 as if the acquisitions of Rich and Junnie's and Island had occurred as of January 1, 2020, and as if the acquisition of Century, VVS and River City had occurred as of January 1, 2021, after giving effect to certain purchase accounting adjustments. The following unaudited pro forma consolidated financial information also reflects the results of operations of the Company for the three and nine months ended September 30, 2022 as if the acquisitions of VVS and River City had occurred as of January 1, 2021, after giving effect to certain purchase accounting adjustments. Lastly, the following unaudited pro forma consolidated financial information also reflects the results of operations of the Company for the nine months ended September 30,March 31, 2022 as if the acquisition of Century had occurred as of January 1, 2021, after giving effect to certain purchase accounting adjustments. These amounts are based on available financial information of the acquiree prior to the acquisition date and are not necessarily indicative of what the Company’s operating results would have been had the ~~acquisitions~~acquisition actually taken place ~~at their respective dates.~~as of January 1, 2021. This unaudited pro forma information does not project revenues and net income post acquisition (in thousands).

Three Months Ended
September 30, Nine Months Ended
September 30,
2022 2021 2022 2021
Revenues $ 268,131 $ 261,002 $ 808,125 $ 758,794
Net income 22,839 12,875 63,470 36,977


	Three months ended
	March 31, 2022
Revenues	$	196,891
Net income	15,788

Consideration Payable

The Company has a contingent consideration payable related to certain locations, as defined in each respective acquisition agreement, which are placed into operation during a specified period after the acquisition date. The fair value of contingent consideration is included in the consideration payable on the condensed consolidated balance sheets as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021.~~2022. The contingent consideration accrued is measured at fair value on a recurring basis. The Company presents on its statement of cash flows, payments for consideration payable within 90-days in investing activities, payments after 90-days ~~and up to the acquisition date fair value in financing activities, and payments in excess of the acquisition date fair value in operating activities.~~

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Notes to Condensed Consolidated Financial Statements — (Continued)

and up to the acquisition date fair value in financing activities, and payments in excess of the acquisition date fair value in operating activities.

Current and long-term portions of consideration payable consist of the following at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 (in thousands):


		September 30, 2022				December 31, 2021					March 31, 2023				December 31, 2022
		Current		Long-Term		Current		Long-Term			Current		Long-Term		Current		Long-Term
TAV	TAV	$	889	$	2,147	$	490	$	2,858	TAV	$	1,265	$	1,446	$	1,025	$	1,918
Fair Share Gaming	Fair Share Gaming	1,004		220		1,875		508		Fair Share Gaming	775		231		951		175
Family Amusement	Family Amusement	700		2,010		677		1,944		Family Amusement	2,054		—		2,032		—
Skyhigh	Skyhigh	6,912		—		801		7,396		Skyhigh	609		4,844		606		4,779
G3	G3	420		—		414		—		G3	433		—		433		—
Grand River		—		—		6,479		—

VVS	VVS	2,401		—		—		—		VVS	2,466		—		2,442		—
Tom's Amusements	Tom's Amusements	57		—		1,491		—		Tom's Amusements	58		—		58		—
AVG		371		—		371		—
Rich and Junnie's		—		—		646		—

Island	Island	100		—		100		—		Island	100		—		100		—
Total	Total	$	12,854	$	4,377	$	13,344	$	12,706	Total	$	7,760	$	6,521	$	7,647	$	6,872

Note 11. Contingent Earnout Share Liability

Pursuant to the terms of the Company’s Amended and Restated Certificate of Incorporation, the Company authorized and has available for issuance 10,000,000 shares of Class A-2 Common Stock. The holders of the Class A-2 Common Stock do not have voting rights and are not entitled to receive or participate in any dividends or distributions when and if declared from time to time. The ~~Company's~~Company concluded that the Class A-2 ~~common stock is classified~~Common Stock should be reflected as a contingent earnout ~~shares~~share liability due to the fact that such shares are not entitled to dividends, voting rights, or a stake in the ~~conversion~~Company in the case of ~~the Company's Class A-2 common stock would be accelerated on a change of control regardless of the transaction value.~~liquidation.

In ~~November of~~ 2019, 5,000,000 shares of Class A-2 Common Stock were issued, subject to the conditions set forth in a restricted stock agreement (the “Restricted Stock Agreement”), which sets forth the terms upon which the Class A-2 Common Stock will be exchanged for an equal number of validly issued, fully paid and non-assessable Class A-1 Common Stock. The exchange of Class A-2 Common Stock for Class A-1 Common Stock will be subject to the terms and conditions set forth in the Restricted Stock Agreement, with such exchanges occurring in three separate tranches upon the satisfaction of the ~~following triggers:~~

•~~Tranche I, equal to 1,666,666 shares of Class A-2 Common Stock, will be exchanged for Class A-1 Common Stock if~~specified triggers, based either ~~(i)~~on the ~~EBITDA for the~~Company achieving certain last twelve ~~months~~month EBITDA (“LTM EBITDA”) ~~of the Company (as determined pursuant to the Restricted Stock Agreement) as of December 31, 2021, March 31, 2022~~thresholds in certain periods or ~~June 30, 2022 equals or exceeds $132 million or (ii)~~ the closing sale price of Class A-1 Common Stock onexceeding certain prices over certain trading periods.

In 2020, the ~~New York~~market condition for the settlement of Tranche I was satisfied. As a result, 1,666,636 shares of the 1,666,666 shares of Class A-2 Common Stock ~~Exchange (“NYSE”) equals or exceeds $12.00~~were converted into Class A-1 Common Stock.

The current thresholds, as approved by a disinterested committee of the Company's board of directors made up of independent directors who do not hold any Class A-2 Common Stock, for ~~at least twenty trading days in any consecutive thirty trading day period;~~the remaining two Tranches are as follows:

•Tranche II, equal to 1,666,667 shares of Class A-2 Common Stock, will be exchanged for Class A-1 Common Stock if either (i) the LTM EBITDA ~~of the Company (as determined pursuant to the Restricted Stock Agreement)~~threshold (A) as of ~~December 31, 2022,~~ March 31, 2023 oris $172.4 million, and (B) as of June 30, 2023 ~~equals or exceeds $152 million (which LTM EBITDA threshold has since been increased as described below) or~~is $177.4 million; (ii) the closing sale price of Class A-1 Common Stock on the ~~NYSE~~New York Stock Exchange (“NYSE”) equals or exceeds $14.00 for at least twenty trading days in any consecutive thirty trading day period; and

•Tranche III, equal to 1,666,667 shares of Class A-2 Common Stock, will be exchanged for Class A-1 Common Stock if either (i) the LTM EBITDA ~~of the Company (as determined pursuant to the Restricted Stock Agreement)~~threshold (A) as of

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December 31, 2023 is $198.5 million and (B) March 31, 2024 or June 30, 2024 ~~equals or exceeds $172~~is $198.6 million ~~(which LTM EBITDA threshold has since been increased as described below)~~ or (ii) the closing sale price of Class A-1 Common Stock on the NYSE equals or exceeds $16.00 for at least twenty trading days in any consecutive thirty trading day period.

The Restricted Stock Agreement provides that LTM EBITDA and the LTM EBITDA thresholds described above will be reasonably adjusted upwards or downwards, as applicable, by the Company’s independent directors from time to time to take into account the anticipated effect of any acquisitions or dispositions that are, individually or in the aggregate, in excess of $40.0 million during any applicable measurement period and otherwise materially different from the annual forecast presented to the Company’s investors at the closing of the reverse capitalization and consummated by the Company. On November 2, 2022, a disinterested committee of the Company's board of directors made up of independent directors, who don't hold any Class A-2 Common Stock, approved an increase to the LTM EBITDA and the LTM EBITDA thresholds under the terms of the Restricted Stock Agreement as follows: (i) in the case of Tranche II, the LTM EBITDA threshold (A) as of December 31, 2022 was increased to $166.0 million, (B) as of March 31, 2023 was increased to $172.1 million, and (C) as of June 30, 2023 was increased to $176.6 million; and (ii) in the case of Tranche III, the LTM EBITDA threshold as of each of December 31, 2023, March 31, 2024 and June 30, 2024 was increased to $197.1 million. If the Company completes additional acquisitions following the filing of this Quarterly Report on Form 10-Q and on or prior to December 31, 2022, the Company expects that the disinterested committee will consider additional adjustments to the LTM EBITDA and the LTM EBITDA thresholds in respect of any such acquisitions.

On January 14, 2020, the market condition for the settlement of Tranche I was satisfied. However, no stockholder is permitted to own more than 4.99% of the issued and outstanding Class A-1 Common Stock after the settlement unless obtaining required gaming approvals from the applicable gaming authorities. In connection with the settlement, no gaming approvals were obtained. In addition, no stockholder can receive a fractional share from a conversion. As a result, only 1,666,636 shares of the 1,666,666 shares of Class A-2 Common Stock were converted into Class A-1 Common Stock.

~~Note 12. Warrant Liability~~

~~In November 2019, 7,333,326 warrants to purchase shares of Class A-1 Common Stock were issued with other consideration prior to the~~ ~~reverse recapitalization~~ (the “Private Placement Warrants”). As a part of the reverse recapitalization, 2,444,437 Private Placement Warrants were canceled and reissued under the same terms and conditions to Accel legacy stockholders. Each warrant expires five years from issuance and entitles the holder to purchase one share of Class A-1 Common Stock at an exercise price of $11.50 per share, subject to adjustments substantially similar to those applicable to the other outstanding warrants, at any time 30 days after the consummation of the ~~reverse recapitalization~~.

In 2017, 15,000,000 warrants to purchase shares of Class A-1 Common Stock were issued in connection with the formation of TPG Pace Holdings (“Public Warrants”). Each warrant expires five years from issuance and entitles the holder to purchase one share of Class A-1 Common Stock at an exercise price of $11.50 per share, subject to adjustments substantially similar to those applicable to the other outstanding warrants, at any time 30 days after the consummation of the reverse recapitalization.

On July 14, 2020, the Company announced that it had commenced an exchange offer (the "Offer") to all holders of its outstanding warrants to receive 0.25 shares of Class A-1 Common Stock in exchange for each warrant tendered pursuant to the Offer. The Offer was open until 11:59 p.m., Eastern Standard Time, on August 11, 2020.

On July 16, 2020, the Company consummated the redemption of its Public Warrants. The Company exchanged each Public Warrant for 0.25 shares of the Company’s Class A-1 Common Stock and issued 3,784,416 shares of its Class A-1 Common Stock in exchange for the Public Warrants at settlement of the redemption. The exchange was an equitable exchange at fair value and was accounted for as a capital transaction. On July 22, 2020, the Company received written notice from the New York Stock Exchange (the “NYSE”) that the NYSE suspended trading in, and had determined to commence proceedings to delist, the Company’s Public Warrants to purchase shares of the Company’s Class A-1 Common Stock (ticker symbol ACEL.WS) from the NYSE. The delisting was a result of the failure of the Public Warrants to comply with the continued listing standard set forth in

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~~Section 802.01D of the NYSE Listed Company Manual which requires the Company to maintain at least 100 public holders of a listed security.~~

On August 14, 2020, 7,189,990 of the Private Placement Warrants were validly tendered representing approximately 99.93% of the total Private Placement Warrants outstanding. The Company accepted all such warrants and issued an aggregate of 1,797,474 shares of its Class A-1 Common Stock in exchange for the warrants tendered. As of September 30, 2022, 5,144 warrants remain outstanding.

Note ~~13.~~12. Fair Value Measurements

ASC Topic 820, Fair Value Measurements and Disclosures, establishes a framework for measuring fair value and the corresponding disclosure requirements around fair value measurements. This topic applies to all financial instruments that are being measured and reported on a fair value basis.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, various methods, including market, income and cost approaches, are used. Based on these approaches, certain assumptions are utilized that the market participants would use in pricing the asset or liability, including assumptions about risk and/or the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable inputs. Valuation techniques are utilized that maximize the use of observable inputs and minimize the use of unobservable inputs. Based on the observability of the inputs used in the valuation techniques, it is required to provide information according to the fair value hierarchy. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:

Level 1: Valuations for assets and liabilities traded in active exchange markets, such as the New York Stock Exchange. Level 1 also includes U.S. Treasury and federal agency securities and federal agency mortgage-backed securities, which are traded by dealers or brokers in active markets. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

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

Level 3: Valuations for assets and liabilities that are derived from other valuation methodologies, including option pricing models, discounted cash flow models and similar techniques, and not based on market exchange, dealer, or broker traded transactions. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities.

Assets measured at fair value

The following tables summarize the Company’s assets that are measured at fair value on a recurring basis (in thousands):


				Fair Value Measurement at Reporting Date Using									Fair Value Measurement at Reporting Date Using
		September 30, 2022		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			March 31, 2023		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:	Assets:									Assets:
Investment in convertible notes	Investment in convertible notes	$	32,065	$	—	$	—	$	32,065	Investment in convertible notes	$	32,065	$	—	$	—	$	32,065
Interest rate caplets	Interest rate caplets	20,941		—		20,941		—		Interest rate caplets	16,676		—		16,676		—
Total	Total	$	53,006	$	—	$	20,941	$	32,065	Total	$	48,741	$	—	$	16,676	$	32,065

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				Fair Value Measurement at Reporting Date Using									Fair Value Measurement at Reporting Date Using
		December 31, 2021		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			December 31, 2022		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:	Assets:									Assets:
Investment in convertible notes	Investment in convertible notes	$	32,065	$	—	$	—	$	32,065	Investment in convertible notes	$	32,065	$	—	$	—	$	32,065
Interest rate caplets										Interest rate caplets	19,919		—		19,919		—
Total										Total	$	51,984	$	—	$	19,919	$	32,065

Investment in convertible notes

As described in Note 4, on July 30, 2021, the Company provided notice to Gold Rush that it was exercising its rights to convert the convertible notes into common stock of Gold Rush, subject to approval from the IGB to transfer the common stock to the Company. Accordingly, beginning in the third quarter of 2021, given the pending request for regulatory approval on the transfer of equity interest, the fair value of the convertible notes was estimated using a probability-weighted approach. Assuming regulatory approval was received, the fair value of the convertible notes was estimated on an as-converted basis by multiplying the equity value of Gold Rush by the ownership percentage as calculated pursuant to the terms of the convertible note agreements. In the scenario where regulatory approval was not received, the fair value of the convertible notes was estimated using a discounted cash flow approach assuming the Company would request immediate redemption of the principal and accrued interest and the discount rate was estimated based on comparable public debt rates. This assumption did not consider legal claims the Company may have under the convertible notes to receive the economic value of the conversion shares, even if transfer of the actual ownership interest in Gold Rush to Accel was not approved by the IGB. After the IGB Administrator’s denial of the transfer of the equity interest on December 2, 2021, the Company concluded that the fair value of the convertible notes should be calculated as principal plus interest accrued as of December 31, 2021. The Company has considered interest as an input to the accounting fair value for all periods and periodically ~~revaluates~~reevaluates its impact, if any, based on developments including the pending lawsuit against Gold Rush. For the avoidance of doubt, this fair value is less than what Accel maintains Gold Rush owes Accel under the convertible notes, but is consistent with ASC Topic ~~820,~~ ~~Fair Value Measurement~~.820. This valuation of the Company's investment in convertible notes is considered to be a Level 3 fair value measurement as the significant inputs are unobservable and the Company is pursuing its legal remedies with respect to the amounts owed by Gold Rush.

Interest rate caplets

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

Liabilities measured at fair value

The following tables summarizes the Company’s liabilities that are measured at fair value on a recurring basis (in thousands):

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				Fair Value Measurement at Reporting Date Using									Fair Value Measurement at Reporting Date Using
		September 30, 2022		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			March 31, 2023		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Liabilities:	Liabilities:									Liabilities:
Contingent consideration	Contingent consideration	$	11,486	$	—	$	—	$	11,486	Contingent consideration	$	9,515	$	—	$	—	$	9,515
Contingent earnout shares	Contingent earnout shares	23,334		—		23,334		—		Contingent earnout shares	27,890		—		27,890		—
Warrants	Warrants	13		—		13		—		Warrants	13		—		13		—
Total	Total	$	34,833	$	—	$	23,347	$	11,486	Total	$	37,418	$	—	$	27,903	$	9,515


				Fair Value Measurement at Reporting Date Using									Fair Value Measurement at Reporting Date Using
		December 31, 2021		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			December 31, 2022		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Liabilities:	Liabilities:									Liabilities:
Contingent consideration	Contingent consideration	$	19,434	$	—	$	—	$	19,434	Contingent consideration	$	9,543	$	—	$	—	$	9,543
Contingent earnout shares	Contingent earnout shares	42,831		—		42,831		—		Contingent earnout shares	23,288		—		23,288		—
Warrants	Warrants	13		—		13		—		Warrants	13		—		13		—
Total	Total	$	62,278	$	—	$	42,844	$	19,434	Total	$	32,844	$	—	$	23,301	$	9,543

Contingent Consideration

The Company uses a discounted cash flow analysis to determine the value of contingent consideration upon acquisition and updates this estimate on a recurring basis. The significant assumptions in the Company's cash flow analysis includes the probability adjusted projected revenues after state taxes, a discount rate as applicable to each acquisition, and the estimated number of locations that “go live” with the Company during the contingent consideration period. The valuation of the Company's contingent consideration is considered to be a Level 3 fair value measurement as the significant inputs are unobservable and require significant judgment or estimation. Changes in the fair value of contingent consideration liabilities are classified within other expenses, net on the accompanying condensed consolidated statements of operations and comprehensive income.

Contingent earnout shares

The Company determined the fair value of the contingent earnout shares based on the market price of the Company's A-1 Common Stock. The liability, by tranche, is then stated at present value based on i) an interest rate derived from the Company's borrowing rate and the applicable risk-free rate and ii) an estimate on when it expects the contingent earnout shares to convert to A-1 Common Stock. The valuation of the Company's contingent consideration is considered to be a Level 2 fair value measurement. Changes in the fair value of contingent earnout shares are included within loss (gain) ~~loss~~ on change in fair value of contingent earnout shares on the accompanying condensed consolidated statements of operations and comprehensive income.

Warrants

The Company has 5,144 warrants outstanding as of March 31, 2023, the liability for which is included in other long-term liabilities on the condensed consolidated balance sheets. The Company determined the fair value of its warrants by using a Black-Scholes option-pricing model. The Black-Scholes option-pricing model requires inputs such as the fair value of the Company's A-1 Common Stock, the risk-free interest rate, expected term, expected dividend yield and expected volatility. The Company's valuation of its warrants is considered to be a Level 2 fair value measurement. Changes in the fair value of the warrants are included within gain on change in fair value of warrants on the accompanying condensed consolidated statements of operations and comprehensive income, if applicable. There was no ~~material~~ change in the fair value of the warrants for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 and ~~2021.~~

2022.

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Note ~~14.~~13. Stockholders’ Equity

Pursuant to the terms of the Company’s Amended and Restated Certificate of Incorporation, the Company authorized and has available for issuance the following shares:

Class A-1 Common Stock

The holders of the Class A-1 Common Stock are entitled to one vote for each share. The holders of Class A-1 Common Stock are entitled to receive dividends or other distributions when and if declared from time to time and share equally on a per share basis in such dividends and distributions, subject to such rights of the holders of preferred stock.

Treasury Stock

On November 22, 2021, the Company’s Board of Directors approved a share repurchase program of up to $200 million of shares of ~~Class A-1 Common Stock.~~common stock. The timing and actual number of shares repurchased will depend on a variety of factors, including price, general business and market conditions, and alternative investment opportunities. Under the repurchase program, repurchases can be made from time to time using a variety of methods, including open market purchases or privately negotiated transactions, in compliance with the rules of the ~~SEC~~United States Securities and Exchange Commission and other applicable legal requirements. The repurchase program does not obligate the Company to acquire any particular amount of shares, and the repurchase program may be suspended or discontinued at any time at the Company’s discretion. As of ~~September 30, 2022,~~March 31, 2023, the Company purchased a total of ~~6,380,815~~8,822,001 shares under the plan at a total cost of ~~$70.9~~$92.2 million, of which ~~5,679,510~~476,718 shares at a cost of ~~$61.9~~$4.2 million were purchased during the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023.

The Inflation Reduction Act of 2022, enacted on August 16, 2022, among other things, imposes a 1% non-deductible, excise tax on repurchases of stock that are made by U.S. publicly traded corporations on or after January 1, 2023, which may affect the Company's share repurchase program. The application of tax laws and related regulations is subject to legal and factual interpretation, judgment and uncertainty.

Note ~~15.~~14. Stock-based Compensation

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

Under the Accel Entertainment, Inc. Long Term Incentive Plan, the Company granted 225,881 stock options to eligible officers and employees of the Company during the first quarter of 2022, which shall vest over a period of 4 years. Also in the first quarter of 2022, the Company issued ~~411,600~~356,786 restricted stock units (“RSUs”) to the ~~board~~Board of ~~directors~~Directors and certain eligible employees during the first quarter of 2023, which ~~shall~~will vest over a period of 43 years for employees and a period of approximately 9 months for ~~board~~Board of ~~directors. The estimated grant date fair value of these options and RSUs totaled $7.0 million.~~

Directors. The Company ~~granted 50,000~~also issued 182,494 performance-based restricted stock ~~options~~units (“PSUs”) to certain eligible ~~officers and~~ employees during the first quarter of 2023, which will vest after 3 years. The numbers of shares earned upon vesting of the ~~Company during~~PSUs, if any, is based on the ~~second quarter~~attainment of ~~2022, which shall vest~~performance goals over athe performance period, ~~of 4 years. Also~~subject to continued service, except for employees who are retirement eligible and in ~~the second quarter of 2022, the Company issued 90,000 RSUs to~~ certain ~~employees, which shall vest over a period of 4 years. The estimated grant date fair value of these options and RSUs totaled $1.4 million.~~

~~The Company issued 6,000 RSUs to certain employees of the Company during the third quarter of 2022, which shall vest over a period of approximately 4 years.~~other limited circumstances. The estimated grant date fair value of these RSUs and PSUs totaled ~~$0.1~~$4.8 million.

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Stock-based compensation expense, which pertains to the Company’s stock options, RSUs and ~~RSUs,~~PSUs, was ~~$1.1~~$1.7 million and ~~$5.0~~$1.6 million for the three ~~and nine~~ months ended ~~September 30, 2022. In comparison, stock-based compensation expense was $1.0 million~~March 31, 2023, and ~~$4.7 million for the three and nine months ended September 30, 2021.~~2022, respectively. Stock-based compensation expense is included within general and administrative expenses in the condensed consolidated statements of operations and other comprehensive income.

Note ~~16.~~15. Income Taxes

The Company recognized income tax expense of ~~$4.9~~$6.0 million and ~~$16.5~~$4.8 million for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, ~~respectively. In comparison, the Company recognized income tax expense of $3.9 million and $11.8 million for the three and nine months ended September 30, 2021,~~ respectively.

The Company calculates its provision for income taxes during interim reporting periods by applying an estimate of the annual effective tax rate to its year-to-date pretax book income or loss. The effective tax rate (income taxes as a percentage of income before income taxes) was ~~18%~~39.5% and ~~21%~~23.4% for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, ~~respectively. In comparison, the Company's effective tax rate was 27% and 32% for the three and nine months ended September 30, 2021,~~ respectively. The Company’s effective income tax rate can vary from period to period depending on, among other factors, the amount of permanent tax

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Notes to Condensed Consolidated Financial Statements — (Continued)

adjustments and discrete items. The change in the fair value of the contingent earnout shares ~~does not create~~is considered a discrete item for tax ~~expense~~purposes and iswas the primary driver for the fluctuations in the tax rate year over year.

Note ~~17.~~16. Commitments and Contingencies

Lawsuits and claims are filed against the Company from time to time in the ordinary course of business, including related to employee matters, employment of professionals and non-compete clauses and agreements. Other than settled matters explained as follows, these actions are in various stages, and no judgments or decisions have been rendered. Management, after reviewing matters with legal counsel, believes that the outcome of such matters will not have a material adverse effect on the Company’s financial position or results of operations.

Accel has been involved in a series of related litigated matters stemming from claims that Accel wrongly contracted with 10 different licensed establishments (the “Defendant Establishments”) in 2012 in violation of the contractual rights held by J&J Ventures Gaming, LLC (“J&J”), as further described below.

On August 21, 2012, one of the Company’s operating subsidiaries entered into certain agreements with Jason Rowell (“Rowell”), a member of Action Gaming LLC (“Action Gaming”), which was an unlicensed terminal operator that had exclusive rights to place and operate ~~video~~ gaming terminals ~~(“VGTs”)~~ within a number of establishments, including the Defendant Establishments. Under agreements with Rowell, the Company agreed to pay him for each licensed establishment which decided to enter into an exclusive location ~~agreements~~agreement with ~~the Company.~~Accel. In late August and early September 2012, each of the Defendant Establishments signed a separate location ~~agreements~~agreement with the Company, purporting to grant itthe Company the exclusive right to operate ~~VGTs~~gaming terminals in those establishments. Separately, on August 24, 2012, Action Gaming sold and assigned its rights to all its location agreements to J&J, including its exclusive rights with the Defendant Establishments (the “J&J Assigned Agreements”). At the time of the assignment of such rights to J&J, the Defendant Establishments were not yet licensed by the ~~Illinois Gaming Board (“IGB”).~~IGB.

Action Gaming, J&J, and other parties, collectively, the Plaintiffs, filed a complaint against the Company, Rowell, and other parties in the Circuit Court of Cook County, 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 ~~the Company~~Accel aided and abetted Rowell in breaches of his fiduciary duties and contractual obligations with Action Gaming and tortiously interfered with Action Gaming’s contracts with Rowell and agreements assigned to J&J. The complaint seeks damages and injunctive and equitable relief. On January 24, 2018, the Company filed a motion to dismiss for lack of subject matter jurisdiction, as further described below. On May 14, 2018,

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~~Notes to Condensed Consolidated Financial Statements — (Continued)~~

the Circuit Court denied the Company’s motion to dismiss and granted a stay to the case, pending a ruling from the IGB on the validity of the J&J Assigned Agreements.

From 2013 to 2015, the Plaintiffs filed additional claims, including J&J Ventures Gaming, LLC et al. v. Wild, Inc. (“Wild”), in various circuit courts seeking declaratory ~~judgements~~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 ~~VGTs~~gaming terminals at each of the Defendant Establishments as a result of the J&J Assigned Agreements. The Company was granted leave to intervene in all of the declaratory judgments. The circuit courts found that the J&J Assigned Agreements were valid because each of the underlying location agreements were between an unlicensed establishment and an unlicensed terminal operator, and therefore did not constitute use agreements that were otherwise precluded from assignment under the IGB’s regulations. Upon the Company’s appeal, the Illinois Appellate Court, Fifth District (the “District Court”), vacated the circuit courts’ judgments and dismissed the appeals, holding that the IGB had exclusive jurisdiction over the matter that formed the basis of the parties’ claims, and declined to consider the merits of the parties’ disputes. On September 22, 2016, and after the IGB intervened, the Supreme Court of Illinois issued a judgment inWild,, affirming the District Court’s decision vacating the circuit courts’ judgments for lack of subject matter jurisdiction and dismissing the appeals, determining that the IGB has exclusive jurisdiction to decide the validity and enforceability of ~~VGT~~gaming terminal use agreements.

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Notes to Condensed Consolidated Financial Statements — (Continued)

Between May 2017 and September 2017, both the Company and J&J filed petitions with the IGB seeking adjudication of the rights of the parties and the validity of the use agreements. Those petitions were recently adjudicated by the IGB, largely in ~~Accel’s~~the Company’s favor, and J&J has filed a new lawsuit to challenge the IGB’s rulings. The Company does not have a present estimate regarding the potential damages, if any, that could potentially be awarded in this litigation and, accordingly, ~~have~~has established no reserves relating to such matters. There are also petitions pending with the IGB which could lead to the Company obtaining new locations.

On October 7, 2019, the Company filed a lawsuit in the Circuit Court of Cook County, Illinois against Jason Rowell and other parties related to Mr. Rowell’s breaches of his non-compete agreement with ~~the Company.~~Accel. The Company alleged that Mr. Rowell and a competitor were working together to interfere with the Company’s customer relationships. On November 7, 2019, Mr. Rowell filed a lawsuit in the Circuit Court of Cook County, Illinois against the Company alleging that he had not received certain equity interests in the Company to which he was allegedly entitled under his agreement. The Company has answered the complaint and asserted a counterclaim and intends to defend itself against the allegations. Pre-trial discovery is ongoing as of the date of this report. Mr. Rowell's claims and the Company's claims are both being litigated in this lawsuit, while the original lawsuit remains pending against the other defendants.

On July 2, 2019, Illinois Gaming Investors, LLC filed a lawsuit against the Company. The lawsuit alleges that a current employee ~~of the Company~~ violated his non-competition agreement with Illinois Gaming Investors, LLC, and together with the Company, wrongfully solicited prohibited licensed video gaming locations. The parties settled this dispute in April 2022.

On December 18, 2020, the Company received a disciplinary complaint from the IGB alleging violations of the Video Gaming Act and the IGB’s Adopted Rules for Video Gaming. The disciplinary complaint seeks to fine the Company in the amount of $5 million. The Company filed its initial answer to the IGB’s complaint on January 11, 2021. On July 22, 2022, both parties filed motions for summary ~~judgement.~~judgment. The Company expects decisions on the motions in the second quarter of 2023.

On March 9, 2022, the Company filed a lawsuit in the Circuit Court of Cook County,, Illinois against Gold Rush relating to the Gold Rush convertible notes. The complaint ~~seeks~~sought damages for breach of contract and the implied covenant of good faith and fair dealing as well as unjust enrichment. The ~~lawsuit is publicly available.~~Court granted Gold Rush’s motion to dismiss, with leave to amend, on November 16, 2022. The Company filed an amended complaint on December 22, 2022, and asked the court to summarily dismiss the repealed claims to allow the Company 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 the Company. The lawsuit alleges that the Company 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 the Company's motion to dismiss, on November 16, 2022, the Court dismissed two of Gold Rush’s claims against the Company, but allowed four claims to proceed. The Company answered the complaint on December 14, 2022. The parties are currently engaged in the discovery process and no trial date has been set. The Company intends to vigorously defend itself against the

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~~Accel Entertainment, Inc. and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements — (Continued)~~

allegations in the complaint and denies any allegations of wrongdoing. ~~For more information on~~On April 22, 2022, the Company filed a petition in the Circuit Court of Cook County, Illinois to judicially review the IGB's decision to deny the requested transfer of Gold Rush common stock in respect of the Company’s conversion of the convertible ~~notes, see Note 4.~~notes.

On March 25, 2022, Midwest Electronics Gaming LLC (“Midwest”) filed an administrative review action against the ~~IGB,~~Illinois Gaming Board, the Company and J&J in the Circuit Court of Cook County, Illinois seeking administrative review of decisions of the IGB ruling in favor of the Company and J&J and against Midwest regarding the validity of certain use agreements covering locations currently serviced by Midwest. No monetary damages are sought against the Company.

On April 22, 2022, the Company filed a petition in the Circuit Court of Cook County, Illinois to judicially review the IGB's decision to deny the requested transfer of Gold Rush common stock in respect of its conversion of the convertible notes. A responsive pleading is not yet due.

In July 2022, an enforcement action was brought against the Company by an Illinois municipality related to an alleged violation of an ordinance requiring the collection of an additional tax, the enforceability of which is currently being contested by

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Accel Entertainment, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements — (Continued)

the Illinois Gaming Machine Operators Association. Rather than litigate the alleged violation, the Company pled no contest and paid an initial penalty to the municipality in October 2022. The Company will pay a similar penalty each month for the remaining months of ~~2022.~~2022 and anticipates such payments to continue in 2023.

~~Given~~In February 2023, an Illinois municipality issued an order against the ~~status~~Company for the alleged failure to pay a terminal operator tax (“TO Tax”) for the privilege of operating gaming terminals within the municipality. The TO Tax was adopted by the municipality on June 8, 2021, but there was no enforcement of this tax until the Company was issued a notice of hearing in February 2023. In April 2023, the Company, along with numerous other terminal operators, filed a complaint in the Circuit Court of Cook County, Illinois contesting the validity and enforceability of the ~~legal proceedings discussed above,~~TO Tax.

The results for the ~~Company has determined that a legal liability was probable and recorded~~three months ended March 31, 2022 included a loss of ~~$1.2~~$1.0 million ~~for the nine months ended September 30, 2022, of which $1.0 million~~related to these matters and is included within other expenses, net ~~and $0.2 million is included within general and administrative expenses~~ in the condensed consolidated ~~statement~~statements of operations and other comprehensive income. The Company paid legal settlements totaling $1.6 million during the nine months ended September 30, 2022 related to these legal proceedings, which includes $1.0 million of the previously mentioned loss.

Note ~~18.~~17. Related-Party Transactions

Subsequent to the Company's acquisition of certain assets of Fair Share Gaming, LLC (“Fair Share”), G3 Gaming, LLC (“G3”), and Tom’s Amusement Company, Inc., (“Tom's Amusements”~~), and American Video Gaming, LLC, and Erickson Amusements, Inc. (collectively referred to as “AVG”~~), the sellers became employees of the Company.

Consideration payable to the Fair Share seller was ~~$1.2~~$1.0 million and ~~$2.4~~$1.1 million as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively. Payments to the Fair Share seller under the acquisition agreement were ~~$1.5~~$0.3 million and ~~$0.7~~$0.5 million during the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively.

Consideration payable to the G3 sellers was $0.4 million as of ~~September 30, 2022~~both March 31, 2023 and December 31, ~~2021.~~2022. There were no payments to the G3 sellers under the acquisition agreement during the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 and ~~2021.~~2022.

Consideration payable to the Tom's Amusements seller was $0.1 million ~~and $1.5 million~~ as of ~~September 30, 2022~~both March 31, 2023 and December 31, ~~2021, respectively. Payments to the Tom's Amusements seller under the acquisition agreement were $1.4 million during the nine months ended September 30,~~ 2022. There were no payments to the Tom's Amusements seller during the ~~nine~~three months ended ~~September 30, 2021.~~

~~Consideration payable to the AVG seller was $0.4 million as of September 30, 2022~~March 31, 2023 and ~~December 31, 2021. There were no payments to the AVG seller during the nine months ended September 30, 2022 and 2021.~~2022.

The Company engaged Much Shelist, P.C. (“Much Shelist”), as its legal counsel for general legal and business matters. An attorney at Much Shelist is a related party to management of the Company. Accel paid Much Shelist ~~$0.2~~$0.1 million and less than $0.1 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively. These payments were included in general and administrative expenses within the condensed consolidated statements of operations and comprehensive income.

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Accel Entertainment, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements — (Continued)

Note ~~19.~~18. Earnings Per Share

The components of basic and diluted earnings per share (“EPS”) were as follows for the three ~~and nine~~ months ended ~~September 30~~March 31 (in thousands, except per share amounts):


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021				2023		2022

Net income	Net income	$	22,444	$	10,807	$	60,696	$	24,753	Net income		$	9,182	$	15,788

Basic weighted average outstanding shares of common stock	Basic weighted average outstanding shares of common stock	89,992		94,004		91,299		93,607		Basic weighted average outstanding shares of common stock		86,885		92,993
Dilutive effect of stock-based awards for common stock	Dilutive effect of stock-based awards for common stock	536		724		646		862		Dilutive effect of stock-based awards for common stock		247		748

Diluted weighted average outstanding shares of common stock	Diluted weighted average outstanding shares of common stock	90,528		94,728		91,945		94,469		Diluted weighted average outstanding shares of common stock		87,132		93,741

Earnings per share:
Earnings per common share:										Earnings per common share:
Basic	Basic	$	0.25	$	0.11	$	0.66	$	0.26	Basic		$	0.11	$	0.17
Diluted	Diluted	$	0.25	$	0.11	$	0.66	$	0.26	Diluted		$	0.11	$	0.17

Anti-dilutive stock-based awards, contingent earnout shares and warrants excluded from the calculations of diluted EPS were ~~5,178,908~~4,907,216 and ~~5,007,024~~4,729,800 as of ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively.

Note ~~20.~~19. Subsequent Events

~~As described~~On April 11, 2023, the Company entered into an agreement to acquire an operator in ~~Note 11, on November 2, 2022,~~the state of Louisiana and an option to acquire a ~~disinterested committee~~second operator in the state of Louisiana. In connection therewith, the Company paid $3.5 million as an advance against a portion of the Company's board of directors made up of independent directors, who don't hold any Class A-2 Common Stock, approved an increase to the LTM EBITDA and the LTM EBITDA thresholds for the Company's Class A-2 Common Stock under the terms of the Restricted Stock Agreement as follows: (i) in the case of Tranche II, the LTM EBITDA threshold (A) as of December 31, 2022 was increased to $166.0 million, (B) as of March 31, 2023 was increased to $172.1 million, and (C) as of June 30, 2023 was increased to $176.6 million; and (ii) in the case of Tranche III, the LTM EBITDA threshold as of each of December 31, 2023, March 31, 2024 and June 30, 2024 was increased to $197.1 million.purchase price

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

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our unaudited condensed consolidated financial statements and the related notes and other financial information included in this Quarterly Report on Form 10-Q. This discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, those discussed in “Risk Factors” in this Quarterly Report on Form 10-Q, and those discussed in the section titled “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022. This discussion and analysis should also be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, set forth in our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

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 ~~Illinois market.~~markets we serve. 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. We currently operate as a distributed gaming operator in the following states:

•Illinois - we have been 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, ~~and also holds a license from the Pennsylvania Gaming Control Board~~

•~~since November 2020. On December 30, 2021, one of our consolidated subsidiaries acquired amusement and ATM operations in~~ Iowa ~~and~~- we are registered with the Iowa Department of Inspections and Appeals to conduct operations in ~~Iowa. On~~Iowa,

•Nebraska - we became a licensed distributor of mechanical amusement devices in Nebraska in June 1, 2022, and commenced operations in this market,

•Pennsylvania - we ~~acquired Century~~have held a license from the Pennsylvania Gaming ~~Inc. (“Century”), which is a leading distributed gaming operator in the Montana and Nevada gaming markets. Century is~~Control Board since November 2020.

Through our wholly owned subsidiary, Grand Vision Gaming, we are also a manufacturer of gaming terminals in the Montana, Nevada, South Dakota, Louisiana and West Virginia markets. In connection with the acquisition, Accel was granted a two-year terminal operator license by the Nevada Gaming Commission and a manufacturer, distributor and route operator license by the Gambling Control Division of the Montana Department of Justice through June 2023. The Montana license is renewable annually. In June 2022, we became a licensed distributor of mechanical amusement devices (“MADs”) in Nebraska and commenced operations in this market.

We are also subject to various other federal, state and local laws and regulations in addition to gaming regulations.

~~Our gaming-as-a-service platform provides local businesses~~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. The aggregate purchase consideration was $164.3 million, which included: (i) a cash payment made at closing of $45.5 million to the equity holders of Century; (ii) repayment of $113.2 million of Century's indebtedness; and (iii) 515,622 shares of our Class A-1 common stock issued to certain members of Century’s management with a ~~turnkey, capital efficient gaming solution. We own all~~fair value of $5.6 million on the acquisition date. The cash payments were financed using cash from a draw of approximately $160 million from our ~~gaming equipment~~revolving credit facility and ~~manage the entire operating process for~~delayed draw term loan facility under our location partners. We also offer our location partners gaming solutions that appeal to players who patronize those businesses. 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. 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 location. We also provide weekly gaming revenue reports to our location partners and analyze and compare gamingsenior secured credit facility. Our financial results within individual location partners. This information is used to determine an optimal selection of games, layouts and other ideas to generate foot traffic for our location partners with the goal of generating increased gaming revenue. Further, our in-house collections and security personnel provide highly secure cash transportation and vault management services. Our best-in-class technicians ensure minimal downtime through proactive service and routine maintenance. As a result, Accel’s voluntary contract renewal rate was approximately 99% for the ~~three-year period~~three months ended ~~December~~March 31, ~~2021.~~2023 includes the results of Century.

In addition to our gaming business, we also install, operate and service redemption devices that have ATM functionality, stand-alone ATMs and amusement devices, including jukeboxes, dartboards, pool tables, pinball machines and other related entertainment equipment. These operations provide a complementary source of lead generation for our gaming business by offering a “one-stop” source of additional equipment for its location partners. 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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~~Impact of COVID-19 and Other~~ Macroeconomic Factors

The COVID-19 outbreak and its related variants are having a significant impact on global markets as a result of government-mandated business closures, supply chain and production disruptions, workforce restrictions, travel restrictions, reduced consumer spending and sentiment, amongst other factors, which are, individually or in the aggregate, negatively affecting the financial performance, liquidity and cash flow projections of many companies in the United States and abroad.

A surge of COVID-19 infections occurred in the fall of 2020, as the virus spread in every geographical region (currently 11 regions) in the State of Illinois. In response, the IGB suspended all video gaming operations across the entire state of Illinois starting at 11:01 PM on Thursday, November 19, 2020. Video gaming operations resumed in certain regions of the state beginning on January 16, 2021, and fully resumed in all regions on January 23, 2021. Even though video gaming operations resumed across all regions, certain regions still had government-imposed restrictions that, among other things, limited hours of operation and restricted the number of patrons allowed within the location. Given the staggered reopening by region in January of 2021, the temporary shutdown impacted, on average, 18 of the 273 gaming days (or 7% of gaming days) during the nine months ended September 30, 2021. In light of these events and their effect on the Company’s employees and location partners, the Company took action to help mitigate the potential effects caused by the temporary cessation of operations by furloughing idle staff as appropriate and deferring certain payments to major vendors.

~~As a result of these developments, the Company's revenues, results of operations and cash flows were materially affected for the nine months ended September 30, 2021.~~

While variants of COVID-19 continue to impact infection rates and the healthcare system, it is possible that the regulating bodies or the states in which we operate may order future shutdowns, or a complete suspension of video gaming in the state, or institute stay-at-home, closure or other similar orders or measures in the future in response to COVID-19 and its related variants. For example, under the guidelines provided by the Illinois Department of Health and Governor’s office, the IGB has been closely monitoring Illinois' COVID-19 related statistics including the positivity rate, hospital admissions, and hospital bed availability in each region of the state. 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.

~~In addition, ongoing~~Ongoing interest rate increases, ~~and~~ 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 United States and other markets globally. Our location partners may be adversely impacted by changes in overall economic and financial conditions, and certain location partners may cease operations in the event of a recession or inability to access financing. Furthermore, our revenue is largely driven by players’ disposable incomes and level of gaming activity, and economic conditions that adversely impact players’ ability and desire to spend disposable income at our locations partners may adversely affect our results of operations and cash flows. To date, we have not observed material impacts in our business or outlook, 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 fuel costs, ~~and~~as well as increased interest expense on our debt. In addition, during the first quarter of 2023, we ~~have~~ accelerated certain of our capital expenditures related to gaming machine 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.

~~Century Acquisition~~

~~Table of Contents~~

~~financial results for the three and nine months ended~~ ~~September 30, 2022~~ ~~includes the results of Century from the date of acquisition.~~

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. 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. Manufacturing revenue represents sales of gaming terminals by Grand Vision Gaming, a ~~wholly-owned~~wholly owned subsidiary of Century, which is a designer and manufacturer of ~~Class III~~ gaming ~~terminals.~~terminals and related equipment.

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

Operating Expenses

Cost of revenue. Cost of revenue consists of (i) taxes on net ~~video~~ gaming revenue that is payable to the ~~local~~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.

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. G&A expense includes payroll and related expense for account managers, business development managers, marketing, and other corporate personnel. In addition, G&A expense also includes marketing, information technology, insurance, rent and professional fees.

Depreciation and amortization of property and equipment. Depreciation is computed using the straight-line method over the estimated useful lives of the individual assets. Leasehold improvements are amortized over the shorter of the useful life or the lease.

Amortization of 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 the gaming locations in the states we serve, which ~~allow~~

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allows us to install and operate gaming terminals. The route and customer acquisition costs and route and customer acquisition costs payable are recorded at the net present value of the future payments using a discount rate equal to ~~Accel’s~~our incremental borrowing rate associated with its long-term debt. Route and customer acquisition costs are amortized on a straight-line basis over 18 years, which is the expected estimated life of the contract, including expected renewals.

Location contracts acquired in a business combination are recorded at fair value and then amortized as an intangible asset on a straight-line basis over the expected useful life of 15 years.

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

Interest expense, net

Interest expense, net consists of interest on ~~Accel’s~~our current ~~and prior~~ credit facilities, amortization of financing fees, ~~and~~ accretion of interest on route and customer acquisition costs ~~payable.~~payable, and interest (income) expense on the interest rate caplets. Interest on the current credit facility is payable monthly

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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 expense, net also consists of interest income on the~~ ~~convertible notes from Gold Rush that bore interest at the greater of 3% per annum or Accel's borrowing rate on its credit~~ ~~facility through December 31, 2021, as well as interest expense on the interest rate caplets.~~

Income tax expense

Income tax expense consists mainly of taxes payable to federal, state and local authorities. Deferred income taxes are recognized for the tax consequences of temporary differences between the financial statement carrying amounts and the tax basis of the assets and liabilities.

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Results of Operations

The following table summarizes ~~Accel’s~~our results of operations on a consolidated basis for the three months ended ~~September 30, 2022~~March 31, 2023 and ~~2021:~~2022:


(in thousands, except %'s)	(in thousands, except %'s)	Three Months Ended September 30,				Increase / (Decrease)				(in thousands, except %'s)	Three Months Ended March 31,				Increase / (Decrease)
		2022		2021		Change ($)		Change (%)			2023		2022		Change ($)		Change (%)
Revenues:	Revenues:									Revenues:
Net gaming	Net gaming	$	255,606	$	186,017	$	69,589	37.4	%	Net gaming	$	279,380	$	188,462	90,918		48.2	%
Amusement	Amusement	4,860		4,010		850		21.2	%	Amusement	6,798		4,990		1,808		36.2	%
Manufacturing	Manufacturing	2,489		—		2,489		N/A		Manufacturing	2,122		—		2,122		N/A
ATM fees and other revenue	ATM fees and other revenue	4,012		3,324		688		20.7	%	ATM fees and other revenue	4,908		3,439		1,469		42.7	%
Total net revenues	Total net revenues	266,967		193,351		73,616		38.1	%	Total net revenues	293,208		196,891		96,317		48.9	%
Operating expenses:	Operating expenses:									Operating expenses:
Cost of revenue (exclusive of depreciation and amortization expense shown below)	Cost of revenue (exclusive of depreciation and amortization expense shown below)	187,534		129,739		57,795		44.5	%	Cost of revenue (exclusive of depreciation and amortization expense shown below)	204,962		132,620		72,342		54.5	%
General and administrative	General and administrative	39,796		28,053		11,743		41.9	%	General and administrative	43,018		31,119		11,899		38.2	%
Depreciation and amortization of property and equipment	Depreciation and amortization of property and equipment	8,136		6,518		1,618		24.8	%	Depreciation and amortization of property and equipment	9,063		5,841		3,222		55.2	%
Amortization of intangible assets and route and customer acquisition costs	Amortization of intangible assets and route and customer acquisition costs	5,156		6,221		(1,065)		(17.1)	%	Amortization of intangible assets and route and customer acquisition costs	5,242		3,548		1,694		47.7	%
Other expenses, net	Other expenses, net	3,106		4,173		(1,067)		(25.6)	%	Other expenses, net	3,251		2,556		695		27.2	%
Total operating expenses	Total operating expenses	243,728		174,704		69,024		39.5	%	Total operating expenses	265,536		175,684		89,852		51.1	%
Operating income	Operating income	23,239		18,647		4,592		24.6	%	Operating income	27,672		21,207		6,465		30.5	%
Interest expense, net	Interest expense, net	6,239		3,016		3,223		106.9	%	Interest expense, net	7,888		4,001		3,887		97.2	%
(Gain) loss on change in fair value of contingent earnout shares		(10,358)		888		(11,246)		(1,266.4)	%
Loss (gain) on change in fair value of contingent earnout shares										Loss (gain) on change in fair value of contingent earnout shares	4,602		(3,417)		8,019		234.7	%

Income before income tax expense	Income before income tax expense	27,358		14,743		12,615		85.6	%	Income before income tax expense	15,182		20,623		(5,441)		(26.4)	%
Income tax expense	Income tax expense	4,914		3,936		978		24.8	%	Income tax expense	6,000		4,835		1,165		24.1	%
Net income	Net income	$	22,444	$	10,807	$	11,637	107.7	%	Net income	$	9,182	$	15,788	$	(6,606)	(41.8)	%

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Revenues

Total revenues for the three months ended ~~September 30, 2022~~March 31, 2023 were ~~$267.0~~$293.2 million, an increase of ~~$73.6~~$96.3 million, or 48.9%, compared to the prior-year period. This increase was driven by ~~an increase in~~higher net gaming revenue of ~~$69.6~~$90.9 million, or 48.2%, and manufacturing revenue of ~~$2.5 million, an increase in amusement~~$2.1 million. Higher net gaming revenue ~~of $0.9 million, and an increase in ATM fees and other revenue of $0.7 million. Net gaming revenues~~ for the three months ended ~~September 30, 2022 reflected~~March 31, 2023 was attributable to an increase in gaming terminals and locations due primarily to the acquisition of Century. Net revenues by state are presented below (in thousands):


(in thousands)		Three Months Ended September 30,
							Three Months Ended March 31,
		2022		2021			2023		2022
Net revenues by state:	Net revenues by state:					Net revenues by state:
Illinois	Illinois	$	200,914	$	192,205	Illinois	$	219,843	$	194,859
Montana						Montana	36,451		—
Nevada	Nevada	28,439		—		Nevada	29,961		—
Montana		33,456		—
Other		4,158		1,146
All other						All other	6,953		2,032
Total net revenues	Total net revenues	$	266,967	$	193,351	Total net revenues	$	293,208	$	196,891

Cost of revenue

Cost of revenue for the three months ended ~~September 30, 2022~~March 31, 2023 was ~~$187.5~~$205.0 million, an increase of ~~$57.8~~$72.3 million, or 54.5%, compared to the prior-year period ~~driven by higher revenue~~ due primarily to ~~the acquisition of Century.~~higher revenue, as described above.

General and administrative

General and administrative expenses for the three months ended ~~September 30, 2022~~March 31, 2023 were ~~$39.8~~$43.0 million, an increase of ~~$11.7~~$11.9 million, or ~~41.9%~~38.2%, compared to the prior-year period. ~~General and administrative expenses for the three months ended September 30, 2022 reflect~~The increase reflected additional operating costs from Century ~~and~~as well as higher payroll-related costs as we continue to grow our operations ~~as well as~~and higher ~~fleet-related costs, including fuel, and marketing expenses.~~professional fees.

Depreciation and amortization of property and equipment

Depreciation and amortization of property and equipment for the three months ended ~~September 30, 2022~~March 31, 2023 was ~~$8.1~~$9.1 million, an increase of ~~$1.6~~$3.2 million, or ~~24.8%~~55.2%, compared to the prior-year period due to an increased number of locations and gaming terminals ~~due~~ primarily attributable to the acquisition of Century ~~partially offset by us extending the useful lives of our gaming terminals and equipment from 10 years to 13 years.~~.

Amortization of intangible assets and route and customer acquisition costs

Amortization of intangible assets and route and customer acquisition costs for the three months ended ~~September 30, 2022~~March 31, 2023 was $5.2 million, ~~a decrease~~an increase of ~~$1.1~~$1.7 million, or ~~17.1%~~47.7%, compared to the prior-year period due to us extending the useful lives of our route and customer acquisition costs from 12.4 years to 18 years and location contracts acquired from 10 to 15 years. The impact of these changes in estimate was a decrease in amortization expense of $2.8 million for the three months ended September 30, 2022. 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 three months ended ~~September 30, 2022~~March 31, 2023 were ~~$3.1~~$3.3 million, ~~a decrease~~an increase of ~~$1.1~~$0.7 million, or ~~25.6%~~27.2%, compared to the prior-year ~~period. The decrease was primarily attributable~~period due to ~~lower~~higher fair value adjustments associated with the revaluation of contingent consideration liabilities and higher non-recurring costs on acquisition-related matters, partially offset by ~~higher non-recurring expenses relating to lobbying efforts and new market development.~~

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~~Interest expense, net~~

~~Interest expense, net for the three months ended September 30, 2022~~a $1.0 million loss associated with a legal settlement that was ~~$6.2 million, an increase of $3.2 million, or 106.9%, compared to the prior-year period primarily due to an increase~~recorded in average outstanding debt and higher interest rates, partially offset by the benefit realized on our interest rate caplets. For the three months ended September 30, 2022, the weighted average interest rate was approximately 4.3% compared to a rate of approximately 2.9% for the prior-year period.

~~(Gain) loss on change in fair value of contingent earnout shares~~

~~Gain on the change in fair value of contingent earnout shares for the three months ended September 30, 2022 was $10.4 million, an increase of $11.2 million, or 1,266.4%, compared to~~ the prior ~~year, which had a loss of~~ ~~$0.9 million. 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.~~

~~Income tax expense~~

Income tax expense for the three months ended September 30, 2022 was $4.9 million, an increase of $1.0 million, or 24.8%, compared to the prior-year period. The effective tax rate for the three months ended September 30, 2022 was 18.0% compared to 26.7% in the prior-year period. Our effective income tax rate can vary from period to period depending on, among other factors, the amount of permanent tax adjustments and discrete items. The change in the fair value of the contingent earnout shares does not create tax expense and is the primary driver for the fluctuations in the tax rate year over year.

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~~The following table summarizes Accel’s results of operations on a consolidated basis for the nine~~ ~~months ended~~ ~~September 30, 2022 and 2021:~~

(in thousands, except %'s) Nine Months Ended
September 30, Increase / (Decrease)
2022 2021 Change ($) Change (%)
Revenues:
Net gaming $ 662,491 $ 520,915 $ 141,576 27.2 %
Amusement 14,543 12,338 2,205 17.9 %
Manufacturing 3,408 — 3,408 N/A
ATM fees and other revenue 11,285 9,141 2,144 23.5 %
Total net revenues 691,727 542,394 149,333 27.5 %
Operating expenses:
Cost of revenue (exclusive of depreciation and amortization expense shown below) 475,585 364,402 111,183 30.5 %
General and administrative 103,634 78,641 24,993 31.8 %
Depreciation and amortization of property and equipment 20,575 18,820 1,755 9.3 %
Amortization of intangible assets and route and customer acquisition costs 12,278 18,489 (6,211) (33.6) %
Other expenses, net 7,894 8,913 (1,019) (11.4) %
Total operating expenses 619,966 489,265 130,701 26.7 %
Operating income 71,761 53,129 18,632 35.1 %
Interest expense, net 14,031 9,736 4,295 44.1 %
(Gain) loss on change in fair value of contingent earnout shares (19,497) 6,867 (26,364) (383.9) %
Income before income tax expense 77,227 36,526 40,701 111.4 %
Income tax expense 16,531 11,773 4,758 40.4 %
Net income $ 60,696 $ 24,753 $ 35,943 145.2 %
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~~Revenues~~

Total revenues for the nine months ended September 30, 2022 were $691.7 million, an increase of $149.3 million, or 27.5%, compared to the prior-year period. This increase was driven by an increase in net gaming revenue of $141.6 million, or 27.2%, an increase in amusement revenue of $2.2 million, or 17.9%, and an increase in ATM fees and other revenue of $2.1 million, or 23.5%, and manufacturing revenue of $3.4 million. Increase in net gaming revenue was primarily attributable to the increase in net gaming revenues for the nine months ended September 30, 2022, which reflected an increase in gaming terminals and locations due primarily to the acquisition of Century. Also impacting comparability was the prior year IGB-mandated shutdown of Illinois video gaming due to the ongoing COVID-19 outbreak, which impacted 18 of the 273 gaming days (or 7% of gaming days) during the nine months ended September 30, 2021. Net revenues by state are presented below (in thousands):

Nine Months Ended
September 30,
2022 2021
Net revenues by state:
Illinois $ 601,735 $ 539,211
Nevada 37,359 —
Montana 44,282 —
All other 8,351 3,183
Total net revenues $ 691,727 $ 542,394

~~Cost of revenue~~

Cost of revenue for the nine months ended September 30, 2022 was $475.6 million, an increase of $111.2 million, or 30.5%, compared to the prior-year period driven by higher revenue due primarily to the acquisition of Century.

~~General and administrative~~

General and administrative expenses for the nine months ended September 30, 2022 were $103.6 million, an increase of $25.0 million, or 31.8%, compared to the prior-year period. The increase was attributable to a reduction in our prior year monthly expenses during the previously mentioned IGB-mandated shutdown. General and administrative expenses for the nine months ended September 30, 2022 also reflect additional operating costs from Century and higher payroll-related costs as we continue to grow our operations as well as higher fleet-related costs, including fuel, and marketing expenses.

~~Depreciation and amortization of property and equipment~~

Depreciation and amortization of property and equipment for the nine months ended September 30, 2022 was $20.6 million, an increase of $1.8 million, or 9.3%, compared to the prior-year period due to an increased number of locations and gaming terminals due primarily to the acquisition of Century, partially offset by us extending the useful lives of our gaming terminals and equipment from 10 years to 13 years. The impact of this change in estimate was a decrease in depreciation expense of $3.7 million for the nine months ended September 30, 2022.

~~Amortization of intangible assets and route and customer acquisition costs~~

Amortization of intangible assets and route and customer acquisition costs for the nine months ended September 30, 2022 was $12.3 million, a decrease of $6.2 million, or 33.6%, compared to the prior-year period due to us extending the useful lives of our route and customer acquisition costs from 12.4 years to 18 years and location contracts acquired from 10 to 15 years. The impact of these changes in estimate was a decrease in amortization expense of $8.2 million for the nine months ended September 30, 2022. This decrease was partially offset by an increase in location contracts acquired and amortization expense on other intangible assets acquired with Century.

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~~Other expenses, net~~

Other expenses, net for the nine months ended September 30, 2022 were $7.9 million, a decrease of $1.0 million, or 11.4%, compared to the prior-year period due 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.

Interest expense, net

Interest expense, net for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 was ~~$14.0~~$7.9 million, an increase of ~~$4.3~~$3.9 million, or ~~44.1%~~97.2%, compared to the prior-year period primarily due to an increase in average outstanding debt and higher interest rates, partially offset by the benefit realized on our interest rate caplets. The weighted average interest rate, excluding the impact of the interest rate caplets, was approximately ~~3.7%~~6.8% for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 compared to ~~3.2%~~3.6% in the prior-year period.

~~(Gain) loss~~

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Loss (gain) on change in fair value of contingent earnout shares

~~Gain~~Loss on the change in fair value of contingent earnout shares for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 was ~~$19.5~~$4.6 million, compared to the prior-year period, which had a ~~loss~~gain of $~~6.9~~3.4 million. The changes in fair value are primarily due to the change in the market value of our ~~Class~~ A-1 common stock, which was the primary input to the valuation of the contingent earnout shares.

Income tax expense

Income tax expense for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 was ~~$16.5~~$6.0 million, an increase of ~~$4.8~~$1.2 million, or ~~40.4%~~24.1%, compared to the prior-year period. The effective tax rate for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 was ~~21.4%~~39.5% compared to ~~32.2%~~23.4% in the prior year period. Our effective income tax rate can vary from period to period depending on, among other factors, the amount of permanent tax adjustments and discrete items. The change in the fair value of the contingent earnout shares ~~does not create~~is considered a discrete item for tax ~~expense~~purposes and iswas the primary driver for the fluctuations in the tax rate year over year.

Key Business Metrics

We use statistical data and comparative information commonly used in the gaming industry to monitor the performance of the business, none of which are prepared in accordance with U.S. GAAP, and therefore should not be viewed as indicators of operational performance. Our management uses ~~this information~~these key business metrics for financial planning, strategic planning and employee compensation decisions. The key ~~indicators~~business metrics include:

•Number of locations and;

•Number of gaming terminals

We also periodically review and revise our key business metrics to reflect changes in our business. As result of the Century acquisition, our operations have expanded significantly and we have entered into new markets that are subject to different regulatory regimes, competitive dynamics and other regional factors and conditions. As a result, we have determined to no longer report average remaining contract term (years) and location hold-per-day.

Number of locations

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

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. In the past, we could leave our equipment if a location was temporarily closed for repairs, remodeling or an ownership change. In addition, if a location went out of business, we could remove our equipment at our convenience. The 72-hour rule accelerated all planned removals for the next several months. This did not materially impact gaming revenue but reduced our reported number of locations in Illinois.

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


		As of September 30,		Increase / (Decrease)				As of March 31,		Increase / (Decrease)
		2022	2021	Change $	Change %			2023	2022	Change	Change %
Illinois	Illinois	2,596	2,549	47	1.8	%	Illinois	2,663	2,565	64	2.5	%
Montana	Montana	586	—	N/A	N/A		Montana	620	—	620	N/A
Nevada	Nevada	335	—	N/A	N/A		Nevada	345	—	345	N/A
Total locations	Total locations	3,517	2,549				Total locations	3,628	2,565	1,063	41.4	%

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Number of gaming terminals

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

~~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.~~

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


		As of September 30,		Increase / (Decrease)				As of March 31,		Increase / (Decrease)
		2022	2021	Change $	Change %			2023	2022	Change	Change %
Illinois	Illinois	14,033	13,384	649	4.8	%	Illinois	14,546	13,663	758	5.6	%
Montana	Montana	5,782	—	N/A	N/A		Montana	6,247	—	6,247	N/A
Nevada	Nevada	2,614	—	N/A	N/A		Nevada	2,704	—	2,704	N/A
Total gaming terminals	Total gaming terminals	22,429	13,384				Total gaming terminals	23,497	13,663	9,834	72.0	%

Non-GAAP Financial Measures

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

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Adjusted net income and Adjusted EBITDA


(in thousands)	(in thousands)	Three Months Ended September 30,				Nine Months Ended September 30,				(in thousands)	Three Months Ended March 31,
		2022		2021		2022		2021				2023		2022

Net income	Net income	$	22,444	$	10,807	$	60,696	$	24,753	Net income		$	9,182	$	15,788
Adjustments:	Adjustments:									Adjustments:
Amortization of intangible assets and route and customer acquisition costs (1)	Amortization of intangible assets and route and customer acquisition costs (1)	5,156		6,221		12,278		18,489		Amortization of intangible assets and route and customer acquisition costs(1)		5,242		3,548
Stock-based compensation (2)	Stock-based compensation (2)	1,070		966		4,956		4,707		Stock-based compensation (2)		1,688		1,605
(Gain) loss on change in fair value of contingent earnout shares (3)		(10,358)		888		(19,497)		6,867
Loss (gain) on change in fair value of contingent earnout shares (3)										Loss (gain) on change in fair value of contingent earnout shares (3)		4,602		(3,417)

Other expenses, net (4)	Other expenses, net (4)	3,106		4,173		7,894		8,913		Other expenses, net (4)		3,251		2,556
Tax effect of adjustments (5)	Tax effect of adjustments (5)	(2,486)		(5,738)		(7,274)		(9,623)		Tax effect of adjustments (5)		(2,901)		(2,475)
Adjusted net income	Adjusted net income	18,932		17,317		59,053		54,106		Adjusted net income		21,064		17,605
Depreciation and amortization of property and equipment	Depreciation and amortization of property and equipment	8,136		6,518		20,575		18,820		Depreciation and amortization of property and equipment		9,063		5,841
Interest expense, net	Interest expense, net	6,239		3,016		14,031		9,736		Interest expense, net		7,888		4,001
Emerging markets (6)	Emerging markets (6)	418		1,106		1,619		2,369		Emerging markets (6)		(798)		485
Income tax expense	Income tax expense	7,400		9,674		23,805		21,396		Income tax expense		8,901		7,310
Adjusted EBITDA	Adjusted EBITDA	$	41,125	$	37,631	$	119,083	$	106,427	Adjusted EBITDA		$	46,118	$	35,242

(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 ~~combination,~~acquisition, as well as the amortization of other intangible assets. ~~Accel amortizes~~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~~recognize non-cash amortization charges with respect to such items. Future or deferred cash payments, which may occur based on terms of the underlying contract, are generally lower in the aggregate as compared to established practice of providing higher upfront payments, and are also capitalized and amortized over the remaining life of the contract. Future cash payments do not include cash costs associated with renewing customer contracts as ~~Accel does~~we do not generally incur significant costs as a result of extension or renewal of an existing contract. Location contracts acquired in a business combination are recorded at fair value as part of the business combination accounting and then amortized as an intangible asset on a straight-line basis over the expected useful life of the contract of 15 years. “Amortization of intangible assets and route and customer acquisition costs” aggregates the non-cash amortization charges relating to upfront route and customer acquisition cost payments and location contracts acquired, as well as the amortization of other intangible assets.

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

(3) ~~(Gain) loss~~Loss (gain) on change in fair value of contingent earnout shares represents a non-cash fair value adjustment at each reporting period end related to the value of these contingent shares. Upon achieving such contingency, shares of Class A-2 common stock convert to Class A-1 common stock resulting in a non-cash settlement of the obligation.

(4)Other expenses, net consists of (i) non-cash expenses including the remeasurement of contingent consideration liabilities, (ii) non-recurring ~~expenses relating to~~ lobbying ~~efforts~~ and legal expenses related to distributed gaming expansion in ~~Pennsylvania~~current or prospective markets, and ~~lobbying efforts in Missouri,~~ (iii) ~~non-recurring costs associated with COVID-19 and (iv)~~ other non-recurring expenses.

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

(6)Emerging markets consist of the results, on an ~~adjusted~~Adjusted EBITDA basis, for non-core jurisdictions where our operations are developing. Markets are no longer considered emerging when ~~Accel has~~we have installed or acquired at least 500 gaming terminals in the jurisdiction, or when 24 months have elapsed from the date ~~Accel~~we first ~~installs~~install or ~~acquires~~acquire gaming terminals in the jurisdiction, whichever occurs first. ~~The Company~~We currently ~~views~~view Nebraska, Iowa and Pennsylvania as ~~its~~ emerging markets. Prior to July 2022, Georgia was considered an emerging market.

Adjusted EBITDA for the three months ended ~~September 30, 2022~~ March 31, 2023, was ~~$41.1~~$46.1 million, an increase of ~~$3.5~~$10.9 million, or ~~9%, compared to the prior-year period. Adjusted EBITDA for the nine months ended September 30, 2022 was $119.1 million, an increase of $12.7 million, or 12%~~30.9%, compared to the prior-year period. The increase in performance for ~~both~~ the three ~~and nine~~ months ended March 31, 2023 was attributable to an increase in the number of locations and gaming terminals, due primarily to the acquisition of Century. Also impacting the nine-months-ended comparison was the absence of the previously mentioned IGB-mandated shutdown of Illinois video gaming due to the ongoing COVID-19 outbreak that had a significant impact on our performance in the prior-year period.

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Liquidity and Capital Resources

In order to maintain sufficient liquidity, we review our cash flow projections and available funds with our Board of Directors to consider modifying our capital structure and seeking additional sources of liquidity, if needed. The availability of additional liquidity options will depend on the economic and financial environment, our creditworthiness, our historical and projected financial and operating performance, and our continued compliance with financial covenants. As a result of possible future economic, financial and operating declines, possible declines in our creditworthiness and potential non-compliance with financial covenants, we may have less liquidity than anticipated, fewer sources of liquidity than anticipated, less attractive financing terms and less flexibility in determining when and how to use the liquidity that is available.

We believe that our cash and cash equivalents, cash flows from operations and borrowing availability under our senior secured credit facility will be sufficient to meet our capital requirements for the next twelve months. Our primary short-term cash needs are paying operating expenses and contingent earnout payments, servicing outstanding indebtedness, and funding our Board of Directors approved share repurchase program and near term acquisitions. As of ~~September 30, 2022~~March 31, 2023, ~~Accel~~we had ~~$212.1~~$228.5 million in cash and cash equivalents.

Senior Secured Credit Facility

On November 13, 2019, we entered into a credit agreement (the “Credit Agreement”) as borrower, with ~~Accel and~~ 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.

The additional term loan facility was available for borrowings until November 13, 2020. Each of the revolving loans and the term loans were scheduled to mature on November 13, 2024.

Given the uncertainty of COVID-19 and the resulting potential impact to the gaming industry and our future assumptions, as well as to provide additional financial flexibility, we and the other parties thereto amended the Credit Agreement on August 4, 2020 to provide a waiver of financial covenant breach for the periods ended September 30, 2020 through March 31, 2021 of the First Lien Net Leverage Ratio and Fixed Charge Coverage Ratio (each as defined under the Credit Agreement). The amendment also raised the floor for the adjusted LIBOR rate to 0.50% and the floor for the Base Rate to 1.50%. We incurred costs of $0.4 million associated with the amendment of the Credit Agreement, of which $0.3 million was capitalized and will be amortized over the remaining life of the facility. The waivers of financial covenant breach were never utilized as we remained in compliance with all debt covenants during these periods.

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On October 22, 2021, in order to increase the borrowing capacity under the Credit Agreement, we and the other parties thereto entered into Amendment No. 2 to the Credit Agreement (“Amendment No. 2”). Amendment No. 2, among other things, provides for:

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•an increase in the amount of the revolving credit facility from $100.0 million to $150.0 million,

•a $350.0 million initial term loan facility, the proceeds of which were applied to refinancing existing indebtedness and

•a new $400.0 million delayed draw term loan facility.

~~The additional term loan facility is available for borrowings until October 21, 2023.~~ The maturity date of the Credit Agreement was extended to October 22, 2026. The interest rate and covenants remain unchanged.

As of ~~September 30, 2022,~~March 31, 2023, there remained ~~approximately $355~~$328 million of availability under the Credit Agreement.

The obligations under the Credit Agreement are guaranteed by ~~Accel~~us and our wholly-owned domestic subsidiaries, subject to certain exceptions (collectively, the “Guarantors”). The obligations under the Credit Agreement are secured by substantially all of the assets of the Guarantors, subject to certain exceptions. Certain future-formed or acquired wholly-owned domestic subsidiaries by us will also be required to guarantee the Credit Agreement and grant a security interest in substantially all of our assets (subject to certain exceptions) to secure the obligations under the Credit Agreement.

Borrowings under the Credit Agreement bear interest, at ~~Accel’s~~our option, at a rate per annum equal to either (a) the adjusted LIBOR rate (“LIBOR”) (which cannot be less than 0.5%) for interest periods of 1, 2, 3 or 6 months (or if consented to by (i) each applicable Lender, 12 months or any period shorter than 1 month or (ii) the Agent, a shorter period necessary to ensure that the end of the relevant interest period would coincide with any required amortization payment ) plus the applicable LIBOR margin or (b) the alternative base rate (“ABR”) plus the applicable ABR margin. ABR is a fluctuating rate per annum equal to the highest of (i) the Federal Funds Effective Rate plus 1/2 of 1.0%, (ii) the prime rate announced from time to time by Capital One, National Association and (iii) LIBOR for a 1-month Interest Period on such day plus 1.0%. The Credit Agreement also includes provisions for determining a replacement rate when LIBOR is no longer available. As of ~~September 30, 2022,~~March 31, 2023, the weighted-average interest rate was approximately ~~3.7%~~6.8%.

Interest is payable quarterly in arrears for ABR loans, at the end of the applicable interest period for LIBOR loans (but not less frequently than quarterly) and upon the prepayment or maturity of the underlying loans. ~~Accel is~~We are required to pay a commitment fee quarterly in arrears in respect of unused commitments under the revolving credit facility and the additional term loan facility.

The applicable LIBOR and ABR margins and the commitment fee rate are calculated based upon the first lien net leverage ratio of ~~Accel~~us and ~~its~~our restricted subsidiaries on a consolidated basis, as defined in the Credit Agreement. The revolving loans and term loans bear interest at either (a) ABR (150 bps floor) plus a margin ofup to 1.75% or (b) LIBOR (50bps 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 ~~approximately~~ 5.00% per annum. Upon the consummation of certain non-ordinary course asset sales, we may be required to apply the net cash proceeds thereof to prepay outstanding term loans and additional term loans. The loans under the Credit Agreement may be prepaid without premium or penalty, subject to customary LIBOR “breakage” costs.

The Credit Agreement contains certain customary affirmative and negative covenants and events of default, and requires ~~Accel~~us and certain of ~~its~~our affiliates obligated under the Credit Agreement to make customary representations and warranties in connection with credit extensions thereunder.

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In addition, the Credit Agreement requires ~~Accel~~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 ~~of Accel~~by us for which financial statements have been delivered pursuant to the Credit Agreement, subject to customary “equity cure” rights.

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We were in compliance with all debt covenants as of ~~September 30, 2022.~~ March 31, 2023. WGiven our assumptions about the future impact of COVID-19 and its variant strains on the gaming industry, which could be materially different due to the inherent uncertainties of future restrictions on the industry, wee expect to meet our cash obligations as well as remain in compliance with the debt covenants in our credit facility for the next 12 months.

Interest rate caplets

~~The Company manages its~~We manage our exposure to some of its interest rate risk through the use of interest rate caplets, which are derivative financial instruments. On January 12, 2022, we hedged the variability of the cash flows attributable to the changes in the 1-month LIBOR 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”). The caplets mature at the end of each month and protect ~~the Company~~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 aggregate premium for these caplets was $3.9 million, which was the initial fair value of the caplets recorded in our financial statements, and was financed as additional debt. ~~Further,~~We recognized an unrealized gain on the change in fair value of the interest rate caplets of $2.2 million and $4.9 million, net of taxes, for the three months ended March 31, 2023 and 2022, respectively. Further, as the 1-month LIBOR interest rate exceeded 2% beginning in the ~~third quarter~~second half of 2022, the Company ~~realized a gain~~recognized interest income on the caplets of ~~$0.2~~$1.9 million for the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, which is reflected in interest expense, ~~net.~~net in the condensed consolidated statements of operations and other comprehensive income.

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 condensed consolidated financial statements and the notes thereto included in this filing:


(in thousands)	(in thousands)	Nine Months Ended September 30,				(in thousands)	Three Months Ended March 31,
		2022		2021			2023		2022

Net cash provided by operating activities	Net cash provided by operating activities	$	78,250	$	80,262	Net cash provided by operating activities	$	37,983	$	22,061
Net cash used in investing activities	Net cash used in investing activities	(168,871)		(21,220)		Net cash used in investing activities	(23,585)		(6,387)
Net cash provided by (used in) financing activities		103,898		(13,610)
Net cash used in financing activities						Net cash used in financing activities	(9,982)		(19,562)

Net cash provided by operating activities

For the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, net cash provided by operating activities was ~~$78.3~~$38.0 million, ~~a decrease~~an increase of ~~$2.0~~$15.9 million over the comparable period due primarily ~~due higher payments on consideration payable and~~to lower working capital ~~adjustments, partially offset by an increase in deferred income taxes.~~adjustments.

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Net cash used in investing activities

For the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, net cash used in investing activities was ~~$168.9~~$23.6 million, an increase of ~~$147.7~~$17.2 million over the comparable period and was primarily attributable to ~~higher business and asset acquisitions and~~more cash used for the purchases of property and equipment. We anticipate ~~that~~ our capital expenditures for the purchases of property and equipment will be approximately ~~$38-43~~$50–60 million in ~~2022.~~2023.

Net cash ~~provided by (used in)~~used in financing activities

For the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, net cash ~~provided by~~used in financing activities was ~~$103.9~~$10.0 million, ~~an increase~~a decrease of ~~$117.5~~$9.6 million over the comparable ~~period due to an increase~~period. The decrease reflects a reduction in ~~borrowings to finance our business and asset acquisitions, partially offset by~~ repurchases of our Class A-1 common stock ~~of $61.9 million~~ under our share repurchase program.

Critical Accounting Policies and Estimates

In preparing our condensed consolidated financial statements, we applied the same critical accounting policies as described in our Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 that affect judgments and estimates of amounts recorded for certain assets, liabilities, revenues, and expenses. ~~In connection with the Century acquisition in the second quarter we note the following:~~

~~Business combinations and goodwill~~

For acquisitions meeting the definition of a business combination, the acquisition method of accounting is used. The acquisition date is the date on which Accel obtains operating control over the acquired business. The consideration paid is determined on the acquisition date and is the sum of the fair values of the assets acquired by Accel and the liabilities assumed by Accel, including the fair value of any asset or liability resulting from a deferred consideration arrangement. Acquisition-related costs, such as professional fees, are excluded from the consideration transferred and are expensed as incurred. Any contingent consideration is measured at its fair value on the acquisition date, recorded as a liability and accreted over its payment term in Accel’s consolidated statements of operations and comprehensive income (loss) as other expenses, net. Location contract intangibles 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 and costs projections and other assumptions such as estimated attrition rates and discount rates. Acquired tangible personal property such as gaming equipment is generally measured at fair value using a cost approach which measures the fair value based on the cost to reproduce or replace the asset. Goodwill is measured as the excess of the consideration transferred over the fair value of the net identifiable assets acquired and liabilities assumed. The relevance of this policy 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. For example, ~~Illinois~~the gross revenue per machine per day is typically lower in the summer when players will typically spend less time indoors at our ~~location partners,~~locations, and higher in cold weather between February and April, when players will typically spend more time indoors at our ~~location partners.~~locations. Holidays, vacation seasons, and sporting events may also cause our results to fluctuate.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk represents the risk of loss that may impact ~~Accel’s~~our financial position due to adverse changes in financial market prices and rates. Market risk exposure is primarily the result of fluctuations in interest rates.

Interest rate risk

~~Accel is~~We are exposed to interest rate risk in the ordinary course of ~~its~~ business. ~~Accel’s borrowings~~Borrowings under ~~its~~our senior secured credit facility were ~~$525.0~~$540.8 million as of ~~September 30, 2022.~~March 31, 2023. If the underlying interest rates were to increase by 1.0%, or 100 basis points, the increase in interest expense on ~~Accel’s~~our floating rate debt would negatively impact ~~Accel’s~~ future earnings and cash flows by approximately ~~$2.3~~$2.4 million annually, assuming the balance outstanding under ~~Accel’s~~the credit facility remained at ~~$525.0~~$540.8 million. ~~Our exposure~~In order to protect against higher interest rates ~~is partially mitigated as~~in the ~~Company~~future on our credit facility, 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 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~~our exposure as the 1-month LIBOR interest rate exceeded 2% in the ~~third quarter~~second half of 2022.

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

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ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

In connection with the filing of this Form 10-Q for the quarter ended ~~September 30, 2022,~~March 31, 2023, our Chief Executive Officer (“CEO”, serving as our Principal Executive Officer) and our Chief Financial Officer (“CFO”, serving as our Principal Financial Officer) conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”)). As a result of this evaluation, our CEO and CFO concluded that those material weaknesses previously identified in Item 9A. “Controls and Procedures” of our Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 were still present as of ~~September 30, 2022~~March 31, 2023 (the “Evaluation Date”). Based on those material weaknesses, and the evaluation of our disclosure controls and procedures, our CEO and CFO concluded that our disclosure controls and procedures were not effective as of the Evaluation Date.

Notwithstanding the identified material weaknesses, management believes that the condensed consolidated financial statements included in this Form 10-Q fairly present in all material respects our financial condition, results of operations, and cash flows as of ~~September 30, 2022.~~March 31, 2023.

Changes in Internal Control Over Financial Reporting

There were no changes during the quarter ended ~~September 30, 2022~~March 31, 2023 in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting other than the material weaknesses previously identified and disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022. We are also in the process of integrating Century, which was acquired on June 1, 2022, into our system of internal control over financial reporting.

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Lawsuits and claims are filed against Accel from time to time in the ordinary course of business, including related to employee matters, employment agreements and non-compete clauses and agreements. Other than settled matters explained as follows, these actions are in various stages, and no judgments or decisions have been rendered. Management, after reviewing matters with legal counsel, believes that the outcome of such matters are not expected to have a material adverse effect on our financial position or results of operations.

Accel has been involved in a series of related litigated matters stemming from claims that Accel wrongly contracted with 10 different licensed establishments (the “Defendant Establishments”) in 2012 in violation of the contractual rights heldThe information required by ~~J&J Ventures Gaming, LLC (“J&J”), as further described below.~~

On August 21, 2012, one of Accel’s operating subsidiaries entered into certain agreements with Jason Rowell (“Rowell”), a member of Action Gaming LLC (“Action Gaming”), which was an unlicensed terminal operator that had exclusive rights to place and operate gaming terminals within a number of establishments, including the Defendant Establishments. Under agreements with Rowell, Accel agreed to pay him for each licensed establishment which decided to enter into exclusive location agreements with Accel. In late August and early September 2012, each of the Defendant Establishments signed separate location agreements with Accel, purporting to grant it the exclusive right to operate gaming terminals in those establishments. Separately, on August 24, 2012, Action Gaming sold and assigned its rights to all its location agreements to J&J, including its exclusive rights with the Defendant Establishments (the “J&J Assigned Agreements”). At the time of the assignment of such rights to J&J, the Defendant Establishments were not yet licensedthis Item is incorporated by ~~the IGB.~~

Action Gaming, J&J, and other parties, collectively, the Plaintiffs, filed a complaint against Accel, Rowell, and other parties in the Circuit Court of Cook County, Illinois (the “Circuit Court”), on August 31, 2012, as amended on November 1, 2012, December 19, 2012, and October 3, 2013, alleging, among other things, that Accel aided and abetted Rowell in breaches of his fiduciary duties and contractual obligations with Action Gaming and tortiously interfered with Action Gaming’s contracts with Rowell and agreements assigned to J&J. The complaint seeks damages and injunctive and equitable relief. On January 24, 2018, Accel filed a motion to dismiss for lack of subject matter jurisdiction, as further described below. On May 14, 2018, the Circuit Court denied Accel’s motion to dismiss and granted a stayreference to the ~~case, pending a ruling from the IGB on the validity~~discussion in Note 15, Commitments and Contingencies, of the ~~J&J Assigned Agreements.~~

From 2013 to 2015, the Plaintiffs filed additional claims, including J&J Ventures Gaming, LLC et al. v. Wild, Inc. (“Wild”), in various circuit courts seeking declaratory judgements with a number of establishments, including each of the Defendant Establishments, requesting declarations that, among other things, J&J held the exclusive right to operate VGTs at each of the Defendant Establishments as a result of the J&J Assigned Agreements. Accel was granted leave to intervene in all of the declaratory judgements. The circuit courts found that the J&J Assigned Agreements were valid because each of the underlying location agreements were between an unlicensed establishment and an unlicensed terminal operator, and therefore did not constitute use agreements that were otherwise precluded from assignment under the IGB’s regulations. Upon Accel’s appeal, the Illinois Appellate Court, Fifth District (the “District Court”), vacated the circuit courts’ judgements and dismissed the appeals, holding that the IGB had exclusive jurisdiction over the matter that formed the basis of the parties’ claims, and declined to consider the merits of the parties’ disputes. On September 22, 2016, and after the IGB intervened, the Supreme Court of Illinois issued a judgment in Wild, affirming the District Court’s decision vacating the circuit courts’ judgments for lack of subject matter jurisdiction and dismissing the appeals, determining that the IGB has exclusive jurisdiction to decide the validity and enforceability of VGT use agreements.

Between May 2017 and September 2017, both Accel and J&J filed petitions with the IGB seeking adjudication of the rights of the parties and the validity of the use agreements. Those petitions were recently adjudicated by the IGB, largely in Accel’s favor, and J&J has filed a new lawsuit to challenge the IGB’s rulings. Accel does not have a present estimate regarding the

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potential damages, if any, that could potentially be awarded in this litigation and, accordingly, have established no reserves relating to such matters. There are also petitions pending with the IGB which could lead to Accel obtaining new locations.

On October 7, 2019, Accel filed a lawsuit in the Circuit Court of Cook County, 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. 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. Mr. 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. 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.

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. On July 22, 2022, both parties filed motions for summary judgement.

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. The complaint seeks damages for breach of contract and the implied covenant of good faith and fair dealing as well as unjust enrichment. The lawsuit is publicly available. On June 22, 2022, Gold Rush filed a lawsuit in the Circuit Court of Cook County, Illinois against us. 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. The Company intends to vigorously defend itself against the allegations in the complaint and denies any allegations of wrongdoing. ~~For more information on the Gold Rush convertible notes, see Note 4 to the accompanying unaudited~~ condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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. No monetary damages are sought against Accel.

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.

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. Rather than litigate the alleged violation, we pled no contest and paid an initial penalty to the municipality in October 2022. We will pay a similar penalty each month for the remaining months of 2022.

Given the status of the legal proceedings discussed above, the Company determined that a legal liability was probable and recorded a loss of $1.2 million for the nine months ended September 30, 2022, of which $1.0 million is included within other expenses, net and $0.2 million is included within general and administrative expenses ~~in the condensed consolidated statements of operations and other comprehensive income. The Company paid legal settlements totaling $1.6 million during the nine months ended September 30, 2022 related to these legal proceedings.~~

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ITEM 1A. RISK FACTORS

An investment in our common stock involves a high degree of risk. You should carefully consider the risk factors described under Part I - Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2022 and our condensed consolidated financial statements and related notes contained in this Quarterly Report on Form 10-Q in analyzing an investment in our common stock. If any such risks occur, our business, financial condition, and results of operations would likely suffer, the trading price of our common stock would decline, and you could lose all or part of your investment. In addition, the risk factors and uncertainties could cause our actual results to differ materially from those projected in our forward-looking statements, whether made in this report or other documents we file with the SEC, or our annual report to stockholders, future press releases, or orally, whether in presentations, responses to questions, or otherwise. Additional risks and uncertainties not currently known to us or those we currently view to be immaterial may also materially adversely affect our business, financial condition, or results of operations.

Except for as set forth below, there have been no material changes in the risk factors described in Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

Risks Related to Our Business and Industry

Accel’s ability to operate in existing markets or expand into new jurisdictions could be adversely affected by difficulties, delays, or failures by Accel or its stakeholders in obtaining or maintaining required licenses or approvals.

Accel operates only in jurisdictions where gaming is legal. The gaming industry is subject to extensive governmental regulation by federal, state, and local governments, which customarily includes some form of licensing or regulatory screening of operators, suppliers, manufacturers and distributors and their applicable affiliates, their major stockholders, officers, directors and key employees. In addition, certain gaming products and technologies must be certified or approved in certain jurisdictions in which Accel operates, and these regulatory requirements vary from jurisdiction to jurisdiction. The scope of the approvals required can be extensive. Regulators review many facets of an applicant or holder of a license, including its financial stability, integrity and business experience. While the regulatory requirements vary by jurisdiction, most require:

•~~licenses and/or permits;~~

•~~documentation of qualifications, including evidence of financial stability;~~

•~~other required approvals for companies who design, assemble, supply or distribute gaming equipment and services; and~~

•~~individual suitability of officers, directors, major equity holders, lenders, key employees and business partners.~~

Accel may not be able to obtain or maintain all necessary registrations, licenses, permits or approvals, or could experience delays related to the licensing process which could adversely affect its operations and ability to retain key employees. If Accel fails to obtain a license required in a particular jurisdiction for games and gaming terminals, hardware or software or have such license revoked, it will not be able to expand into, or continue doing business in, such jurisdiction. Any delay, difficulty or failure by Accel to obtain or retain a required license or approval in one jurisdiction could negatively impact the ability to obtain or retain required licenses and approvals in other jurisdictions, or affect eligibility for a license in other jurisdictions, which can negatively affect opportunities for growth. For example, if Accel’s license to operate in Illinois is not renewed as a result of a failure to satisfy suitability requirements or otherwise, its ability to obtain or maintain a license in Montana, Nevada, Nebraska, Pennsylvania, Georgia may be harmed. Unexpected changes or concessions required by local, state or federal regulatory authorities could involve significant additional costs and delay. The necessary permits, licenses and approvals may not be obtained within the anticipated time frames, or at all. Additionally, licenses, approvals or findings of suitability may be revoked, suspended or conditioned at any time. If a license, approval or finding of suitability is required by a regulatory authority and Accel fails to seek or does not receive the necessary approval, license or finding of suitability, or if it is granted and subsequently revoked, it could have an adverse effect on Accel’s results of operations, cash flows and financial condition.

For example, Accel has received a terminal operator license from the Pennsylvania Gaming Control Board (the “PA Board”). While Accel does not expect that the composition of the PA Board will change prior to the next Pennsylvania gubernatorial election in 2022, there can be no assurances with respect thereto, and any changes in composition to the PA Board could alter existing interpretations or enforcement of the Pennsylvania Gaming Act. In Illinois, Accel was granted its original license to conduct business as a terminal operator by the Illinois Gaming Board (the “IGB”) in 2012, and has most recently had its license renewed in June 2020, retroactive to March 2020 for a period of one year. The Company was also granted a manufacturer, distributor and route operator license by the Gambling Control Division of the Montana Department of Justice through June 2023. The Montana license is renewable annually. Additionally, in Nevada, Accel was 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. Renewal of each of the Illinois license and the Nevada license is subject to, among other things, continued satisfaction of suitability requirements.

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In addition to any licensing requirements, all of Accel’s location partners are required to be licensed, and delays in or failure to obtain approvals of these licenses may adversely affect results of operations, cash flows and financial condition. Accel and certain of its affiliates, major stockholders (generally persons and entities beneficially owning a specified percentage (typically 5% or more) of equity securities), directors, officers and key employees are subject to extensive background investigations, personal and financial disclosure obligations and suitability standards in its businesses. Certain jurisdictions may require the same from Accel’s lenders or key business partners. The failure of these individuals and business entities to submit to such background checks and provide required disclosure, or delayed review or denial of application resulting from such submissions, could jeopardize Accel’s ability to obtain or maintain licensure in such jurisdictions. Any delay, difficulty, or failure by any of Accel’s major stockholders, directors, officers, key employees, products or technology, to obtain or retain a required license or approval in one jurisdiction could negatively impact its licensure in other jurisdictions, which can ultimately negatively affect opportunities for growth. In addition, the failure of Accel’s officers, directors, key employees or business partners, equity holders, or lenders to obtain or maintain licenses in one or more jurisdictions may require Accel to modify or terminate its relationship with such officers, directors, key employees or business partners, equity holders, or lenders, or forego doing business in such jurisdiction. The licensing procedures and background investigations of the authorities that regulate Accel’s businesses may inhibit potential investors from becoming significant stockholders, inhibit existing stockholders from retaining or increasing their ownership, or inhibit existing stockholders from selling their shares to potential investors who are found unsuitable to hold Accel stock by gaming authorities or whose stock ownership may adversely affect Accel’s ability to obtain, maintain, renew or qualify for a license, contract, franchise or other regulatory approval from a gaming authority.

Unfavorable economic conditions or decreased discretionary spending due to other factors such as terrorist activity or threat thereof, epidemics, pandemics or other public health issues, civil unrest or other economic or political uncertainties, may adversely affect Accel’s business, results of operations, cash flows and financial condition.

Unfavorable economic conditions, including recession, economic slowdown, decreased liquidity in the financial markets, decreased availability of credit, rising interest rates and labor shortages, or inflation or stagflation, could have a negative effect on Accel’s business. Unfavorable economic conditions could cause location partners to shut down or ultimately declare bankruptcy, which could adversely affect Accel’s business. Unfavorable economic conditions may also result in volatility in the credit and equity markets. For example, ~~the~~U.S. capital and credit markets may be adversely affected by numerous factors including: instability in the ~~recent~~U.S. and global banking systems due to financial institutions experiencing financial distress, entering into receivership or becoming insolvent, or concerns or rumors about any events of these kinds; the conflict between Russia and Ukraine, ~~and~~ the possibility of a wider European or global conflict and global sanctions imposed in response ~~thereto.~~thereto; as well as protracted negotiations regarding the U.S. federal debt ceiling or the U.S. government's failure to raise the debt ceiling. 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. Accel cannot fully predict the effects that unfavorable social, political and economic conditions and economic uncertainties and decreased discretionary spending could have on its business.

Accel’s revenue is largely driven by players’ disposable incomes and level of gaming activity. Unfavorable economic conditions may reduce the disposable incomes of players at 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. Adverse changes in discretionary consumer spending or consumer preferences, which may result in fewer players visiting location partners and reduced frequency of visits and play levels, could also be driven by an unstable job market, outbreaks (or fear of outbreaks) of contagious diseases, such as the COVID-19 ~~outbreak and its variants,~~pandemic, inflation, stagflation, rising interest rates or other factors. Socio-political factors such as terrorist activity or threat thereof, civil unrest or other economic or political uncertainties that contribute to consumer unease may also result in decreased discretionary spending by players and have a negative effect on Accel.

~~Accel’s revenue growth and future success depends on its ability to expand into new markets, which may not occur as anticipated or at all.~~

Accel’s future success and growth depend in large part on the successful addition of new locations as partners (whether through organic growth, conversion from competitors or partner relationships) and on the entry into new markets, including other licensed jurisdictions such as Pennsylvania, where Accel was granted a license as a terminal operator in November 2020 but has not commenced gaming operations as of September 30, 2022; Georgia, where Accel acquired Tom’s Amusement Company, Inc.,

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~~a Southeastern U.S. amusement operator and Master Licensee, in July 2020, and Island Games, Inc., a southern Georgia amusement operator in May 2021; Iowa, where Accel recently acquired~~

Risks Related to our Financial Condition

Adverse developments affecting the amusement and ATM assets of the affiliated companies, Rich and Junnie's Inc. and JBCJ, Inc.; Montana and Nevada, where Accel acquired all of the outstanding equity interests of Century Gaming Inc. (“Century”) in June 2022; and Nebraska, where Accel acquired substantially all of the mechanical amusement device and ATM assets of VVS, Inc. in August 2022. These markets are newer to Accel and its success depends in part on displacing entrenched competitors who are familiar with these markets and are known to players. In many cases, Accel is attempting to enter intofinancial services industry, such as actual events or ~~expand its presence in these newer markets and where the appeal and success of gaming terminals and other forms of entertainment has not yet been proven. In some cases, Accel may need to develop~~concerns involving liquidity, defaults, or expand its sales channels and leverage the relationships with its location partners in order to execute this strategy. There can be no assurance that video gaming will have success with new location partnersnon-performance by financial institutions or in new markets, or that it will succeed in capturing a significant or even acceptable market share in any new markets, including Pennsylvania, Georgia, Nebraska and Iowa. In addition, it is possible that Accel will not be able to commence operations in the Pennsylvania market due to regulatory or other concerns. See “— Accel is subject to strict government regulations that are constantly evolving and may be amended, repealed, or subject to new interpretations, which may limit existing operations, have an adverse impact on the ability to grow or may expose Accel to fines or other penalties.~~” If Accel fails to successfully expand into these markets, it may have difficulty growing its business and may lose business to its competitors.~~

~~Accel’s business is geographically concentrated, which subjects it to greater risks from changes in local or regional conditions.~~

Accel currently installs gaming terminals and amusement devices in locations primarily in Illinois. Due to this geographic concentration, Accel’s results of operations, cash flows and financial condition are subject to greater risks from changes in local and regional conditions, such as:

•~~changes in local or regional economic conditions and unemployment rates;~~

•~~changes in local and state laws and regulations, including gaming laws and regulations;~~

•~~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).~~

Accel largely depends on local markets of each location for players. Local competitive risks and the failure of location partners to attract a sufficient number of guests, players and other visitors in these locationstransactional counterparties, could adversely affect Accel’s ~~business. As~~financial condition and results of operations.

Actual events involving reduced or limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds, have in the past and may in the future lead to market-wide credit and liquidity problems. For example, in March 2023, Silicon Valley Bank and Signature Bank were closed and taken over by the Federal Deposit Insurance Corporation as receiver and Credit Suisse and UBS entered into a ~~result~~merger agreement following the intervention of the ~~geographic concentration of~~Swiss regulators. Although Accel did not have cash or cash equivalent balances on deposit with these institutions, and these institutions were not lenders under Accel’s ~~businesses, it faces a greater risk of a negative impact on its results of operations, cash flows and financial condition~~indebtedness or counterparties to Accel’s interest rate hedging arrangements, instability in the event that Illinois is more severely impacted by any such adverse condition, as compared to other areas in the United States. Accel is subject to similar concentration risks in Georgia, Iowa, Montana and Nevada, and if Accel is successful in expanding its operations into Pennsylvania, NebraskaU.S. or ~~other gaming jurisdictions, it may also face similar concentration risk there.~~

~~Accel’s failure to successfully integrate its business with Century could materially adversely affect its business, and Accel may not realize the full benefits of the Century Acquisition.~~

Accel’s ability to realize the anticipated benefits of its June 2022 acquisition of Century Gaming, Inc. (the “Century Acquisition”), will depend, to a large extent, on its ability to successfully integrate our business with the business we acquired. Integrating and coordinating the operations and personnel of multiple businesses and managing the expansion in the scope of our operations andinternational financial systems involves complex operational, technological and personnel-related challenges. The potential difficulties, and resulting costs and delays, relating to the integration of our business with Century’s business include:

•~~the difficulty in integrating Century’s business and operations in an efficient and effective manner;~~

•~~the challenges in achieving strategic objectives and other benefits expected from the Century Acquisition;~~

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•~~the diversion of management’s attention from day-to-day operations;~~

•~~additional demands on management related to the increased size and scope of our company following the Century Acquisition;~~

•~~the assimilation of employees and the integration of different business cultures;~~

•~~challenges in attracting and retaining key personnel;~~

•~~the need to integrate information, accounting, finance, sales, billing, payroll and regulatory compliance systems;~~

•~~challenges in keeping existing customers and obtaining new customers; and~~

•~~challenges in combining sales and marketing activities.~~

There is no assurance that Accel will successfully or cost-effectively integrate with Century, and the costs of achieving systems integration may substantially exceed Accel’s current estimates. Issues that arise during this process may divert management’s attention away from Accel’s day-to-day operations, and any difficulties encountered in the integration process could cause internal disruption in general, which could adversely impact Accel’s relationships with customers, suppliers, employees and other constituencies. Combining Accel and Century’s different systems, technology, networks and business practices could be more difficult and time consuming than Accel anticipated, and could result in ~~additional unanticipated expenses. Accel~~less favorable commercial financing or derivative terms, including higher interest rates or costs and ~~Century’s combined results of operations could also be adversely affected by any issues Accel discovers that were attributable~~tighter financial and operating covenants, or systemic limitations on access to operations of the Century entities that arose before the acquisition. Moreover, as a non-public company at the time of the acquisition, Century did not have to comply with the requirements of the Sarbanes-Oxley Act of 2002credit and liquidity sources or hedging, thereby making it more difficult for ~~internal control over financial reporting and other procedures. Bringing the legacy systems for Century into compliance with those requirements may cause~~ Accel to ~~incur substantial additional expense. In addition, the integration process may cause an interruption of, or loss of momentum in, the activities of the combined business. If management is not able~~obtain financing on terms favorable to effectively manage the integration process, or if any significant business activities are interrupted as a result of the integration process, Accel’s business could suffer and its results of operations and financial condition may be harmed.

~~Risks Related to Compliance and Regulatory Matters~~

~~Accel is subject to strict government regulations that are constantly evolving and may be amended, repealed, or subject to new interpretations,~~it, which ~~may limit existing operations, have an adverse impact on the ability to grow or may expose Accel to fines or other penalties.~~

Accel is subject to the rules, regulations, and laws applicable to gaming, including, but not limited to, the Illinois Video Gaming Act, the Pennsylvania Gaming Act, the Georgia Lottery for Education Act, the Montana Video Gaming Control Act, and the Nevada Gaming Control Act. These gaming laws and related regulations are administered by the IGB, PA Board, the Georgia Lottery Corporation (the “GLC”), the Montana Department of Justice, Gambling Control Division and the NGC, respectively, which are regulatory boards with broad authority to create and interpret gaming regulations and to regulate gaming activities. These gaming authorities are authorized to:

•~~adopt additional rules and regulations under the implementing statutes;~~

•~~investigate violations of gaming regulations;~~

•~~enforce gaming regulations and impose disciplinary sanctions for violations of such laws, including fines, penalties and revocation of gaming licenses;~~

•~~review the character and fitness of manufacturers, distributors and operators of gaming services and equipment and make determinations regarding their suitability or qualification for licensure;~~

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•~~review and approve transactions (such as acquisitions, material commercial transactions, securities offerings and debt transactions); and~~

•~~establish and collect related fees and/or taxes.~~

Although Accel plans to maintain compliance with applicable laws as they evolve and to generally maintain good relations with regulators, there can be no assurance that Accel will do so, and that law enforcement or gaming regulatory authorities will not seek to restrict Accel’s business in their jurisdictions or institute enforcement proceedings if Accel is not compliant. For example, Accel is currently involved in an administrative hearing process with the IGB related to certain alleged violations of the Video Gaming Act and related rules. See “Legal Proceedings” for more information. There can be no assurance that any instituted enforcement proceedings will be favorably resolved, or that such proceedings will not have an adverse effect on its ability to retain and renew existing licenses or to obtain new licenses in other jurisdictions. Gaming authorities may levy fines against Accel or seize certain assets if Accel violates gaming regulations. Accel’s reputation may also be damaged by any legal or regulatory investigation, regardless of whether Accel is ultimately accused of, or found to have committed, any violation. A negative regulatory finding or ruling in one jurisdiction could have a material adverse ~~consequences in other jurisdictions, including with gaming regulators.~~

In addition to regulatory compliance risk, Illinois, Pennsylvania, Georgia, 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. Changes to gaming enabling legislation or new interpretations of existing gaming laws may hinder or prevent Accel from continuing to operate in the jurisdictions where it currently conducts business, which could increase operating expenses and compliance costs or decrease the profitability of operations. Repeal of gaming enabling legislation could result in losses of capital investments and revenue, limit future growth opportunities and have an adverse effectimpact on Accel’s results of operations, cash flows and financial condition. If any jurisdiction in which Accel operates were to repeal gaming enabling legislation, there could be no assurance that Accel could sufficiently increase revenue in other markets to maintain operations or service existing indebtedness. In particular, the enactment of unfavorable legislation or government efforts affecting or directed at gaming terminal manufacturers or gaming operators, such as referendums to increase gaming taxes or requirements to use local distributors, would likely have a negative impact on operations. For example, in June 2019, the Illinois legislature approved a gaming expansion bill that, in addition to providing for an increased number of possible gaming venues, also increases Illinois state tax on gaming revenue. Additionally, membership changes within regulatory agencies could impact operations. The IGB in particular has experienced significant personnel changes since the commencement of Accel’s gaming terminal operations in 2012. Changes in the composition of the IGB can impact current rules, regulations, policies, enforcement trends and overall agendas of the IGB.

~~Risks Related to Our Common Stock~~

Holders of common stock are subject to certain gaming regulations, and if a holder is found unsuitable by a gaming authority, that holder would not be able to, directly or indirectly, beneficially own common stock.

Holders of common stock are subject to certain gaming regulations. In Illinois, Georgia, Pennsylvania, Nevada and other regulated gaming jurisdictions, gaming laws can require any holder of common stock to be disclosed, file an application, be investigated, and qualify or have his, her or its suitability determined by gaming authorities. Gaming laws in Illinois, Georgia, Pennsylvania, Montana, Nevada and other regulated gaming jurisdictions also require any person who acquires beneficial ownership of more than 5% of voting securities of a gaming company to notify the gaming authorities, and gaming authorities may require such holders to apply for qualification or a finding of suitability, subject to limited exceptions for “institutional investors” that hold a company’s voting securities for investment purposes only. If a holder is found unsuitable by a gaming authority, that holder would not be able to, directly or indirectly, beneficially own common stock.

Gaming authorities have very broad discretion in determining whether an applicant should be deemed suitable. For any cause deemed reasonable by the gaming authorities, subject to certain administrative proceeding requirements, gaming regulators in Illinois, Pennsylvania, Montana, Nevada or elsewhere would have the authority to (i) deny any application; (ii) limit, condition,

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restrict, revoke, or suspend any license, registration, finding of suitability or approval, including revoking any licenses held by Accel to conduct business in the state or (iii) fine any person licensed, registered, or found suitable or approved. Any person required by a gaming authority to be found suitable, who is found unsuitable by the gaming authority, may not hold, directly or indirectly, the beneficial ownership of any voting security or beneficial or record ownership of any non-voting security or any debt security of any public corporation that is registered with the gaming authority beyond the time prescribed by the gaming authority. A finding of unsuitability by a particular gaming authority in Illinois, Pennsylvania, Montana, Nevada or elsewhere will impact that person’s ability to associate or affiliate with gaming licensees in that particular jurisdiction and could impact the person’s ability to associate or affiliate with gaming licensees in other jurisdictions.

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

Issuer ~~Purchases~~Purchase of Equity Securities

On November 22, 2021, the Company’s Board of Directors approved a share repurchase program of up to $200 million of shares of Class A-1 common stock. The timing and actual number of shares repurchased will depend on a variety of factors, including price, general business and market conditions, and alternative investment opportunities. Under the repurchase program, repurchases can be made from time to time using a variety of methods, including open market purchases or privately negotiated transactions, in compliance with the rules of the SEC and other applicable legal requirements. The repurchase program does not obligate the Company to acquire any particular amount of shares, and the repurchase program may be suspended or discontinued at any time at the Company’s discretion.

~~The Inflation Reduction~~All share repurchases were made under the Company’s publicly announced program, and there are no other programs under which the Company repurchases shares. Repurchases under our program 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 2022, enacted on August 16, 2022, among other things, imposes a 1% non-deductible, excise tax on repurchases of stock that are made by U.S. publicly traded corporations on or after January 1, 2023, which may affect our share repurchase program. The application of tax laws and related regulations is subject to legal and factual interpretation, judgment and uncertainty.

1934. The following table ~~provides~~presents a summary of share repurchases made during the ~~shares purchased under the share repurchase program in the third~~first quarter of ~~2022:~~2023:

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)
July 2022 679,329 $11.19 4,795,037 $144.0
August 2022 744,778 $10.06 5,539,815 $136.5
September 2022 841,000 $8.79 6,380,815 $129.1
Total 2,265,107


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

January 1, 2023 - January 31, 2023	249,821	$8.69	$109.8

February 1, 2023 - February 28, 2023	1,600	$9.02	$109.8

March 1, 2023 - March 31, 2023	225,297	$8.97	$107.8

Total	476,718	$8.82

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ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

5339

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ITEM 6. EXHIBITS


Exhibit No.						Exhibit

~~10.17(A)~~10.13* **						~~Separation~~Form of Restricted Stock Unit Award Agreement ~~by and between Accel Entertainment Gaming, LLC and Michael Marino, dated as of August 26, 2022.~~

10.23* **						Form of Performance-Based Restricted Stock Unit Award Agreement


31.1						Certification of Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a)

31.2						Certification of Principal Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a)

32.1						Section 1350 Certification of Principal Executive Officer

32.2						Section 1350 Certification of Principal Financial Officer

101.INS						XBRL Instance Document

101.SCH						XBRL Taxonomy Extension Schema Document

101.CAL						XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF						XBRL Taxonomy Extension Definition Linkbase Document

101.LAB						XBRL Taxonomy Extension Label Linkbase Document

101.PRE						XBRL Taxonomy Extension Presentation Linkbase Document

104						Cover Page Inline XBRL File (included in Exhibit 101)

* Filed herewith.

** Indicates management contract or compensation plan or agreement.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	ACCEL ENTERTAINMENT, INC.

Date: ~~November 8, 2022~~May 3, 2023	By:	/s/ ~~Mathew Ellis~~Christie Kozlik
		~~Mathew Ellis~~Christie Kozlik Chief ~~Financial~~Accounting Officer

5541


	Three months ended		Nine months ended
	September 30, 2022		September 30, 2022
Decrease to depreciation expense	$	1,228	$	3,685
Decrease to amortization expense	$	2,770	$	8,215
Increase to net income	$	2,859	$	8,511
Increase to net income per share	$	0.03	$	0.09