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~~quarterly period ended March 31, ~~2023~~2024

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

For the transition period from _______ to ______

Commission File Number 001-38136

Accel Entertainment, Inc.

(Exact Name of Registrant as ~~Specified~~specified in ~~Its Charter)~~its charter)


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

140 Tower Drive
Burr Ridge, Illinois 60527
(Address of ~~Principal Executive Offices)~~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~~each class	Trading Symbols	Name of ~~Each Exchange~~each exchange on ~~Which Registered~~which registered
Class A-1 Common Stock, par value $.0001 per share	ACEL	The New York Stock Exchange

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

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

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

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

As of May ~~1, 2023,~~6, 2024, there were ~~86,005,125~~83,746,192 shares outstanding of the registrant’s Class A-1 Common Stock, par value $.0001 per share.

ACCEL ENTERTAINMENT, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, ~~2023~~2024

TABLE OF CONTENTS


PART I.	FINANCIAL INFORMATION	1
ITEM 1.	FINANCIAL STATEMENTS	1
	Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited) for the three months ended March 31, ~~2023~~2024 and ~~2022~~2023	1
	Condensed Consolidated Balance Sheets atas of March 31, ~~2023~~2024 (Unaudited) and December 31, ~~2022~~2023	2
	Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) for the three months ended March 31, ~~2023~~2024 and ~~2022~~2023	3
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the three months ended March 31, ~~2023~~2024 and ~~2022~~2023	4
	Notes to the Condensed Consolidated Financial Statements (Unaudited)	6
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	2421

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	3530

ITEM 4.	CONTROLS AND PROCEDURES	3531

PART II.	OTHER INFORMATION	3732
ITEM 1.	LEGAL PROCEEDINGS	3732
ITEM 1A.	RISK FACTORS	3732
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	3832
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	3933
ITEM 4.	MINE SAFETY DISCLOSURES	3933
ITEM 5.	OTHER INFORMATION	33
ITEM 6.	EXHIBITS	4034

SIGNATURES		4135

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

ACCEL ENTERTAINMENT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Unaudited)

(In thousands, except per share amounts)

Three Months Ended
March 31,

2023

2022

Revenues:

(In thousands, except per share amounts)

2024

Net revenues:

Net gaming

279,380

188,462

Amusement

6,798

4,990

Amusement

Manufacturing

2,122

—

ATM fees and other revenue

4,908

3,439

Manufacturing

ATM fees and other

Total net revenues

293,208

196,891

Operating expenses:

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)

1,408

—

Cost of manufacturing goods sold (exclusive of depreciation and amortization expense shown below)

General and administrative

43,018

31,119

Depreciation and amortization of property and equipment

9,063

5,841

Depreciation and amortization of property and equipment

Amortization of intangible assets and route and customer acquisition costs

5,242

3,548

Other expenses, net

3,251

2,556

Other expenses, net

Total operating expenses

265,536

175,684

Operating income

27,672

21,207

Operating income

Interest expense, net

7,888

4,001

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

4,602

(3,417)

Interest expense, net

Loss on change in fair value of contingent earnout shares

Income before income tax expense

15,182

20,623

Income tax expense

6,000

4,835

Income tax expense

Net income

9,182

15,788

Earnings per common share:

Basic

0.11

0.17

Diluted

0.11

0.17

Weighted average number of shares outstanding:

Diluted

Weighted average number of common shares outstanding:

Basic

86,885

92,993

Basic

Diluted

87,132

93,741

Comprehensive income

Net income

9,182

15,788

Unrealized (loss) gain on interest rate caplets (net of income taxes of $(829) and $1,934, respectively)

(2,166)

4,864

Unrealized gain (loss) on interest rate caplets (net of income taxes of $405 and $(829), respectively)

Comprehensive income

7,016

20,652

Comprehensive income

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)	March 31,		December 31,		(In thousands, except par value and share amounts)	March 31,		December 31,
		2023		2022
	2024							2024		2023
Assets	Assets	(Unaudited)
Current assets:	Current assets:
Current assets:
Current assets:
Cash and cash equivalents
Cash and cash equivalents
Cash and cash equivalents	Cash and cash equivalents	$	228,529	$	224,113
Accounts receivable, net	Accounts receivable, net	7,740		11,166
Prepaid expenses	Prepaid expenses	7,078		7,407
Inventories	Inventories	7,476		6,941
Income taxes receivable		—		538

Interest rate caplets	Interest rate caplets	8,205		8,555
Investment in convertible notes		32,065		32,065
Interest rate caplets
Interest rate caplets

Other current assets
Other current assets
Other current assets	Other current assets	8,166		8,427
Total current assets	Total current assets	299,259		299,212
Property and equipment, net	Property and equipment, net	225,758		211,844
Noncurrent assets:	Noncurrent assets:
Route and customer acquisition costs, net
Route and customer acquisition costs, net
Route and customer acquisition costs, net	Route and customer acquisition costs, net	18,378		18,342
Location contracts acquired, net	Location contracts acquired, net	185,083		189,343
Goodwill	Goodwill	101,554		100,707
Other intangible assets, net	Other intangible assets, net	22,370		22,979
Interest rate caplets, net of current	Interest rate caplets, net of current	8,471		11,364

Other assets	Other assets	9,455		8,978
Other assets
Other assets
Total noncurrent assets	Total noncurrent assets	345,311		351,713
Total assets	Total assets	$	870,328	$	862,769
Liabilities and Stockholders’ Equity	Liabilities and Stockholders’ Equity
Current liabilities:	Current liabilities:
Current liabilities:
Current liabilities:
Current maturities of debt
Current maturities of debt
Current maturities of debt	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
Current portion of route and customer acquisition costs payable	Current portion of route and customer acquisition costs payable	1,513		1,487
Accrued location gaming expense	Accrued location gaming expense	6,614		7,791
Accrued state gaming expense	Accrued state gaming expense	18,517		16,605
Accounts payable and other accrued expenses	Accounts payable and other accrued expenses	28,287		22,302
Accrued compensation and related expenses	Accrued compensation and related expenses	6,704		10,607
Current portion of consideration payable	Current portion of consideration payable	7,760		7,647
Total current liabilities	Total current liabilities	92,864		89,905
Long-term liabilities:	Long-term liabilities:
Debt, net of current maturities	Debt, net of current maturities	514,146		518,566
Debt, net of current maturities
Debt, net of current maturities
Route and customer acquisition costs payable, less current portion	Route and customer acquisition costs payable, less current portion	4,751		5,137
Consideration payable, less current portion	Consideration payable, less current portion	6,521		6,872
Contingent earnout share liability	Contingent earnout share liability	27,890		23,288
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	594,978		594,274
Stockholders’ equity:	Stockholders’ equity:
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		9		9
Preferred Stock, par value of $0.0001; 1,000,000 shares authorized; 0 shares issued and outstanding at March 31, 2024 and December 31, 2023
Preferred Stock, par value of $0.0001; 1,000,000 shares authorized; 0 shares issued and outstanding at March 31, 2024 and December 31, 2023
Preferred Stock, par value of $0.0001; 1,000,000 shares authorized; 0 shares issued and outstanding at March 31, 2024 and December 31, 2023
Class A-1 Common Stock, par value $0.0001; 250,000,000 shares authorized; 95,266,660 shares issued and 83,778,268 shares outstanding at March 31, 2024; 95,016,960 shares issued and 84,123,385 shares outstanding at December 31, 2023

Additional paid-in capital
Additional paid-in capital
Additional paid-in capital	Additional paid-in capital	195,243		194,157
Treasury stock, at cost	Treasury stock, at cost	(85,903)		(81,697)
Accumulated other comprehensive income	Accumulated other comprehensive income	10,074		12,240
Accumulated earnings	Accumulated earnings	63,063		53,881
Total stockholders' equity	Total stockholders' equity	182,486		178,590
Total liabilities and stockholders' equity	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)	(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
		Class A-1
		Class A-1
		Class A-1																	Additional		Treasury				Other				Total
	Common Stock																Common Stock					Paid-In		Stock			Comprehensive	Accumulated		Stockholders’
	Shares															Shares		Amount		Capital			Shares			Amount	Income	Earnings		Equity
Balance, January 1, 2024
Repurchase of common stock	Repurchase of common stock	(476,718)	—		—		(476,718)	(4,206)		—		—		(4,206)
Stock-based compensation	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)
Exercise of stock-based awards, net of shares withheld
Unrealized gain on interest rate caplets, net of taxes
Net income	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
Balance, March 31, 2024

(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


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

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

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)	Three Months Ended March 31,				(In thousands)	Three Months Ended March 31,
		2023		2022
	2024							2024	2023
Cash flows from operating activities:	Cash flows from operating activities:
Net income
Net income
Net income	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:
Depreciation and amortization of property and equipment	Depreciation and amortization of property and equipment	9,063		5,841
Depreciation and amortization of property and equipment
Depreciation and amortization of property and equipment
Amortization of intangible assets and route and customer acquisition costs	Amortization of intangible assets and route and customer acquisition costs	5,242		3,548
Amortization of debt issuance costs	Amortization of debt issuance costs	449		626
Loss (gain) on change in fair value of contingent earnout shares		4,602		(3,417)
Loss on change in fair value of contingent earnout shares

Stock-based compensation	Stock-based compensation	1,688		1,605
(Gain) on disposal of property and equipment		(9)		(105)
Stock-based compensation
Stock-based compensation
Loss (gain) on disposal of property and equipment
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	321		174

Remeasurement of contingent consideration
Remeasurement of contingent consideration
Remeasurement of contingent consideration	Remeasurement of contingent consideration	162		(385)
Payments on consideration payable	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	383		708
Deferred income taxes	Deferred income taxes	2,315		2,775
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:
Prepaid expenses and other current assets	Prepaid expenses and other current assets	589		199
Prepaid expenses and other current assets
Prepaid expenses and other current assets
Accounts receivable, net	Accounts receivable, net	3,426		—
Inventories	Inventories	(529)		—
Income taxes receivable		538		—
Route and customer acquisition costs	Route and customer acquisition costs	(730)		(469)
Route and customer acquisition costs payable	Route and customer acquisition costs payable	(424)		(184)
Accounts payable and accrued expenses	Accounts payable and accrued expenses	5,588		1,173
Accrued compensation and related expenses	Accrued compensation and related expenses	(3,903)		(4,642)
Other assets	Other assets	581		(58)
Net cash provided by operating activities	Net cash provided by operating activities	37,983		22,061
Cash flows from investing activities:	Cash flows from investing activities:
Purchases of property and equipment	Purchases of property and equipment	(21,461)		(6,752)
Purchases of property and equipment
Purchases of property and equipment
Proceeds from the sale of property and equipment	Proceeds from the sale of property and equipment	476		365

Advances against a portion of the purchase price on a pending business acquisition

Advances against a portion of the purchase price on a pending business acquisition

Advances against a portion of the purchase price on a pending business acquisition
Business and asset acquisitions, net of cash acquired	Business and asset acquisitions, net of cash acquired	(2,600)		—
Net cash used in investing activities	Net cash used in investing activities	(23,585)		(6,387)
Cash flows from financing activities:	Cash flows from financing activities:
Proceeds from debt	Proceeds from debt	8,000		—
Proceeds from debt
Proceeds from debt
Payments on debt	Payments on debt	(12,625)		(4,375)

Payments for repurchase of common stock	Payments for repurchase of common stock	(4,206)		(13,934)
Payments for repurchase of common stock
Payments for repurchase of common stock
Payments on interest rate caplets	Payments on interest rate caplets	(240)		(157)
Proceeds from exercise of stock options		—		38
Proceeds from exercise of stock-based awards
Payments on finance leases
Payments on consideration payable	Payments on consideration payable	(168)		(1,084)
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		4,416		(3,888)
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents:	Cash and cash equivalents:
Beginning of period
Beginning of period
Beginning of period	Beginning of period	224,113		198,786
End of period	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)
(In thousands)						(In thousands)	Three Months Ended March 31,
	2024							2024		2023
Supplemental disclosures of cash flow information:	Supplemental disclosures of cash flow information:
Cash payments (refunds) for:
Interest		$	9,275	$	3,386
Cash payments for:
Cash payments for:
Cash payments for:
Interest, net
Interest, net
Interest, net
Income taxes	Income taxes	$	—	$	(204)
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	$	10,885	$	4,338
Purchases of property and equipment in accounts payable and accrued liabilities
Purchases of property and equipment in accounts payable and accrued liabilities
Deferred premium on interest rate caplets	Deferred premium on interest rate caplets	$	2,784	$	3,898

Acquisition of businesses and assets:

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	$	2,600	$	—
Total identifiable net assets acquired
Total identifiable net assets acquired

Cash purchase price	Cash purchase price	$	2,600	$	—

Cash purchase price

Cash purchase price

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

Table of Contents

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~~States (“~~IGB”~~U.S.”) 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 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”)~~has operations in Illinois, Montana, Nevada, Nebraska, Georgia, 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 gaming locations, and amusement equipment at certain locations.~~

Pennsylvania. The Company is ~~also~~ subject to the various gaming regulations in the states in which it operates, as well as various other federal, state and local laws and ~~regulations~~regulations.

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

Note 2. Summary of Significant Accounting Policies

Basis of presentation and preparation: The condensed consolidated financial statements and accompanying notes were prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”). The condensed consolidated financial statements include the accounts of the Company and of its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. In the opinion of management, the condensed consolidated financial statements include all recurring adjustments and normal accruals necessary for a fair presentation of the Company’s financial position, results of operations and cash flows for the dates and periods presented. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2022~~2023 (the “Form 10-K”). In preparing our condensed consolidated financial statements, we applied the same significant accounting policies as described in Note 2 to the consolidated financial statements in the Form 10-K. Any significant changes to those accounting policies are discussed below. Interim results are not necessarily indicative of results for a full year.

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

~~Table of Contents~~

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

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 its resources. The CODM assesses the Company’s performance and allocates resources based on consolidated results, and this is the only discrete financial information that is regularly reviewed by the CODM.

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

~~Total net revenues for the three months ended~~ ~~March 31,~~ ~~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)
Three Months Ended
March 31,
2023 2022
Net revenues by state:
Illinois $ 219,843 $ 194,859
Montana 36,451 —
Nevada 29,961 —
Other 6,953 2,032
Total net revenues $ 293,208 $ 196,891

~~Recent accounting pronouncements~~: ~~In October 2021, the FASB issued 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”)~~ 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 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.~~ Revenue recognition: The Company ~~currently references LIBOR for certain debt and hedging arrangements. While no material impacts are expected~~generates revenues from the ~~transition~~following types of services: gaming terminals, amusements, and ATMs. The Company also generates manufacturing revenue from ~~LIBOR~~the sales of gaming terminals and associated software. Revenue is disaggregated by type of revenue and is presented on the face of the condensed consolidated statements of operations and comprehensive income.

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


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

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

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

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

Note 3. Inventories

Inventories ~~were~~consist of the following as ~~follows (in thousands):~~

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 ofMarch 31, ~~2023~~2024 and December 31, ~~2022,~~2023 (in thousands):


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

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

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Accel Entertainment, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements — (Continued)

Note 4. Investment in Convertible Notes

On ~~July 19, 2019,~~May 31, 2023, the Company ~~entered into an agreement to purchase up to $30.0 million in convertible notes from~~and 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~~entered into a settlement agreement which resolved any and all lawsuits and all outstanding obligations under 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 toCompany’s investment in 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~~notes. As part 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,~~settlement, the Company received ~~notice~~$32.5 million from Gold Rush in June 2023, which included the ~~administrator~~repayment 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.

~~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.

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 (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 fairface value of the convertible notes plus accrued interest as ~~current~~well as a $0.4 million prepayment on future amounts due. In addition, the Company has a receivable from Gold Rush of $1.4 million as of March 31, 2024, which represents the present value of the remaining $1.5 million due from Gold Rush by May 2025, and is presented within other assets in the condensed consolidated balance sheets 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. Changes in the fair value of the convertible notes are included within comprehensive income on the accompanying condensed consolidated ~~statements of operations and comprehensive income, if applicable. For more information on how the Company determined the fair value of the convertible notes, see Note 12.~~sheets.

Note 5. Property and Equipment

Property and equipment consist of the following as ofat March 31, ~~2023~~2024, and December 31, ~~2022~~2023 (in thousands):


		March 31, 2023		December 31, 2022
Gaming terminals and equipment		$	310,209	$	266,972
Amusement and other equipment		26,227		39,249
	March 31, 2024					March 31, 2024	December 31, 2023
Gaming terminals, software and equipment
Amusement, ATM and other equipment
Office equipment and furniture	Office equipment and furniture	2,704		6,996
Computer equipment and software	Computer equipment and software	18,823		21,515
Leasehold improvements	Leasehold improvements	7,362		11,945
Vehicles	Vehicles	17,083		2,534
Buildings and improvements	Buildings and improvements	12,259		1,143
Land	Land	1,663		14,531
Construction in progress	Construction in progress	4,642		13,950
Total property and equipment	Total property and equipment	400,972		378,835
Less accumulated depreciation and amortization	Less accumulated depreciation and amortization	(175,214)		(166,991)
Property and equipment, net		$	225,758	$	211,844
Total property and equipment, net

Depreciation and amortization of property and equipment was ~~$9.1~~$10.4 million and ~~$5.8~~$9.1 million for the three months ended March 31, ~~2023,~~2024 and ~~2022~~2023, 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)~~

Note 6. Route and Customer Acquisition Costs

The Company enters into contracts with third parties and its gaming locations to install and operate gaming terminals. ~~When~~Payments are due when gaming operations commence ~~payments are due monthly or quarterly.~~and then on a periodic basis for a specified period of time thereafter. Gross payments due, based on the number of live locations, were approximately ~~$7.2~~$7.1 million and ~~$7.6~~$7.4 million as of March 31, ~~2023,~~2024 and December 31, ~~2022,~~2023, respectively. Payments are due over varying terms of the individual agreements and are discounted at the Company’s incremental borrowing rate associated with its long-term debt at the time the contract is acquired. The net present value of payments due was ~~$6.3~~$6.2 million and ~~$6.6~~$6.5 million as of March 31, ~~2023,~~2024 and December 31, ~~2022,~~2023, respectively, of which approximately $1.5 million iswas included in current liabilities in the accompanying condensed consolidated balance sheets as of both March 31, ~~2023,~~2024 and December 31, ~~2022.~~2023. The route and customer acquisition cost asset was comprised of payments made on the contracts of ~~$18.3~~$21.7 million and ~~$17.9~~$20.0 million as of March 31, ~~2023,~~2024 and December 31, ~~2022,~~2023, respectively. The Company has upfront payments of commissions paid to the third parties for the acquisition of the customer contracts that are subject to a clawback provision if the customer cancels the contract prior to completion. The payments subject to a clawback were $1.0 million ~~and $1.2 million~~ as of both March 31, ~~2023,~~2024 and December 31, ~~2022, respectively.~~2023.

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Accel Entertainment, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements — (Continued)

Route and customer acquisition costs consisted of the following atas of March 31, ~~2023~~2024 and December 31, ~~2022~~2023 (in thousands):


		March 31, 2023		December 31, 2022
	March 31, 2024					March 31, 2024	December 31, 2023
Cost	Cost	$	32,112	$	31,805
Accumulated amortization	Accumulated amortization	(13,734)		(13,463)
Route and customer acquisition costs, net	Route and customer acquisition costs, net	$	18,378	$	18,342

Amortization expense of route and customer acquisition costs was ~~$0.4~~$0.5 million and ~~$0.3~~$0.4 million for the three months ended March 31, ~~2023,~~2024 and ~~2022,~~2023, respectively.

Note 7. Location Contracts Acquired

Location contract assets acquired in business acquisitions are recorded at acquisition at fair value based on an income approach. Location contracts acquired consisted of the following atas of March 31, ~~2023~~2024 and December 31, ~~2022~~2023 (in thousands):


		March 31, 2023		December 31, 2022
	March 31, 2024					March 31, 2024	December 31, 2023
Cost	Cost	$	282,653	$	282,653
Accumulated amortization	Accumulated amortization	(97,570)		(93,310)
Location contracts acquired, net	Location contracts acquired, net	$	185,083	$	189,343

Amortization expense of location contracts acquired was $4.3 million ~~and $3.3 million~~ for both the three months ended March 31, ~~2023,~~2024 and ~~2022, respectively.~~2023.

Note 8. Goodwill and Other Intangible Assets

The Company acquired various companies which were accounted for as a business combination using the acquisition method of accounting in accordance with ~~ASC~~Accounting Standards Codification (“ASC”) Topic 805, Business Combinations(“Topic 805”). The total excess of the purchase price over the tangible and intangible assets acquired and liabilities assumed was recorded as goodwill of $101.6 million ~~and $100.7 million~~ as of both March 31, ~~2023,~~2024 and December 31, ~~2022, respectively,~~2023, of which ~~$41.6~~$38.0 million was deductible for tax purposes as of March 31, ~~2023.~~2024.

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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, 2023~~	$	~~100,707~~
~~Addition to goodwill for acquisition of Rendezvous~~	~~847~~
~~Goodwill balance as of March 31, 2023~~	$	~~101,554~~

Other intangible assets

Other intangible assets ~~net of $22.4 million and $23.0 million as of March 31, 2023 and December 31, 2022, respectively, consisted~~consist of definite-lived trade names, customer relationships, and software applications. ~~Other intangible assets are related to the acquisition of Century which occurred in the second quarter of 2022.~~ The Company determines the fair value of trade name assets acquired in acquisitions using a relief from royalty valuation method which requires assumptions such as projected revenue and a royalty rate. Other intangible assets are amortized over their estimated 7 to 20-year useful lives.

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Accel Entertainment, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements — (Continued)

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


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

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

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

Indefinite-lived intangible assets

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

Note 9. Debt

The Company’s debt as of March 31, ~~2023,~~2024 and December 31, ~~2022,~~2023, consisted of the following (in thousands):


		March 31, 2023		December 31, 2022
	March 31, 2024					March 31, 2024	December 31, 2023
Senior Secured Credit Facility:	Senior Secured Credit Facility:
Revolving credit facility
Revolving credit facility
Revolving credit facility	Revolving credit facility	$	122,000	$	121,000
Term Loan	Term Loan	323,750		328,125
Delayed Draw Term Loan	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
Total borrowings
Add: Remaining premium on interest rate caplets financed as debt
Less: Debt issuance costs	Less: Debt issuance costs	(5,919)		(6,368)
Total debt, net of debt issuance costs	Total debt, net of debt issuance costs	537,615		542,032
Less: Current maturities	Less: Current maturities	(23,469)		(23,466)
Total debt, net of current maturities	Total debt, net of current maturities	$	514,146	$	518,566

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

Interest rate caplets

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

. The Company recognized an unrealized ~~loss on~~gain, net of taxes, on the change in fair value of the caplets of $~~2.2~~1.1 million for the three months ended ~~and~~March 31, 2024, and an unrealized ~~gain~~ loss of ~~$4.9~~$2.2 million, net of taxes, for the three months ended 2023.~~March 31, 2023 and 2022, respectively.~~ For more information on how the Company determines the fair value of the caplets, see Note 12. FuT~~rther, as the 1-month LIBOR interest rate exceeded 2% beginning in the second half of 2022, the~~he Company also recognized interest income on the caplets of ~~$1.9~~$2.6 million and $1.9 millionfor the three ~~months~~months ended March 31, 2024 and 2023, respectively,

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Accel Entertainment, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements — (Continued)

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

Note 10. Business Acquisitions

2024 Business Acquisitions

Great Lakes Vending

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

Doc & Eddy’s

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

Subsequent event - Illinois Gaming Entertainment

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

Pending Business Acquisition

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

2023 Business Acquisitions

Illinois Video Slot Management

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

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Accel Entertainment, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements — (Continued)

~~Note 10. Business~~Company paid $0.7 million in cash at closing. The remaining $0.3 million of consideration is payable in three installments of $0.1 million which are due on the first, second and ~~Asset Acquisitions~~third anniversary of the acquisition assuming the location is still in operation. The total purchase price of $1.0 million was allocated to the following assets: i) a location contract totaling $0.9 million and ii) gaming equipment totaling $0.1 million. The results of operations for the IVSM acquisition is included in the condensed consolidated financial statements of the Company from the date of acquisition and were not material.

Illinois Gaming Entertainment

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

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

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

Rendezvous

On February 13, 2023, the Company acquired Rendezvous, a hospitality operation in Billings, Montana. The hospitality operation is set to be a Century vended location. The acquisition was accounted for as a business combination using the acquisition method of accounting in accordance with ~~ASC~~ Topic ~~805,~~ ~~Business Combinations~~ (“~~Topic 805~~”).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,~~million; ii) land totaling $0.5 ~~million,~~million; iii) buildings totaling $0.4 ~~million,~~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) 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 $12.0 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 ~~December 31, 2022 and is included within consideration payable on the consolidated balance 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) 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~~

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. 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 acquired and liabilities assumed of $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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~~Notes to Condensed Consolidated Financial Statements — (Continued)~~

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



~~Cash paid~~	$	~~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~~	~~(16,646)~~
~~Net assets acquired~~	$	~~110,909~~
~~Goodwill~~	$	~~53,356~~

~~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 $66.3 million and $1.7 million for the three months ended March 31, 2023.~~

~~Pro Forma Results~~

The following unaudited pro forma consolidated financial information reflects the results of operations of the Company for the three months ended 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 acquisition actually taken place as of January 1, 2021. This unaudited pro forma information does not project revenues and net income post acquisition (in thousands).


	~~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 March 31, ~~2023~~2024 and December 31, ~~2022.~~2023. The contingent consideration accrued is measured at fair value on a recurring basis. The Company presents on its statement of cash flows, payments for consideration payable within 90-days in investing activities, payments after 90-days and up to the acquisition date fair value in financing activities, and payments in excess of the acquisition date fair value in operating activities.

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~~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 atas of March 31, ~~2023~~2024 and December 31, ~~2022~~2023 (in thousands):

March 31, 2023 December 31, 2022
Current Long-Term Current Long-Term
TAV $ 1,265 $ 1,446 $ 1,025 $ 1,918
Fair Share Gaming 775 231 951 175
Family Amusement 2,054 — 2,032 —
Skyhigh 609 4,844 606 4,779
G3 433 — 433 —
VVS 2,466 — 2,442 —
Tom's Amusements 58 — 58 —
Island 100 — 100 —
Total $ 7,760 $ 6,521 $ 7,647 $ 6,872


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

Skyhigh*	553		3,994		528		3,941


IVSM	95		171		94		168

Tom's Amusements*	57		—		57		—


Island*	100		—		100		—


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

* Acquisitions that occurred prior to 2023.

Note 11. Contingent Earnout Share Liability

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

In 2019, 5,000,000 shares of Class A-2 ~~Common Stock~~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~~common stock will be exchanged for an equal number of validly issued, fully paid and non-assessable Class A-1 ~~Common Stock.~~common stock. The exchange of Class A-2 ~~Common Stock~~common stock for Class A-1 ~~Common Stock~~common stock will be subject to the terms and conditions set forth in the Restricted Stock Agreement, with such exchanges occurring in three separate tranches upon the satisfaction of the specified triggers, based either on the Company achieving certain last twelve month EBITDA (“LTM EBITDA”) thresholds in certain periods or the closing sale price of Class A-1 ~~Common Stock~~common stock exceeding certain prices over certain trading periods.

In 2020, the market condition for the settlement of Tranche I was satisfied. As a result, 1,666,636 shares of the 1,666,666 shares of Class A-2 ~~Common Stock~~common stock were converted into Class A-1 ~~Common Stock.~~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,~~common stock, for the remaining two Tranches are as follows:

•Tranche II, equal to 1,666,667 shares of Class A-2 ~~Common Stock,~~common stock, will be exchanged for Class A-1 ~~Common Stock~~common stock if ~~either (i) the LTM EBITDA threshold (A) as of March 31, 2023 is $172.4 million, and (B) as of June 30, 2023 is $177.4 million; (ii)~~ the closing sale price of Class A-1 ~~Common Stock~~common stock on the New York Stock Exchange (“NYSE”) equals or exceeds $14.00 for at least twenty trading days in any consecutive thirty trading day period; and

•Tranche III, equal to 1,666,667 shares of Class A-2 ~~Common Stock,~~common stock, will be exchanged for Class A-1 ~~Common Stock~~common stock if either (i) the LTM EBITDA threshold ~~(A)~~ as of ~~December 31, 2023 is $198.5 million and (B)~~ March 31, 2024 or June 30, 2024 is $198.6 million or (ii) the closing sale price of Class A-1 ~~Common Stock~~common stock on the NYSE equals or exceeds $16.00 for at least twenty trading days in any consecutive thirty trading day period.

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Notes to Condensed Consolidated Financial Statements — (Continued)

Note 12. Fair Value Measurements

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

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

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

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

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

Assets measured at fair value

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


				Fair Value Measurement at Reporting Date Using											Fair Value Measurement at Reporting Date Using
	March 31, 2024										March 31, 2024	Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Assets:
					Fair Value Measurement at Reporting Date Using
Interest rate caplets
		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:
Investment in convertible notes		$	32,065		$	—	$	—	$	32,065
Interest rate caplets	Interest rate caplets	16,676			—		16,676		—
Total		$	48,741		$	—	$	16,676	$	32,065

Interest rate caplets

Fair Value Measurement at Reporting Date Using

December 31, 2023

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

Significant Other Observable Inputs (Level 2)

Significant Unobservable Inputs (Level 3)

Assets:

Interest rate caplets

13,011

—

13,011

—

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Notes to Condensed Consolidated Financial Statements — (Continued)

Fair Value Measurement at Reporting Date Using
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:
Investment in convertible notes $ 32,065 $ — $ — $ 32,065
Interest rate caplets 19,919 — 19,919 —
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 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. 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~~LIBOR/SOFR forward interest rate curves. The valuation of the interest rate caplets is considered to be a Level 2 fair value measurement as the significant inputs are observable. Unrealized changes in the fair value of the interest rate caplets are classified within other comprehensive income on the accompanying condensed consolidated statements of operations and comprehensive income. Realized gains on the interest rate caplets are recorded to interest expense, net on the accompanying condensed consolidated statements of operations and comprehensive income and included within cash payments for interest, net on the condensed consolidated statements of cash flow.

Liabilities measured at fair value

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

~~Table of Contents~~


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

~~Accel Entertainment, Inc. and Subsidiaries~~

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

Fair Value Measurement at Reporting Date Using
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:
Contingent consideration $ 9,515 $ — $ — $ 9,515
Contingent earnout shares 27,890 — 27,890 —
Warrants 13 — 13 —
Total $ 37,418 $ — $ 27,903 $ 9,515


					Fair Value Measurement at Reporting Date Using
		December 31, 2022			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
				Fair Value Measurement at Reporting Date Using											Fair Value Measurement at Reporting Date Using
	December 31, 2023										December 31, 2023	Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Liabilities:	Liabilities:
Contingent consideration
Contingent consideration
Contingent consideration	Contingent consideration	$	9,543		$	—	$	—	$	9,543
Contingent earnout shares	Contingent earnout shares	23,288			—		23,288		—
Warrants	Warrants	13			—		13		—
Total	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 used in the Company's cash flow analysis includes the probability adjusted projected revenues after state taxes, a discount rate as applicable to each acquisition, and the estimated number of locations that “go live” with the Company during the contingent consideration period. The valuation of the Company's contingent consideration is considered to be a Level 3 fair value measurement as the significant inputs are unobservable and require significant judgment or estimation. Changes in the fair value of contingent consideration liabilities are classified within other expenses, net on the accompanying condensed consolidated statements of operations and comprehensive income.

Contingent earnout shares

The Company determined the fair value of the contingent earnout shares based on the market price of the Company's Class A-1 ~~Common Stock.~~common stock. The liability, by tranche, is then stated at present value based on i) an interest rate derived from the Company's borrowing rate and the applicable risk-free rate and ii) an estimate on when it expects the contingent earnout shares to convert to Class A-1 ~~Common Stock.~~common stock. The valuation of the Company's contingent consideration is considered to be a Level 2 fair

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Accel Entertainment, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements — (Continued)

value measurement. Changes in the fair value of contingent earnout shares are included within loss (gain) on change in fair value of contingent earnout shares on the accompanying condensed consolidated statements of operations and comprehensive income.

Warrants

The Company has 5,144 warrants outstanding as of March 31, ~~2023, the~~2024, which will expire in November 2024. The liability for ~~which~~the Company’s warrants is included in other long-term liabilities on the condensed consolidated balance sheets. The Company determined the fair value of its warrants by using a Black-Scholes option-pricing model. The Black-Scholes option-pricing model requires inputs such as the fair value of the Company's Class A-1 ~~Common Stock,~~common stock, the risk-free interest rate, expected term, expected dividend yield and expected volatility. The Company's valuation of its warrants is considered to be a Level 2 fair value measurement. Changes in the fair value of the warrants are included within gain on change in fair value of warrants on the accompanying condensed consolidated statements of operations and comprehensive income, if applicable. There was no change in the fair value of the warrants for the three months ended March 31, ~~2023~~2024 and ~~2022.~~2023.

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

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~~Accel Entertainment, Inc. and Subsidiaries~~

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

Note 13. Stockholders’ Equity

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

Class A-1 Common Stock

The holders of the Class A-1 ~~Common Stock~~common stock are entitled to one vote for each share. The holders of Class A-1 ~~Common Stock~~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. The timing and actual number of shares repurchased will depend on a variety of factors, including price, general business and market conditions, and alternative investment opportunities. Under the repurchase program, repurchases can be made from time to time using a variety of methods, including open market purchases or privately negotiated transactions, in compliance with the rules of the ~~United States Securities and Exchange Commission~~SEC and other applicable legal requirements. The repurchase program does not obligate the Company to acquire any particular amount of shares, and the repurchase program may be suspended or discontinued at any time at the Company’s discretion. As of March 31, ~~2023,~~2024, the Company ~~purchased~~acquired a total of ~~8,822,001~~12,004,014 shares under the plan at a total ~~cost~~purchase price of ~~$92.2~~$124.2 million, of which ~~476,718~~594,817 shares at a ~~cost~~total purchase price of ~~$4.2~~$6.1 million were ~~purchased~~acquired during the three~~three~~ months ended March 31, ~~2023~~2024.

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Accel Entertainment, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements — (Continued)

Note 14. Stock-based Compensation

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

Under the Accel Entertainment, Inc. Long Term Incentive Plan, the Company issued ~~356,786~~319,731 restricted stock units (“RSUs”) to the Board of Directors and certain eligible employees during the first quarter of ~~2023,~~2024, which will vest over a period of 3 to 4 years for employees and ~~a period~~by the end of ~~approximately 9 months~~2024 for the Board of Directors. The Company also issued ~~182,494~~149,381 performance-based restricted stock units (“PSUs”) to certain eligible employees during the first quarter of ~~2023,~~2024, which will vest after 3 years. The numbers of shares earned upon vesting of the PSUs, if any, is based on the attainment of performance goals over the performance period, subject to continued service, except for employees who are retirement eligible and in certain other limited circumstances. The estimated grant date fair value of these RSUs and PSUs totaled ~~$4.8~~$5.3 million.

Stock-based compensation expense, which pertains to the Company’s stock options, RSUs and PSUs, was ~~$1.7~~$2.4 million and ~~$1.6~~$1.7 million for the three months ended March 31, ~~2023,~~2024 and ~~2022,~~2023, respectively. Stock-based compensation expense is included within general and administrative expenses in the condensed consolidated statements of operations and other comprehensive income.

Note 15. Income Taxes

The Company recognized income tax expense of ~~$6.0~~$4.8 million and ~~$4.8~~$6.0 million for the three months ended March 31, ~~2023~~2024 and ~~2022,~~2023, respectively.

The Company calculates its provision for income taxes during interim reporting periods by applying an estimate of the annual effective tax rate to its year-to-date pretax book income or loss. The effective tax rate (income taxes as a percentage of income before income taxes) was ~~39.5%~~39.1% and ~~23.4%~~39.5% for the three months ended March 31, 2024, and 2023, ~~and 2022,~~ 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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~~Accel Entertainment, Inc. and Subsidiaries~~

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

adjustments and discrete items. The change in the fair value of the contingent earnout shares is considered a discrete item for tax purposes and was the primary driver for the fluctuations in the tax rate year over year.

Note 16. Commitments and Contingencies

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

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

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

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Accel Entertainment, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements — (Continued)

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

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

~~Table of Contents~~

~~Accel Entertainment, Inc. and Subsidiaries~~

~~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 the Company’s favor, and J&J has filed a new lawsuit to challenge the IGB’s rulings. The Company does not have a present estimate regarding the potential damages, if any, that could potentially be awarded in this litigation and, accordingly, has established no reserves relating to such matters. There are also petitions pending with the IGB which could lead to the Company obtaining new locations.

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

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

On December 18, 2020, the Company received a disciplinary complaint from the IGB alleging violations of the Video Gaming Act and the IGB’s Adopted Rules for Video Gaming. The disciplinary complaint ~~seeks~~sought to fine the Company in the amount of $5 million. On July 6, 2023, the IGB and the Company entered into a settlement agreement for $1.1 million of which $1.0 million is the fine for the alleged conduct and $0.1 million is for reimbursement of administrative and investigative costs. The amount was paid in the third quarter of 2023. As a result of the settlement agreement, the Company ~~filed~~has agreed to review

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Accel Entertainment, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements — (Continued)

similar initiatives with the IGB before implementing a new program or making any public announcements, require additional annual training of its ~~initial answer~~employees, and provide additional compliance disclosures to the ~~IGB’s complaint on January 11, 2021. On July 22, 2022, both parties filed motions for summary judgment. The Company expects decisions on the motions in the second quarter of 2023.~~IGB.

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

On March 25, 2022, Midwest Electronics Gaming LLC (“Midwest”) filed an administrative review action against the Illinois Gaming Board, the Company and J&J in the Circuit Court of Cook County, Illinois seeking administrative review of decisions of the IGB ruling in favor of the Company and J&J and against Midwest regarding the validity of certain use agreements covering locations currently serviced by Midwest. No monetary damages are sought against the Company. ~~A responsive pleading is not yet due.~~The Company filed a motion to dismiss Midwest’s amended complaint, which was granted in part and denied in part.

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

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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~~2022 and for the remaining months of ~~2022~~2022. The Company continued to negotiate with and ~~anticipates such~~voluntarily make the appropriate payments to ~~continue in 2023.~~the municipality during 2023 and 2024.

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

The results for both the three months ended March 31, ~~2022~~2024 and 2023 included a loss ~~of $1.0~~totaling $0.1 million related to these matters, ~~and~~which is included within ~~other~~general and administrative expenses ~~net~~ in the condensed consolidated statements of operations and other comprehensive ~~income~~incom.

~~Note 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”), the sellers became employees of the Company.

Consideration payable to the Fair Share seller was $1.0 million and $1.1 million as of March 31, 2023 and December 31, 2022, respectively. Payments to the Fair Share seller under the acquisition agreement were $0.3 million and $0.5 million during the three months ended March 31, 2023 and 2022, respectively.

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

Consideration payable to the Tom's Amusements seller was $0.1 million as of both March 31, 2023 and December 31, 2022. There were no payments to the Tom's Amusements seller during the three months ended March 31, 2023 and 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 $0.1 million and less than $0.1 million for the three months ended March 31, 2023 and 2022, respectively. These payments were included in general and administrative expenses within the ~~condensed~~ ~~consolidated statements of operations and comprehensive income.~~e.

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Accel Entertainment, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements — (Continued)

Note ~~18.~~17. Earnings Per Share

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


		Three Months Ended March 31,
		Three Months Ended March 31,
		Three Months Ended March 31,
		2024
		2024
		2024
			Three Months Ended March 31,
Net income
				2023		2022
Net income

Net income	Net income			$	9,182	$	15,788

Basic weighted average outstanding shares of common stock	Basic weighted average outstanding shares of common stock			86,885		92,993

Basic weighted average outstanding shares of common stock

Basic weighted average outstanding shares of common stock
Dilutive effect of stock-based awards for common stock
Dilutive effect of stock-based awards for common stock
Dilutive effect of stock-based awards for common stock	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			87,132		93,741

Diluted weighted average outstanding shares of common stock

Diluted weighted average outstanding shares of common stock

Earnings per common share:

Earnings per common share:

Earnings per common share:	Earnings per common share:
Basic	Basic			$	0.11	$	0.17
Basic
Basic
Diluted	Diluted			$	0.11	$	0.17
Diluted
Diluted

Anti-dilutive stock-based awards, contingent earnout shares and warrants excluded from the calculations of diluted EPS were ~~4,907,216~~4,339,250 and ~~4,729,800~~4,907,216 as of March 31, ~~2023~~2024 and ~~2022,~~2023, respectively.

~~Note 19. Subsequent Events~~

On April 11, 2023, the Company entered into an agreement to acquire an operator in the state of Louisiana and an option to acquire a second operator in the state of Louisiana. In connection therewith, the Company paid $3.5 million as an advance against a portion of the 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, ~~2022.~~2023. This discussion and analysis should also be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, set forth in our Annual Report on Form 10-K for the year ended December 31, ~~2022.~~2023.

Company Overview

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

We install, maintain, operate and service gaming terminals and related equipment for our location partners as well as redemption devices that ~~disburse winnings and contain~~have automated teller machine (“ATM”) functionality and ~~other~~stand-alone ATMs. We offer amusement devices, ~~in authorized non-casino locations such as restaurants, bars, taverns, convenience stores, liquor stores, truck stops,~~including jukeboxes, dartboards, pool tables, and ~~grocery stores.~~other entertainment related equipment. These operations provide a complementary source of lead generation for our gaming business by offering a “one-stop” source of additional equipment for our location partners. We also ~~operate stand-alone ATMs in~~design and manufacture gaming terminals and ~~non-gaming locations.~~ related equipment. We are continuously evaluating additional opportunities that are complementary to our core business.

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

•~~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,~~

•~~Iowa - we are registered with the Iowa Department of Inspections and Appeals to conduct operations in Iowa,~~

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

•~~Pennsylvania - we have held a license from the Pennsylvania Gaming Control Board~~ ~~since November 2020.~~

~~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.~~

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

~~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 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 revolving credit facility and delayed draw term loan facility under our senior secured credit facility. Our financial results for the three months ended ~~March 31, 2023~~ ~~includes the results of Century.~~

State

Year Operations Started or Year of Acquisition

Branding

Operations

Illinois

2012

Accel Entertainment

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

–Bars/restaurants/retail

–Gaming cafes

–Fraternal organizations

–Veterans’ organizations

•Truck stops (Up to 6 gaming terminals)

•Large truck stops (Up to 10 gaming terminals)

Montana

2022

Century Gaming

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

Montana

2022

Grand Vision Gaming

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

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

Nevada

2022

Century Gaming

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

–Grocery/drug/convenience stores

–Bars/restaurants/taverns

–Liquor stores

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

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State

Year Operations Started or Year of Acquisition

Branding

Operations

Nebraska

2022

Accel Entertainment

•Operate cash devices in retail locations throughout the state

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

Georgia

2020

Bulldog Gaming

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

Iowa

2021

Accel Entertainment

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

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

Pennsylvania

2023

Accel Entertainment

•Operate gaming terminals at qualified truck stops

•We are live with a partner truck stop

Macroeconomic Factors

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

To date, we have not observed material impacts in our business or outlook, ~~but there can be no assurance that, in the event~~outside 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~~related to higher wages and ~~increased fuel costs, as well as~~ increased interest expense on our debt. In ~~addition, during the first quarter of~~ 2023, we accelerated certain of our capital expenditures related to gaming ~~machine~~machines and related components to manage our supply chain.

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

Components of Performance

~~Revenues~~Net revenues

Net gaming. Net gaming revenue represents net cash received from gaming activities, which is the difference between gaming wins and losses. Net gaming revenue includes the amounts earned by our location partners and is recognized at the time of gaming play.

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

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

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

Operating ~~Expenses~~expenses

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

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

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

General and administrative. General and administrative expenses consist of operating expense and general and administrative (“~~G&A~~”) expense. Operating expense includes payroll and related expense for service technicians, route technicians, route security, and preventative maintenance personnel. Operating expense also includes vehicle fuel and maintenance, and non-capitalizable parts expenses. Operating expenses are generally proportionate to the number of locations and gaming terminals. ~~G&A~~General and administrative expense includes payroll and related expense for account managers, business development managers, marketing, and other corporate personnel. In addition, ~~G&A~~general and administrative expense also includes marketing, information technology, insurance, rent and professional fees.

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

Amortization of intangible assets and route and customer acquisition costs. Route and customer acquisition costs consist of fees paid at the inception of contracts entered into with third parties and ~~the~~our gaming locations, ~~in the states we serve,~~ which

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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 our incremental borrowing rate associated with its long-term debt. Route and customer acquisition costs are amortized on a straight-line basis over 18 years, which is the expected estimated life of the contract, including expected renewals.

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

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

Interest expense, net

Interest expense, net consists of interest on our current credit facilities, amortization of financing fees, accretion of interest on route and customer acquisition costs payable, and interest (income) expense on the interest rate caplets. Interest on the current credit facility is payable monthly on unpaid balances at the variable per annum ~~LIBOR~~LIBOR/SOFR rate plus an applicable margin, as defined under the terms of the credit facility, ranging from 1.75% to 2.75% depending on the first lien net leverage ratio.

Income tax expense

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

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Results of Operations

The following table summarizes our results of operations on a consolidated basis for the three months ended March 31, ~~2023~~2024 and ~~2022:~~2023:

(in thousands, except %'s) Three Months Ended
March 31, Increase / (Decrease)
2023 2022 Change ($) Change (%)
Revenues:
Net gaming $ 279,380 $ 188,462 90,918 48.2 %
Amusement 6,798 4,990 1,808 36.2 %
Manufacturing 2,122 — 2,122 N/A
ATM fees and other revenue 4,908 3,439 1,469 42.7 %
Total net revenues 293,208 196,891 96,317 48.9 %
Operating expenses:
Cost of revenue (exclusive of depreciation and amortization expense shown below) 204,962 132,620 72,342 54.5 %
General and administrative 43,018 31,119 11,899 38.2 %
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 5,242 3,548 1,694 47.7 %
Other expenses, net 3,251 2,556 695 27.2 %
Total operating expenses 265,536 175,684 89,852 51.1 %
Operating income 27,672 21,207 6,465 30.5 %
Interest expense, net 7,888 4,001 3,887 97.2 %
Loss (gain) on change in fair value of contingent earnout shares 4,602 (3,417) 8,019 234.7 %
Income before income tax expense 15,182 20,623 (5,441) (26.4) %
Income tax expense 6,000 4,835 1,165 24.1 %
Net income $ 9,182 $ 15,788 $ (6,606) (41.8) %
`


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

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

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~~Revenues~~Net revenues

Total net revenues for the three months ended March 31, ~~2023~~2024 were ~~$293.2~~$301.8 million, an increase of ~~$96.3~~$8.6 million, or ~~48.9%~~2.9%, compared to the prior-year period. This increase was primarily driven by higher net gaming revenue of ~~$90.9~~$8.8 million, ~~or 48.2%, and manufacturing revenue of $2.1 million. Higher net gaming revenue for the three months ended March 31, 2023 was attributable to~~which reflected an increase in gaming ~~terminals~~locations and ~~locations due primarily to the acquisition of Century.~~terminals. Net revenues by state are presented below (in thousands):


		Three Months Ended March 31,
		2023		2022
(in thousands)						(in thousands)		Three Months Ended March 31,												Increase / (Decrease)
	2024											2024							2023								Change ($)							Change (%)
Net revenues by state:	Net revenues by state:
Illinois
Illinois
Illinois	Illinois	$	219,843	$	194,859	$	224,863			$			$	219,843			$				$	5,020			2.3				2.3		%
Montana	Montana	36,451		—		Montana		38,141			36,451					36,451			1,690						1,690			4.6					4.6	%
Nevada	Nevada	29,961		—		Nevada		29,209			29,961					29,961			(752)						(752)			(2.5)					(2.5)	%
All other		6,953		2,032
Nebraska						Nebraska		5,834							3,924								1,910							48.7		%
Other						Other		3,770							3,029								741							24.5		%
Total net revenues	Total net revenues	$	293,208	$	196,891	Total net revenues		$	301,817		$				$	293,208		$					$	8,609		2.9					2.9		%

Cost of revenue

Cost of revenue for the three months ended March 31, ~~2023~~2024 was ~~$205.0~~$209.2 million, an increase of ~~$72.3~~$5.6 million, or ~~54.5%~~2.8%, compared to the prior-year period, driven by higher net gaming revenue, as described above.

Cost of manufacturing goods sold

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

General and administrative

General and administrative expenses for the three months ended March 31, ~~2023~~2024 were ~~$43.0~~$47.6 million, an increase of ~~$11.9~~$4.6 million, or ~~38.2%~~10.7%, compared to the prior-year period. The increase ~~reflected additional operating costs from Century as well as~~was attributable to higher payroll-related costs, as we continue to grow our operations, as well as higher stock-based compensation expense and ~~higher professional fees.~~parts and repair expense.

Depreciation and amortization of property and equipment

Depreciation and amortization of property and equipment for the three months ended March 31, ~~2023~~2024 was ~~$9.1~~$10.4 million, an increase of ~~$3.2~~$1.4 million, or ~~55.2%~~15.1%, compared to the prior-year period due to an increased number of ~~locations and~~ gaming ~~terminals~~ ~~primarily attributable to the acquisition of Century~~.terminals.

Amortization of intangible assets and route and customer acquisition costs

Amortization of intangible assets and route and customer acquisition costs for the three months ended March 31, ~~2023 was $5.2~~2024 were $5.4 million, an increase of ~~$1.7~~$0.2 million, or ~~47.7%~~3.7%, compared to the prior-year ~~period due to an increase in location contracts acquired and amortization expense on other intangible assets acquired with Century.~~period.

Other expenses, net

Other expenses, net for the three months ended March 31, ~~2023~~2024 were ~~$3.3~~$2.4 million, ~~an increase~~a decrease of ~~$0.7~~$0.8 million, or ~~27.2%~~25.4%, compared to the prior-year ~~period due~~period. The decrease was primarily attributable to ~~higher~~lower non-recurring expenses and lower fair value adjustments associated with the revaluation of contingent consideration ~~liabilities and higher non-recurring costs on acquisition-related matters, partially offset by a $1.0 million loss associated with a legal settlement that was recorded in the prior year.~~liabilities.

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Interest expense, net

Interest expense, net for the three months ended March 31, ~~2023~~2024 was ~~$7.9~~$8.7 million, an increase of ~~$3.9~~$0.8 million, or ~~97.2%~~9.8%, compared to the prior-year period primarily due to ~~an increase in average outstanding debt and~~ higher interest rates, partially offset by a decrease in average outstanding debt and the benefit realized on our interest rate caplets. ~~The~~For the three months ended March 31, 2024, the weighted average interest rate, excluding the impact of ~~the~~our interest rate caplets, was approximately 7.7% compared to a rate of approximately 6.8% for the ~~three months ended March 31, 2023 compared to 3.6% in the~~ prior-year ~~period.~~

period~~Table of Contents~~.

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

Loss on the change in fair value of contingent earnout shares for the three months ended March 31, ~~2023~~2024 was ~~$4.6~~$4.7 million, an increase of $0.1 million, or 2.5%, compared to the prior-year ~~period, which had a gain of~~period. ~~$3.4 million.~~ The ~~changes in fair value are~~change was primarily due to the change in the market value of our Class A-1 common stock, which ~~was~~is the primary input to the valuation of the contingent earnout shares.

Income tax expense

Income tax expense for the three months ended March 31, ~~2023~~2024 was ~~$6.0~~$4.8 million, ~~an increase~~a decrease of $1.2 million, or ~~24.1%~~20.6%, compared to the prior-year period. The effective tax rate for the three months ended March 31, ~~2023~~2024 was ~~39.5%~~39.1% compared to ~~23.4%~~39.5% in the ~~prior year~~prior-year period. Our effective income tax rate can vary from period to period depending on, among other factors, the amount of permanent tax adjustments and discrete items. The change in the fair value of the contingent earnout shares is considered a discrete item for tax purposes and ~~was~~can be the primary driver for the fluctuations in the tax rate year over year.

Key Business Metrics

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

•Number of locations and;

•Number of gaming terminals

•Location hold-per-day

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

Number of locations

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

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


		As of March 31,		Increase / (Decrease)
		2023	2022	Change	Change %
	As of March 31,												As of March 31,						Increase / (Decrease)
	2024									2024				2023			Change						Change (%)
Illinois	Illinois	2,663	2,565	64	2.5	%	Illinois	2,786	2,663			2,663		123		123		4.6				4.6	%
Montana	Montana	620	—	620	N/A		Montana	609	620			620		(11)		(11)		(1.8)				(1.8)	%
Nevada	Nevada	345	—	345	N/A		Nevada	355	345			345		10		10		2.9				2.9	%
Total locations		3,628	2,565	1,063	41.4	%
Nebraska							Nebraska	237			165				72					43.6	%
Total							Total	3,987			3,793				194					5.1	%

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Number of gaming terminals

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

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


		As of March 31,		Increase / (Decrease)
		2023	2022	Change	Change %
	As of March 31,												As of March 31,						Increase / (Decrease)
	2024									2024				2023			Change						Change (%)
Illinois	Illinois	14,546	13,663	758	5.6	%	Illinois	15,494	14,546			14,546		948		948		6.5				6.5	%
Montana	Montana	6,247	—	6,247	N/A		Montana	6,280	6,247			6,247		33		33		0.5				0.5	%
Nevada	Nevada	2,704	—	2,704	N/A		Nevada	2,714	2,704			2,704		10		10		0.4				0.4	%
Total gaming terminals		23,497	13,663	9,834	72.0	%
Nebraska							Nebraska	833			488				345					70.7	%
Total							Total	25,321			23,985				1,336					5.6	%

Location hold-per-day

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

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


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

Non-GAAP Financial Measures

Adjusted EBITDA and Adjusted net income are non-GAAP financial measures, ~~and~~but are key metrics ~~used~~management uses to monitor ongoing core operations. ~~Our management believes~~ Adjusted EBITDA and Adjusted net income enhance the understanding of our underlying drivers of profitability and trends in 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 believes these non-GAAP financial measures enhance the understanding of our underlying drivers of profitability, trends in our business, and facilitate company-to-company and period-to-period comparisons. Management also believes that these non-GAAP financial measures are used by investors, analysts and other interested parties as measures of financial performance and to evaluate our ability to fund capital expenditures, service debt obligations and meet working capital ~~requirements~~.requirements.

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Adjusted net income and Adjusted EBITDA

(in thousands)

Three Months Ended
March 31,

(in thousands)

2024

2023

2022

Net income

9,182

15,788

Adjustments:

Amortization of intangible assets and route and customer acquisition costs (1)

Amortization of intangible assets and route and customer acquisition costs(1)

5,242

3,548

Stock-based compensation (2)

1,688

1,605

Loss (gain) on change in fair value of contingent earnout shares (3)

4,602

(3,417)

Stock-based compensation (2)

Loss on change in fair value of contingent earnout shares (3)

Other expenses, net (4)

3,251

2,556

Tax effect of adjustments (5)

(2,901)

(2,475)

Tax effect of adjustments (5)

Adjusted net income

21,064

17,605

Depreciation and amortization of property and equipment

9,063

5,841

Depreciation and amortization of property and equipment

Interest expense, net

7,888

4,001

Emerging markets (6)

(798)

485

Emerging markets (6)

Income tax expense

8,901

7,310

Adjusted EBITDA

46,118

35,242

Adjusted EBITDA

(1)Amortization of intangible assets and route and customer acquisition costs consist of upfront cash payments and future cash payments to third-party sales agents to acquire the location partners that are not connected with a business acquisition, as well as the amortization of other intangible assets. We amortize the upfront cash payment over the life of the contract, including expected renewals, beginning on the date the location goes live, and recognize non-cash amortization charges with respect to such items. Future or deferred cash payments, which may occur based on terms of the underlying contract, are generally lower in the aggregate as compared to the established practice of providing higher upfront payments, and are also capitalized and amortized over the remaining life of the contract. Future cash payments do not include cash costs associated with renewing customer contracts as we do not generally incur significant costs as a result of extension or renewal of an existing contract. Location contracts acquired in a business combination are recorded at fair value as part of the business combination accounting and then amortized as an intangible asset on a straight-line basis over the expected useful life of the contract of 15 years. “Amortization of intangible assets and route and customer acquisition costs” aggregates the non-cash amortization charges relating to upfront route and customer acquisition cost payments and location contracts acquired, as well as the amortization of other intangible assets.

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

(3)Loss ~~(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 lobbying and legal expenses related to distributed gaming expansion in current or prospective markets, and (iii) other non-recurring expenses.

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

(6)Emerging markets consist of the results, on an Adjusted EBITDA basis, for non-core jurisdictions where our operations are developing. Markets are no longer considered emerging when we have installed or acquired at least 500 gaming terminals in the jurisdiction, or when 24 months have elapsed from the date we first install or acquire gaming terminals in the jurisdiction, whichever occurs first. We currently view ~~Nebraska, Iowa and~~ Pennsylvania as an emerging ~~markets.~~market. Prior to ~~July 2022, Georgia~~January 2024, Iowa was considered an emerging market. Prior to April 2023, Nebraska was considered an emerging market.

Adjusted EBITDA for the three months ended March 31, ~~2023,~~2024, was ~~$46.1~~$46.2 million ~~an increase of $10.9 million, or 30.9%~~,, and was essentially flat compared to the prior-year period. ~~The increase in performance for the three~~ ~~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.~~

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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~~the Credit Agreement (as defined below) will be sufficient to meet our capital requirements for the next twelve months. Our primary short-term cash needs are paying operating expenses and contingent earnout payments, purchases of property and equipment, servicing outstanding indebtedness, and funding our Board of Directors approved share repurchase program and near term acquisitions. As of March 31, ~~2023~~2024, we had ~~$228.5~~$253.9 million in cash and cash equivalents.

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Senior Secured Credit Facility

~~On November 13, 2019, we~~We have entered into a credit agreement ~~(the~~(as amended the “Credit Agreement”) as borrower, with our wholly-owned domestic subsidiaries, as guarantors, the banks, financial institutions and other lending institutions from time to time party thereto, as lenders, the other parties from time to time party thereto and Capital One, National Association, as administrative agent (in such capacity, the “Agent”), collateral agent, issuing bank and swingline lender, providing for a:

•$~~100.0~~150.0 million revolving credit facility, including a letter of credit facility with a $10.0 million sublimit and a swing line facility with a $10.0 million sublimit,

•~~$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.

~~Table of Contents~~

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:

•~~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.~~facility, which is available for borrowing until October 22, 2024.

The maturity date of the Credit Agreement ~~was extended to~~is October 22, 2026. ~~The interest rate and covenants remain unchanged.~~

As of March 31, ~~2023,~~2024, there remained ~~$328~~$299 million of availability under the Credit ~~Agreement.~~

~~The obligations~~Agreement and the weighted-average interest rate on our borrowings under the Credit Agreement are guaranteed by us and our wholly-owned domestic subsidiaries, subject to certain exceptions (collectively, the “Guarantors”). The obligations under the Credit Agreement are secured by substantially all of the assets of the Guarantors, subject to certain exceptions. Certain future-formed or acquired wholly-owned domestic subsidiaries 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 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 March 31, 2023, the weighted-average interest rate was approximately ~~6.8%~~7.7%.

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. 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 us and 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 up 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 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 us and certain of our affiliates obligated under the Credit Agreement to make customary representations and warranties in connection with credit extensions thereunder.

~~Table of Contents~~

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

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

We were in compliance with all debt covenants under the Credit Agreement as of March 31, ~~2023. W~~2024e and 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

We manage our exposure to some of ~~its~~our interest rate risk through the use of interest rate caplets, which are derivative financial instruments. On January 12, 2022, we hedged the variability of the cash flows attributable to the changes in the 1-month ~~LIBOR~~LIBOR/SOFR interest rate on the first $300 million of the term loan under the Credit Agreement by entering into a 4-year series of 48 deferred premium caplets (“caplets”). The caplets mature at the end of each month and protect us if interest rates exceed 2% of 1-month LIBOR. The maturing dates of these caplets coincide with the timing of our interest payments and each caplet is expected to be highly effective at offsetting changes in interest payment cash flows. The 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.

We recognized an unrealized gain, onnet of taxes, on the change in fair value of the ~~interest rate~~ caplets of $~~2.2~~1.1 million for the three months ended ~~and $4.9~~March 31, 2024 and an unrealized loss $2.2 million, net of taxes, for the three months ended March 31, ~~2023 and 2022, respectively.~~ 2023.Fu~~rther, as the 1-month LIBOR interest rate exceeded 2% beginning in the second half of 2022, the Company~~ We also recognized interest income on the caplets of $2.6 million and $1.9 million for the three months ended March 31, 2024 and 2023, respectively, which isare reflected in interest expense, net in the condensed consolidated statements of operations and other comprehensive income.

Cash Flows

The following table summarizes net cash provided by or used in operating activities, investing activities and financing activities for the periods indicated and should be read in conjunction with our condensed consolidated financial statements and the notes thereto included in this filing:


(in thousands)	(in thousands)	Three Months Ended March 31,				(in thousands)		Three Months Ended March 31,									Increase / (Decrease)
	2024										2024					2023					Change ($)					Change (%)
		2023		2022

Net cash provided by operating activities
Net cash provided by operating activities
Net cash provided by operating activities	Net cash provided by operating activities	$	37,983	$	22,061	$	28,750		$			$	37,983		$			$	(9,233)	(24.3)			(24.3)	%
Net cash used in investing activities	Net cash used in investing activities	(23,585)		(6,387)		Net cash used in investing activities		(25,896)		(23,585)				(23,585)		(2,311)				(2,311)		(9.8)			(9.8)	%
Net cash used in financing activities	Net cash used in financing activities	(9,982)		(19,562)		Net cash used in financing activities		(10,546)		(9,982)				(9,982)		(564)				(564)		(5.7)			(5.7)	%

Net cash provided by operating activities

For the three months ended March 31, ~~2023,~~2024, net cash provided by operating activities was ~~$38.0~~$28.8 million, ~~an increase~~a decrease of ~~$15.9~~$9.2 million ~~over~~compared to the ~~comparable~~prior-year period due primarily to lower working capital adjustments.

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Net cash used in investing activities

For the three months ended March 31, ~~2023,~~2024, net cash used in investing activities was ~~$23.6~~$25.9 million, an increase of ~~$17.2~~$2.3 million ~~over~~compared to the ~~comparable~~prior-year period and was primarily attributable to more cash used for advances against a portion of the ~~purchases of property~~purchase price on pending business and ~~equipment.~~asset acquisitions. We anticipate our capital expenditures ~~for the purchases of property and equipment~~ will be approximately ~~$50–60~~$55–65 million in ~~2023.~~2024.

Net cash used in financing activities

For the three months ended March 31, ~~2023,~~2024, net cash used in financing activities was ~~$10.0~~$10.5 million, ~~a decrease~~an increase of ~~$9.6~~$0.6 million ~~over~~compared to the ~~comparable~~prior-year period. The ~~decrease~~change reflects ~~a reduction~~an increase in stock repurchases, ~~of our Class A-1 common stock under our share repurchase program.~~partially offset by lower net repayments on borrowings.

Critical Accounting Policies and Estimates

In preparing our condensed consolidated financial statements, we applied the same critical accounting policies as described in our Annual Report on Form 10-K for the year ended December 31, ~~2022~~2023, that affect judgments and estimates of amounts recorded for certain assets, liabilities, revenues, and expenses.

Seasonality

Our results of operations can fluctuate due to seasonal trends and other factors. For example, the gross revenue per machine per day is typically lower in the summer when players will typically spend less time indoors at our locations, and higher in cold weather between February and April, when players will typically spend more time indoors at our locations. Holidays, vacation seasons, and sporting events may also cause our results to fluctuate.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

Interest rate risk

We are exposed to interest rate risk in the ordinary course of business. Borrowings under our senior secured credit facility were ~~$540.8~~$542.5 million as of March 31, ~~2023.~~2024. If the underlying interest rates were to increase by 1.0%, or 100 basis points, the increase in interest expense on our floating rate debt would negatively impact future earnings and cash flows by approximately $2.4 million annually, assuming the balance outstanding under the credit facility remained at ~~$540.8~~$542.5 million. In order to protect against higher interest rates in the future on our credit facility, we hedged the variability of the cash flows attributable to the changes in the 1-month ~~LIBOR~~LIBOR/SOFR interest rate on the first $300 million of the term loan by entering into a 4-year series of 48 deferred premium caplets (“caplets”) on January 12, 2022. The caplets mature at the end of each month and are used to protect our exposure as the 1-month ~~LIBOR~~LIBOR/SOFR interest rate exceeded 2% ~~in the second half of 2022.~~.

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

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ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

In connection with the filing of this Form 10-Q for the quarter ended March 31, ~~2023,~~2024, our Chief Executive Officer (“CEO”, serving as our Principal Executive Officer) and our Chief Financial Officer (“CFO”, serving as our Principal Financial Officer) conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”)). As a result of this evaluation, our CEO and CFO concluded that 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, 2022 were still present as of 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~~at 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 flowsreasonable assurance level as of March 31, ~~2023.~~2024.

Changes in Internal Control Over Financial Reporting

There were no changes during the quarter ended March 31, ~~2023~~2024, in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting other than the material weaknesses previously identified and disclosed in our Annual Report on Form 10-K for the year ended December 31, 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 -~~II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

~~The information~~Information required by this Item is incorporated by reference to the discussion in Note ~~15,~~16, Commitments and Contingencies, of the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

ITEM 1A. RISK FACTORS

An investment in our Class A-1 common stock involves a high degree of risk. You should carefully consider the risk factors described under Part I - Item 1A. ~~Risk Factors~~“Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2022~~2023 and our condensed consolidated financial statements and related notes contained in this Quarterly Report on Form 10-Q in analyzing an investment in our Class A-1 common stock. If any such risks occur, our business, financial condition, and results of operations would likely suffer, the trading price of our Class A-1 common stock would decline, and you could lose all or part of your investment. In addition, the risk factors and uncertainties could cause our actual results to differ materially from those projected in our forward-looking statements, whether made in this report or other documents we file with the SEC, or our annual report to stockholders, future press releases, or orally, whether in presentations, responses to questions, or otherwise. Additional risks and uncertainties not currently known to us or those we currently view to be immaterial may also materially adversely affect our business, financial condition, or results of operations.

~~Except for as set forth below, there~~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, ~~2022.~~

~~Risks Related to Our Business and Industry~~

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, U.S. capital and credit markets may be adversely affected by numerous factors including: instability in the 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, the possibility of a wider European or global conflict and global sanctions imposed in response 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 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.

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~~Risks Related to our Financial Condition~~

Adverse developments affecting the financial services industry, such as actual events or concerns involving liquidity, defaults, or non-performance by financial institutions or transactional counterparties, could adversely affect Accel’s 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 merger agreement following the intervention of the 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 indebtedness or counterparties to Accel’s interest rate hedging arrangements, instability in the U.S. or international financial systems could result in less favorable commercial financing or derivative terms, including higher interest rates or costs and tighter financial and operating covenants, or systemic limitations on access to credit and liquidity sources or hedging, thereby making it more difficult for Accel to obtain financing on terms favorable to it, which could have a material adverse impact on Accel’s results of operations, cash flows and financial condition.2023.

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

Issuer ~~Purchase~~Purchases of Equity Securities

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

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

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The following table presents a summary of share repurchases made during the first quarter of ~~2023:~~2024:

Period Total number of shares purchased Average price paid per share Maximum approximate dollar value of shares that may yet be purchased under the program (in millions)
January 1, 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


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

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

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

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

Total	594,817	$10.60

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ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

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

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

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

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ITEM 6. EXHIBITS


Exhibit No.						Exhibit

10.13* **						~~Form of Restricted Stock Unit Award Agreement~~

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: May ~~3, 2023~~8, 2024	By:	/s/ Christie Kozlik
		Christie Kozlik Chief Accounting Officer

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