Accel Entertainment(US:ACEL)2024-02-27 16:00Business Operations Risks - The company relies on data from Light & Wonder, Inc. for key business metrics, which may not always be accurate, potentially affecting reputation and business operations[96] - The company faces risks from natural disasters, such as hurricanes and floods, which could disrupt operations and impact financial condition[98] - Regulatory compliance is critical, with strict gaming laws in various jurisdictions that could limit operations and expose the company to fines[99] - The company is currently involved in an administrative hearing related to alleged violations of the Video Gaming Act, which could affect licensing and operations[102] - Changes in gaming legislation could hinder operations, increase compliance costs, and negatively impact profitability, especially in jurisdictions with new taxes or regulations[103] - Ongoing litigation could distract management and result in significant costs, impacting overall business operations and financial condition[107] - Security breaches or disruptions could compromise sensitive information, leading to liability and reputational damage for the company[117] Financial Condition and Debt - As of December 31, 2023, the company had total indebtedness of $545.4 million, all borrowed under the Credit Agreement, with approximately $304.0 million of availability[127] - The company may incur significant upfront costs prior to receiving any revenue under gaming or amusement contracts, impacting liquidity and the ability to secure new contracts[124] - The company is subject to financial covenants requiring a consolidated first lien net debt to consolidated EBITDA ratio no greater than 4.50 to 1.00 and a consolidated EBITDA to consolidated fixed charges ratio no less than 1.20 to 1.00[135] - The company may not have sufficient cash flows from operating activities to service all indebtedness and obligations, potentially forcing alternative actions[129] - The company’s ability to generate revenue and procure new contracts depends on liquidity levels and the ability to obtain financing on commercially reasonable terms[124] - Adverse developments in the financial services industry could lead to less favorable financing terms, impacting the company's results of operations and financial condition[138] - The agreements governing the company's indebtedness impose restrictions that may affect operational flexibility and the ability to finance future operations[132] - As of December 31, 2023, borrowings under the senior secured credit facility amounted to $545.4 million[242] Interest Rate Risks - The company is exposed to interest rate risk as a significant portion of borrowings are at variable rates, which could negatively impact financial condition if rates increase[128] - A 1.0% increase in interest rates would lead to an annual increase in interest expense of approximately $2.5 million, assuming the balance remains at $545.4 million[242] - The company has hedged the variability of cash flows on the first $300 million of the term loan by entering into a series of 48 deferred premium caplets, maturing monthly[242] - The company is exposed to interest rate risk, primarily due to fluctuations in interest rates affecting its financial position[241] - The company’s cash and cash equivalents are held in highly liquid accounts, minimizing the impact of interest rate changes[243] Market and Stock Risks - Approximately 20% of the shares of Class A-1 common stock were beneficially owned by affiliates of Clairvest as of December 31, 2023, which may influence corporate actions[141] - The market price and trading volume of Class A-1 common stock may be volatile, with potential significant declines[147] - Future issuances of debt or equity securities may adversely affect the market price of existing securities and could be dilutive to current stockholders[150] - A significant number of shares of Class A-1 common stock are registered for resale, which could increase market volatility[157] - The realization of risk factors presented in the Annual Report could lead to significant price fluctuations in Class A-1 common stock[147] - Changes in gaming laws and regulations could impact the company's operations and market conditions[149] Intellectual Property and Product Risks - The company’s success is tied to the protection of intellectual property, with potential risks from infringement and litigation that could divert resources[111] - The company may face liabilities from product defects, which could lead to recalls and significant expenses, affecting profitability[104]