Stock-based Compensation

12 Months Ended

Dec. 31, 2020

Share-based Payment Arrangement [Abstract]

The Company grants various types of stock-based awards including stock options and restricted stock units (“RSUs”). Stock-based awards are valued on the date of grant and are expensed over the required service period. Total stock-based compensation expense recognized during the years ended December 31, 2020, 2019 and 2018, was $5.5 million, $2.2 million and $0.5 million, respectively. As of December 31, 2020, and 2019, there was approximately $20.0 million and $0.9 million, respectively, of unrecognized compensation expense related to stock-based awards, which is expected to be recognized through 2025.

During the years ended December 31, 2020, 2019 and 2018, the Company recognized excess tax benefits (expense) from stock-based compensation of $5.2 million, $(0.1) million, and $1.0 million, respectively, within income tax (benefit) expense in the consolidated statements of operations and comprehensive (loss) income. Excess tax benefits (expense) reflect the total realized value of the Company’s tax deductions from individual stock option exercise transactions and the vesting of restricted stock awards in excess (deficit) of the deferred tax assets that were previously recorded.

Grant of Stock Options

The Company previously adopted the 2011 Equity Incentive Plan of Accel Entertainment, Inc., and 2016 Equity Incentive Plan of Accel Entertainment, Inc., (collectively, “Plans”). Under the Plans, the aggregate number of shares of common stock that may be issued or transferred pursuant to options or restricted stock awards under the Plans will not exceed ten percent of the

outstanding shares of the Company. Options generally vest over a three to five-year period. The exercise price of stock options shall not be less than 100% of the fair market value per share of common stock on the grant date. The term of the options are a maximum of 10 years from the grant date.

In conjunction with the closing of the reverse recapitalization, the Accel Entertainment, Inc. Long Term Incentive Plan (the “LTIP”) was adopted. The LTIP provides for grants of a variety of awards to employees and non-employees for providing services to the Company, including, but not limited to incentive stock options qualified as such under U.S. federal income tax laws, stock options that do not qualify as incentive stock options, stock appreciation rights, restricted stock awards, restricted stock units, cash incentive awards, and other stock-based awards. The Company has reserved, and in January 2020 registered, a total of 6,000,000 shares of Class A-1 common stock for issuance pursuant to the LTIP, subject to certain adjustments set forth therein. The term of any options to be granted are for a maximum of 10 years from the grant date. The exercise price of stock options shall not be less than 100% of the fair market value per share of common stock on the grant date.

Under the LTIP, the Company granted 1.2 million options to eligible officers and employees of the Company during the first quarter of 2020, which shall vest over a period of 5 years. The Company also granted 0.2 million options to eligible officers of the Company during the third quarter of 2020, which shall vest over a period of 4 years. During the third quarter of 2020, the Company also issued 1.7 million restricted stock units (“RSUs”) to board of directors and certain employees, which shall vest over a period of 1 to 5 years for employees and a period of 6 months to 1 year for board of directors. The estimated grant date fair value of these options and RSUs totaled $25.1 million.

The Company uses the Black-Scholes formula to estimate the fair value of its stock-based payments. The volatility assumption used in the Black-Scholes formula is based on the volatility of comparable public companies. The Company determined the share price at grant date used in the Black-Scholes formula based on an internal valuation model for options granted prior to the Company going public. Upon going public, the Company used the closing market stock price on the date of grant.

The fair value assigned to each option is estimated on the date of grant using a Black-Scholes-based option valuation model. The expected term of each option granted represents the period of time that each option granted is expected to be outstanding. The risk-free rate for periods within the contractual life of the unit is based on U.S. Treasury yields in effect at the time of grant.

The following assumptions were used in the option valuation model for options granted during the years ended December 31,


	2020	2019 *	2018
Expected approximate volatility	38%	—%	35%
Expected dividends	None	None	None
Expected term (in years)	7	None	3-5
Risk-free rate	0.44% -1.19%	—%	2.41% - 2.62%
Stock price	N/A	N/A	$4 - $5

* there were no options granted in 2019

A summary of the options granted and the range in vesting periods based on specific provisions within the option agreements during the years ended December 31, are as follows:


	2020	2019 *	2018
Options granted	1,449,779	0	108,288
Vesting period (in years)	4 - 5	0	3 - 5

The following table sets forth of the activities of the Company’s vested stock options for the years ended December 31, 2020, 2019 and 2018.


Outstanding options	Shares	Weighted Average Grant Date Fair Value		Weighted Average Exercise Price
Outstanding at January 1, 2018	4,122,910	$	0.69	$	2.03
Granted	108,288	1.73		5.10
Exercised	(284,642)	0.40		1.15
Forfeited/expired	(114,132)	1.03		2.96
Outstanding at December 31, 2018	3,832,424	0.73		2.16
Granted	—	—		—
Exercised	(2,590,274)	0.62		1.84
Forfeited/expired	(13,751)	0.77		2.33
Outstanding at December 31, 2019	1,228,399	0.96		2.91
Granted	1,449,779	4.49		11.20
Exercised	(359,987)	0.69		2.33
Forfeited/expired	(68,580)	1.32		3.85
Outstanding at December 31, 2020	2,249,611	3.25		8.32

A summary of the status of the activities of the Company’s nonvested stock options for the years ended December 31, 2020, 2019 and 2018 is as follows.


Nonvested options	Shares	Weighted Average Grant Date Fair Value
Nonvested at January 1, 2018	2,735,572	$	0.73
Granted	108,288	1.73
Vested	(1,032,910)	0.62
Forfeited	(101,361)	1.07
Nonvested at December 31, 2018	1,709,589	0.82
Granted	—	0.00
Vested	(547,537)	0.85
Forfeited	(13,751)	0.77
Nonvested at December 31, 2019	1,148,301	0.95
Granted	1,449,779	4.49
Vested	(496,464)	0.08
Forfeited	(68,580)	1.32
Nonvested at December 31, 2020	2,033,036	3.49

As of December 31, 2020, and 2019, a total of 216,575 and 80,098 options with a weighted-average remaining contractual term of 1.6 and 1.9 years, respectively, granted to key employees were vested. The fair value of options that vested during 2020, 2019 and 2018 was $0.4 million, $1.2 million, and $0.6 million, respectively. As of December 31, 2020, and 2019, the weighted-average exercise price of the non-vested awards was $8.87 and $2.86, respectively. As of December 31, 2020, and 2019, the weighted-average remaining contractual term of the outstanding awards was 6.5 and 2.7 years, respectively. The total intrinsic value of options that were exercised during the years ended December 31, 2020, 2019 and 2018 was approximately $2.2 million, $20.7 million and $4.4 million, respectively. The aggregate intrinsic value of options outstanding as of December 31, 2020 is $5.8 million.

Grant of RSUs

As previously mentioned, the Company issued 1.7 million RSUs to Directors and certain employees during the third quarter of 2020, which shall vest over a period of 1 to 5 years for employees and a period of 6 months to 1 year for Directors. The RSUs are valued using the stock price on the grant date. The following table sets forth the activities of the Company’s RSUs for the year ended December 31, 2020.


Non-vested RSUs	Shares	Weighted Average Grant Date Fair Value
Nonvested at January 1, 2020	—	$	—
Granted	1,665,968	11.16
Vested	(4,960)	10.08
Forfeited	(25,259)	11.66
Nonvested at December 31, 2020	1,635,749	11.15