Business context and reporting period
Important entity distinction: This is TPG Pace Holdings Corp.’s Form 10-Q for the quarter ended September 30, 2019—not an operating-company 10-Q filed by Accel Entertainment, Inc. TPG Pace was a blank-check company pursuing a business combination with Accel. The filing says Accel operated approximately 8,000 video game terminals at more than 1,700 locations, but does not provide Accel’s financial results.
Financial results and liquidity
- TPG Pace reported no revenue. Its income consisted of interest on trust-account investments.
- Third-quarter 2019 net loss was approximately $3.3 million, versus net income of $1.9 million in Q3 2018. Nine-month net loss was $2.8 million, versus net income of $4.7 million in the prior-year period. The loss reflected higher professional and other expenses.
- Trust-account interest income was $2.0 million for Q3 2019 and $7.1 million for the first nine months of 2019, compared with $2.1 million and $5.3 million, respectively, in 2018.
- At September 30, 2019, cash outside the trust was $79,575; trust-account investments were $429.7 million. Current liabilities were $5.8 million, including accrued expenses, and the company reported negative working capital of $5.7 million.
- Liabilities also included a $3.0 million non-interest-bearing Sponsor note and $15.75 million of deferred underwriting compensation, payable only if a business combination closes. Shareholders’ equity was $5.0 million; 40.0 million Class A shares, valued at $400.3 million, were classified as subject to possible redemption.
- For the first nine months, operating cash use was $3.4 million. A $33.4 million trust withdrawal funded redemptions of 3,247,267 shares; the company borrowed $3.0 million from its Sponsor during the period.
Material changes and proposed transaction
- In September, shareholders extended TPG Pace’s deadline to complete a business combination from September 30 to December 31, 2019. Holders of 3,247,267 public shares elected redemption, reducing trust assets by approximately $33.4 million.
- The June 2019 transaction agreement contemplated acquiring Accel’s outstanding stock and merging Accel into a TPG Pace subsidiary. Accel shareholders could elect cash at $177 per share or stock valued at approximately $10.22 per share, subject to transaction terms and adjustments if aggregate cash elections exceeded $350 million.
- A concurrent private placement was expected to provide approximately $48 million from the sale of 4,696,675 shares at $10.22 each, to fund part of the cash consideration. The filing describes this financing as contingent on the business-combination closing.
- Amendments extended the transaction agreement’s termination date to November 30, 2019 and made other administrative changes. The filing reports a subsequent October amendment and shareholder joinder actions.
Outlook, risks and unusual items
- TPG Pace had until December 31, 2019 to complete a business combination. If it did not, it was required to wind up and redeem public shares; warrants would expire worthless. The filing states that the deadline and uncertainty over funding raise substantial doubt about the company’s ability to continue as a going concern.
- Closing depended on customary conditions, including required shareholder approvals, expiration or termination of the Hart-Scott-Rodino waiting period, and Pennsylvania Gaming Control Board approval. Failure to close could trigger liquidation.
- Management cited limited cash outside the trust, significant transaction-related accrued expenses, and possible need for further Sponsor or other financing. It stated there was no assurance that additional funds could be obtained.
- TPG Pace had no long-term debt or off-balance-sheet financing arrangements disclosed. Its $20,000 monthly administrative-services agreement with a Sponsor affiliate ends upon closing or liquidation.
- Management said disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter. No legal proceedings or material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Confirm the filing entity: TPG Pace Holdings Corp., not Accel Entertainment, Inc.; Accel’s operating financials are not included here.
- Check whether the transaction closed by the December 31, 2019 deadline and whether all regulatory and shareholder conditions were met.
- Verify final cash elections, redemptions, trust proceeds available at closing, and the effect of deferred underwriting fees and the proposed private placement.
- Review how the $5.8 million of current liabilities and $3.0 million Sponsor note were funded or settled, given the very limited cash held outside the trust.