Business context and reporting period
Important entity mismatch: The supplied filing is TPG Pace Holdings Corp.’s Form 10-Q for the quarter ended March 31, 2019, not an Accel Entertainment, Inc. filing. It describes a blank-check company seeking a business combination and contains no operating or financial information about Accel Entertainment.
Financial results and liquidity
- Revenue: $0 for the quarter. The company reported no operating revenue; its activity was pursuing a business combination.
- Income and expenses: Interest income was $2.53 million, professional fees and other expenses were $160,877, and net income was $2.37 million, or $0.04 per share.
- Cash flow: Operating activities used $166,943; financing activities used $13,958. Cash outside the trust account fell to $331,926 from $512,827 at December 31, 2018.
- Assets and obligations: Trust account investments totaled $459.45 million. Current liabilities were $214,948; deferred underwriting compensation was $15.75 million, payable only if a business combination is completed. The filing reports no long-term debt.
- Liquidity: Trust funds were principally reserved for a business combination or public-share redemptions; they should not be treated as unrestricted operating cash. Management said additional funding may be needed to cover expenses before a transaction.
- Margins: Not meaningful for this pre-combination company, which reported no revenue.
Changes versus the prior comparable period
For the three months ended March 31, 2018, net income was $1.13 million and interest income was $1.41 million. In Q1 2019, net income increased to $2.37 million, mainly reflecting higher trust-account interest; professional fees and other expenses decreased to $160,877 from $288,600. Cash used in operating activities improved to $166,943 from $206,282.
Outlook, risks, and unusual items
- The company had not determined whether it would complete a business combination with any target and gave no transaction-specific guidance or forecast.
- It generally had 24 months from June 30, 2017 to complete a business combination, with a potential 27-month period if the stated agreement conditions were met. Failure to complete a transaction would require winding up and redeeming public shares; warrants could expire worthless. The filing says this mandatory liquidation risk raises substantial doubt about the company’s ability to continue as a going concern.
- Management expected further acquisition-search costs and said it might seek loans from its sponsor or raise debt or equity; it gave no assurance it could obtain funding.
- The NYSE had notified the company in Q4 2018 that it had fewer than 300 public holders. It submitted a compliance plan and was subject to quarterly monitoring.
- Management reported disclosure controls were effective and no material change in internal control during the quarter. The filing reported no legal proceedings and no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Confirm the intended issuer: this filing is for TPG Pace Holdings Corp., not Accel Entertainment, Inc.
- Check whether a business-combination agreement or qualifying letter of intent was in place and which deadline applied.
- Verify the status of the NYSE minimum-public-holder compliance plan and any subsequent listing notices.
- Distinguish the $459.45 million in restricted trust investments from the $331,926 of cash available outside the trust.
- Review subsequent filings for transaction developments, financing needs, redemptions, and the deferred underwriting fee.