Business Context and Reporting Period
Company: Accel Entertainment, Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: May 4, 2021
Subject: Non-reliance on previously issued financial statements due to accounting error correction regarding warrant classification.
Key Financial Metrics
This filing does not report new operational financial metrics such as revenue, profit, or cash flow. Instead, it addresses a material accounting restatement:
- Warrant Classification: Public and private placement warrants issued during the 2019 merger with TPG Pace Holdings Corp. were incorrectly classified as equity. They must be reclassified as liabilities.
- Measurement: Warrants must be measured at fair value at inception and each reporting date, with changes in fair value recognized in the statement of operations.
- Impact on Cash Flow: The change in fair value is a non-cash charge. It has no impact on historical reported revenues, operating income, Adjusted EBITDA, Adjusted net income, or cash flows from operating, investing, or financing activities.
Material Changes Versus Prior Period
The filing discloses a material error in the accounting treatment of warrants for the following "Relevant Periods":
- Audited consolidated financial statements for years ended December 31, 2020, and 2019.
- Unaudited condensed consolidated statements of operations for periods ended March 31, 2020; June 30, 2020; and September 30, 2020.
- Unaudited condensed consolidated balance sheets as of March 31, 2020; June 30, 2020; and September 30, 2020.
Previously issued financial statements for these periods are no longer reliable. Restated statements have been included in the recently filed Form 10-K/A (Amendment No. 1) for the year ended December 31, 2020.
Guidance, Outlook, and Risks
Management Commentary: Management, in consultation with KPMG LLP and the Audit Committee, reevaluated the accounting treatment following an April 12, 2021, SEC Staff Statement regarding SPAC warrants. The reevaluation concluded that certain settlement provisions preclude equity classification under ASC 815-40.
Risks and Contingencies: The primary risk identified is the material misstatement of liabilities and equity in prior filings. The company has taken corrective action by restating the financials.
Unusual Items: The filing is triggered by regulatory guidance on SPAC warrant accounting, necessitating a retrospective correction of financial statements.
Investor Verification Checklist
- Verify the specific dollar amounts of the warrant liability and the associated non-cash charges in the restated Form 10-K/A.
- Confirm the impact of the reclassification on the company's total liabilities and stockholders' equity in the restated balance sheets.
- Review the restated income statements to understand the magnitude of the fair value adjustments recognized in prior periods.
- Ensure that future financial reporting continues to apply fair value measurement to the warrants as required by ASC 820.