Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
References to the “Company,” “our,” “us” or “we” refer to TPG Pace Beneficial Finance Corp. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the unaudited condensed and consolidated financial statements and the notes thereto contained elsewhere in this Quarterly Report on Form 10-Q. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
Special Note Regarding Forward-Looking Statements
All statements other than statements of historical fact included in this Quarterly Report on Form 10-Q including, without limitation, statements under this “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. When used in this Quarterly Report on Form 10-Q, words such as “anticipate,” “believe,” “estimate,” “expect,” “intend” and similar expressions, as they relate to us or the Company’s management, identify forward-looking statements. Such forward-looking statements are based on the beliefs of management, as well as assumptions made by, and information currently available to, the Company’s management. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors detailed in our filings with the United States Securities and Exchange Commission (“SEC”). All subsequent written or oral forward-looking statements attributable to us or persons acting on the Company’s behalf are qualified in their entirety by this paragraph.
Overview
We are a blank check company incorporated as a Cayman Islands exempted company and formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (“Business Combination”). We have reviewed, and continue to review, a number of opportunities to enter into a Business Combination with an operating business. While we are not able to determine definitively at this time whether we will complete a Business Combination with any of the target businesses that we have reviewed or with any other target business, we acknowledge that the likelihood of completing a Business Combination is limited as we approach the 24 month mark from the Close Date.
Our intent has been to consummate a Business Combination using cash from the proceeds of our initial public offering of units (“Units”), each consisting of one of the Company’s Class A ordinary shares (“Public Shares”) and one-fifth of one warrant to purchase one Class A ordinary share (the “Public Offering”), that occurred at the Close Date, and from additional issuances of, if any, our capital stock and our debt, or a combination of cash, stock and debt.
At June 30, 2022, we held cash of $4,403,375 and current liabilities of $17,461,067. Further, we may continue to incur significant costs in the pursuit of our acquisition plans. We cannot assure you that our plans to complete a Business Combination will be successful and acknowledge that the likelihood of completing a Business Combination is limited as we approach the 24-month mark from the Close Date.
Going Concern
If we do not complete an initial Business Combination within 24 months from the Close Date, we will (i) cease all operations except for the purposes of winding up, (ii) as promptly as reasonably possible, but not more than ten business days thereafter, redeem all of the Class A ordinary shares issued as part of the Units in the Public Offering at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the trust account with Continental Stock Transfer and Trust Company acting as trustee (the “Trust Account”), including interest, net of taxes (less up to $100,000 of such net interest to pay dissolution expenses), divided by the number of then outstanding public shares, which redemption will completely extinguish the shareholder rights of owners of Class A ordinary shares (including the right to receive further liquidation distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the remaining shareholders and the board of directors, dissolve and liquidate, subject in each case to our obligations under Cayman Islands law to provide for claims of creditors and the requirements of other applicable law. In the event of such distribution, it is possible that the per share value of the residual assets remaining available for distribution, including Trust Account assets, will be less than the initial public offering price per Unit in the Public Offering. In addition, if we fail to complete our Business Combination within 24 months of the Close Date, there will be no redemption rights or liquidating distributions with respect to warrants to purchase our Class A ordinary shares, which will expire worthless. This mandatory liquidation and subsequent dissolution requirement raises substantial doubt about our ability to continue as a going concern.
The consolidated financial statements presented in this Quarterly Report on Form 10-Q have been prepared on a going concern basis and do not include any adjustments that might arise as a result of uncertainties about our ability to continue as a going concern.
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Terminated Business Combination
On December 10, 2020, the Company, Edison Holdco B.V., a Dutch private limited liability company (besloten vennootschap met beperkte aansprakelijkheid) and wholly owned subsidiary of the Company (“Dutch Holdco”), New TPG Pace Beneficial Finance Corp., an exempted company incorporated in the Cayman Islands with limited liability under company number 368739 and wholly owned subsidiary of Dutch Holdco (“New SPAC”), ENGIE New Business S.A.S., a société par actions simplifiée organized and existing under the laws of France (“Engie Seller”), and EV Charged B.V., a Dutch private limited liability company (besloten vennootschap met beperkte aansprakelijkheid) (“EVBox Group”), entered into a Business Combination Agreement (as amended, the “Business Combination Agreement,” and the transactions contemplated thereby, the “Proposed Business Combination”), pursuant to which, among other things, and subject to the terms and conditions contained therein, the Company would merge with and into New SPAC, with New SPAC surviving as a wholly owned subsidiary of Dutch Holdco, and immediately thereafter, Engie Seller would, directly or indirectly, sell, transfer, assign, convey or contribute to Dutch Holdco all of the issued and outstanding equity interests in EVBox Group.
On December 29, 2021, the Company, Dutch Holdco, New SPAC, Engie Seller and EVBox Group entered into the Termination of the Business Combination Agreement (the “Termination Agreement”), pursuant to which the parties mutually agreed to terminate the Business Combination Agreement effective as of such date, after taking several factors into consideration. Pursuant to Section 2 of the Termination Agreement, the parties agreed that as a reimbursement of certain expenses incurred by the Company in connection with the Business Combination Agreement and the Proposed Business Combination as originally contemplated in the Business Combination Agreement, Engie Seller shall make or cause to be made to the Company a cash payment equal to EUR 15,000,000. Such expense reimbursement was made to the Company on January 18, 2022.
As a result of the termination of the Business Combination Agreement, the Business Combination Agreement is of no further force and effect, and certain transaction agreements entered into in connection with the Business Combination Agreement, including, but not limited to, the Shareholders Agreement, dated as of December 10, 2020 and to be effective as of the closing of the Proposed Business Combination, by and among Dutch Holdco, our Sponsor and Engie Seller, will either be terminated or no longer be effective, as applicable, in accordance with their respective terms. Pursuant to the Third Amendment to the Business Combination Agreement, the Company has terminated all of the subscription agreements with certain qualified institutional buyers and accredited investors with respect to the Proposed Business Combination, and the Company has released all investors under the forward purchase agreements from their obligations under such agreements solely with respect to the Proposed Business Combination.
We anticipate that changes to the fair value of our derivative instruments, consisting of certain of our warrants and forward purchase agreements exercisable for our Class A ordinary shares, may continue to fluctuate significantly, but these fluctuations do not impact our cash flows. Our business activities since our Public Offering have consisted solely of identifying and evaluating prospective acquisition targets for a Business Combination.
Results of Operations
For the three months ended June 30, 2022 and 2021, we earned net income of $4,360,206 and $142,394,373, respectively. Net income for the three months ended June 30, 2022 and 2021 consisted primarily of gains of $4,145,000 and $144,636,975, respectively, due to a change in the fair value of our derivative instruments offset by professional fees and other expenses of $281,929 and $2,247,921, respectively.
For the six months ended June 30, 2022 and 2021, we earned net income of $5,449,132 and $245,272,159, respectively. Net income for the six months ended June 30, 2022 and 2021 consisted primarily of gains of $5,520,189 and $251,050,621, respectively, due to a change in the fair value of our derivative instruments offset by professional fees and other expenses of $596,758 and $5,789,041, respectively.
We anticipate that changes to the fair value of our derivative instruments, consisting of certain of our warrants and forward purchase agreements exercisable for our Class A ordinary shares, may continue to fluctuate significantly, but these fluctuations do not impact our cash flows. Our business activities since our Public Offering have consisted solely of identifying and evaluating prospective acquisition targets for a Business Combination.
Liquidity and Capital Resources
Prior to the closing of the Public Offering, our only source of liquidity was an initial sale of Class F ordinary shares (the “Founder Shares”), par value $0.0001 per share, to our sponsor, TPG Pace Beneficial Finance Sponsor, Series LLC, a Delaware series limited liability company (the “Sponsor”), and the proceeds of a promissory note (the “Note”) from the Sponsor, in the amount of $300,000.
The registration statement for our initial public offering (“Public Offering”) was declared effective by the United States Securities and Exchange Commission (the “SEC”) on October 6, 2020. In our Public Offering, we sold 35,000,000 Units at a price of $10.00 per Unit, generating proceeds of $350,000,000. Simultaneously with the effectiveness of our Public Offering, we closed the private
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placement of an aggregate of 6,000,000 warrants (the “Private Placement Warrants”), each exercisable to purchase one Class A ordinary share at an exercise price of $11.50 per share, to the Sponsor, at a price of $1.50 per Private Placement Warrant, generating proceeds of $9,000,000. On the Close Date, we placed $350,000,000 of proceeds (including $12,250,000 of deferred underwriting discount) from the Public Offering and the Private Placement Warrants into an interest bearing U.S. based trust account at J.P. Morgan Chase, N.A, with Continental Stock Transfer & Trust Company acting as trustee (the “Trust Account”) and held the remaining portion (net of offering expenses, other than underwriting discounts, paid upon the consummation of the Public Offering) of such proceeds outside the Trust Account.
On October 14, 2020, the funds in the Trust Account were invested only in specified U.S. government treasury bills with a maturity of 180 days or less and in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act which invest only in direct U.S. government treasury obligations (collectively “Permitted Investments”). At June 30, 2022, the funds in the Trust Account remain invested in Permitted Investments.
On March 29, 2021, the Sponsor issued a promissory note to us for borrowings of up to $7,000,000. The promissory note does not bear interest, and any borrowings made are due on the earlier of March 29, 2022 or the consummation of a Business Combination, except in the event of a default, as defined in the promissory note agreement, at which point any outstanding borrowings become due immediately. On each of March 29, 2021, September 30, 2021 and December 8, 2021, we borrowed $2,000,000 under the promissory note to fund working capital requirements. On February 23, 2022, we repaid the full outstanding balance of $6,000,000 to the Sponsor. As of June 30, 2022, there was no outstanding balance on any promissory notes with our Sponsor.
On January 18, 2022, we collected reimbursements receivable of 15,000,000 Euro, or approximately $17,000,000, from Engie Seller in connection with the termination of the Proposed Business Combination discussed above. During the six months ended June 30, 2022, we utilized $6,000,000 of those funds to repay our promissory note with our Sponsor and $6,366,898 to pay accrued professional fees and other expenses.
During the three and six months ended June 30, 2022, we earned interest income of $497,135 and $525,701, respectively, on investments held in the Trust Account.
At June 30, 2022, we had cash held outside of the Trust Account of $4,403,375, which is available to fund our working capital requirements. Cash held outside of the Trust Account will not be distributed to holders of the Class A ordinary shares in the event of a redemption of such shares.
At June 30, 2022, we had current liabilities of $17,461,067, including derivative liabilities of $5,035,000 related to the fair value of certain of our warrants and forward purchase agreements exercisable for our Class A ordinary shares, and accrued professional fees and other expenses of $176,067 primarily due to costs associated with our identification and evaluation of potential Business Combinations. Current liabilities at June 30, 2022 also includes deferred underwriting compensation of $12,250,000 which is due in the event of a Business Combination and is not required to be paid from cash held outside the Trust Account. The identification and evaluation of potential Business Combinations is continuing after June 30, 2022, and we therefore expect to incur additional expenses, which may be significant. Should a Business Combination occur, we would expect some portion of these expenses to be paid upon its consummation. We may, however, need to raise additional funds in order to meet the expenditures required for operating our business. We may request loans from our Sponsor, affiliates of our Sponsor or certain of our executive officers and directors to fund our working capital requirements prior to completing a Business Combination. We may use working capital to repay such loans. Additional funds could also be raised through a private offering of debt or equity. There can be no assurance that we will be able to raise such funds.
We may also need to obtain additional financing either to complete a Business Combination or because we become obligated to redeem a significant number of our Class A ordinary shares upon completion of a Business Combination, in which case we may issue additional securities or incur debt in connection with such Business Combination.
We have 24 months from the Close Date to complete our Business Combination. If we do not complete a Business Combination within this period, we shall (i) cease all operations except for the purposes of winding up; (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem the Public Shares, at a per share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned on the funds in the Trust Account and not previously released to us to pay our taxes (less up to $100,000 of interest to pay dissolution expenses) divided by the number of then outstanding Public Shares, which redemption will completely extinguish public shareholders’ rights as shareholders (including the right to receive further liquidation distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the remaining shareholders and the board of directors, dissolve and liquidate, subject in each case to our obligations under Cayman Islands law to provide for claims of creditors and the requirements of other applicable law. The Initial Shareholders (as defined below) and our officers and directors have entered into a letter agreement with us, pursuant to which they have waived their rights to liquidating distributions from the Trust Account with respect to their Founder Shares if we fail to complete the Business Combination within 24 months from the Close Date. However, if the Initial Shareholders acquire Public Shares after the Close
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Date, they will be entitled to liquidating distributions from the Trust Account with respect to such Public Shares if we fail to complete the Business Combination within the allotted 24-month time period.
We raised the funds held in the Trust Account, including earned interest (which interest shall be net of taxes payable), with the intent of using substantially all of them to consummate a Business Combination. To the extent that our capital stock or debt is used, in whole or in part, as consideration to consummate a Business Combination, the remaining proceeds held in the Trust Account after completion of the Business Combination and redemptions of Class A ordinary shares, if any, will be used as working capital to finance the operations of the target business or businesses, make other acquisitions and pursue our growth strategy.
Off-Balance Sheet Financing Arrangements
We have no obligations, assets or liabilities which would be considered off-balance sheet arrangements. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements.
We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or entered into any non-financial agreements involving assets.
Contractual Obligations
At June 30, 2022, we did not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities. On the Close Date, we entered into an administrative support agreement pursuant to which we agreed to pay an affiliate of the Sponsor a total of $50,000 per month for office space, administrative and support services. Upon the earlier of the completion of the Initial Business Combination and the Company’s liquidation, we will cease paying these monthly fees.
Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following as our critical accounting policies:
Offering Costs
We comply with the requirements of ASC 340-10-S99-1 and SEC Staff Accounting Bulletin Topic 5A “Expenses of Offering”. The Company incurred offering costs of $949,267 allocated to the issuance and sale of Class A ordinary shares in connection with the Public Offering. These costs, together with the portions of the underwriter discount and Deferred Discount allocated to the issuance and sale of Class A ordinary shares, totaling $19,610,939, were charged to temporary equity upon completion of the Public Offering. Offering costs of $588,328, attributed to the issuance and sale of the Public Warrants were expensed at the Close Date.
Derivative Instruments
We evaluated our warrants included in its Units and Private Placement Warrants (collectively, “Warrant Securities”), and the Forward Purchase Agreements and additional forward purchase agreements (collectively, “FPAs”) in accordance with ASC 815-40, “Derivatives and Hedging — Contracts in Entity’s Own Equity”, and concluded that the Warrant Securities and FPAs could not be accounted for as components of equity. As the Warrant Securities and FPAs meet the definition of a derivative in accordance with ASC 815, the Warrant Securities and FPAs are recorded as derivative assets and liabilities on the condensed and consolidated balance sheet and measured at fair value at inception (the Close Date) and remeasured at each reporting date in accordance with ASC 820, “Fair Value Measurement”, with changes in fair value recognized in the condensed and consolidated statement of operations in the period of change.
Redeemable Ordinary Shares
All of the 35,000,000 Class A ordinary shares sold as part of the Units in the Public Offering contain a redemption feature which allows for the redemption of such Public Shares in connection with the Company’s liquidation, if there is a shareholder vote or tender offer in connection with the Business Combination and in connection with certain amendments to our Amended and Restated Memorandum and Articles of Association. In accordance with SEC and its staff’s guidance on redeemable equity instruments, which has been codified in ASC 480-10-S99, redemption provisions not solely within our control require common stock subject to redemption
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to be classified outside of permanent equity. Ordinary liquidation events, which involve the redemption and liquidation of all of our equity instruments, are excluded from the provisions of ASC 480.
The Company recognizes changes in redemption value immediately as they occur and adjusts the carrying value of redeemable ordinary shares to equal the redemption value at the end of each reporting period. Increases or decreases in the carrying amount of redeemable ordinary shares are affected by charges against additional paid in capital and accumulated deficit.
Net Income per Ordinary Share
We comply with accounting and disclosure requirements of FASB ASC Topic 260, “Earnings Per Share”. Net income per ordinary share is computed by dividing net income by the weighted average number of ordinary shares outstanding during the period as calculated using the treasury stock method. At June 30, 2022 and 2021, we had outstanding warrants and forward purchase contracts to purchase up to 25,000,000 Class A ordinary shares. The weighted average of these shares was excluded from the calculation of diluted net income per ordinary share since the exercise of the warrants and forward purchase contracts is contingent upon the occurrence of future events. As a result, diluted net income per ordinary share is the same as basic net income per ordinary share for the three and six months ended June 30, 2022 and 2021, respectively.
We have two classes of ordinary shares, Class A ordinary shares and Class F ordinary shares. Earnings and losses are shared pro rata between the two classes of ordinary shares.
Recent Accounting Pronouncements
In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40) (“ASU 2020-06”). ASU 2020 06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The ASU is part of the FASB’s simplification initiative, which aims to reduce unnecessary complexity in U.S. GAAP. The ASU’s amendments are effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. The Company's adoption of ASU 2020-06 on January 1, 2022 did not have a material impact on the Company's condensed and consolidated financial statements.