References in this report (the "Quarterly Report") to "we," "us" or the
"Company" refer to Hudson Executive Investment Corp. II. References to our
"management" or our "management team" refer to our officers and directors, and
references to the "Sponsor" refer to HEIC Sponsor II, LLC. The following
discussion and analysis of the Company's financial condition and results of
operations should be read in conjunction with the condensed financial statements
and the notes thereto contained elsewhere in this Quarterly Report (the
"Financial Statements"). Capitalized terms used but not otherwise defined herein
have the meaning set forth in the Financial Statements. 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
This Quarterly Report includes "forward-looking statements" within the meaning
of Section 27A of the Securities Act and Section 21E of the Exchange Act that
are not historical facts and involve risks and uncertainties that could cause
actual results to differ materially from those expected and projected. All
statements, other than statements of historical fact included in this Form 10-Q
including, without limitation, statements in 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. Words such as
"expect," "believe," "anticipate," "intend," "estimate," "seek" and variations
and similar words and expressions are intended to identify such forward-looking
statements. Such forward-looking statements relate to future events or future
performance, but reflect management's current beliefs, based on information
currently available. A number of factors could cause actual events, performance
or results to differ materially from the events, performance and results
discussed in the forward-looking statements. For information identifying
important factors that could cause actual results to differ materially from
those anticipated in the forward-looking statements, please refer to the Risk
Factors section of the Company's Annual Report on Form 10-K filed with the U.S.
Securities and Exchange Commission (the "SEC") on March 31, 2022. The Company's
securities filings can be accessed on the EDGAR section of the SEC's website at
www.sec.gov. Except as expressly required by applicable securities law, the
Company disclaims any intention or obligation to update or revise any
forward-looking statements whether as a result of new information, future events
or otherwise.
Overview
We are a blank check company formed under the laws of the State of Delaware on
August 18, 2020 for the purpose of effecting the merger, capital stock exchange,
asset acquisition, stock purchase, reorganization or similar business
combination with one or more businesses (the "Business Combination"). We intend
to effectuate our Business Combination using cash from the proceeds of the
Initial Public Offering and the sale of the Private Placement Warrants, our
capital stock, debt or a combination of cash, stock and debt. Based on our
business activities to date, the Company is a "shell company" as defined under
the Exchange Act because we have minimal operations and nominal assets
consisting almost entirely of cash held in a trust account.
We expect to 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.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date.
Our only activities from August 18, 2020 (inception) through September 30, 2022
were organizational activities, those necessary to prepare for the Initial
Public Offering, described below, and identifying a target company for a
Business Combination. We do not expect to generate any operating revenues until
after the completion of our Business Combination. We generate non-operating
income in the form of interest income on marketable securities held in the Trust
Account. We incur expenses as a result of being a public company (for legal,
financial reporting, accounting and auditing compliance), as well as for due
diligence expenses.
For the three months ended September 30, 2022, we had a net income of
$1,212,084, which consists of the change in the fair value of warrant
liabilities and forward purchase agreement derivative asset of $534,375 and
interest earned on marketable securities held in the Trust Account of
$1,107,074, offset by general and administrative expenses of $207,379 and
provision for income taxes of $221,986.
For the nine months ended September 30, 2022, we had a net income of $6,920,600,
which consists of the change in the fair value of warrant liabilities and
forward purchase agreement derivative asset of $6,620,759 and interest earned on
marketable securities held in the Trust Account of $1,491,695, offset by general
and administrative expenses of $945,623 and provision for income taxes of
$246,231.
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For the three months ended September 30, 2021, we had a net income of
$2,450,409, which consists of a gain on the change in the fair value of warrant
and FPA liabilities of $2,820,689 and interest income on marketable securities
held in the Trust Account of $3,217, offset by general and administrative
expenses of $373,497.
For the nine months ended September 30, 2021, we had net income of $887,525,
which consists of a gain from changes in fair value of the warrant and FPA
liabilities of $2,927,772 and interest income on marketable securities held in
the Trust Account of $30,527, offset by general and administrative expenses of
$2,070,774.
Liquidity and Capital Resources
On January 28, 2021, the Company consummated the Initial Public Offering of
25,000,000 Units, which includes the partial exercise by the underwriter of its
over-allotment option in the amount of 2,500,000 Units, at $10.00 per Unit,
generating gross proceeds of $250,000,000 which is described in Note 3.
Simultaneously with the closing of the Initial Public Offering, we consummated
the sale of 4,666,667 Private Placement Warrants at a price of $1.50 per Private
Placement Warrant in a private placement to the Sponsor, generating gross
proceeds of $7,000,000, which is described in Note 4.
Following the Initial Public Offering, the exercise of the over-allotment
option, and the sale of the Private Placement Warrants, a total of $250,000,000
was placed in the Trust Account. We incurred $14,238,064 in Initial Public
Offering related costs, including $5,000,000 in cash underwriting fees,
$8,750,000 of deferred underwriting fees and $488,064 of other offering costs.
For the nine months ended September 30, 2022, cash used in operating activities
was $886,022. Net income of $6,920,600 was affected by change in the fair value
of warrant liabilities and forward purchase agreement derivative asset of
$6,620,759 and interest earned on marketable securities held in the Trust
Account of $1,491,695. Changes in operating assets and liabilities provided
$305,832 of cash for operating activities.
For the nine months ended September 30, 2021, cash used in operating activities
was $659,208. Net income of $887,525 was affected by non-cash change in fair
value of the warrant and FPA liabilities of $2,927,772, operating costs paid by
the Sponsor of $200, operating costs paid through a promissory note of $70,764,
interest earned on marketable securities held in the Trust Account of $30,527,
and transaction costs associated with the warrants of $442,366. Changes in
operating assets and liabilities provided $898,236 of cash for operating
activities.
As of September 30, 2022, we had marketable securities held in the Trust Account
of $251,138,529 (including $1,491,695 of interest income and investments
consisting of U.S. Treasury Bills/Notes with a maturity of 185 days or less).
Interest income on the balance in the Trust Account may be used by us to pay
taxes. Through September 30, 2022, we have withdrawn $388,594 of interest earned
from the Trust Account.
We intend to use substantially all of the funds held in the Trust Account,
including any amounts representing interest earned on the Trust Account (less
income taxes payable), to complete our Business Combination. To the extent that
our capital stock or debt is used, in whole or in part, as consideration to
complete our Business Combination, the remaining proceeds held in the Trust
Account will be used as working capital to finance the operations of the target
business or businesses, make other acquisitions and pursue our growth
strategies.
As of September 30, 2022, we had cash of $332,075. We intend to use the funds
held outside the Trust Account primarily to identify and evaluate target
businesses, perform business due diligence on prospective target businesses,
travel to and from the offices, plants or similar locations of prospective
target businesses or their representatives or owners, review corporate documents
and material agreements of prospective target businesses, and structure,
negotiate and complete a Business Combination.
In order to fund working capital deficiencies or finance transaction costs in
connection with a Business Combination, the Sponsor, or certain of our officers
and directors or their affiliates may, but are not obligated to, loan us funds
as may be required. If we complete a Business Combination, we would repay such
loaned amounts. In the event that a Business Combination does not close, we may
use a portion of the working capital held outside the Trust Account to repay
such loaned amounts but no proceeds from our Trust Account would be used for
such repayment. Up to $1,500,000 of such loans may be convertible into warrants
at a price of $1.50 per warrant, at the option of the lender. The warrants would
be identical to the Private Placement Warrants.
If our estimate of the costs of identifying a target business, undertaking
in-depth due diligence and negotiating a Business Combination are less than the
actual amount necessary to do so, we may have insufficient funds available to
operate our business prior to our Business Combination. Moreover, we may need to
obtain additional financing either to complete our Business Combination or
because we become obligated to redeem a significant number of our Public Shares
upon consummation of our Business Combination, in which case we may issue
additional securities or incur debt in connection with such Business
Combination.
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Going Concern
We intend to complete a Business Combination by January 28, 2023. However, in
the absence of a completed Business Combination, we may require additional
capital. If we are unable to raise additional capital, we may be required to
take additional measures to conserve liquidity, which could include, but not
necessarily be limited to, suspending the pursuit of a Business Combination. We
cannot provide any assurance that new financing will be available to us on
commercially acceptable terms, if at all.
In connection with our assessment of going concern considerations in accordance
with Financial Accounting Standard Board's Accounting Standards Update ("ASU")
2014-15, "Disclosures of Uncertainties about an Entity's Ability to Continue as
a Going Concern," management has determined that if we are unable to complete a
Business Combination by January 28, 2023, then we will cease all operations
except for the purpose of liquidating. The date for mandatory liquidation and
subsequent dissolution raises substantial doubt about our ability to continue as
a going concern. No adjustments have been made to the carrying amounts of assets
or liabilities should we be required to liquidate after January 28, 2023.
Off-Balance Sheet Arrangements
We have no obligations, assets or liabilities, which would be considered
off-balance sheet arrangements as of September 30, 2022. 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 purchased any non-financial assets.
Contractual obligations
We do not have any long-term debt, capital lease obligations, operating lease
obligations or long-term liabilities, other than an agreement to pay an
affiliate of our Sponsor a monthly fee of $10,000 for office space, secretarial
and administrative services. We began incurring these fees on January 25, 2021
and will continue to incur these fees monthly until the earlier of the
completion of the Business Combination and our liquidation.
The underwriters are entitled to a deferred fee of $0.35 per Unit, or $8,750,000
in the aggregate. The deferred fee will be forfeited by the underwriters solely
in the event that the Company fails to complete a Business Combination, subject
to the terms of the underwriting agreement.
Critical Accounting Policies
The preparation of condensed financial statements and related disclosures in
conformity with accounting principles generally accepted in the United States of
America requires 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 critical accounting
policies:
Warrant and FPA Derivatives
The Company accounts for the Warrants and FPA in accordance with the guidance
contained in ASC 815-40, under which the Warrants and FPA do not meet the
criteria for equity treatment and must be recorded as assets or liabilities.
Accordingly, the Company classifies the Warrants and FPA as an asset or
liabilities at their fair value and adjust the Warrants and FPA to fair value at
each reporting period. These assets or liabilities are subject tore-measurement
at each balance sheet date until exercised, and any change in fair value is
recognized in the statements of operations. The fair value of the Public
Warrants and Private Placement Warrants has been estimated using the Public
Warrants' quoted market price. The FPA's fair value was estimated using the
reconstructed unit price, the net present value of per forward purchase unit
commitment, and the forward purchase unit.
Class A Common Stock Subject to Possible Redemption
We account for our Class A common stock subject to possible redemption in
accordance with the guidance in ASC 480. Shares of Class A common stock subject
to mandatory redemption are classified as a liability instrument and are
measured at fair value. Conditionally redeemable common stock (including common
stock that features redemption rights that are either within the control of the
holder or subject to redemption upon the occurrence of uncertain events not
solely within our control) is classified as temporary equity. At all other
times, common stock is classified as stockholders' deficit. Our Class A common
stock features certain redemption rights that are considered to be outside of
our control and subject to occurrence of uncertain future events. Accordingly,
shares of Class A common stock subject to possible redemption are presented as
temporary equity, outside of the stockholders' deficit section of our condensed
balance sheets.
Net Income Per Common Share
Net income per common share is computed by dividing net income by the weighted
average number of common shares outstanding for the period. Accretion associated
with the redeemable shares of Class A common stock is excluded from income per
common share as the redemption value approximates fair value.
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Recent Accounting Standards
In August 2020, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update ("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") to simplify accounting for
certain financial instruments. ASU 2020-06 eliminates the current models that
require separation of beneficial conversion and cash conversion features from
convertible instruments and simplifies the derivative scope exception guidance
pertaining to equity classification of contracts in an entity's own equity. The
new standard also introduces additional disclosures for convertible debt and
freestanding instruments that are indexed to and settled in an entity's own
equity. ASU 2020-06 amends the diluted earnings per share guidance, including
the requirement to use the if-converted method for all convertible instruments.
ASU 2020-06 is effective January 1, 2023 and should be applied on a full or
modified retrospective basis, with early adoption permitted beginning on
January 1, 2021. The Company adopted ASU 2020-06 on January 28, 2021
(inception). Adoption of the ASU did not impact the Company's financial
position, results of operations or cash flows.
Management does not believe that any recently issued, but not yet effective,
accounting standards, if currently adopted, would have a material effect on the
Company's condensed financial statements.
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