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-Qincluding,
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
Form10-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 June 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 June 30, 2022, we had a net income of $2,838,364, which consists of the change in the fair value of warrant liabilities and forward purchase agreement derivative asset of $2,780,492 and interest earned on marketable securities held in the Trust Account of $343,424, offset by formation and operating costs of $261,307 and provision for income taxes of $24,245.

For the six months ended June 30, 2022, we had a net income of $5,708,516, which consists of the change in the fair value of warrant liabilities and forward purchase agreement derivative asset of $6,086,384 and interest earned on marketable securities held in the Trust Account of $384,621, offset by formation and operating costs of $738,244 and provision for income taxes of $24,245.


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For the three months ended June 30, 2021, we had net loss of $5,251,064, which consists of the change in fair value of warrant liabilities and forward purchase agreement derivative asset of $4,602,892, and formation and operating costs of $659,101, offset by interest earned on marketable securities held in the Trust Account of $10,929.

For the six months ended June 30, 2021, we had net loss of $1,562,884, which consists of the formation and operating costs of $1,697,277, offset by change in fair value of warrant liabilities and forward purchase agreement derivative asset of $107,083 and interest earned on marketable securities held in the Trust Account of $27,310.

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 six months ended June 30, 2022, cash used in operating activities was $762,375. Net income of $5,708,516 was affected by change in the fair value of warrant liabilities and forward purchase agreement derivative asset of $6,086,384 and interest earned on marketable securities held in the Trust Account of $384,621. Changes in operating assets and liabilities provided $114 of cash for operating activities.



For the six months ended June 30, 2021, cash used in operating activities was
$625,582. Net loss of $1,562,884 was affected by
non-cash
change in fair value of warrant liabilities and forward purchase agreement
derivative asset of $107,083, 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 $27,310, and transaction
costs incurred in connection with warrant liabilities of $442,366. Changes in
operating assets and liabilities provided $558,365 of cash for operating
activities.

As of June 30, 2022, we had marketable securities held in the Trust Account of $250,170,050 (including $170,050 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 June 30, 2022, we have withdrawn $250,000 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 June 30, 2022, we had cash of $317,128. 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.

Liquidity and Going Concern

As of June 30, 2022, we had $317,128 in our operating bank account and a working capital deficit of $425,979. In order to fund working capital deficiencies or finance transaction costs in connection with a Business Combination, the Sponsors or an affiliate of the Sponsors, or certain of our officers and directors, may provide us with Working Capital Loans (see Note 5).


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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 June 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' equity. 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 (Loss) Per Common Share

Net income (loss) per common share is computed by dividing net income (loss) 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 (loss) 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 is currently assessing the impact, if
any, that ASU
2020-06
would have on its financial position, results of operation 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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