References in this report (the "Quarterly Report") to "we," "us" or the
"Company" refer to Longview Acquisition Corp. II. References to our "management"
or our "management team" refer to our officers and directors, and references to
the "Sponsor" refer to Longview Investors II LLC. The following discussion and
analysis of the Company's financial condition and results of operations should
be read in conjunction with the financial statements and the notes thereto
contained elsewhere in this Quarterly Report. 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 of 1934, as amended 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 completion of, 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, including that the conditions of the Proposed
Business Combination are not satisfied. 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 for the year ended
December 31, 2021, 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
October 23, 2020, for the purpose of entering into a 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
Company's initial public offering (the "Initial Public Offering") of 69,000,000
units (the "Units" and, with respect to the shares of Class A common stock
included in the Units sold, the "Public Shares") and the sale of 9,800,000
warrants (the "Private Placement Warrants"), our capital stock, debt or a
combination of cash, stock and debt.
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 October 23, 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 holding certain of the proceeds of the Initial Public Offering and the
sale of the Private Placement Warrants (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
$2,811,023, which consisted of a change in fair value of derivative liabilities
of $1,416,000, change in fair value of the convertible note, net-related party
of $59,193 and interest earned on marketable securities held in the Trust
Account of $2,393,757, offset by operating costs of $302,617, change in the fair
value of the Forward Purchase Agreement ("FPA") of $262,692 and provision for
income taxes of $492,618.
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For the nine months ended September 30, 2022, we had a net income of
$15,451,307, which consisted of a change in fair value of derivative liabilities
of $18,408,000, change in fair value of the convertible note, net-related party
of $311,557 and interest earned on marketable securities held in the Trust
Account of $3,861,702, offset by operating costs of $1,424,460, change in the
fair value loss of the FPA of $4,932,441 and provision for income taxes of
$773,051.
For the three months ended September 30, 2021, we had a net income of
$5,632,149, which consisted of interest earned on marketable securities held in
the Trust Account of $71,143, a change in fair value of warrant liabilities of
$1,888,000, initial classification of FPA liability of $9,902,957 and change in
fair value of convertible note, net - related party of $8,391, offset by change
in the fair value of FPA liability of $3,046,211 and operating and formation
costs of $3,192,131
For the nine months ended September 30, 2021, we had a net loss of $2,394,495
which consisted of initial classification of FPA liability of $9,902,957,
transaction costs allocated to warrant liabilities of $1,001,129, and operating
and formation costs of $4,257,507, offset by change in the fair value of FPA
liability of $9,902,957, change in fair value of warrant liabilities of
$2,752,000 and change in fair value of convertible note, net - related party of
$8,391.
Liquidity and Capital Resources
On March 23, 2021, we consummated the Initial Public Offering of 69,000,000
Units, at $10.00 per Unit, generating gross proceeds of $690,000,000, which is
described in Note 3 to our condensed consolidated financial statements.
Simultaneously with the closing of the Initial Public Offering, we consummated
the sale of 9,800,000 Private Placement Warrants at a price of $1.50 per Private
Placement Warrant in a private placement to the Sponsor, generating gross
proceeds of $14,700,000.
Following the Initial Public Offering, the full exercise of the underwriters'
over-allotment option, and the sale of the Private Placement Warrants, a total
of $690,000,000 was placed in the Trust Account. We incurred $35,566,388 in
Initial Public Offering related costs, including $12,700,000 of underwriting
fees, $22,225,000 of deferred underwriting fees and $641,388 of other costs.
For the nine months ended September 30, 2022, cash used in operating activities
was $2,379,416. Net income of $15,451,307 was affected by change in fair value
of derivative liabilities of $18,408,000, change in fair value of the
convertible note, net-related party of $311,557, interest earned on marketable
securities held in the Trust Account of $3,861,702 and change in the fair value
loss of the FPA of $4,932,441. Changes in operating assets and liabilities used
$181,905 of cash in operating activities.
For the nine months ended September 30, 2021, cash used in operating activities
was $3,011,166. Net loss of $2,394,495 was affected by interest expense on
marketable securities held in the Trust Account of $103,750, initial
classification of FPA liability of $9,902,957, change in fair value of warrant
liabilities of $2,752,000, change in fair value of convertible note, net -
related party of $8,391 offset by transaction costs allocated to warrant
liabilities of $1,001,129 and change in fair value of FPA liability of
$9,902,957. Changes in operating assets and liabilities used $1,246,341 of cash
for operating activities.
As of September 30, 2022, we had marketable securities held in the Trust Account
of $693,257,602 (including approximately $3,257,603 of interest income)
consisting of U.S. Treasury Bills 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, the Company withdraw $752,999 of interest income
from the Trust Account to pay franchise and income taxes. 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 $80,146. 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.
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We are party to a loan agreement with our sponsor pursuant to which we may
borrow up to $4,000,000 in order to fund working capital deficiencies or finance
transaction costs in connection with a Business Combination. Our sponsor or an
affiliate of our Sponsor or certain of our officers and directors may, but are
not obligated to, loan us additional 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 $2,000,000 of such
loans may be convertible into warrants, at the option of the lender. The
warrants would be identical to the private placement warrants. On February 15,
2022, the Company and our Sponsor amended the Sponsor's loan to the Company of
up to an aggregate principal amount of $2,000,000 (the "Convertible Promissory
Note") to increase the aggregate principal amount of the Convertible Promissory
Note from $2,000,000 to $3,000,000. On August 9, 2022, the Company and the
Sponsor further amended the Convertible Promissory Note to increase the
aggregate principal amount of the Convertible Promissory Note from $3,000,000 to
$4,000,000. All other terms of the Convertible Promissory Note remain in full
force and effect. During the three months and nine months ended September 30,
2022, the Company drew down an additional $1,000,000 and $1,700,000,
respectively, under the Convertible Promissory Note for total principal
borrowings under the note of $3,700,000 as of September 30, 2022, of which
$1,700,000 are non-convertible.
We believe we will need to raise additional funds in order to meet the
expenditures required for operating our business, The Company cannot provide any
assurance that new financing will be available to it on commercially acceptable
terms. However, if our estimate of the costs of identifying a target business,
undertaking in-depth due diligence, and negotiating an initial 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 initial
Business Combination. Moreover, we may need to obtain additional financing
either to complete our initial Business Combination or because we become
obligated to redeem a significant number of our public shares upon consummation
of our initial Business Combination, in which case we may issue additional
securities or incur debt in connection with such Business Combination.
Going Concern
The Company intends to pursue the objective of completing a Business Combination
by March 23, 2023. However, in the absence of a completed Business Combination,
the Company may require additional capital. If the Company is unable to raise
additional capital, it 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. The Company cannot provide any assurance
that new financing will be available to it on commercially acceptable terms, if
at all.
In connection with the Company's assessment of going concern considerations in
accordance with Financial Accounting Standards Board ("FASB") Accounting
Standards Update ("ASU") 2014-15, "Disclosures of Uncertainties about an
Entity's Ability to Continue as a Going Concern," the Company has until March
23, 2023, to consummate a Business Combination. It is uncertain that the Company
will be able to consummate a Business Combination by this time. If a Business
Combination is not consummated by this date, there will be a mandatory
liquidation and subsequent dissolution of the Company. Management has determined
that the liquidity condition and mandatory liquidation, should a Business
Combination not occur, and potential subsequent dissolution raises substantial
doubt about the Company's ability to continue as a going concern. No adjustments
have been made to the carrying amounts of assets or liabilities should the
Company be required to liquidate after March 23, 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 affiliate
of the Sponsor a total of $10,000 per month for office space, utilities and
administrative and support services. We began incurring these fees on March 18,
2021 and will continue to incur these fees monthly until the earlier of the
completion of the Business Combination and our liquidation.
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The underwriters are entitled to a deferred fee of $0.35 per Unit (except with
respect to units purchased by funds affiliated with Glenview Capital Management,
LLC and an investment vehicle controlled by individuals affiliated with Glenview
Capital Management, LLC), or $22,225,000 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 consolidated 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 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:
Convertible Promissory Note
The Company accounts for its convertible promissory note under ASC 815,
Derivatives and Hedging ("ASC 815"). Under 815-15-25, the election can be at the
inception of a financial instrument to account for the instrument under the fair
value option under ASC 825. The Company has made such election for its
convertible promissory note. Using the fair value option, the convertible
promissory note is to be recorded at its initial fair value on the date of
issuance, and each balance sheet date thereafter. The Company evaluates the
change based on the conversion price at the current market value. When
recognized, changes in the estimated fair value of the notes are recognized as a
non-cash gain or loss on the condensed consolidated statements of operations.
Derivative Liabilities - Warrants and Forward Purchase Agreement
The Company accounts for the Warrants and FPA in accordance with the guidance
contained in ASC 815-40, "Derivatives and Hedging." For derivative financial
instruments that are accounted for as assets or liabilities, the derivative
instrument is initially recorded at its fair value on the grant date and these
liabilities are subject to re-measurement at each balance sheets date until
exercised, and any change in fair value is recognized in the statements of
operations. Derivative liabilities are classified in the balance sheets as
current or non-current based on whether or not net-cash settlement or conversion
of the instrument could be required within 12 months of the balance sheet date.
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 Topic 480, "Distinguishing Liabilities from
Equity." Shares of Class A common stock subject to mandatory redemption is
classified as a liability instrument and is measured at fair value.
Conditionally redeemable common stock (including common stock that feature
redemption rights that is 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 consolidated balance
sheets. We recognize changes in redemption value immediately as they occur and
adjusts the carrying value of the Class A common stock subject to possible
redemption to equal the redemption value at the end of each reporting period.
This method would view the end of the reporting period as if it were also the
redemption date for the security.
Net Income (Loss) Per Share of Common Stock
The Company complies with accounting and disclosure requirements of FASB ASC
Topic 260, "Earnings Per Share". Net income (loss) per common stock is computed
by dividing net income (loss) by the weighted average number of common stock
outstanding for the period. The Company has two classes of common stock, which
are referred to as Class A common stock and Class B common stock. Income (loss)
is allocated pro rata between the two share classes. Accretion associated with
the redeemable shares of Class A common stock is excluded from earnings per
share as the redemption value approximates fair value.
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Recent Accounting Standards
In September 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit
Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which
requires entities to measure all expected credit losses for financial assets
held at the reporting date based on historical experience, current conditions,
and reasonable and supportable forecasts. ASU 2016-13 also requires additional
disclosures regarding significant estimates and judgments used in estimating
credit losses, as well as the credit quality and underwriting standards of an
entity's portfolio. The Company expects to adopt the provisions of this guidance
on January 1, 2023. The adoption is not expected to have a material impact on
the Company's condensed financial statements.
In August 2020, the 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. As a smaller reporting company, ASU 2020-06 is
effective January 1, 2024 for fiscal years beginning after December 15, 2023 and
should be applied on a full or modified retrospective basis, with early adoption
permitted beginning on January 1, 2021. We are currently assessing the impact,
if any, that ASU 2020-06 would have on its financial position, results of
operations or cash flows. We have not adopted this guidance as of September 30,
2022.
Management does not believe that any other recently issued, but not yet
effective, accounting standards, if currently adopted, would have a material
effect on the Company's condensed consolidated financial statements.
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