SEC Form 10-Q filed by Austerlitz Acquisition Corporation II

AUSTERLITZ ACQUISITION CORPORATION II

FORM 10-Q FOR THE QUARTER ENDED

SEPTEMBER 30, 2022

TABLE OF CONTENTS

References in this report (the “Quarterly Report”) to “we,” “us” or the “Company” refer to Austerlitz Acquisition Corporation II. References to our “management” or our “management team” refer to our officers and directors, references to the “Sponsor” refer to Austerlitz Acquisition Sponsor, LP I. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the unaudited condensed 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” 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 Quarterly Report 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 for the year ended December 31, 2021 and in any of the Company’s subsequent SEC filings. 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 incorporated on January 5, 2021 as a Cayman Islands exempted company for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar Business Combination with one or more businesses. We intend to effectuate a Business Combination using cash from the proceeds of our IPO and the Private Placement, the proceeds of the sale of our shares in connection with a Business Combination, shares issued to the owners of the target, debt issued to bank or other lenders or the owners of the target, or a combination of the foregoing.

The registration statement for our IPO was declared effective on February 25, 2021. On March 2, 2021, we completed our IPO of 138,000,000 Units sold to the public, including the issuance of 18,000,000 Units as a result of the underwriter’s exercise in full of its over-allotment option, at the price of $10.00 per Unit, generating gross proceeds of $1,380,000,000. Each Unit consists of one Class A ordinary share of the Company and one-fourth of one redeemable warrant. Each whole Public Warrant entitles the holder to purchase one Class A ordinary share at an exercise price of $11.50 per share, subject to adjustment. Simultaneously with the closing of our IPO, we completed the sale to Cannae Holdings, LLC of an aggregate of 19,733,333 Private Placement Warrants at a price of $1.50 per Private Placement Warrant, generating gross proceeds of approximately $29,600,000. Each Private Placement Warrant is exercisable for one Class A ordinary share at a price of $11.50 per share, subject to adjustment. The proceeds from the Private Placement were added to the net proceeds from the IPO held in the Trust Account.

Following our IPO, the full exercise of the over-allotment option and the Private Placement, a total of $1,380,000,000 was placed in the Trust Account. We incurred $28,359,571 in transaction costs, including $27,600,000 of underwriting fees and $759,571 of other offering costs.

The Company’s management has broad discretion with respect to the specific application of the net proceeds of the IPO and the sale of the Private Placement Warrants, although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination. There is no assurance that the Company will be able to complete a Business Combination successfully. The Company must complete its initial Business Combination with one or more target businesses that together have a fair market value equal to at least 80% of the net assets held in the Trust Account (excluding any deferred underwriting commissions held in the Trust Account) at the time the Company signs a definitive agreement in connection with a Business Combination. The Company will only complete a Business Combination if the post-Business Combination company owns or acquires 50% or more of the issued and outstanding voting securities of the target or otherwise acquires a controlling interest in the target business sufficient for it not to be required to register as an investment company under the Investment Company Act of 1940, as amended.

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On October 3, 2022, the Company filed a preliminary proxy statement to redeem the Public Shares through a tender offer and amend its March 2, 2023 expiration date to the chosen date of the shareholder meeting for which proxies are being solicited. Upon approval by the Company’s shareholders of the proposals set forth in the proxy statement, the Company would redeem the Public Shares and begin liquidation proceedings. The Sponsors believe that consummation of a suitable business combination is highly improbable, and it is therefore in shareholders’ best interests to return the cash held in the Trust Account to shareholders within calendar 2022 rather than wait for expiration in 2023. The Company will be dissolved subsequent to the return of the cash in trust to our shareholders. On October 28, 2022, the Company filed the related definitive proxy statement. See Note 10 to our condensed consolidated financial statements included in Item 1 of Part I of this Quarterly Report for further discussion.

The COVID-19 pandemic has caused difficult market and economic conditions globally since its outbreak in 2020, and the full impact of the COVID-19 pandemic continues to evolve. The impact of the COVID-19 outbreak on our results of operations, financial position and cash flows will depend on future developments, including resurgences and variants of the virus that causes COVID-19, as well as efforts to reduce its spread, such as travel bans and other restrictions. These developments and the impact of the COVID-19 outbreak on the financial markets and the overall economy are highly uncertain and cannot be predicted. If the financial markets and/or the overall economy continue to be impacted for an extended period, our ability to complete our initial Business Combination may be materially adversely affected due to significant governmental measures to contain the COVID-19 pandemic or treat its impact, including travel restrictions, the shutdown of businesses and quarantines, among others, which may limit our ability to have meetings with potential investors or affect the ability of a potential target company’s personnel, vendors and service providers to negotiate and consummate our initial Business Combination in a timely manner.

Results of Operations

We have neither engaged in any operations nor generated any revenues to date. Our only activities since inception have been organizational activities, those necessary to prepare for our IPO and, after completing our IPO, identifying a target company for a Business Combination. We do not expect to generate any operating revenues until after completion of a Business Combination. We may 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 expenses as we conduct due diligence on prospective Business Combination candidates. Additionally, we recognize non-cash gains and losses related to changes in recurring fair value measurements of our Warrant liabilities at each reporting period.

For the nine months ended September 30, 2022, we had net income of $52,852,775, which consists of $795,891 in general and administrative expenses, which were more than offset by non-cash gains of $53,648,666 related to changes in the fair value of the warrants and forward purchase agreement. For the period from January 5, 2021 (Inception) through September 30, 2021, we had net income of $27,271,303, which consisted of $572,659 in general and administrative costs, $5,000 of formation costs, $3,181,372 related to transaction costs allocated to derivative warrant liabilities, which were more than offset by non-cash gains of $31,030,334 related to changes in the fair value of the warrants and forward purchase agreement,

For the three months ended September 30, 2022, we had net income of $5,858,586, which consists of $274,414 in general and administrative costs, which were more than offset by non-cash gains of $6,133,000 related to changes in the fair value of the warrants and forward purchase agreement. For the three months ended September 30, 2021, we had net income of $13,293,819, which consisted of $322,515 in general and administrative expenses which was more than offset by non-cash gains of $13,616,334 related to changes in the fair value of the warrants and forward purchase agreement.

Liquidity and Capital Resources

As of September 30, 2022, we had cash of $955 outside of the Trust Account. We intend to use the funds held outside the Trust Account primarily to fund working capital and pay third-party service providers for services rendered to the Company.

As of September 30, 2022, we had cash of $690,000,000 held in the Trust Account. We intend to redeem our outstanding Class A ordinary shares (the “Public Shares”) for the cash held in the Trust Account prior to December 31, 2022. The Company expires by its terms on March 2, 2023, however, the Company has filed a preliminary proxy statement to amend the March 2, 2023 expiration date to the date of the shareholders meeting for which proxies are being solicited. The Sponsors believe that consummation of a suitable merger is highly improbable, and it is therefore in shareholders’ best interests to return the cash held in the Trust Account within calendar year 2022 rather than wait for expiration in 2023.

For the nine months ended September 30, 2022, cash used by operating activities was $258,411 and is primarily attributable to the payment of expenses.

For the period from January 5, 2021 (Inception) through September 30, 2021, cash used by operating activities was $870,335 and is primarily attributable to the payment of expenses.

The Company had no cash flow from investing or financing activities in the nine months ended September 30, 2022.

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For the period from January 5, 2021 through September 30, 2021, net cash used in investing activities was $1,380,000,000, which consisted of $1,380,000,000 investment of cash into the trust account. Net cash provided by financing activities of $1,381,200,859 was attributable to $388,152 for the repayment of the promissory note to a related party, and was offset by $408,153 of advances from a related party, $1,351,580,858 of proceeds from the sale of Units, net of deferred underwriting discounts paid, and $29,600,000 of proceeds from the sale of the Private Placement Warrants.

See discussion under the header “Liquidity and Going Concern Consideration” in Note 1 and in Note 10 to our unaudited condensed financial statements included in Item 1 of Part I of this Quarterly Report for discussion of the Company’s plan to return the cash held in the Trust Account to shareholders and management’s consideration of the Company’s ability to continue as a going concern.

Off-Balance Sheet Financing Arrangements

We had no obligations, assets or liabilities, which would be considered off-balance sheet arrangements as of September 30, 2022 or December 31, 2021. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities. 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 up to $5,000 for office space and administrative support services. We began incurring these fees on March 2, 2021 and will continue to incur these fees monthly until the earlier of the completion a Business Combination and our liquidation.

Critical Accounting Estimates

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 financial statements, and income and expenses during the period reported. Actual results could materially differ from those estimates. We have identified the following critical accounting estimates effecting our financial statements:

Warrant and Forward Purchase Liabilities

The Company accounts for the Warrants and Forward Purchase Agreement (“FPA”) as either equity-classified or liability-classified instruments based on an assessment of the specific terms of the Warrants and FPA and the applicable authoritative guidance in ASC 480 and ASC Topic 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the Warrants and FPA are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and meet all of the requirements for equity classification under ASC 815, including whether the Warrants and FPA are indexed to the Company’s own ordinary shares and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of issuance of the Warrants and execution of the FPA and as of each subsequent quarterly period end date while the Warrants and FPA are outstanding. For issued or modified instruments such as warrants and forward purchases of equity that meet all of the criteria for equity classification, such instruments are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified instruments that do not meet all the criteria for equity classification, such instruments are required to be recorded as liabilities at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of liability-classified instruments are recognized as a non-cash gain or loss on the unaudited condensed statements of operations.

The Company accounts for the Warrants and FPA in accordance with ASC 815-40 under which the Warrants and FPA do not meet the criteria for equity classification and must be recorded as assets or liabilities. The assets and liabilities for the Warrants and FPA are included in Warrant liability and Forward purchase agreement asset or liability, respectively, on the balance sheets as of September 30, 2022 and December 31, 2021.

See Note 8 to our unaudited condensed financial statements included in Item 1 of Part I of this Quarterly Report for further discussion of the pertinent items of the Warrants and Note 9 for further discussion of the methodology used to determine the fair value of the Company’s assets or liabilities for the Warrants and FPA.

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Class A Ordinary Shares Subject to Possible Redemption

We account for our Class A ordinary shares subject to possible redemption in accordance with the guidance in ASC 480. Class A ordinary shares subject to mandatory redemption are classified as a liability instrument and is measured at fair value. Conditionally redeemable ordinary shares (including ordinary shares that feature 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) are classified as temporary equity. At all other times, ordinary shares are classified as shareholders’ equity. Our Class A ordinary shares feature certain redemption rights that are considered to be outside of our control and subject to occurrence of uncertain future events. Accordingly, the Class A ordinary shares subject to possible redemption are presented as temporary equity, outside of the shareholders’ equity section of our condensed balance sheets.

Net Income (Loss) per Ordinary Share

The Company has three classes of shares, one for each of its Class A, Class B, and Class C ordinary shares. Income and losses are shared pro rata between the three classes of shares. Net income per ordinary share is computed by dividing net income by the weighted average number of ordinary shares outstanding during the period. Refer to Note 2 to our unaudited condensed financial statements included in Item 1 of Part I of this Quarterly Report for further discussion of the calculation of our net income per share.

Recently Issued Accounting Pronouncements

Refer to Note 2 to our unaudited condensed financial statements included in Item 8 of this Quarterly Report for discussion of management’s consideration of recently issued accounting pronouncements.

As of September 30, 2022, we were not subject to any market or interest rate risk. Following the consummation of our IPO, the net proceeds received into the Trust Account, have been placed in a non-interest bearing checking account.

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Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management was required to apply its judgment in evaluating and implementing possible controls and procedures.

Evaluation of Disclosure Controls and Procedures

As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2022. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15 (e) and 15d-15 (e) under the Exchange Act) were not effective, due to the material weakness in our internal control over financial reporting related to the Company’s accounting for complex financial instruments as described in the Explanatory Note in our Quarterly Report Form 10-Q/A filed on January 10, 2022 and in the footnotes to the financial statements included in our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2021, as filed with the SEC on May 17, 2021. As a result, we performed additional analyses as deemed necessary to ensure that our financial statements were prepared in accordance with U.S. generally accepted accounting principles. Management believes that the financial statements included in this Quarterly Report present fairly in all material respects our financial position, results of operations and cash flows for the periods presented.

We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Changes in Internal Control over Financial Reporting

Other than the steps taken to remediate the material weakness identified in prior periods and further described below, there was no change in our internal control over financial reporting that occurred during the fiscal quarter ended September 30, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

We have previously identified a material weakness in our internal control over financial reporting. The material weakness was due to management’s review of the accounting treatment for the financial instruments issued in the initial public offering and sold in the concurrent private placement. Management’s review was insufficient to identify a classification error that led to our restatement of our financial statements, as described in Note 2 to our Quarterly Report Form 10-Q/A filed on January 10, 2022. Management has made changes in its internal control over financial reporting to enhance our processes to identify and appropriately apply applicable accounting requirements to better evaluate and understand the nuances of the complex accounting standards that apply to our financial statements, including enhanced communication among our personnel and third-party professionals with whom we consult regarding complex accounting applications. Given the Company’s plan to return the cash held in the Trust Account to holders of Public Shares and subsequently liquidate, we do not expect that we will ultimately validate that those processes and controls are operating effectively. The Company can offer no assurance that these changes will ultimately have the intended effects. As of the date of this Quarterly Report, the material weakness has not been remediated.

PART II – OTHER INFORMATION

There have been no material changes to our risk factors as disclosed in “Risk Factors” included in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2021.

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The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.