References to the "Company," "Kensington Capital Acquisition Corp. II,"
"Kensington," "our," "us" or "we" refer to Kensington Capital Acquisition Corp.
II. The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with the unaudited
interim condensed financial statements and the notes thereto contained elsewhere
in this report. Certain information contained in the discussion and analysis set
forth below includes forward-looking statements that involve risks and
uncertainties.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form
10-Q
includes forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Exchange Act. We have
based these forward-looking statements on our current expectations and
projections about future events. These forward-looking statements are subject to
known and unknown risks, uncertainties and assumptions about us that may cause
our actual results, levels of activity, performance or achievements to be
materially different from any future results, levels of activity, performance or
achievements expressed or implied by such forward-looking statements. In some
cases, you can identify forward-looking statements by terminology such as "may,"
"should," "could," "would," "expect," "plan," "anticipate," "believe,"
"estimate," "continue," or the negative of such terms or other similar
expressions. Factors that might cause or contribute to such a discrepancy
include, but are not limited to, those described in our other SEC filings.
Overview
We are a blank check company incorporated in Delaware on January 4, 2021. We
were 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 (the "Business Combination"). We are an emerging growth
company and, as such, the Company is subject to all of the risks associated with
emerging growth companies.
Our sponsor is Kensington Capital Sponsor II LLC, a Delaware limited liability
company (the "Sponsor"). The registration statement for our Initial Public
Offering was declared effective on February 25, 2021. On March 2, 2021, we
consummated its Initial Public Offering of 23,000,000 units (the "Units" and,
with respect to the Class A common stock included in the Units being offered,
the "Public Shares"), including the exercise of the underwriters' option to
purchase 3,000,000 additional Units (the "Over-Allotment Units"), at $10.00 per
Unit, generating gross proceeds of $230.0 million, and incurring offering costs
of approximately $13.1 million, of which approximately $8.1 million was for
deferred underwriting commissions.
Simultaneously with the closing of the Initial Public Offering, we consummated
the private placement ("Private Placement") of 8,800,000 warrants (each, a
"Private Placement Warrant" and collectively, the "Private Placement Warrants")
at a price of $0.75 per Private Placement Warrant to the Sponsor, generating
proceeds of $6.6 million.
Upon the closing of the Initial Public Offering and the Private Placement,
$230.0 million ($10.00 per Unit) of the net proceeds of the Initial Public
Offering and certain of the proceeds of the Private Placement was placed in a
trust account ("Trust Account") located in the United States with Continental
Stock Transfer & Trust Company acting as trustee, and invested only in U.S.
"government securities," within the meaning set forth in Section 2(a)(16) of the
Investment Company Act of 1940, as amended (the "Investment Company Act"), with
a maturity of 185 days or less, or 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, as determined by us, until the earlier of: (i) the
completion of a Business Combination and (ii) the distribution of the Trust
Account as described below.
Our management has broad discretion with respect to the specific application of
the net proceeds of the Initial Public Offering 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 we will be able to complete a Business Combination successfully.
We must complete an initial Business Combination with one or more operating
businesses or assets with a fair market value equal to at least 80% of the net
assets held in the Trust Account (net of amounts disbursed to management for
working capital purposes, if permitted, and excluding the amount of any deferred
underwriting discount). However, we will only complete a Business Combination if
the post-transaction company owns or acquires 50% or more of the 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.

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If we are unable to complete a Business Combination within 24 months from the
closing of the Initial Public Offering, or March 2, 2023, (as such period may be
extended pursuant to the Certificate of Incorporation, the "Combination
Period"), we will (i) cease all operations except for the purpose 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 held in the Trust Account
and not previously released to us to pay our taxes, net of taxes payable (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 Stockholders' rights as stockholders (including the right to receive
further liquidating distributions, if any), and (iii) as promptly as reasonably
possible following such redemption, subject to the approval of our remaining
stockholders and our board of directors, dissolve and liquidate, subject in each
case to our obligations under Delaware law to provide for claims of creditors
and the requirements of other applicable law. There will be no redemption rights
or liquidating distributions with respect to our warrants, which will expire
worthless if we fail to complete its initial Business Combination within the
Combination Period.
Liquidity and Capital Resources
As of June 30, 2021, we had approximately $1.2 million in cash and working
capital of approximately $1.1 million (not taking into account approximately
$98,000 of taxes that may be paid using interest income from the Trust Account).
Our liquidity needs to date have been satisfied through a payment of $25,000
from the Sponsor to pay for certain offering costs and expenses in exchange for
issuance of the Founder Shares, the loan under the Note of $100,000, and the net
proceeds from the consummation of the Private Placement not held in the Trust
Account. In addition, in order to finance transaction costs in connection with
an Initial Business Combination, our officers, directors and initial
stockholders may, but are not obligated to, provide us Working Capital Loans.
The Sponsor elected to convert the Note into Working Capital Loan upon closing
of the Initial Public Offering.
Based on the foregoing, management believes that we will have sufficient working
capital and borrowing capacity to meet its needs through the earlier of the
consummation of a Business Combination or one year from this filing. Over this
time period, we will be using these funds for paying existing accounts payable,
identifying and evaluating prospective initial Business Combination candidates,
performing due diligence on prospective target businesses, paying for travel
expenditures, selecting the target business to merge with or acquire, and
structuring, negotiating and consummating the Business Combination.
Management continues to evaluate the impact of the
COVID-19
pandemic and has concluded that the specific impact is not readily determinable
as of the date of the financial statements. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Results of Operations
Our entire activity since inception through June 30, 2021 related to our
formation, the preparation for an Initial Public Offering, and since our Initial
Public Offering, our activity has been limited to the search for a prospective
initial Business Combination. We will not generate any operating revenues until
the closing and completion of our initial Business Combination.
For the three months ended June 30, 2021, we had a loss of approximately
$11.8 million, which consisted of approximately $173,000 of general and
administrative expenses, $60,000 of administrative expenses - related party,
approximately $50,000 of franchise tax expense, approximately $11.4 million for
change in fair value of derivative liabilities, and approximately $129,000 for
change in fair value of working capital loan, partially offset by approximately
$9,000 net gain from investments held in the Trust Account.

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For the period from January 4, 2021 (inception) through June 30, 2021, we had a
loss of approximately $15.2 million, which consisted of approximately $214,000
of general and administrative expenses, $100,000 of administrative expenses -
related party, approximately $98,000 of franchise tax expense, approximately
$14.4 million for change in fair value of derivative liabilities, approximately
$252,000 of financing costs, and approximately $129,000 for change in fair value
of working capital loan, partially offset by approximately $22,000 net gain from
investments held in the Trust Account.
Contractual Obligations
Registration Rights
The holders of Founder Shares, Private Placement Warrants and warrants that may
be issued upon conversion of Working Capital Loans, if any, and any shares of
Class A common stock issuable upon the exercise of the Private Placement
Warrants and warrants that may be issued upon conversion of Working Capital
Loans and upon conversion of the Founder Shares were entitled to registration
rights pursuant to a registration rights agreement signed upon the consummation
of the Initial Public Offering. These holders were entitled to certain demand
and "piggyback" registration rights. We will bear the expenses incurred in
connection with the filing of any such registration statements.
Underwriting Agreement
We granted the underwriters a
45-day
option from the date of the final prospectus relating to the Initial Public
Offering to purchase up to 3,000,000 additional Units to cover over-allotments,
if any, at the Initial Public Offering price, less underwriting discounts and
commissions. On March 2, 2021, the underwriter fully exercised its option to
purchase additional Units.
The underwriters were entitled to an underwriting discount of $0.20 per Unit, or
$4.6 million in the aggregate, paid upon the closing of the Initial Public
Offering. In addition, $0.35 per Unit, or approximately $8.1 million in the
aggregate will be payable to the underwriters for deferred underwriting
commissions. The deferred fee will become payable to the underwriters from the
amounts held in the Trust Account solely in the event that we complete a
Business Combination, subject to the terms of the underwriting agreement.
Critical Accounting Policies
Investments Held in Trust Account
Our portfolio of investments is comprised solely of U.S. government securities,
within the meaning set forth in Section 2(a)(16) of the Investment Company Act,
with a maturity of 185 days or less, or investments in money market funds that
invest in U.S. government securities, or a combination thereof. Our investments
held in the Trust Account are classified as trading securities. Trading
securities are presented on the balance sheet at fair value at the end of each
reporting period. Gains and losses resulting from the change in fair value of
these securities is included in investment income on Trust Account in the
accompanying statement of operations. The estimated fair values of investments
held in the Trust Account are determined using available market information.
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." Class A common stock subject to mandatory redemption (if any) are
classified as liability instruments and are measured at fair value.
Conditionally redeemable Class A common stock (including shares of Class A
common stock 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, Class A common stock are classified as stockholders' equity. Our Class A
common stock feature certain redemption rights that are considered to be outside
of our control and subject to occurrence of uncertain future events.
Accordingly, at June 30, 2021, 19,299,044 shares of Class A common stock subject
to possible redemption at the redemption amount were presented at redemption
value as temporary equity, outside of the stockholders' equity section of our
balance sheet.

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Derivative warrant liabilities
We do not use derivative instruments to hedge exposures to cash flow, market, or
foreign currency risks. We evaluate all of our financial instruments, including
issued stock purchase warrants, to determine if such instruments are derivatives
or contain features that qualify as embedded derivatives, pursuant to ASC 480
and ASC
815-15.
The classification of derivative instruments, including whether such instruments
should be recorded as liabilities or as equity, is
re-assessed
at the end of each reporting period.
The 5,750,000 warrants issued in connection with the Initial Public Offering
(the "Public Warrants") and the 8,800,000 Private Placement Warrants are
recognized as derivative liabilities in accordance with ASC
815-40.
Accordingly, we recognize the warrant instruments as liabilities at fair value
and adjusts the instruments to fair value at each reporting period. The
liabilities are subject to
re-measurement
at each balance sheet date until exercised, and any change in fair value is
recognized in our statement of operations. The fair value of the Public Warrants
issued in connection with the Public Offering and Private Placement Warrants
were initially and subsequently measured at fair value using a Monte Carlo
simulation model. The determination of the fair value of the warrant liability
may be subject to change as more current information becomes available and
accordingly the actual results could differ significantly. Derivative warrant
liabilities are classified as
non-current
liabilities as their liquidation is not reasonably expected to require the use
of current assets or require the creation of current liabilities.
Offering Costs Associated with the Initial Public Offering
Offering costs consisted of legal, accounting, underwriting fees and other costs
incurred through the Initial Public Offering that were directly related to the
Initial Public Offering. Offering costs are allocated to the separable financial
instruments issued in the Initial Public Offering based on a relative fair value
basis, compared to total proceeds received. Offering costs associated with
warrant liabilities are expensed as incurred, presented as
non-operating
expenses in the statement of operations. Offering costs associated with the
Class A common stock were charged to stockholders' equity upon the completion of
the Initial Public Offering.
Net Loss Per Share
We comply with accounting and disclosure requirements of FASB ASC Topic 260,
"Earnings Per Share." Net income (loss) per common share is computed by dividing
net loss by the weighted average number of shares of common stock outstanding
during the period. We have not considered the effect of the warrants sold in the
Initial Public Offering and Private Placement to purchase an aggregate of
14,550,000 shares of our common stock in the calculation of diluted loss per
share, since the exercise of the warrants are contingent upon the occurrence of
future events and the inclusion of such warrants would be anti-dilutive.
Our statement of operations includes a presentation of income (loss) per common
share for Class A common shares subject to possible redemption in a manner
similar to the
two-class
method of income (loss) per common share. Net income (loss) per common share,
basic and diluted, for Class A common stock subject to possible redemption is
calculated by dividing the proportionate share of income or loss on marketable
securities held by the Trust Account, net of applicable franchise and income
taxes, by the weighted average number of shares of Class A common stock subject
to possible redemption outstanding since original issuance.
Net income (loss) per common share, basic and diluted, for
non-redeemable
common stock is calculated by dividing the net income (loss), adjusted for
income or loss on investments held in the trust account attributable to common
stock subject to possible redemption, by the weighted average number of
non-redeemable
common stock outstanding for the period.
Non-redeemable
common stock includes Founder Shares and
non-redeemable
shares of Class A common stock as these shares do not have any redemption
features.
Non-redeemable
common stock participates in the income or loss on marketable securities based
on
non-redeemable
shares' proportionate interest.

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Recent Accounting Pronouncements
In August 2020, the FASB issued Accounting Standards Update ("ASU")
No. 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):
Accounting for Convertible Instruments and Contracts in an Entity's Own Equity
("ASU
2020-06"),
which simplifies accounting for convertible instruments by removing major
separation models required under current GAAP. The ASU also removes certain
settlement conditions that are required for equity-linked contracts to qualify
for the derivative scope exception, and it simplifies the diluted earnings per
share calculation in certain areas. We adopted ASU
2020-06
on January 4, 2021. Adoption of the ASU did not impact our financial position,
results of operations or cash flows.
Our management does not believe that any other recently issued, but not yet
effective, accounting pronouncements, if currently adopted, would have a
material impact on our financial statements.
Off-Balance
Sheet Arrangements
As of June 30, 2021, we did not have any
off-balance
sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation
S-K.
JOBS Act
The Jumpstart Our Business Startups Act of 2012 (the "JOBS Act") contains
provisions that, among other things, relax certain reporting requirements for
qualifying public companies. We qualify as an "emerging growth company" and
under the JOBS Act are allowed to comply with new or revised accounting
pronouncements based on the effective date for private (not publicly traded)
companies. We are electing to delay the adoption of new or revised accounting
standards, and as a result, we may not comply with new or revised accounting
standards on the relevant dates on which adoption of such standards is required
for
non-emerging
growth companies. As a result, the financial statements may not be comparable to
companies that comply with new or revised accounting pronouncements as of public
company effective dates.
Additionally, we are in the process of evaluating the benefits of relying on the
other reduced reporting requirements provided by the JOBS Act. Subject to
certain conditions set forth in the JOBS Act, if, as an "emerging growth
company," we choose to rely on such exemptions we may not be required to, among
other things, (i) provide an auditor's attestation report on our system of
internal controls over financial reporting pursuant to Section 404, (ii) provide
all of the compensation disclosure that may be required of
non-emerging
growth public companies under the Dodd-Frank Wall Street Reform and Consumer
Protection Act, (iii) comply with any requirement that may be adopted by the
PCAOB regarding mandatory audit firm rotation or a supplement to the auditor's
report providing additional information about the audit and the financial
statements (auditor discussion and analysis) and (iv) disclose certain executive
compensation related items such as the correlation between executive
compensation and performance and comparisons of the CEO's compensation to median
employee compensation. These exemptions will apply for a period of five years
following the completion of our Initial Public Offering or until we are no
longer an "emerging growth company," whichever is earlier.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company as defined by Rule
12b-2
of the Exchange Act and are not required to provide the information otherwise
required under this item. As of June 30, 2021, we were not subject to any market
or interest rate risk. The net proceeds of the Initial Public Offering,
including amounts in the Trust Account, will be invested in U.S. government
securities with a maturity of 185 days or less or in money market funds that
meet certain conditions under Rule
2a-7
under the Investment Company Act of 1940, as amended, that invest only in direct
U.S. government treasury obligations. Due to the short-term nature of these
investments, we believe there will be no associated material exposure to
interest rate risk.
We have not engaged in any hedging activities since our inception and we do not
expect to engage in any hedging activities with respect to the market risk to
which we are exposed.

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