References in this report (the "Quarterly Report") to "we", "us", "our" or the
"Company" refer to Pershing Square Tontine Holdings, Ltd., and references to our
"management" or our "management team" refer to our officers and directors. 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.
Cautionary 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. All
statements, other than statements of historical facts, and including but not
limited to statements regarding the Company or the Company's management team's
expectations, hopes, beliefs, intentions or strategies regarding the future,
included in this Quarterly Report that address activities, events or
developments that the Company expects or anticipates will or may occur in the
future are forward-looking statements. These forward-looking statements involve
a number of risks, uncertainties (some of which are beyond the Company's
control) or other assumptions that may cause actual results or performance to be
materially different from those expressed or implied by these forward-looking
statements. Information concerning these and other factors can be found in the
Company's filings with the SEC, including those set forth in the Risk Factors
section of the Company's final prospectus for its initial public offering.
Copies are available on the SEC's website, www.sec.gov. In light of the
significant uncertainties in forward-looking statements, you should not regard
such statements as a representation or warranty that the Company will achieve
its objectives and plans in any specified timeframe, or at all, and you should
not place undue reliance on any forward-looking statements. The Company
disclaims any intention or obligation to update or revise any forward-looking
statements, except as may be required by law.
Overview
We are a blank check company incorporated as a Delaware corporation and 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. We are currently in negotiations with a specific
business target and while substantial progress has been made, significant issues
remain to be addressed before a transaction can be announced and consummated, if
at all. We intend to effectuate our Initial Business Combination using cash from
the proceeds of the initial public offering and the private placements of the
Sponsor Warrants, Director Warrants and Forward Purchase Units, our capital
stock, debt or a combination of cash, stock and debt. Our Initial Business
Combination will be a negotiated transaction, not a hostile takeover.
The issuance of additional shares of our stock in a business combination,
including the Forward Purchase Securities:
• may significantly dilute the equity interest of investors;
• may subordinate the rights of holders of our common stock if preferred
stock is issued with rights senior to those afforded our common stock;
• could cause a change in control if a substantial number of shares of our
common stock is issued, which may affect, among other things, our ability
to use net operating loss carry forwards, if any, and could result in the
resignation or removal of our present directors and officers;
• may have the effect of delaying or preventing a change of control of us
by diluting the stock ownership or voting rights of a person seeking to
obtain control of us; and
• may adversely affect prevailing market prices for our Class A Common
Stock and/or Redeemable Warrants.
Similarly, if we issue debt instruments or otherwise incur significant
indebtedness, it could result in:
• default and foreclosure on our assets if our operating revenues after our
Initial Business Combination are insufficient to repay our debt
obligations;
• acceleration of our obligations to repay the indebtedness even if we make
all principal and interest payments when due if we breach certain
covenants that require the maintenance of certain financial ratios or
reserves without a waiver or renegotiation of that covenant;
• our immediate payment of all principal and accrued interest, if any, if
the debt security is payable on demand;
• our inability to obtain necessary additional financing if the debt
security contains covenants restricting our ability to obtain such
financing while the debt security is outstanding;
• our inability to pay dividends on our common stock;
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• using a substantial portion of our cash flow to pay principal and
interest on our debt, which will reduce the funds available for dividends
on our common stock if declared, our ability to pay expenses, make
capital expenditures and acquisitions, and fund other general corporate
purposes;
• limitations on our flexibility in planning for and reacting to changes in
our business and in the industry in which we operate;
• increased vulnerability to adverse changes in general economic, industry
and competitive conditions and adverse changes in government regulation;
limitations on our ability to borrow additional amounts for expenses,
capital expenditures, acquisitions, debt service requirements, and
execution of our strategy; and
• other purposes and other disadvantages compared to our competitors who
have less debt.
We expect to continue to incur costs in the pursuit of our acquisition plans. We
cannot assure you that our plans to complete our Initial Business Combination
will be successful.
Certain Observations
During the first quarter of 2021 through to the date of this Quarterly Report,
we continued to work on a potential business combination transaction for which
we had initiated discussions and began due diligence in November 2020. While
substantial progress has been made, significant issues remain to be addressed
before a transaction can be announced and consummated, if at all.
For the three months ended March 31, 2021, we recorded net income of
$336,996,381, which was primarily due to a non-cash GAAP gain of $341,613,701
related to the change in accounting for our Public Warrants, Sponsor Warrants,
Director Warrants and FPA, each of which was previously accounted for as equity.
The change in accounting was initiated following publication of a statement by
the Staff of the Securities & Exchange Commission on accounting for SPAC
warrants, which impacted nearly all SPACs. As a result of the SEC's public
statement, management along with the audit committee reconsidered accounting
issues related to these instruments and have restated our financial statements
at December 31, 2020 to account for our Public Warrants, Sponsor Warrants,
Director Warrants and FPA as liabilities. For the three months ended March 31,
2021, this accounting treatment has required us to record a large non-cash GAAP
gain (large non-cash GAAP loss for the period ended December 31, 2020) that does
not represent an actual cash gain or loss by the Company, nor do we believe it
will have any effect on our ability to consummate an initial business
combination on attractive terms.
The revised accounting methodology relates to certain features of the Public
Warrants, Sponsor Warrants, Director Warrants and our FPA (the terms of which
entitle the Sponsor and directors to receive warrants in addition to common
stock) that are designed to protect the holders of warrants by entitling them to
be exchanged for cash in certain events. The revised accounting requires that we
account for the Public Warrants, Sponsor Warrants, Director Warrants and FPA as
liabilities equal to their fair value at the end of each reporting period.
The impact of this accounting treatment is highly volatile as it is driven by
changes in our stock price. If our stock price increases over a given
measurement period, the fair values of our warrants and FPA will also increase
in value and result in a larger liability being recorded on our balance sheet
and a larger non-cash GAAP loss recorded in our earnings statement for the
period, all other things being equal. Conversely, if our stock price declines
over a measurement period, we will record a smaller liability on our balance
sheet and report a non-cash GAAP gain in our earnings statement, notwithstanding
that our stockholders will be holding shares that have declined in value over
the measurement period. Since PSTH is the largest SPAC with the largest Sponsor
Committed FPA, and has traded at a significant premium to its cash in trust per
share, we expect that our cumulative reported loss through March 31, 2021
related to these liabilities will be larger than those reported by other SPACs.
Non-cash GAAP gains or losses due to changes in the fair value of such
instruments have no impact on our business or our cash balances - including the
more than $4 billion we hold in a trust account at J.P. Morgan - and the minimum
Committed FPA of $1 billion, nor do we expect the change in accounting to have
any impact on our ability to consummate a potential initial business
combination.
Results of Operations
All activities through March 31, 2021 were related to the Company's
organizational activities, preparation for the Company's initial public
offering, and subsequently, identifying a target company for a business
combination. We will not generate any operating revenues until after completion
of our Initial Business Combination. We generate non-operating income in the
form of interest and dividends on cash and cash equivalents, and marketable
securities held in the trust account. We incur ongoing 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 March 31, 2021, we had net income of $336,996,381,
which consisted of a change in the fair value of Forward Purchase Agreement
liabilities of $268,621,120, a change in the fair value of Outstanding Warrant
liabilities of $72,992,581, unrealized gains on marketable securities held in
the trust account of $898,278, and interest and dividends earned on marketable
securities held in the operating account of $638, offset by legal, insurance,
research, franchise tax and other expenses totaling $5,327,597, and provision
for income taxes of $188,639.
Non-GAAPFinancial Measures
As noted above, the Company was 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. As such, we believe
the amount of committed capital available for an Initial Business Combination is
critical to our success as a blank check company. See Liquidity and Capital
Resources below for further information on our unrestricted cash balances and
funds held in the trust account as of March 31, 2021. In addition, we report
adjusted net loss, which is a non-GAAP financial measure that is not required
by, or presented in accordance with, GAAP. Management uses this non-GAAP measure
to evaluate results as it reduces the volatility of operations due to the
accounting for our warrants and forward purchase agreements, which are more
fully described in Note 2 of the Notes to Unaudited Condensed Financial
Statements included herein, and which do not have an impact on the funds held in
the trust account or committed capital available for an Initial Business
Combination. We believe this information is useful to investors for these
reasons. This non-GAAP measure should not be considered a substitute for the
most directly comparable GAAP measures, which are reconciled below. Further,
this measure has limitations as an analytical tool, and when assessing our
operating performance, you should not consider this measure in isolation or as a
substitute for GAAP measures. We may calculate or present this non-GAAP
financial measure differently than other companies who report measures with the
same or similar names, and as a result, the non-GAAP measure we report may not
be comparable.
Adjusted net loss represents our net income excluding the change in fair value
of forward purchase agreement liabilities and the change in fair value of
Outstanding Warrant liabilities, which are non-cash items. As of March 31, 2021,
our Balance Sheet reflects a liability of $714,984,303 (December 31, 2020:
$1,056,598,004) related to liabilities which do not impact the funding available
for an Initial Business Combination. As can be observed, the value of the
liabilities relating to these instruments under GAAP (and the related
income/(loss) that flows through the statement of operations) can swing
significantly when in fact no economic changes have occurred.
FOR THE THREE MONTHS ENDED MARCH 31, 2021
Net income $ 336,996,381
Less:
Change in fair value of Forward Purchase Agreement liabilities 268,621,120
Change in fair value of Outstanding Warrant liabilities 72,992,581
Adjusted net loss $ (4,617,320 )
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Liquidity and Capital Resources
Our liquidity needs had been satisfied prior to the consummation of the initial
public offering through a capital contribution of $25,000 by our Sponsor in
exchange for 100 shares of Class B Common Stock, and interest-bearing loans of
$1,121,120 from our Sponsor under an unsecured promissory note covering expenses
related to the initial public offering. The loan was repaid in full on July 24,
2020, inclusive of interest.
On July 24, 2020, we consummated the initial public offering of 200,000,000
Units, at $20.00 per unit, generating gross proceeds of $4,000,000,000.
Simultaneously with the closing of the initial public offering, we consummated a
$67,837,500 sale of Sponsor Warrants and Director Warrants in private
placements.
Following the initial public offering and the private placements of Sponsor
Warrants and Director Warrants, a total of $4,000,000,000 was placed into the
trust account. We incurred $94,623,187 in offering costs, including $35,000,000
of underwriting fees, $56,250,000 of deferred underwriting fees and $3,373,187
of other offering costs. The per share amount to be distributed to Public
Stockholders who properly redeem their Public Shares will not be reduced by the
deferred underwriting fees (further discussed below).
As of March 31, 2021, we had an unrestricted cash balance of $25,117,342 in the
operating account, held outside the trust account to fund our ongoing expenses,
as well as cash and marketable securities held in the trust account of
$4,002,588,732. Interest and dividend income earned on the balance in the trust
account will be used to pay taxes on such income. During the three months ended
March 31, 2021, we did not withdraw any interest or dividends earned on the
trust account.
We intend to use substantially all of the funds held in the trust account,
including any amounts representing interest and dividends earned on the trust
account (less taxes payable and deferred underwriting fees), and the proceeds
from the sale of the Forward Purchase Units to complete an Initial Business
Combination. To the extent that our capital stock or debt is used, in whole or
in part, as consideration to complete the Initial 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.
In order to fund working capital deficiencies or finance transaction costs in
connection with an Initial Business Combination, our Sponsor or an affiliate of
our Sponsor or certain of our directors and officers may, but are not obligated
to, loan us funds as may be needed. If we complete the Initial Business
Combination, we would repay such loaned amounts. In the event that the Initial
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.
We do not believe we will need to raise additional funds in order to meet the
expenditures required for operating our business. However, if our estimates of
the costs of identifying a target business, undertaking in-depth due diligence
and negotiating our 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 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 the shares of our
Public Shares upon completion of our Initial Business Combination, in which case
we may issue additional securities or incur debt in connection with such
business combination. Subject to compliance with applicable securities laws, we
would only complete such financing simultaneously with the completion of our
Initial Business Combination. If we are unable to complete our Initial Business
Combination because we do not have sufficient funds available to us, we will be
forced to cease operations and liquidate the trust account. In addition,
following our Initial Business Combination, if cash on hand is insufficient, we
may need to obtain additional financing in order to meet our obligations.
Contractual Obligations
We do not have any long-term debt, capital lease obligations, operating lease
obligations as of March 31, 2021.
The underwriters are entitled to a deferred fee of $0.28 per Unit, or
$56,250,000 in the aggregate. The aggregate deferred underwriting fees includes
(i) the deferral of any underwriting fees, other than the retail selling
concessions, in excess of $30,000,000 (a deferral of $12,500,000), plus (ii) a
2.0% rate applied to the gross offering proceeds, subject to a $56,250,000 cap
on the amount of such aggregate deferred underwriting fees. If the amount of
proceeds from the trust account paid in connection with the redemption rights of
Public Stockholders, together with the amount of any capital raised in private
placements in connection with the Initial Business Combination from investors
other than Sponsor or its affiliates (the "Net Redemptions"), results in us
having less than $2,000,000,000 of cash available upon consummation of the
Initial Business Combination, only 25% of the aggregate deferred underwriting
fees will be payable. If such amount of cash available is $2,000,000,000 or
greater, 50% of the aggregate deferred underwriting fees will be
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payable, and the remaining 50% of the aggregate deferred underwriting fees will
be subject to a pro-rata reduction based on the amount of Net Redemptions as a
percentage of the total public proceeds of the initial public offering. The
deferred underwriting fees will be waived by the underwriters solely in the
event that we do not complete a business combination, subject to the terms of
the underwriting agreement.
Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity
with accounting principles generally accepted in the United States of America
(GAAP) 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:
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." The Company's conditionally redeemable Class A Common Stock features
certain redemption rights that are considered to be outside of its control and
subject to the occurrence of uncertain future events. Accordingly, at March 31,
2021 and December 31, 2020, 200,000,000 shares of Class A Common Stock subject
to possible redemption are presented at redemption value as temporary equity,
respectively, outside of the stockholders' equity section of the Company's
balance sheet.
Outstanding Warrants and FPA Liabilities
We account for our Outstanding Warrants and FPA in accordance with the guidance
contained in ASC 815-40, under which the Outstanding Warrants and FPA do not
meet the criteria for equity treatment and must be recorded as liabilities.
Accordingly, we classify the Outstanding Warrants and FPA as liabilities with
changes in fair value reflected on the Company's statement of operations at each
reporting period. The fair value of the Public Warrants was initially measured
using a modified Black-Scholes pricing model and subsequently measured at the
closing quoted market price. The Private Placement Warrants and FPA are valued
using a modified Black-Scholes pricing model. See Note 7 of the Notes to
Unaudited Condensed Financial Statements included herein for further information
on the significant inputs to the models utilized to determine the fair value of
the Outstanding Warrants and FPA liabilities.
Net Income / (Loss) per Common Share
We apply the two-class method of calculating earnings per share. Common stock
subject to possible redemption which is not currently redeemable and is not
redeemable at fair value, have been excluded from the calculation of basic
income / (loss) per common share since such shares, if redeemed, only
participate in their pro-rata share of the trust account earnings (net of income
taxes). Our net income / (loss) is adjusted for the portion of income that is
attributable to common stock subject to possible redemption, as these shares
only participate in the earnings of the trust account and not our income or
losses.
Off-Balance Sheet Arrangements.
As of March 31, 2021, we did not have any off-balance sheet arrangements as
defined in Item 303(a)(4)(ii) of Regulation S-K.
Recent Accounting Pronouncements.
Management does not believe that any recently issued, but not yet effective,
accounting pronouncements, if currently adopted, would have a material impact on
the Company's financial statements.
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