FiscalNote Holdings, Inc. Q1 FY2022 earnings

Duddell Street Acquisition Corp. is a blank check company incorporated in the Cayman Islands. For the quarter ended March 31, 2022, the reported figures show revenue of $26.1 million and an operating loss of $1.92 million, which widened from a loss of $0.25 million in the prior-year quarter. Net income was $7.24 million, up 106.7% from $3.50 million a year earlier. The diluted loss per share was $1.06, and the operating margin was -7.4%. Operating cash flow was an outflow of $0.40 million, compared with an outflow of $0.09 million in the prior-year quarter. Deferred revenue was $41.6 million, and capital expenditures were $2.13 million.

None of that profit came from operations. Management's discussion states that the $7.2 million of net income was built from about $23,000 of interest income on trust account investments and roughly $9.1 million of non-operating income tied to changes in the fair value of derivative warrant liabilities, partly offset by about $1.9 million of general and administrative expenses. The prior-year quarter had the same shape. It showed about $3.7 million of non-operating income from warrant fair value changes and about $46,000 of interest income, offset by about $250,000 of general and administrative costs. The swing in both periods traces to warrant accounting rather than to any change in an operating business.

The bigger story sits outside the income statement. On November 7, 2021, the company signed an agreement to combine with FiscalNote Holdings. The deal is expected to close in the second quarter of 2022, subject to shareholder approvals and other closing conditions. Under the structure, the company would domesticate as a Delaware corporation and adopt a dual-class share system, with Class B shares carrying 25 votes each. The exchange ratio is set around a $1 billion base value and $10.00 per share. The agreement also contemplates earnout consideration for holders of FiscalNote stock, warrants, options and restricted stock units, payable in Newco Class A common stock or restricted stock units when certain triggering events occur after closing. An original PIPE of 10,000,000 shares at $10.00 each, worth $100,000,000 in gross proceeds, was terminated on May 9, 2022, when the parties signed a first amendment to the merger agreement.

The clock is the clearest risk. The company has until November 2, 2022 to finish a business combination. If it fails, the charter requires a redemption of the public shares and a liquidation, and the May 9, 2022 amendment pushed the merger agreement's termination date to August 7, 2022. Management concluded that the liquidity condition, the mandatory liquidation if a deal does not close, and the possible dissolution raise substantial doubt about the company's ability to continue as a going concern. A sponsor backstop of up to $175,000,000 stands behind redemptions. The same amendment added a bonus issuance of 0.57 shares of Newco Class A common stock for each share held by investors who do not redeem, and to the backstop purchasers for each backstop purchase share. No working capital loans were outstanding as of March 31, 2022, and a $0.3 million payable was due to an affiliate of the sponsor.

The company raised its original capital in late 2020. It sold 17,500,000 units at $10.00 each for $175.0 million in gross proceeds and placed the money in a trust account. Offering costs ran about $10.1 million, including roughly $6.1 million in deferred underwriting commissions that become payable only if a business combination closes. The company also sold 5,500,000 private placement warrants at $1.00 each, and in October 2021 the sponsor agreed to buy 1,500,000 more for $1.5 million. With the combination deadline approaching and the PIPE financing gone, the backstop and the no-redeem bonus carry much of the closing risk.