FiscalNote Holdings, Inc. Q2 FY2021 earnings

Duddell Street Acquisition Corp. is a blank check company with no operating revenue. Its FY2021 second quarter ended June 30, 2021, produced net income of $1.96 million. Diluted earnings per share for the quarter were $0.27. For the six months ended June 30, 2021, net income was $5.46 million and diluted EPS was $0.74. The profit is not from operations. Operating loss was $2.03 million for the quarter and $2.28 million for the six months. Operating cash flow was negative $0.04 million for the quarter and negative $0.12 million for the six months. The gap between positive net income and negative operating results comes from non-cash items, mainly the change in fair value of derivative warrant liabilities. The filing states that the quarter's net income included a gain from that revaluation and a small amount of interest income, partly offset by general and administrative expenses. The six-month period had a similar pattern.

The company completed its initial public offering on November 2, 2020. It sold 17,500,000 units at $10.00 per unit, generating gross proceeds of $175.0 million. Simultaneously, it sold 5,500,000 private placement warrants at $1.00 per warrant, generating gross proceeds of $5.5 million. The IPO and private placement proceeds placed $175.0 million in a trust account. Offering costs were approximately $10.1 million, including approximately $6.1 million in deferred underwriting commissions. Those underwriting fees are payable only if the company completes a business combination. The company has not yet identified a target. Its entire activity since inception has been formation, the IPO, and the search for a prospective initial business combination.

The operating loss reflects the cost of being a public company. The filing notes that the company expects to incur increased expenses for legal, financial reporting, accounting, auditing compliance, and due diligence. General and administrative expenses drove the operating loss. The company does not generate operating revenue and will not do so until it closes a business combination. Interest income on the trust account is the only recurring source of non-operating income. The fair value gain on derivative warrant liabilities is volatile and depends on the company's share price and other assumptions. That means reported net income can swing sharply without any change in the underlying business, because there is no underlying operating business yet.

Liquidity is the central risk. As of June 30, 2021, the company had a working capital deficit. The filing states that this deficit raises substantial doubt about the company's ability to continue as a going concern until the earlier of the consummation of a business combination or the date the company is required to liquidate. Cash held outside the trust account is limited. The company had no amounts outstanding under working capital loans as of June 30, 2021. The sponsor, members of the founding team, or their affiliates may provide working capital loans, but they are not obligated to do so. Up to $1.5 million of such loans may be convertible into warrants at $1.00 per warrant if a business combination closes. The company also faces a hard deadline. It has 24 months from the closing of the IPO, or November 2, 2022, to complete a business combination. If it fails, it must cease operations, redeem public shares, and liquidate.

Guidance context is different for a blank check company. The filing gives no quarterly or full-year revenue or earnings guidance. There is no operating forecast to compare with the reported quarter. The only forward-looking timeline is the combination period ending November 2, 2022. The main risks are the inability to find and close a suitable target, dilution from issuing additional shares or debt in a transaction, potential changes in control, and the possibility that the trust account is insufficient to cover all claims if liquidation occurs. The company also has no long-term debt, capital lease, operating lease, purchase, or long-term liability obligations. Its contractual obligations are primarily the deferred underwriting commissions of approximately $6.1 million, which are contingent on completing a business combination.