(EDGAR Online via COMTEX) -- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
References in this report (the "Quarterly Report") to "we," "us" or the "Company" refer to Apollo Strategic Growth Capital. References to our "management" or our "management team" refer to our officers and directors, and references to the "Sponsor" refer to APSG Sponsor, L.P. The following discussion and analysis of the Company's financial condition and results of operations should be read in conjunction with the 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" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Exchange Act of 1934, as amended (the "Exchange Act"), 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 this Quarterly Report and the Risk Factors section of the Company's Annual Report on Form 10-K/A for the fiscal year ended December 31, 2020 filed with the Securities and Exchange Commission (the "SEC") on June 21, 2021 (the "Annual Report"). 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.
We are a blank check company incorporated as a Cayman Islands exempted company and formed for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or other similar business combination with one or more businesses. We intend to effectuate our initial business combination (the "Initial Business Combination") using cash from the proceeds of the initial public offering (the "Public Offering") and the sale of the private placement warrants (the "Private Placement Warrants"), our capital stock, debt or a combination of the foregoing.
The issuance of additional ordinary shares in connection with an Initial Business Combination to the owners of the target or other investors:
may significantly dilute the equity interest of existing investors, which ? dilution would increase if the anti-dilution provisions in the Class B ordinary shares result in the issuance of Class A ordinary shares on a greater than one-to-one basis upon conversion of the Class B ordinary shares;
? may subordinate the rights of holders of our ordinary shares if preferred shares are issued with rights senior to those afforded our ordinary shares;
could cause a change in control if a substantial number of ordinary shares are ? issued, which may affect, among other things, our ability to use our net operating loss carry forwards, if any, and could result in the resignation or removal of our present officers and directors;
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
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? may adversely affect prevailing market prices for our Class A ordinary shares and/or warrants.
Similarly, if we issue debt securities or otherwise incur significant indebtedness to bank or other lenders or the owners of a target, it could result in:
? default and foreclosure on our assets if our operating revenues after an 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 is payable on demand;
our inability to obtain necessary additional financing if the debt contains ? covenants restricting our ability to obtain such financing while the debt is outstanding;
? our inability to pay dividends on our ordinary shares;
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 ordinary shares 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 significant costs in the pursuit of our acquisition plans. We cannot assure you that our plans to raise capital or to complete our Initial Business Combination will be successful.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date. Our only activities through September 30, 2021 were organizational activities, those necessary to prepare for the Public Offering, described below, and, after our Public Offering, day-to-day operations and identifying a target company for an Initial Business Combination. We do not expect to generate any operating revenues until after the completion of our Initial Business Combination. We generate non-operating income in the form of interest income on marketable securities held in the trust account (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 for due diligence expenses.
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For the three months ended September 30, 2021, we had net income of $11,146,873, which consists of a change in fair value of the derivative warrant liabilities of $15,086,661 and interest income on marketable securities held in the Trust Account of $65,883 offset by operating costs of $4,004,133. In addition, the Company recorded interest expense of $1,538 related to the Sponsor note payable.
For the nine months ended September 30, 2021, we had net income of $32,748,467, which consists of a change in fair value of the derivative warrant liabilities of $42,471,781 and interest income on marketable securities held in the Trust Account of $242,069 offset by operating costs of $9,962,402. In addition, the Company recorded interest expense of $2,981 related to the Sponsor note payable.
For the three and nine months ended September 30, 2020, we had a net loss of $10,000 and $11,854, respectively, which consists of formation and operating costs.
Liquidity and Capital Resources
On October 6, 2020, we consummated the Public Offering of 75,000,000 units (the "Units", and in connection therewith granted the underwriters an over-allotment option to purchase an additional 11,250,000 over-allotment units (the "Over-Allotment Units"), at $10.00 per Unit, generating gross proceeds of $750,000,000. Simultaneously with the closing of the Public Offering, we consummated the sale 11,333,334 Private Placement Warrants, at $1.50 per Private Placement Warrant, to our sponsor, generating gross proceeds of $17,000,000. Upon closing of the Public Offering on October 6, 2020, the proceeds of the Public Offering of $750,000,000 were held in cash and subsequently invested in U.S. government securities.
On November 10, 2020, the Company consummated the sale of 6,681,000 Over-Allotment Units pursuant to the underwriters' partial exercise of their over-allotment option. Such Over-Allotment Units were sold at $10.00 per Unit, generating gross proceeds of $66,810,000. Substantially concurrently with the closing of the sale of 6,681,000 Over-Allotment Units, the Company consummated the private sale of an additional 890,800 Private Placement Warrants at a purchase price of $1.50 per Private Placement Warrant to our sponsor, generating gross proceeds of $1,336,200. Following the closing of the over-allotment option and sale of additional Private Placement Warrants (together, the "Over-Allotment Closing"), a total of $816,810,000, including approximately $28,588,350 of underwriters' deferred discount, was held in the trust account.
Since October 2020, we executed a series of promissory notes in the aggregate amount of $5,800,000 with our sponsor in order to satisfy working capital requirements. See "Related Party Loans" in Note 6 to our condensed financial statements.
For the nine months ended September 30, 2021 and 2020, cash used in operating activities was $3,314,588 and $0, respectively. For the nine months ended September 30, 2021, net income of $32,748,467 was affected by a gain in fair value of derivative liabilities of $42,471,781 and interest earned on marketable securities held in the Trust Account of $242,069 which were offset by changes in operating assets and liabilities, which provided $6,650,795 of cash from operating activities.
As of September 30, 2021 and December 31, 2020, we had cash and U.S. treasury securities held in the Trust Account of $817,227,602 and $816,985,533, respectively. We intend to use substantially all of the funds held in the Trust Account, including any amounts representing interest earned on the Trust Account (less deferred underwriting commissions and income taxes payable), to complete our Initial Business Combination. We may withdraw interest to make Permitted Withdrawals. During the period ended September 30, 2021, we did not withdraw any interest earned on the Trust Account. To the extent that our capital stock or debt is used, in whole or in part, as consideration to complete our 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.
As of September 30, 2021 and December 31, 2020, we had cash of $871,517 and $257,872 outside of the Trust Account, respectively. We intend to use the funds held outside the Trust Account primarily to identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, and structure, negotiate and complete an Initial Business Combination.
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In order to fund working capital deficiencies or finance transaction costs in connection with an Initial Business Combination, the initial shareholders or their affiliates may, but are not obligated to, loan us funds as may be required. If we complete an Initial Business Combination, we will repay such loaned amounts. In the event that an 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. Up to $1,500,000 of such loans may be convertible into warrants identical to the Private Placement Warrants, at a price of $1.50 per warrant at the option of the lender.
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 estimate of the costs of identifying a target business, undertaking in-depth due diligence and negotiating an 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 Initial 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 our public shares upon consummation of our Initial Business Combination, in which case we may issue additional securities or incur debt in connection with such Initial 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.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of September 30, 2021.
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 the Sponsor a monthly fee of $16,667 for office space, utilities, secretarial support and administrative services. We began incurring these fees on October 2, 2020 and will continue to incur these fees monthly for up to 27 months until the earlier of the completion of the Initial Business Combination and our liquidation.
The underwriters are entitled to a deferred fee of $28,588,350 in the aggregate. The deferred fee will be waived by the underwriters in the event that we do not complete an Initial Business Combination, subject to the terms of the underwriting agreement.
Critical Accounting Policies
Accounting policies, methods and estimates are an integral part of the condensed financial statements prepared by management and are based upon management's current judgments. These judgments are normally based on knowledge and experience regarding past and current events and assumptions about future events. Certain accounting policies, methods and estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ from management's current judgments. While there are a number of accounting policies, methods and estimates that affect our condensed financial statements, the areas that are particularly significant include use of estimates; Class A ordinary shares subject to possible redemption; net income (loss) per ordinary share; and the fair value of assets and liabilities.
Our significant accounting policies are summarized in Note 3 to our condensed financial statements.
Recent Accounting Pronouncements
A list of recent accounting pronouncements that are relevant to us and our industry is included in Note 3 to our condensed financial statements.
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Nov 10, 2021
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