Waldencast Acquisition Corp. (now Waldencast Plc) — Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2021; filed November 18, 2021. The registrant was a Cayman Islands special purpose acquisition company formed on December 8, 2020. It had no operating business or revenue and was seeking a business combination.
Financial Results and Position
| Metric | Three months ended September 30, 2021 | Nine months ended September 30, 2021 |
|---|---|---|
| Operating revenue | $0 | $0 |
| Formation and operating costs | $645,123 | $964,205 |
| Net income | $7,757,409 | $5,021,944 |
| Basic and diluted income per share | $0.18 | $0.15 |
| Net cash used in operating activities | Not separately presented | $1,168,310 |
- Reported earnings were driven primarily by non-cash decreases in the fair values of warrant liabilities and forward purchase agreement liabilities. These gains totaled $8.39 million for the quarter and $6.67 million for the nine months.
- Interest income was $16,865 for the quarter and $31,683 for the nine months, including interest on Trust Account investments.
- Cash at September 30, 2021 was $335,058, outside the Trust Account. Working capital was $422,644.
- The Trust Account held $345,030,985 in marketable securities. The funds were generally restricted for a business combination, shareholder redemptions, or permitted tax payments.
- Total liabilities were $36.1 million, including $14.2 million of warrant liabilities, $9.0 million of forward purchase agreement liabilities, $12.1 million of deferred underwriting discounts, and $0.7 million of deferred legal fees. The filing reported no long-term debt.
- All 34.5 million public Class A ordinary shares were classified as subject to possible redemption at a value of $345.0 million, outside permanent equity. Class B founder shares outstanding totaled 8.625 million.
Material Changes and Unusual Items
- The company completed its initial public offering on March 18, 2021, issuing 34.5 million units at $10.00 per unit for gross proceeds of $345.0 million. It also issued 5.933 million private placement warrants for $8.9 million.
- The company restated previously issued financial statements to classify all public Class A shares as temporary equity rather than permanent equity. The restatement materially increased reported accumulated deficit and shareholders’ deficit and affected previously reported share and per-share information.
- As of September 30, 2021, shareholders’ deficit was $35.4 million, compared with $11,000 at December 31, 2020, primarily reflecting the restatement and transaction accounting.
- Warrant liabilities declined to $14.2 million at September 30, 2021 from their initial recorded value of $18.2 million, generating a $4.0 million non-cash gain for the nine months.
- Forward purchase agreement liabilities declined to $9.0 million from an initial $11.7 million, generating a $2.7 million non-cash gain for the nine months.
Outlook, Transactions, Liquidity and Risks
- Management expected the $335,058 operating cash balance, together with subsequent working capital financing, to fund operations for at least the next 12 months, assuming no business combination was completed during that period.
- On October 28, 2021, the Sponsor funded the full $1.5 million available under working capital loans. The loans may be repaid upon a business combination or, at the lender’s option, converted into warrants.
- On November 15, 2021, after the reporting date, the company entered into agreements to combine with Obagi Global Holdings Limited and acquire Milk Makeup LLC. The proposed transactions included a planned domestication from the Cayman Islands to Jersey and a name change to Waldencast plc. Completion remained subject to shareholder and other conditions.
- The company had 24 months from the IPO closing to complete a business combination, subject to any permitted extension. If it failed to do so, public shares generally would be redeemed and the company would liquidate.
- Management disclosed material weaknesses in internal control over financial reporting relating to warrant accounting and the classification of redeemable Class A shares. Disclosure controls and procedures were therefore ineffective as of September 30, 2021. Remediation efforts were ongoing, with no assurance that they would be successful.
- COVID-19 was identified as a potential adverse factor, although its specific impact was not determinable. The filing also noted risks related to completing a business combination, shareholder redemptions, insufficient operating funds, Sponsor indemnification capacity, valuation changes in derivative liabilities, and potential litigation or regulatory scrutiny arising from the restatements.
- The filing stated that it did not incorporate the risks associated with the proposed Obagi and Milk transactions.
Facts Investors Should Verify
- Whether the Obagi and Milk transactions closed, including shareholder approvals, redemption levels, financing, consideration mix, and final ownership structure.
- The status and effectiveness of remediation for the disclosed material weaknesses and whether additional restatements or regulatory actions occurred.
- The amount of cash remaining in the Trust Account after transaction expenses, deferred underwriting fees, taxes, and shareholder redemptions.
- The final terms, outstanding balance, and potential warrant conversion of the $1.5 million working capital loan.
- The fair value methodology and volatility assumptions used for warrant and forward purchase agreement liabilities, which materially affected reported earnings.
- The company’s post-combination operating revenue, profitability, cash flow, debt, liquidity, and integration performance, none of which were reflected in this SPAC-period filing.