Fair Value Measurements

6 Months Ended

Jun. 30, 2023

FAIR VALUE MEASUREMENTS

The Company records its financial assets and liabilities at fair value. The carrying amounts of certain financial instruments of the Company, including cash and cash equivalents, prepaid expenses and other current assets, accounts payable and accrued liabilities, approximate fair value due to their relatively short maturities. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value as follows:

•Level 1: Inputs that include quoted prices in active markets for identical assets and liabilities.

•Level 2: Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

•Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The following tables set forth the Company’s financial assets and liabilities, measured at fair value on a recurring basis, as of June 30, 2023 and December 31, 2022 (in thousands):


	June 30, 2023
	Fair Value Measured Using
	(Level 1)		(Level 2)		(Level 3)		Total Balance
Assets
Cash equivalents:
Money market funds	$	59,446	$	—	$	—	$	59,446
Long-term marketable securities:
Corporate equity securities	1,325		—		—		1,325

Total	$	60,771	$	—	$	—	$	60,771
Liabilities
Short-term liabilities:
Contingent consideration	$	—	$	—	$	928	$	928
Long-term liabilities:
Contingent consideration	—		—		4,224		4,224

Total	$	—	$	—	$	5,152	$	5,152


	December 31, 2022
	Fair Value Measured Using
	(Level 1)		(Level 2)		(Level 3)		Total Balance
Assets
Cash equivalents:
Money market funds	$	66,594	$	—	$	—	$	66,594
Long-term marketable securities:
Corporate equity securities	2,076		—		—		2,076
Total	$	68,670	$	—	$	—	$	68,670
Liabilities
Short-term liabilities:
Contingent consideration	$	—	$	—	$	1,025	$	1,025
Long-term liabilities:
Contingent consideration	—		—		2,418		2,418
Common stock warrant liability	—		—		32		32
Total	$	—	$	—	$	3,475	$	3,475

The following table presents the issuances, exercises, changes in fair value and reclassifications of the Company’s Level 3 financial instruments that are measured at fair value on a recurring basis (in thousands):


	(Level 3)
Common Stock Warrant Liability and Contingent Consideration
Balance as of December 31, 2022	$	3,475
Exercise of warrants	(22)
Change in estimated fair value of common stock warrant liability	(10)

Change in estimated fair value of contingent consideration	488
Addition of estimated fair value of contingent consideration	1,471
Payments related to contingent consideration	(250)
Balance as of June 30, 2023	$	5,152

During March 2023, the Company wrote off $1.0 million of its investment in convertible preferred shares from a private company which was carried at cost. This private company's operations are in the process of being liquidated. The fair value of this investment was based on Level 3 inputs.

In determining fair value, the Company uses various valuation approaches within the fair value measurement framework. The valuation methodologies used for the Company’s instruments measured at fair value and their classification in the valuation hierarchy are summarized below:

•Money market funds – Investments in money market funds are classified within Level 1. Money market funds are valued at the closing price reported by the fund sponsor from an actively traded exchange. At June 30, 2023 and December 31, 2022, money market funds were included as cash and cash equivalents in the condensed consolidated balance sheets.

•Long-term marketable equity and debt securities – Investments in long-term marketable equity securities are classified within Level 1. The securities are recorded at fair value based on readily available quoted market prices in active markets. Investments in long-term marketable debt securities are classified within Level 2. The securities are recorded at fair value based on observable inputs for quoted prices for identical or similar assets in markets that are not active. Long-term marketable securities are located within other assets on the condensed consolidated balance sheets.

•Contingent consideration – Contingent consideration is classified within Level 3. Contingent consideration relates to asset acquisitions and business combinations. The Company recorded the estimate of the fair value of the contingent consideration based on its evaluation of the probability of the achievement of the contractual conditions that would result in the payment of the contingent consideration. Contingent consideration was estimated using the fair value of the milestones to be paid if the contingency is met based on management’s estimate of the probability of success and projected revenues for revenue-based considerations at discounted rates ranging from 7% to 12% at June 30, 2023 and at 12% December 31, 2022. The significant input in the Level 3 measurement that is not supported by market activity is the Company’s probability assessment of the achievement of the milestones. The value of the liability is subsequently remeasured to fair value at each reporting date, and the change in estimated fair value is recorded as income or expense within operating expenses in the consolidated statements of operations until the milestones are paid, expire or are no longer achievable. Increases or decreases in the estimation of the probability percentage result in a directionally similar impact to the fair value measurement of the contingent consideration liability. The carrying amount of the contingent consideration liability represents its fair value.

•Common stock warrant liability – Common stock warrant liability is classified within Level 3. The Company utilizes intrinsic value to estimate the fair value of the warrants. The intrinsic value is computed as the difference between the fair value of the Company’s common stock on the valuation date and the exercise price of the warrants. Increases (decreases) in the Company's stock price discussed above result in a directionally similar impact to the fair value of the common stock warrant liability.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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