Fair Value Measurements

3 Months Ended

Mar. 31, 2022

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Accounting standards describe a fair value hierarchy based on the following three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value:

•Level 1 — Quoted prices in active markets for identical assets, liabilities, or funds.

•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 carrying amounts of cash equivalents, accounts receivable, prepaid and other current assets, accounts payable, and accrued expenses and other current liabilities approximate fair value because of the short maturity of these items.

The Company recorded a derivative asset for the escrow payment upon the sale of the equity method investment in Accu-Trade in March 2022. Derivatives are measured at fair value based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair-value hierarchy. The valuation of derivatives uses assumptions the Company believes a market participant would make. At March 31, 2022, the Company recorded a derivative asset of $2.9 million in the other current assets line item on the condensed consolidated balance sheets. The Company assesses the fair value estimates on an ongoing basis as it obtains additional data impacting the assumptions. Changes in the fair value of derivatives related to updated assumptions and estimates are recognized within the condensed consolidated statements of comprehensive loss. For the three months ended March 31, 2022, the Company recorded a gain of $1.7 million from changes in fair value of the derivative asset in the gain (loss) from equity method investment line item on the condensed consolidated statements of comprehensive loss. The Company determined the fair value of the derivative asset using the probability-adjusted discounted cash flow method. Because the settlement of the derivative asset is based on achievement of certain criteria during a 75 calendar days window after the sale, the significant unobservable inputs used in the fair value measurement of the derivative asset are the probabilities of meeting those criteria. The probabilities were estimated at 90% at March 31, 2022. Significant increases or decreases in the probabilities of meeting the criteria would result in a significantly higher or lower fair value measurement, respectively.

The following table summarizes the Company’s financial assets measured at fair value on a recurring basis at March 31, 2022 and December 31, 2021 by level within the fair value hierarchy. Financial assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement (in thousands):


	At March 31, 2022								At December 31, 2021
							Total Fair								Total Fair
	Level 1		Level 2		Level 3		Value		Level 1		Level 2		Level 3		Value
Assets:
Cash equivalents	$	223,344	$	—	$	—	$	223,344	$	234,763	$	—	$	—	$	234,763
Derivative asset	$	—	$	—	$	2,850	$	2,850	$	—	$	—	$	—	$	—
Total assets	$	223,344	$	—	$	2,850	$	226,194	$	234,763	$	—	$	—	$	234,763