Fair Value Measurements

9 Months Ended

Sep. 30, 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 contingent consideration liability upon the acquisition of Digital Motors in 2022 (Note 3). Contingent consideration is measured at fair value and is based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair-value hierarchy. The valuation of contingent consideration uses assumptions the Company believes a market participant would make. The Company assesses these estimates on an ongoing basis as it obtains additional data impacting the assumptions. Changes in the fair value of contingent consideration related to updated assumptions and estimates are recognized within the consolidated statements of comprehensive loss. The Company determined the fair value of the contingent consideration using the Scenario-Based model. Because the Digital Motors purchase agreement makes payment of the contingent consideration contingent on achievement of certain product development milestones and

future revenue target, the significant unobservable inputs used in the fair value measurement of contingent consideration are the probabilities of achieving those targets and discount rates. Significant increases or decreases in the probabilities of achieving the targets 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 September 30, 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 September 30, 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	$	60,224	$	—	$	—	$	60,224	$	234,763	$	—	$	—	$	234,763
Total assets	$	60,224	$	—	$	—	$	60,224	$	234,763	$	—	$	—	$	234,763


	At September 30, 2022								At December 31, 2021
							Total Fair								Total Fair
	Level 1		Level 2		Level 3		Value		Level 1		Level 2		Level 3		Value
Liabilities:
Contingent consideration, current	$	—	$	—	$	1,959	$	1,959	$	—	$	—	$	—	$	—
Contingent consideration, non-current	$	—	$	—	$	4,522	$	4,522	$	—	$	—	$	—	$	—
Total liabilities	$	—	$	—	$	6,481	$	6,481	$	—	$	—	$	—	$	—

Derivative Assets

The following table summarizes the changes in fair value of the derivative asset for the escrow payment upon the sale of the equity method investment in Accu-Trade in March 2022 (in thousands). The gain from the changes in fair value of the derivative asset was recognized in gain (loss) from equity method investment in the accompanying consolidated statements of comprehensive loss.


	Three Months Ended September 30, 2022		Nine Months Ended September 30, 2022

Fair value, beginning of period	$	—	$	—
Additions	—		1,100
Changes in fair value	—		1,846
Escrow settlement receivable	2,946		—
Cash payments	(2,946)		(2,946)
Fair value, end of period	$	—	$	—

Contingent Consideration Obligations

The following table summarizes the changes in fair value of the contingent consideration obligation related to the Company’s acquisition of Digital Motors:


	Three Months Ended September 30, 2022		Nine Months Ended September 30, 2022

Fair value, beginning of period	$	6,302	$	—
Additions	—		6,302
Changes in fair value	179		179
Fair value, end of period	$	6,481	$	6,481

The following table summarizes the significant unobservable inputs and valuation technique in the fair value measurement of the contingent consideration liability at September 30, 2022:


Valuation Technique	Unobservable Inputs	Value Range
Scenario-Based model	Probabilities of achievement	85.6% to 99.9%
	Discount rates	6.8% to 7.8%