Preferred stock warrants

6 Months Ended

Jun. 30, 2022

Preferred stock warrants

Preferred stock warrants

11. Preferred stock warrants

In connection with the 2020 Term Loan, the Company issued 1,195,652 warrants to purchase shares of Series C1 Preferred Stock at an exercise price of $1.15 per share. The Company’s warrants were immediately exercisable and expire 10 years after issuance. The fair value of the warrants on the issuance date was $0.7 million. The Company also had outstanding warrants to purchase shares of Preferred Stock issued in connection with previous financing agreements.

In connection with the IPO, all of the Company’s outstanding preferred stock warrants were automatically converted to Class A common stock warrants. The Company determined the conversion to Class A common stock warrants resulted in equity classification of the Class A common stock warrants and reclassified the fair value of the preferred stock warrant liability as of the IPO date into stockholders’ equity (see Note 12).

The warrant liability was related to the warrants to purchase shares of the Company’s Series A1, B1, and C1 redeemable convertible preferred stock (see Note 10). The fair value of the warrant liability was determined based on inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy.

The Company used the Black-Scholes option-pricing model, which incorporates assumptions and estimates, to value the warrant liability. Key estimates and assumptions impacting the fair value measurement include (i) the fair value per share of the underlying shares of applicable series of redeemable convertible preferred stock issuable upon exercise of the warrants, (ii) the remaining contractual term of the warrants, (iii) the risk-free interest rate, (iv) the expected dividend yield and (v) expected volatility of the price of the underlying applicable series of redeemable convertible preferred stock. The Company estimated the fair value per share of the underlying applicable series of redeemable convertible preferred stock based, in part, on the results of third-party valuations and additional factors deemed relevant. The risk-free interest rate was determined by reference to the U.S. Treasury yield curve for time periods approximately equal to the remaining contractual term of the warrant. The Company estimated a zero expected dividend yield based on the fact that the Company has never paid or declared dividends and does not intend to do so in the foreseeable future. As the Company has historically been a private company and lacks company-specific historical and implied volatility information of its stock, the expected stock volatility was based on the historical volatility of publicly traded peer companies for a term equal to the remaining contractual term of the warrant.

The table below quantifies the weighted average of the unobservable inputs used to fair value the preferred stock warrant liability as of June 30, 2021, prior to their conversion into common stock warrants:

	Three Months Ended June 30,			Six Months Ended June 30,
	2021			2021
Fair value of Series A1 preferred stock	$	2.51		$	2.52
Fair value of Series B1 preferred stock	$	2.88		$	2.89
Fair value of Series C1 preferred stock	$	2.95		$	2.96
Remaining contractual term (in years)		6.7			6.8
Risk-free interest rate		1.1	%		1.2	%
Expected dividend yield		—	%		—	%
Expected volatility		42.2	%		41.9	%

The following table provides a rollforward of the aggregate fair values of the Company’s preferred stock warrant liability, prior to their conversion into common stock warrants, for which fair values are determined using Level 3 inputs (in thousands):

	Three Months Ended June 30,		Six Months Ended June 30,
	2021		2021
Balance, beginning of period	$	15,565	$	4,117
Change in fair value		35		11,483
Balance, end of period	$	15,600	$	15,600

There were no outstanding preferred stock warrants as of June 30, 2022 or December 31, 2021.