Investments and fair value measurements

9 Months Ended

Sep. 30, 2022

4. Investments and fair value measurements

The Company considers fair value 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 at the measurement date. Valuation techniques used to measure fair value are either observable or unobservable. Observable inputs reflect assumptions that market participants would use in pricing an asset or liability based on market data obtained from independent sources, while unobservable inputs reflect a reporting entity’s pricing based on their own market assumptions.

The Company utilizes the following three-level fair value hierarchy to establish the priorities of the inputs used to measure fair value:

Level 1—Unadjusted quoted prices in active markets for identical assets or liabilities;

Level 2—Inputs are observable, unadjusted quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable and market-corroborated inputs which are derived principally from or corroborated by observable market data; and

Level 3—Inputs are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable.

The carrying amounts of cash, cash equivalents, restricted cash, accounts receivable, and accounts payable approximate fair value due to the relatively short-term maturities and are classified as short-term assets and liabilities, as appropriate, in the accompanying condensed consolidated balance sheets.

The Company’s money market funds and sweep account are classified within Level 1 of the fair value hierarchy because they are valued using quoted prices in active markets. The Company’s investments in U.S. government securities are classified within Level 2 of the fair value hierarchy because they have been valued using inputs other than quoted prices in active markets that are directly or indirectly observable. The Company’s strategic investment is classified within Level 3 of the fair value hierarchy because it has been valued using significant unobservable inputs for which the Company has been required to develop its own assumptions.

The Company accounts for its strategic investment under the measurement alternative, under which the cost to purchase is adjusted to fair value when there are observable transactions, less impairment. The Company evaluates its strategic investment for impairment at each reporting period. This evaluation consists of several potential qualitative and quantitative impairment indicators including, but not limited to, the investee's financial metrics, whether there were any significant adverse changes in the economic environment or general market conditions of the geographies and industries in which the investee operates, and any other publicly available information that may affect the value of the investment. Based on the assessment performed as of September 30, 2022, the Company recognized an impairment loss of $2.9 million during the three and nine months ended September 30, 2022, which is recorded in other expense, net in the accompanying condensed consolidated statements of operations.

The Company’s assets and liabilities that are measured at fair value on a recurring or nonrecurring basis within the fair value hierarchy are as follows (in thousands):


As of September 30, 2022	Level 1		Level 2		Level 3
Cash equivalents:
Money market funds	$	1,457	$	—	$	—
U.S. government securities	—		7,464		—
Total cash equivalents	$	1,457	$	7,464	$	—

Marketable securities:
U.S. government securities	$	—	$	66,052	$	—

Noncurrent assets:
Strategic investments	$	—	$	—	$	12,104

Liabilities:
Cash settled stock appreciation rights	$	—	$	—	$	522


As of December 31, 2021	Level 1		Level 2		Level 3
Noncurrent assets:
Strategic investments	$	—	$	—	$	10,000

Liabilities:
Cash settled stock appreciation rights	$	—	$	—	$	818

A summary of the changes in the fair value of Level 3 financial instruments, of which remeasurement of stock appreciation rights (“SARs”) are recognized in the condensed consolidated statements of operations, is as follows (in thousands):


	Warrants		Stock Appreciation Rights		Strategic Investments
Balance— June 30, 2022	$	—	$	419	$	15,000
Vesting and remeasurement of SARs, net of exercises	—		165		—
Amount reclassified from liability to equity upon exchange	—		(62)		—
Unrealized loss on strategic investments	—		—		(2,896)
Balance— September 30, 2022	$	—	$	522	$	12,104

Balance— June 30, 2021	$	—	$	791	$	—
Vesting and remeasurement of SARs	—		121		—
Balance— September 30, 2021	$	—	$	912	$	—

Balance— December 31, 2021	$	—	$	818	$	10,000
Vesting and remeasurement of SARs, net of exercises	—		(234)		—
Purchases of strategic investments	—		—		5,000
Amount reclassified from liability to equity upon exchange	—		(62)		—
Unrealized loss on strategic investments	—		—		(2,896)
Balance— September 30, 2022	$	—	$	522	$	12,104

Balance— December 31, 2020	$	160	$	268	$	—
Exercise of redeemable convertible preferred stock warrants	(160)		—		—
Vesting and remeasurement of SARs	—		644		—
Balance— September 30, 2021	$	—	$	912	$	—

During the nine months ended September 30, 2021, the remaining outstanding 12,595 warrants to purchase Series A-1 redeemable convertible preferred stock were exercised for an immaterial amount of cash proceeds at an exercise price of $0.196 per share. The Company reclassified the $0.2 million fair value of the warrants into Series A-1 redeemable convertible preferred stock on the condensed consolidated balance sheet. The change in fair value of the warrants during nine months ended September 30, 2021 was immaterial.

- 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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