Fair Value of Financial Instruments

3 Months Ended

Mar. 31, 2023

3. Fair Value of Financial Instruments

The following tables present the Company’s fair value hierarchy for its assets and liabilities which are measured at fair value on a recurring basis as of March 31, 2023 and December 31, 2022 (in thousands):


	Fair Value Measurements at March 31, 2023 Using:
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	24,990	$	—	$	—	$	24,990
Liabilities:
Contingent consideration liability associated with acquisition of PolicyFuel included in other long-term liabilities	$	—	$	—	$	37	$	37
	$	—	$	—	$	37	$	37


	Fair Value Measurements at December 31, 2022 Using:
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	15,812	$	—	$	—	$	15,812
Liabilities:
Contingent consideration liability associated with acquisition of PolicyFuel included in accrued expenses and other current liabilities	$	—	$	—	$	25	$	25
Contingent consideration liability associated with acquisition of PolicyFuel included in other long-term liabilities		—		—		125		125
	$	—	$	—	$	150	$	150

There were no transfers into or out of Level 3 during the three months ended March 31, 2023 or 2022.

Money market funds were valued by the Company based on quoted market prices, which represent a Level 1 measurement within the fair value hierarchy.

Contingent consideration liabilities relate to the acquisition of Policy Fuel, LLC and its affiliated entities (“PolicyFuel”) in 2021. The former owners of PolicyFuel are eligible to receive a variable number of shares of Class A common stock upon the achievement (at varying levels) of certain annual revenue targets over the three-year period following the acquisition. Contingent consideration liabilities are valued by the Company using significant inputs not observable in the market (a Level 3 measurement). The valuation of contingent consideration uses assumptions and estimates to forecast a range of outcomes for the contingent consideration. The Company assesses these assumptions and estimates on a quarterly basis as additional data impacting the assumptions is obtained. Changes in the fair value of contingent consideration related to updated assumptions and estimates are recognized as acquisition-related costs within the consolidated statements of operations and comprehensive loss.

The Company uses a Monte Carlo simulation model in its estimates of the fair value of the contingent consideration related to the PolicyFuel acquisition. The most significant assumptions and estimates utilized in the model include forecasted revenue (an acquisition specific input) and the market value of the Company’s Class A common stock (an observable input). Other assumptions utilized in the model include equity volatility, revenue volatility and discount rate. The decrease in fair value of contingent consideration related to the Class A common stock issuable upon achievement of revenue targets during the three months ended March 31, 2023 and 2022 was primarily due to changes in estimates of forecasted revenue.

The following table provides a roll-forward of the aggregate fair values of the Company’s contingent consideration liabilities for which fair value is determined by Level 3 inputs (in thousands):


	Contingent
	Consideration
	Liabilities
Fair value at December 31, 2022	$	150
Change in fair value of contingent consideration related to PolicyFuel acquisition		(113	)
Fair value at March 31, 2023	$	37

- 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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