FAIR VALUE MEASUREMENTS

9 Months Ended

Sep. 30, 2021

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS

NOTE 3 — FAIR VALUE MEASUREMENTS

The Company follows the accounting guidance in ASC Topic 820 for its fair value measurements of financial assets and liabilities measured at fair value on a recurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. The three-tiered fair value hierarchy, which prioritizes when inputs should be used in measuring fair value, is comprised of: (Level I) observable inputs such as quoted prices in active markets; (Level II) inputs other than quoted prices in active markets that are observable either directly or indirectly and (Level III) unobservable inputs for which there is little or no market data. The fair value hierarchy requires the use of observable market data when available in determining fair value.

The Public and Private Warrants are classified as a liability with any changes in the fair value recognized immediately in our condensed consolidated statements of operations. The following table summarizes the net gain (loss) on changes in fair value (in thousands) related to the Public and Private Warrants:

	Three months ended		Nine months ended
	September 30, 2021		September 30, 2021
Public Warrants	$	—	$	(27,180)
Private Warrants		3,344		12,263
Net gain (loss) on changes in fair value	$	3,344	$	(14,918)

Observed prices for the Public Warrants were used as Level 1 inputs as they were actively traded until being redeemed in January 2021. The Private Warrants are measured at fair value using Level 3 inputs. These instruments are not actively traded and are valued using a Monte Carlo option pricing model that uses observable and unobservable market data as inputs.

A Monte Carlo model was used to simulate a multitude of price paths to measure fair value of the Private Warrants. The Monte Carlo models two possible outcomes for the stock price each trading day – up or down – based on the prior day’s price. The calculations underlying the model specify the implied risk-neutral probability that the stock price will move up or down, and the magnitude of the movements, given the stock’s volatility and the risk-free rate. This analysis simulates possible paths for the stock price over the term of the Private Warrants. For each simulated price path, we evaluate the conditions under which the Company could redeem each Private Warrant for a fraction of whole shares of the underlying as detailed within the Warrant Agreement. If the conditions are met, we assume redemptions would occur, although the Private Warrant holders would have the option to immediately exercise if it were more advantageous to do so. For each simulated price path, if a redemption does not occur the holders are assumed to exercise the Private Warrants if the stock price exceeds the exercise price at the end of the term. Proceeds from either the redemption or the exercise of the Private Warrants are reduced to a present value amount at each measurement date using the risk-free rate for each simulated price path. Present value indications from iterated priced paths were averaged to derive an indication of value for the Private Warrants.

At each measurement date, we use a stock price volatility input of 50%. This assumption considers observed historical stock price volatility of other companies operating in the same or similar industry as the Company over a period similar to the remaining term of the Private Warrants, as well as the volatility implied by the traded

options of the Company. The risk-free rates utilized were 0.847% and 0.413% for the valuations as of September 30, 2021 and December 31, 2020, respectively.    

The following tables summarize the valuation of our financial instruments (in thousands):

	Total		Quoted prices in active markets (Level 1)		Prices with observable inputs (Level 2)		Prices with unobservable inputs (Level 3)
September 30, 2021
Cash and cash equivalents	$	233,831	$	233,831	$	—	$	—
Public Warrants		—		—		—		—
Private Warrants		3,529		—		—		3,529
	Total		Quoted prices in active markets (Level 1)		Prices with observable inputs (Level 2)		Prices with unobservable inputs (Level 3)
December 31, 2020
Cash and cash equivalents	$	629,761	$	629,761	$	—	$	—
Public Warrants		57,515		57,515		—		—
Private Warrants		43,877		—		—		43,877

The following table summarizes the changes in our Level 3 financial instruments (in thousands):

	Balance at December 31, 2020		Additions		Settlements		Loss / (Gain) on fair value adjustments included in earnings		Balance at September 30, 2021
Private Warrants	$	43,877		—		(28,085)		(12,263)	$	3,529