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Fair Value

3 Months Ended

Mar. 31, 2023

4. Fair Value

The following table details the fair value measurements of assets and liabilities that are measured at fair value on a recurring basis:


	Fair Value Measurement as of March 31, 2023
							Total
	Level 1		Level 2		Level 3		Fair Value
Assets
Money market mutual funds	$	33,443	$	—	$	—	$	33,443
Debt securities:
U.S. Treasuries		34,423		—		—		34,423
Obligations of states and municipalities		—		10,263		—		10,263
Corporate bonds		—		32,035		—		32,035
Residential and commercial mortgage-backed securities		—		10,376		—		10,376
Other loan-backed and structured securities		—		6,022		—		6,022
	$	67,866	$	58,696	$	—	$	126,562
Liabilities
Contingent consideration - business combinations	$	—	$	—	$	24,198	$	24,198
Contingent consideration - earnout		—		—		44		44
Private warrant liability		—		—		362		362
	$	—	$	—	$	24,604	$	24,604


	Fair Value Measurement as of December 31, 2022
							Total
	Level 1		Level 2		Level 3		Fair Value
Assets
Money market mutual funds	$	6,619	$	—	$	—	$	6,619
Debt securities:
U.S. Treasuries		35,322		—		—		35,322
Obligations of states and municipalities		—		10,225		—		10,225
Corporate bonds		—		28,227		—		28,227
Residential and commercial mortgage-backed securities		—		11,533		—		11,533
Other loan-backed and structured securities		—		6,334		—		6,334
	$	41,941	$	56,319	$	—	$	98,260


Liabilities
Contingent consideration - business combinations	$	—	$	—	$	24,546	$	24,546
Contingent consideration - earnout		—		—		44		44
Private warrant liability		—		—		707		707
	$	—	$	—	$	25,297	$	25,297

Financial Assets

Money market mutual funds are valued at the closing price reported by the fund sponsor from an actively traded exchange. As the funds are generally maintained at a net asset value which does not fluctuate, cost approximates fair value. These are included as a Level 1 measurement in the table above. The fair values for available-for-sale fixed-maturity securities are based upon prices provided by an independent pricing service. The Company has reviewed these prices for reasonableness and has not adjusted any prices received from the independent provider. Level 2 securities represent assets whose fair value is determined using observable market information such as previous day trade prices,

quotes from less active markets or quoted prices of securities with similar characteristics. There were no transfers between Level 1 and Level 2.

Contingent Consideration – Business Combinations

The Company estimated the fair value of the business combination contingent consideration triggered by stock price milestones, related to the Floify acquisition in October 2021, using the Monte Carlo simulation method. The fair value is based on the simulated stock price of the Company over the maturity date of the contingent consideration. As of March 31, 2023, the key inputs used to determine the fair value of $15.1 million included the stock price of $1.43, strike price of $36.00, discount rate of 14.4% and volatility of 100%. As of December 31, 2022, the key inputs used in the determination of the fair value of $15.5 million included the stock price of $1.88, strike price of $36.00, discount rate of 10.3% and volatility of 95%.

The Company estimated the fair value of the business combination contingent consideration based on specific metrics related to the acquisition of Residential Warranty Services (“RWS”) in April 2022, using the discounted cash flow method. The fair value is based on a percentage of revenue over the maturity date of the contingent consideration. As of March 31, 2023, the key inputs used to determine the fair value of $9.0 million were management’s cash flow estimates and the discount rate of 16%. As of December 31, 2022, the key inputs used to determine the fair value of $9.0 million were management’s cash flow estimates and the discount rate of 17%.

Contingent Consideration - Earnout

The Company estimated the fair value of the earnout contingent consideration using the Monte Carlo simulation method. The fair value of $0.1 million is based on the simulated price of the Company over the maturity date of the contingent consideration and increased by certain employee forfeitures. As of March 31, 2023, the key inputs used to determine the fair value included exercise price of $22.00, volatility of 100%, forfeiture rate of 15% and stock price of $1.43. As of December 31, 2022, the key inputs used in the determination of the fair value included exercise price of $22.00, volatility of 100%, forfeiture rate of 15% and stock price of $1.88.

Private Warrants

The Company estimated the fair value of the private warrants using the Black-Scholes-Merton option pricing model. As of March 31, 2023, the key inputs used to determine the fair value included exercise price of $11.50, expected volatility of 90%, remaining contractual term of 2.73 years, and stock price of $1.43. As of December 31, 2022, the key inputs used to determine the fair value included exercise price of $11.50, expected volatility of 90%, remaining contractual term of 2.98 years, and stock price of $1.88.

Level 3 Rollforward

Fair value measurements categorized within Level 3 are sensitive to changes in the assumptions or methodology used to determine fair value, and such changes could result in a significant increase or decrease in the fair value.

The changes for Level 3 items measured at fair value on a recurring basis using significant unobservable inputs are as follows:


			Contingent
	Contingent		Consideration -		Private
	Consideration -		Business		Warrant
	Earnout		Combinations		Liability
Fair value as of December 31, 2022	$	44	$	24,546	$	707
Additions		—		—		—
Settlements		—		(194)		—
Change in fair value, loss (gain) included in net loss⁽¹⁾		—		(154)		(345)
Fair value as of March 31, 2023	$	44	$	24,198	$	362


			Contingent
	Contingent		Consideration -		Private
	Consideration -		Business		Warrant
	Earnout		Combinations		Liability
Fair value as of December 31, 2021	$	13,866	$	9,617	$	15,193
Additions		—		—		—
Settlements		—		—		—
Change in fair value, loss (gain) included in net loss⁽¹⁾		(11,179)		3,205		(10,189)
Fair value as of March 31, 2022	$	2,687	$	12,822	$	5,004

(1)

Changes in fair value of contingent consideration related to business combinations are included in general and administrative expenses in the unaudited condensed consolidated statements of operations. Changes in fair value of the earnout contingent consideration and private warrant liability are disclosed separately in the unaudited condensed consolidated statements of operations.

Fair Value Disclosure

As of March 31, 2023, and December 31, 2022, the fair value of the convertible senior notes is $234.0 million and $238.6 million, respectively. The decrease of $4.6 million is primarily due to the decline in the stock price at March 31, 2023, as compared to December 31, 2022. The fair value of the line of credit, advance funding arrangement and other notes approximates the unpaid principal balance. All debt, other than the 2026 Notes which is Level 2, is considered a Level 3 measurement. See Note 7.

- 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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