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Marketable Securities and Fair Value Measurements

3 Months Ended

Mar. 31, 2023

Marketable Securities and Fair Value Measurements

Marketable Securities

The Company accounts for its investment securities as available for sale using the fair value election pursuant to ASC 825, where changes in fair value are recorded in Other, net non-operating income (expense) on the Company's Condensed Consolidated Statements of Operations. The Company’s investments in marketable securities at March 31, 2023 and December 31, 2022 is as follows:


	March 31, 2023
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value


Marketable securities:
Short-term U.S. Treasuries	$	40,177	$	3	$	(48)	$	40,132
Long-term U.S. Treasuries	59,030		—		(189)		58,841
Total available for sale securities	$	99,207	$	3	$	(237)	$	98,973


	December 31, 2022
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Cash equivalents:
U.S. Treasury Bills	$	2,573	$	—	$	—	$	2,573
Marketable securities:
Short-term U.S. Treasuries	$	59,876	$	6	$	(86)	$	59,796
Long-term U.S. Treasuries	58,652		—		(298)		58,354
Total available for sale securities	$	121,101	$	6	$	(384)	$	120,723

The contractual maturities of the Company's investments in cash equivalents and marketable securities as of March 31, 2023 and December 31, 2022 is as follows:


(in thousands)	Due in One Year or Less		Due After One Year through Five Years		Due After Five Years		Total


Marketable securities:
Short-term U.S. Treasuries	$	40,132	$	—	$	—	$	40,132
Long-term U.S. Treasuries	30,235		28,606		—		58,841
Total available for sale securities	$	70,367	$	28,606	$	—	$	98,973


(in thousands)	Due in One Year or Less		Due After One Year through Five Years		Due After Five Years		Total
Cash equivalents:
U.S. Treasury Bills	$	2,573	$	—	$	—	$	2,573
Marketable securities:
Short-term U.S. Treasuries	59,796		—		—		59,796
Long-term U.S. Treasuries	10,523		47,831		—		58,354
Total available for sale securities	$	72,892	$	47,831	$	—	$	120,723

The Company recorded a net unrealized loss of $143 for the three months ended March 31, 2023. At March 31, 2023, seven securities were in an unrealized loss position. The decline in fair value of our securities since acquisition was attributable to a combination of changes in interest rates and general volatility in the credit market conditions in response to the economic uncertainty caused by the risk of an upcoming recession and monetary policy. The Company does not currently intend to sell any of the securities in an unrealized loss position and further believe, it is more likely than not, that we will not be required to sell these securities before their anticipated recovery.

Accrued interest receivable on cash equivalents and marketable securities was $234 and $274, respectively, at March 31, 2023 and December 31, 2022, and is included within other receivables in the Condensed Consolidated Balance Sheets.

Fair Value Measurements

The following table presents the carrying amounts of the Company’s recurring and non-recurring fair value measurements at March 31, 2023 and December 31, 2022:


	March 31, 2023
(in thousands)	Total		Level 1		Level 2		Level 3
Financial assets:

Marketable securities	$	40,132	$	—	$	40,132	$	—
Non-current investments	58,841		—		58,841		—
Financial liabilities:
Derivative warrant liabilities	$	207	$	—	$	207	$	—
Earnout liabilities	51		—		—		51
Conversion option derivative liabilities	642		—		—		642
Non-recurring fair value measurement:
Goodwill	4,551		—		—		4,551

As of March 31, 2023, derivative warrant liabilities of $207 were transferred from a Level 3 to a Level 2 financial instrument as a result of the valuation being based on the market price of our public warrants, which management considers to be a similar and comparable instrument, as compared to the previous valuation which was based on the Binomial Lattice Model. There were no transfers between levels for the three months ended March 31, 2022.


	December 31, 2022
(in thousands)	Total		Level 1		Level 2		Level 3
Financial assets:
Cash equivalents	$	2,573	$	—	$	2,573	$	—
Marketable securities	59,796		—		59,796		—
Non-current investments	58,354		—		58,354		—
Financial liabilities:
Derivative warrant liabilities	$	350	$	—	$	—	$	350
Earnout liabilities	803		—		—		803
Conversion option derivative liabilities	3,960		—		—		3,960
Non-recurring fair value measurement:
Goodwill	21,418		—		—		21,418

The carrying amounts of cash, accounts receivable, other receivables, and accounts payable approximate fair value because of the short maturity and high liquidity of these instruments.

The Company measures its investments (including cash equivalents, marketable securities, and non-current investments) at fair value on a recurring basis and classifies those instruments within Level 2 of the fair value hierarchy. Investment securities, including U.S. Treasury Bills purchased in the secondary market and U.S. Treasury bonds, are classified within Level 2 of the fair value hierarchy because pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined using models or other valuation methodologies.

The Company measures its private derivative warrants at fair value on a recurring basis and classifies those instruments within Level 2 of the fair value hierarchy because the valuation is based on an observable input of a similar instrument. The Company measures its earnout, convertible note warrant derivative liability, optional redemption derivative liability and conversion option derivative liability on a recurring basis and classifies those instruments within Level 3 of the fair value hierarchy because unobservable inputs are used to measure fair value. See Note 2 for a summary of the Company’s policies relating to fair value measurements, and Note 11 for more detail on the convertible note warrant, optional redemption, and conversion option derivative liabilities.

The Company measures goodwill at fair value on a nonrecurring basis and classifies goodwill within Level 3 of the fair value hierarchy. Due to significant declines in the Company's share price during the three months ended March 31, 2023, the Company performed a quantitative analysis of impairment over goodwill and determined goodwill was impaired. As a result, the Company recorded an impairment charge of $16,867. Goodwill was valued using an equally weighted income approach and market approach. The unobservable inputs utilized in determining the fair value of the goodwill, which is categorized as a Level 3 instrument, are the discount rates ranging from 45.0% to 55.0% and various revenue growth rates utilized in the financial forecast of future cash flows. See Note 2 for further detail on the impairment evaluation and Note 18 for goodwill.

The following table presents information about the Company’s financial liabilities that are measured at fair value on a recurring basis at March 31, 2023:


(in thousands)	Private Warrant Liability		Earnout Liability		Conversion Option Derivative Liability




Balance at December 31, 2021	$	2,193	$	60,018	$	—
Conversion option derivative liability acquired (see Note 11 for detail)	—		—		28,160
Decrease in fair value included in other expense	(1,843)		(59,215)		(24,200)
Balance at December 31, 2022	$	350	$	803	$	3,960
Decrease in fair value included in other expense	(143)		$	(752)	(3,318)
Balance at March 31, 2023	$	207	$	51	$	642

As of March 31, 2023, earnout liabilities were valued using a Monte-Carlo Simulation Model, which is considered to be a Level 3 fair value measurement, and derivative warrant liabilities were valued using the public warrant trading price, which is considered to be a Level 2 fair value measurement. As of December 31, 2022, derivative warrant and earnout liabilities were

valued using a Binomial Lattice and Monte-Carlo Simulation Model, respectively, which are considered to be Level 3 fair value measurements.

As of March 31, 2023 and December 31, 2022, the convertible note warrant and conversion option derivative liabilities were valued using the Binomial Lattice and Black-Scholes Models, which are considered to be Level 3 fair value measurements. The primary unobservable input utilized in determining the fair value of our Level 3 liabilities is the expected volatility of the common stock. A summary of the inputs used in the valuations is as follows:


	March 31, 2023
	First Tranche Earnout			Second Tranche Earnout			Convertible Note Warrant Derivative Liability			Conversion Option Derivative Liability
Unit price	$	0.68		$	0.68		$	0.68		$	0.68
Term (in years)	1.46			1.49			4.36			4.36
Volatility	79.00		%	79.00		%	67.00		%	67.00		%
Risk-free rate	4.30		%	4.30		%	3.60		%	3.60		%
Dividend yield	—			—			—			—
Cost of equity	15.80		%	15.80		%	—			—


	December 31, 2022
	Derivative Warrant Liability			First Tranche Earnout			Second Tranche Earnout			Convertible Note Warrant Derivative Liability			Conversion Option Derivative Liability
Unit price	$	1.65		$	1.65		$	1.65		$	1.65		$	1.65
Term (in years)	3.87			1.54			1.55			4.61			4.61
Volatility	71.80		%	70.00		%	70.00		%	40.00		%	40.00		%
Risk-free rate	4.08		%	4.45		%	4.45		%	3.99		%	3.99		%
Dividend yield	—			—			—			—			—
Cost of equity	—			13.60		%	13.60		%	0.00		%	0.00		%

On August 9, 2022, the Company issued a senior secured convertible note that contains embedded warrant, optional redemption, and conversion option features. Due to the economic disincentive to redeem and the make whole amount that would be required to be paid, it is highly unlikely that the optional redemption would occur, reducing the value during the period to a qualitatively immaterial amount. See Note 11 for additional detail. A summary of the inputs used in the initial measurement of the convertible note warrant and conversion option derivative liabilities is as follows:


	August 9, 2022
	(Initial Measurement)
	Convertible Note Warrant Derivative Liability			Conversion Option Derivative Liability
Unit price	$	6.63		$	6.63
Term (in years)	5.00			5.00
Volatility	42.5		%	42.5		%
Risk-free rate	3.0		%	3.0		%
Dividend yield	—			—
Cost of equity	—			—

Uncertainty of Fair Value Measurement from Use of Significant Unobservable Inputs

The inputs to estimate the fair value of the Company’s earnout, convertible note warrant, and conversion option derivative liabilities were the market price of the Company’s common stock, their remaining expected term, the volatility of the Company’s common stock price and the risk-free interest rate over the expected term. Significant changes in any of those inputs in isolation can result in a significant change in the fair value measurement.

Generally, an increase in the market price of the Company’s shares of common stock, an increase in the volatility of the Company’s shares of common stock, and an increase in the remaining term of the derivative liabilities would each result in a directionally similar change in the estimated fair value of the Company’s derivative liabilities. Such changes would increase the associated liability while decreases in these assumptions would decrease the associated liability. An increase in the risk-free interest rate would result in a decrease in the estimated fair value measurement and thus a decrease in the associated liability. The Company has not, and does not plan to, declare dividends on its common stock and, as such, there is no change in the estimated fair value of the derivative warrant liabilities due to the dividend assumption.

- 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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