Fair Value Measurements

9 Months Ended

Sep. 30, 2022

Fair Value Measurements

Fair Value Measurements

Note 11 – Fair Value Measurements

The fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities).

The following table presents information about the Company’s liabilities that are measured at fair value on a recurring basis and indicates the level within the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value as of September 30, 2022:

		September 30,
(in thousands)	Level	2022
Earnout liability	3	$	3,883
Warrant liability – Public Warrants	1	$	27,655
Warrant liability – Private Placement Warrants	2	$	5,825

The earnout liability was valued using a Monte Carlo simulation methodology. The warrants are accounted for as liabilities in accordance with ASC 815 and are presented as warrant liabilities on the condensed consolidated balance sheets. The warrant liabilities are measured at fair value at inception and on a recurring basis, with changes in fair value presented within change in fair value of warrant liability in the condensed consolidated statements of operations and comprehensive income (loss). The closing price of the Public Warrants was used as the fair value as of each reporting date.

As of September 30, 2022 and December 31, 2021, the carrying values of certain accounts such as accounts receivable, accounts payable and accrued expenses were deemed to approximate their fair values due to their short-term nature. There were no assets measured on a recurring basis using significant unobservable inputs (Level 3) as of September 30, 2022 or December 31, 2021. There were no other transfers between levels of the hierarchy for the nine months ended September 30, 2022.

The following table presents a reconciliation for all liabilities measured and recognized at fair value on a recurring basis using significant unobservable inputs (Level 3) for the nine months ended September 30, 2022:

	Private
	Placement
	Warrant		Earnout
(in thousands)	Liability		Liability
Fair value as of December 31, 2021	$	8,847	$	5,211
Change in fair value of liability		(4,912)		(1,328)
Transfers out of Level 3		(3,935)		—
Fair value as of September 30, 2022	$	—	$	3,883
Net change in unrealized gain (loss) for instruments still held at September 30, 2022	$	—	$	(1,328)

The fair value of the Private Placement Warrants issued was initially measured using a Monte Carlo simulation model. As of June 30, 2022, the fair value of the Private Placement Warrants was measured by reference to the trading price of the Public Warrants, which is considered to be a Level 2 fair value measurement.

Earnout Liability

The estimated fair value of the 1,437,500 shares of Class A common stock held by the Company’s initial stockholders that are subject to potential forfeiture (the “Earnout Shares”) issued and outstanding at the closing of the CRIS Business Combination on the CRIS Close Date was $18.3 million based on a Monte Carlo simulation valuation model using a distribution of potential outcomes on a monthly basis over the earnout period between the CRIS Close Date and the five-year anniversary of the CRIS Close Date using the most reliable information available. On July 2, 2021, the volume-weighted average price (“VWAP”) of shares of Class A common stock equaled or exceeded $12.50 for 20 trading days within a 30-trading day period within five years of the CRIS Close Date and, as a result, 718,750 Earnout Shares valued at $10.9 million were deemed to be earned and reclassified into equity on that date. The estimated fair value of the earnout liability related to the 718,750 Earnout Shares subject to a VWAP of $15.00 (the “$15.00 Triggering Event”) originally valued at $8.8 million was remeasured to $5.2 million as of December 31, 2021 and to $3.9 million as of September 30, 2022.

Assumptions used in the valuation of the earnout liability are as follows:

	September 30,
	2022
Stock price	$	7.91
Risk-free interest rate		4.18	%
Expected term		2.8 years
Expected volatility		90.0	%
Dividend rate		—	%