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Fair Value Measurements

9 Months Ended

Sep. 30, 2022

3. Fair Value Measurements

The Company’s financial assets and liabilities subject to fair value measurements on a recurring basis and the level of inputs used for such measurements were as follows (in thousands):


	September 30, 2022
	Level 1		Level 2		Level 3

Assets
Derivative assets	$	—	$	996	$	—
Total assets	$	—	$	996	$	—

Liabilities
Public warrants	$	1,621	$	—	$	—
Private placement warrants		—		—		640
Term Loan warrants		—		—		3,113
Total liabilities	$	1,621	$	—	$	3,753

	December 31, 2021
	Level 1		Level 2		Level 3

Assets
Derivative assets	$	—	$	314	$	—
Total assets	$	—	$	314	$	—

Liabilities
Public warrants	$	2,701	$	—	$	—
Private placement warrants		—		—		2,133
Total liabilities	$	2,701	$	—	$	2,133

Fair values of cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate the recorded value due to the short period of time to maturity. The fair value of the public warrants, which trade in active markets, is based on quoted market prices. The fair value of derivative instruments is based on Level 2 inputs such as observable forward rates, spot rates, and foreign currency exchange rates. The Company’s private placement and Term Loan warrants are classified within Level 3 of the fair value hierarchy because their fair values are based on significant inputs that are unobservable in the market.

Private Placement Warrants

The Company determined the fair value of the private placement warrants using a Black-Scholes option-pricing model and the quoted price of the Company’s Class A Common Stock. Volatility was based on the implied volatility derived primarily from the average of the actual market activity of the Company’s peer group. The expected life was based on the remaining contractual term of the private placement warrants, and the risk-free interest rate was based on the implied yield available on U.S. treasury securities with a maturity equivalent to the warrants’ expected life. The significant unobservable input used in the fair value measurement of the private placement warrants is the implied volatility. Significant changes in the implied volatility would result in a significantly higher or lower fair value measurement, respectively.

The following table presents significant assumptions utilized in the valuation of the private placement warrants on September 30, 2022 and December 31, 2021:



	September 30, 2022			December 31, 2021

Risk-free rate		4.2	%		1.2	%
Dividend yield rate		—			—
Volatility		80.0	%		65.0	%
Contractual term (in years)		3.74			4.49
Exercise price	$	11.50		$	11.50

The following table presents changes in the fair value of the private placement warrants for the three and nine months ended September 30, 2022 and 2021:


	Three months ended September 30,						Nine months ended September 30,
	2022			2021			2022			2021
Balance, beginning of period	$	800		$	20,373		$	2,133		$	—
Assumed in Business Combination		—			—			—			26,400
Change in fair value		(160	)		(12,373	)		(1,493	)		(18,400	)
Balance, end of period	$	640		$	8,000		$	640		$	8,000

For the three and nine months ended September 30, 2022 and 2021, the change in the fair value of private placement warrants resulted from the change in price of the Company’s Class A Common Stock, remaining contractual term, and risk-free rate. The changes in fair value are included in the unaudited condensed consolidated statements of operations as a component of change in fair value of warrant liabilities and in the unaudited condensed consolidated balance sheets as other liabilities.

Term Loan Warrants

The Company determined the fair value of the Term Loan warrants using a Black-Scholes option-pricing model and the quoted price of the Company’s Class A Common Stock. Volatility was based on the implied volatility derived primarily from the average of the actual market activity of the Company’s peer group. The expected life was based on the remaining contractual term of the Term Loan warrants, and the risk-free interest rate was based on the implied yield available on U.S. treasury securities with a maturity equivalent to the warrants’ expected life. The significant unobservable input used in the fair value measurement of the Term Loan warrants is the implied volatility. Significant changes in the implied volatility would result in a significantly higher or lower fair value measurement, respectively. See Note 10, Debt, for additional information regarding the Term Loan warrants.

The following table presents significant assumptions utilized in the valuation of the Term Loan Warrants on the Effective Date and at September 30, 2022:


	September 30, 2022			August 8, 2022

Risk-free rate		4.0	%		2.9	%
Dividend yield rate		—			—
Volatility		80.0	%		75.0	%
Contractual term (in years)		6.86			7.00
Exercise price	$	1.85		$	1.85

The following table presents changes in the fair value of the Term Loan warrants for the three and nine months ended September 30, 2022 and 2021:


	Three months ended September 30,					Nine months ended September 30,
	2022			2021		2022			2021
Balance, beginning of period	$	—		$	—	$	—		$	—
Issued in connection with Term Loan		5,236			—		5,236			—
Change in fair value		(2,123	)		—		(2,123	)		—
Balance, end of period	$	3,113		$	—	$	3,113		$	—

- 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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