Fair Value Measurements

9 Months Ended

Sep. 30, 2021

The Company’s debt instruments are recorded at their carrying values in its condensed consolidated balance sheets, which may differ from their respective fair values. The fair values of the Company’s convertible notes are estimated using the valuation of the securities into which the debt is convertible, external pricing data, based on interest rates and credit ratings for similar issuances with the same remaining term as the Company’s outstanding borrowings. The fair value of the Embry convertible notes was determined using valuation inputs categorized as Level 3. The fair values of the Company’s term loans and Tropez note generally approximated their carrying values.

On September 3, 2021, the Company also entered into a currency forward contracts of CAD $85,000 in order to hedge the risk of changes in the exchange rate of the Canadian dollar versus the U.S. dollar between the signing and closing of the TeraXion acquisition (see Note 18 - Subsequent event). An unrealized loss of $1,200 that represented the change in the exchange rate between the contract issuance date and period-end is recorded as part of Other income (expense) for both the three and nine months ended September 30, 2021. This unrealized loss was offset by a gain to a de minimis amount in October 2021 when this contract was settled.

The following table presents the Company’s fair value hierarchy for financial assets and liabilities:


	Fair Value Measurements as of September 30, 2021
	Level 1		Level 2		Level 3		Total
Liabilities:
Warrant Liability	$	—	$	—	$	103,492	$	103,492
Contingent earn-outs - first milestone	$	—	$	—	$	76,698	$	76,698
Contingent earn-outs - second milestone	$	—	$	—	$	70,619	$	70,619

Second tranche contingent consideration	$	—	$	—	$	1,200	$	1,200
Currency forward contract	$	—	$	1,200	$	—	$	1,200


	Fair Value Measurements as of December 31, 2020
	Level 1		Level 2		Level 3		Total
Liabilities:
SAFEs	$	—	$	—	$	102,700	$	102,700
First tranche contingent consideration	$	—	$	—	$	500	$	500
Second tranche contingent consideration	$	—	$	—	$	900	$	900

As of September 30, 2021 and December 31, 2020, the Company’s cash and cash equivalents were all held in cash or Level 1 instruments where the fair values approximates the carrying values.

Level 3 Disclosures

SAFEs

The SAFEs were valued using a probability-weighted expected return method (“PWERM”) valuation approach aligned to the SAFEs provisions, including (i) conversion through qualified equity financing, (ii) conversion through acquisition of a special purpose acquisition company, (iii) no conversion through equity or acquisition prior to December 31, 2021, (iv) a liquidation event, and (v) a dissolution event. Determining the fair value of the SAFEs using the PWERM requires assumptions and estimates for both the probability of each scenario and the fair value determined under each scenario. The SAFEs were valued through each scenario using an appropriate valuation approach, including calculations based on the terms of the SAFEs and a Monte Carlo simulation, which utilized the Geometric Brownian Motion formula to simulate the conversion and payout of the SAFEs. The significant unobservable inputs include the discount rate, constant volatility factor and the Geometric Brownian Motion. Significant increases (decreases) in any of those inputs in isolation would result in a significantly lower (higher) fair value measurement.

Warrants

Warrants were valued using the Black-Scholes-Merton formula and a Monte Carlo Simulations analysis. Calculating the fair value of warrants requires the input of subjective assumptions. Other reasonable assumptions could provide differing results. The carrying amount of the liability may fluctuate significantly and actual amounts paid may be materially different from the liability’s estimated value.

Contingent Earn-Outs

Contingent earn-outs were valued using a Monte Carlo analysis in order to simulate the future path of the Company’s stock price over the earn-out period. The carrying amount of the liability may fluctuate significantly and actual amounts paid may be materially different from the liability’s estimated value.

The following table presents the significant unobservable inputs assumed for each of the fair value measurements:


	September 30, 2021		June 10, 2021		December 31, 2020
	Input		Input		Input
Liabilities:
SAFEs
Discount rate	—	%	—	%	75	%
Constant volatility factor	—	%	—	%	40	%
Geometric Brownian Motion	—		—		0.98
Warrants
Expected volatility	35.5	%	34.1	%	—	%
First tranche contingent consideration
Discount rate	—	%	—	%	10.3	%
Second tranche contingent consideration
Discount rate	7.5	%	7.5	%	10.3	%
Contingent earn-outs - first milestone
Constant volatility factor	40	%	35	%	—	%
Contingent earn-outs - second milestone
Constant volatility factor	40	%	35	%	—	%

- 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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