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FAIR VALUE MEASUREMENTS |
6. FAIR VALUE MEASUREMENTS The Company uses the following three-tier fair value hierarchy, which prioritizes the inputs used in measuring the fair values for certain of its assets and liabilities: Level 1 is based on observable inputs, such as quoted prices in active markets; Level 2 is based on inputs other than the quoted prices in active markets that are observable either directly or indirectly; and Level 3 is based on unobservable inputs in which there is little or no market data, which requires the Company to develop its own assumptions. This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. Items measured at fair value on a recurring basis include money market funds. The following fair value hierarchy table presents information about the Company’s financial assets measured at fair value on a recurring basis and indicates the fair value hierarchy of the inputs the Company utilized to determine such fair value (in thousands):
The Company has determined that the estimated fair value of its corporate bonds and commercial paper are reported as Level 2 financial assets as they are based on model-driven valuations in which all significant inputs are observable, or can be derived from or corroborated by observable market data for substantially the full term of the asset.
Equity securities include investments made via publicly-traded securities. The Company has determined that the estimated fair value of its equity securities is reported as Level 1 financial assets as they are based on quoted market prices in active markets for identical assets. During the three months ended March 31, 2022, the Company recognized a loss on investment of $1.7 million. Additionally, the Company recorded an initial subscription agreement liability of $0.5 million related to this investment and recognized a loss on the subscription agreement liability of $2.4 million during the year ended December 31, 2021. The initial subscription liability was recorded as a Level 3 liability as a result of the discount for lack of marketability. Upon investment, the liability was derecognized and the investment was recorded as a Level 3 investment because the equity securities were not registered for resale and a discount for lack of marketability was still applied. Subsequently, the securities were registered and the investment was transferred from Level 3 to Level 1.
Other investments include investments made via convertible debt instruments totaling $6.8 million. The other investments are reported as a Level 3 financial asset because the methodology used to develop the estimated fair values includes significant unobservable inputs reflecting management’s own assumptions. Assumptions used in fair valuing convertible debt instruments include the rights and obligations of the notes the Company holds as well as the probability of a qualified financing event, acquisition, or change in control. During the three months ended March 31, 2022, the Company recognized no gain or loss on convertible debt instruments. During the three months ended March 31, 2021, the Company recognized an immaterial gain on convertible debt instruments in interest and other (expense) income, net in the condensed consolidated statements of operations.
The fair value of the Private Placement Warrants is estimated using the Black-Scholes option pricing model and is classified as a Level 3 financial instrument. The significant assumptions used in the model were the Company’s stock price, exercise price, expected term, volatility, interest rate, and dividend yield. During the three months ended March 31, 2022 and 2021, the Company recognized no gain or loss and a loss of $56.6 million, respectively, on the Private Placement Warrants. The Private Placement Warrants were all exercised as of March 2, 2021.
The contingent consideration liability was valued using a Monte Carlo simulation in a risk-neutral framework as well as a scenario based approach (both special cases of the income approach), based on key inputs that are not all observable in the market and is classified as a Level 3 liability. The Company assesses the fair value of the contingent consideration liability at each reporting period, with any subsequent changes to the fair value of the liability reflected in the condensed consolidated statement of operations until the liability is settled. During the three months ended March 31, 2022, the Company recognized a change in fair value of contingent consideration of $0.1 million.
There were no transfers between fair value measure levels during the three months ended March 31, 2022 and 2021. The following table presents information about the Company’s movement in Level 3 assets measured at fair value (in thousands):
The following table presents information about the Company’s movement in Level 3 liabilities measured at fair value (in thousands):
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