5. 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):

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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.

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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, 2023, the Company recorded an unrealized loss due to the change in fair value of the equity securities of $0.4 million in interest and other (expense) income, net in the consolidated statements of operations.

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Other investments include investments made via convertible debt instruments totaling $2.0 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 and 2023, the Company did not recognize any gains or losses on convertible debt instruments.

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The Aerosint acquisition included contingent consideration related to revenue metrics and technical milestones, with a fair value of $6.1 million as of the date of acquisition and a fair value of $1.8 million as of March 31, 2023. 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, 2023, the Company did not recognize a gain or loss in fair value of contingent consideration. During the three months ended March 31, 2022, the Company recognized loss in fair value of contingent consideration of $0.1 million. During the three months ended March 31, 2023, the Company paid $0.8 million of contingent consideration in connection with the achievement of technical milestones. As of March 31, 2023, the $1.8 million balance of contingent consideration is recorded in accrued expenses and other current liabilities in the condensed consolidated balance sheets.

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The 2027 Notes are valued as a single liability measured at amortized cost, as no other features require bifurcation and recognition as derivatives.

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There were no transfers between fair value measure levels during the three months ended March 31, 2023 and 2022. The following table presents information about the Company’s movement in Level 3 assets measured at fair value (in thousands):

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The following table presents information about the Company’s movement in Level 3 liabilities measured at fair value (in thousands):

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