Quarterly report pursuant to Section 13 or 15(d)

FAIR VALUE OF FINANCIAL INSTRUMENTS

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FAIR VALUE OF FINANCIAL INSTRUMENTS
9 Months Ended
Sep. 30, 2021
Fair Value Disclosures [Abstract]  
FAIR VALUE OF FINANCIAL INSTRUMENTS FAIR VALUE OF FINANCIAL INSTRUMENTS Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and sets out a fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest
priority to unobservable inputs (Level 3). Inputs are broadly defined as assumptions market participants would use in pricing an asset or liability. Assets and liabilities carried at fair value are classified and disclosed in one of the following three categories:
Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
Level 2 - Inputs other than quoted prices within Level 1 that are observable for the asset or liability, either directly or indirectly, and fair value is determined through the use of models or other valuation methodologies
Level 3 - Inputs are unobservable for the asset or liability and include situations where there is little, if any, market activity for the asset or liability. The inputs into the determination of fair value are based upon the best information in the circumstances and may require significant management judgment or estimation.
Assets and liabilities measured and recorded at Fair Value on a recurring basis
As of September 30, 2021 and December 31, 2020, the Company’s financial assets and liabilities measured and recorded at fair value on a recurring basis were classified within the fair value hierarchy as follows (in thousands):
September 30, 2021 December 31, 2020
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
Assets
Investments:
Commercial paper, available for sale $ —  $ 83,723  $ —  $ 83,723  $ —  $ —  $ —  $ — 
Corporate Bonds, available for sale —  94,974  —  94,974  —  —  —  — 
Municipal bonds, available for sale —  5,878  —  5,878  —  —  —  — 
Total investments $ —  $ 184,575  $ —  $ 184,575  $ —  $ —  $ —  $ — 
Liabilities
Warrant liability:
RTI warrants $ —  $ —  $ 8,214  $ 8,214  $ —  $ —  $ —  $ — 
Private warrants —  —  1,316  1,316  —  —  —  — 
Total warrant liability $ —  $ —  $ 9,530  $ 9,530  $ —  $ —  $ —  $ — 
Measurement of the Private Warrants

The private warrants are measured at fair value on a recurring basis using a Black-Scholes model. The private warrants are classified as Level 3 for both initial measurement upon close of the Business Combination and subsequent measurement using the following assumptions:
September 30, 2021 March 18, 2021 (Initial Recognition)
Expected annual dividend yield —  % —  %
Expected volatility 56.2  % 47.3  %
Risk-free rate of return 0.86  % 0.86  %
Expected option term (years) 4.47 5.0
The expected term of the warrants granted are determined based on the duration of time the warrants are expected to be outstanding. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant. The
expected volatility was based on the Company’s capital structure and volatility of similar entities referred to as guideline companies. In determining similar entities, the Company considered industry, stage of life cycle, size and financial leverage. The dividend yield on the Company’s warrants is assumed to be zero as the Company has not historically paid dividends. The fair value of the underlying Company shares was determined using the Black-Scholes calculation.
The aggregate values of the private warrants were $1.3 million and $4.6 million on September 30, 2021 and March 18, 2021, respectively.
A summary of the private warrants activity from the Business Combination date at March 18, 2021 to September 30, 2021 is as follows:
Fair value
(Level 3)
Balance at March 18, 2021 $ 4,604 
Change in fair value (3,288)
Balance at September 30, 2021 $ 1,316 
Refer to Note 6 – Warrants for further information.
Measurement of the RTI warrants
Significant changes in any of the significant unobservable inputs in isolation would not result in a materially different fair value estimate. The interrelationship between these inputs is insignificant.
The Company has determined its warrant to be a Level 3 fair value measurement and has remeasured using the Black-Scholes option pricing model to calculate its fair value for both initial measurement upon close of the Business Combination and subsequent measurement using the following assumptions:
September 30, 2021 March 18, 2021 (Initial Recognition)
Expected annual dividend yield —  % —  %
Expected volatility 55.49  % 48.51  %
Risk-free rate of return 0.59  % 0.54  %
Expected option term (years) 3.25 3.79
The expected term of the warrants granted are determined based on the duration of time the warrants are expected to be outstanding. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant. The expected volatility was based on the Company’s capital structure and volatility of similar entities referred to as guideline companies. In determining similar entities, the Company considered industry, stage of life cycle, size and financial leverage. The dividend yield on the Company’s warrants is assumed to be zero as the Company has not historically paid dividends. The fair value of the underlying Company shares was determined using the Black-Scholes calculation.
The Company has an option to repurchase the Warrants at any time. The maximum fair value of the Warrants is limited by the fair value of the repurchase option, which cannot exceed $15.0 million.
Changes in Level 3 liabilities measured at fair value for nine months ended September 30, 2021 are as follows (in thousands):
Fair value
(Level 3)
Balance at December 31, 2020 $ — 
Change in fair value 8,214 
Balance at September 30, 2021 $ 8,214 
Assets and liabilities recorded at carrying value
In determining the appropriate levels, the Company performs a detailed analysis of the assets and liabilities that are subject to fair value measurements.
The Company records cash and cash equivalents and accounts payable at cost, which approximates fair value due to their short-term nature or stated rates. The Company records debt at cost.