Quarterly report pursuant to Section 13 or 15(d)

Fair Value Considerations

v3.22.1
Fair Value Considerations
3 Months Ended
Mar. 31, 2022
Fair Value Considerations [Abstract]  
Fair Value Considerations

Note 3. Fair Value Considerations

Fair value is defined as the price we would receive to sell an asset in a timely transaction or pay to transfer a liability in a timely transaction with an independent buyer in the principal market, or in the absence of a principal market, the most advantageous market for the investment or liability. A framework is used for measuring fair value utilizing a three-tier hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.

The three levels of the fair value hierarchy are as follows:

Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets and liabilities;

Level 2 - Observable inputs other than quoted prices in active markets, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data;

Level 3 - Unobservable inputs reflecting management’s assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.

Level 1

The carrying amounts of our cash and cash equivalents and restricted cash were measured using quoted market prices in active markets and represent Level 1 investments. Our other financial instruments such as accounts receivable, accounts payable and accrued expenses, approximate their fair values due to their short maturities. The carrying value of our long-term debt instruments also approximates fair value due to their recent issuance and/or near-term maturities.

We value our restricted stock that does not include market or performance factors at the closing price of a share of our common stock on the grant date, or $5.86 for such restricted stock granted during the three months ended March 31, 2022.

We value our restricted stock with performance factors at the closing price of a share of our common stock on each period end date, or $5.86 at March 31, 2022, since such grants include a cash settlement feature.

Level 2

We value our restricted stock that contain a market-based vesting provision using a Monte Carlo simulation, which takes into account a large number of potential stock price scenarios over time and incorporates varied assumptions about volatility and exercise behavior for those various scenarios. These assumptions are based on market data but cannot be directly observed. A fair value is determined for each potential outcome. There were no restricted stock units that contained a market-based vesting condition issued during the three months ended March 31, 2022.

Level 3

We use the Black-Scholes option pricing model to value stock options, including ESPP awards, and our outstanding warrants to purchase shares of our common stock at an exercise price of $11.50 per share, subject to adjustments, that had been privately placed prior to the Business Combination (“Private Warrants”). The Private Warrants and stock options with a cash-settlement feature are re-valued each period end, and all other stock options are valued on the date of grant only. Other than this mark to market factor, we recognize this expense on a straight-line basis over the respective vesting periods. Since our stock price history as a publicly traded company is shorter in duration than the expected lives of our options (other than ESPP awards), we use a peer group to assess volatility. We have not paid and do not currently anticipate paying a cash dividend on our common stock, so we have set the expected annual dividend yield to zero for all calculations. We used risk-free rates equal to the U.S. Treasury yield curves in effect as of the valuation dates for durations equal to the expected lives of each option. We use the simplified method under Staff Accounting Bulletin Topic 14, defined as the mid-point between the vesting period and the contractual term for each grant, to determine the expected lives of stock options and we use the remaining contractual life of the warrants as their expected life.

The following table sets forth the fair values we calculated and the ranges of values used in our Black Scholes calculations for stock options, other than ESPP awards.

 

 

March 31,

 

Three Months Ended March 31,

 

 

2022

 

2022

 

2021

Share prices of our common stock

 

$5.86

 

$3.88 - $5.86

 

$22.41 - $64.29

Expected volatilities

 

44.74%

 

44.42% - 48.51%

 

41.50% - 41.50%

Risk-free rates of return

 

2.38%

 

1.66% - 2.39%

 

1.05% - 1.05%

Expected option terms (years)

 

5.31

 

5.31 - 6.00

 

6.00 - 6.00

Calculated option values

 

$2.68

 

$0.69 - $3.44

 

$18.52 - $18.52

The table below sets forth the inputs we used in our Black Scholes models for Private Warrants valuations and the fair values determined.

 

 

March 31,
2022

 

 

December 31, 2021

 

Share price of our common stock

 

$

5.86

 

 

$

8.52

 

Expected volatility

 

 

49.4

%

 

 

47.6

%

Risk-free rate of return

 

 

2.41

%

 

 

1.11

%

Expected warrant term (years)

 

 

3.75

 

 

 

3.99

 

Fair value determined per warrant

 

$

1.17

 

 

$

2.45