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FAIR VALUE OF FINANCIAL INSTRUMENTS | 9 Months Ended
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Sep. 30, 2023
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, 2023 and December 31, 2022, 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, 2023 |  | December 31, 2022
| Level 1 | Level 2 | Level 3 | Total |  | Level 1 | Level 2 | Level 3 | Total
Assets |  |  |  |  |  |  |  |  |
Cash equivalents | $ | 60,349 |  | $ | 129,261 |  | $ | — |  | $ | 189,610 |  |  | $ | 51,250 |  | $ | — |  | $ | — |  | $ | 51,250 |
Restricted cash equivalents - current | 33,277 |  | — |  | — |  | 33,277 |  |  | 68,850 |  | — |  | — |  | 68,850 |
Restricted cash equivalents - noncurrent | 151,513 |  | — |  | — |  | 151,513 |  |  | 94,781 |  | — |  | — |  | 94,781 |
Investments: |  |  |  |  |  |  |  |  |
Commercial paper, available for sale | — |  | 9,866 |  | — |  | 9,866 |  |  | — |  | 32,756 |  | — |  | 32,756 |
Corporate Bonds, available for sale | — |  | — |  | — |  | — |  |  | — |  | 58,442 |  | — |  | 58,442 |
US Treasury Notes, Available for sale | 2,160 |  | — |  | — |  | 2,160 |  |  | — |  | — |  | — |  | — |
Municipal bonds, available for sale | — |  | — |  | — |  | — |  |  | — |  | 7,394 |  | — |  | 7,394 |
Total investments | $ | 2,160 |  | $ | 9,866 |  | $ | — |  | $ | 12,026 |  |  | $ | — |  | $ | 98,592 |  | $ | — |  | $ | 98,592 |
Liabilities |  |  |  |  |  |  |  |  |
Warrant liability: |  |  |  |  |  |  |  |  |
RTI warrants | $ | — |  | $ | — |  | $ | 2,185 |  | $ | 2,185 |  |  | $ | — |  | $ | — |  | $ | 3,670 |  | $ | 3,670 |
Private warrants | — |  | — |  | 493 |  | 493 |  |  | — |  | — |  | 784 |  | 784 |
Series A warrants | — |  | 35,536 |  | — |  | 35,536 |  |  | — |  | 51,429 |  | — |  | 51,429 |
Total warrant liability | $ | — |  | $ | 35,536 |  | $ | 2,678 |  | $ | 38,214 |  |  | $ | — |  | $ | 51,429 |  | $ | 4,454 |  | $ | 55,883 |
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 and were valued using the following assumptions:
| September 30, 2023 |  | December 31, 2022
Expected annual dividend yield | — | % |  | — | %
Expected volatility | 101.1 | % |  | 105.1 | %
Risk-free rate of return | 4.9 | % |  | 4.2 | %
Expected option term (years) | 2.5 |  | 3.2
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 implied volatility calculated for the Company’s public warrants, which have similar characteristics to the private warrants. 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 $0.5 million and $0.8 million on September 30, 2023 and December 31, 2022, respectively. A summary of the private warrants activity from December 31, 2022 to September 30, 2023 is as follows:
| Fair value (Level 3)
Balance at December 31, 2022 | $ | 784 |
Change in fair value | (291) |
Balance at September 30, 2023 | $ | 493 |
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 a Binomial Tree option pricing model to calculate its fair value using the following assumptions:
| September 30, 2023 |  | December 31, 2022
Expected annual dividend yield | — | % |  | — | %
Expected volatility | 89.5 | % |  | 99.7 | %
Risk-free rate of return | 5.3 | % |  | 4.4 | %
Expected option term (years) | 1.3 |  | 2.0
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. For September 30, 2023, the expected volatility was calculated based on the specific volatility of PCT’s publicly-traded common stock. For December 31, 2022, 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 Binomial Tree model 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 from December 31, 2022 to September 30, 2023 are as follows (in thousands):
| Fair value (Level 3)
Balance at December 31, 2022 | $ | 3,670 |
Change in fair value | (1,485) |
Balance at September 30, 2023 | $ | 2,185 |
Measurement of the Series A Warrants The Series A Warrants meet the definition of derivative instruments and are measured at fair value on a recurring basis using the market price of the Company’s publicly traded warrants, with changes in fair value recorded in current earnings. The Company has determined the publicly traded warrants to be an appropriate proxy to value the Series A Warrants as both warrants have similar redemption features and the same exercise price. The Series A Warrants are classified as Level 2 for both initial measurement at issuance and subsequent measurement each period. The Series A Warrants were initially valued at $43.9 million upon closing of the 2022 PIPE Offering. 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 accounts payable at cost, which approximates fair value due to their short-term nature or stated rates. The Company records debt at cost.

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- 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. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Publisher FASB -URI https://asc.fasb.org//1943274/2147482106/820-10-50-2 + Details
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