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Fair Value | 9 Months Ended | 12 Months Ended
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Sep. 30, 2021 | Dec. 31, 2020
Fair Value Disclosures [Abstract] |  |
Fair Value | 4. Fair Value NextNav uses observable and unobservable inputs to value fair value instruments. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect internal market assumptions. The three-tier hierarchy for inputs used in measuring fair value, which prioritizes the inputs used in the methodologies of measuring fair value for assets and liabilities, where applicable, is as follows: • Level 1 — Quoted prices in active markets for identical assets or liabilities • Level 2 — Observable inputs other than quoted prices in active markets for identical assets and liabilities • Level 3 — No observable pricing inputs in the market Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurements. NextNav’s assessment of the significance of a particular input to the fair value measurements requires judgment and may affect the valuation of the assets and liabilities being measured and their placement within the fair value hierarchy. NextNav effectuates transfers between levels of the fair value hierarchy, if any, as of the date of the actual circumstance that caused the transfer. The following table presents the Company’s fair value hierarchy for its financial instruments measured at fair value on a recurring basis (in thousands):
|  | Level 1 |  | Level 2 |  | Level 3 |  | Total
September 30, 2021: |  |  |  |  |  |  |  |  |  |
Warrants |  | — |  | — |  | $ | 168,016 |  | $ | 168,016
December 31, 2020: |  |  |  |  |  |  |  |  |  |
Warrants |  | — |  | — |  | $ | 101,325 |  | $ | 101,325
The carrying values of cash and cash equivalents, accounts payable, accrued expenses, amounts included in other current assets, and current liabilities that meet the definition of a financial instrument, approximate fair value due to their short-term nature. Assets, liabilities, and equity instruments that are measured at fair value on a nonrecurring basis include fixed assets, intangible assets, and certain equity instruments. The Company recognizes these items at fair value when they are considered to be impaired or upon initial recognition. The fair value of these assets and liabilities are determined with valuation techniques using the best information available and may include quoted market prices, market comparables and discounted cash flow models. Level 3 Liabilities: The fair value of warrants issued to customers and in connection with financing activities are measured quarterly using unobservable inputs, the most significant of which is the underlying value of NextNav’s equity value. The Company engaged a third-party valuation firm to assist with the fair value analysis of the warrants. The analysis used commonly accepted valuation methodologies and best practices to determine the fair value of the equity, in accordance with fair value standards and U.S. GAAP, NextNav’s equity is allocated to the outstanding warrants based on the OPM used to determine the fair value at each reporting date. As of September 30, 2021, the fair value of the warrants was estimated using the Black-Scholes option-pricing model. The equity value of the Company used within the Black-Scholes option-pricing model was estimated using the PWERM and option-pricing model, estimating the probability-weighted value across multiple scenarios. Discrete future outcomes considered under the PWERM include an acquisition of the Company, as well as continued operation as a private company. The significant unobservable inputs into the valuation model include the timing and probability of occurrence of these discrete future outcomes and a discount for the lack of marketability. As of December 31, 2020, the fair value of the warrants were estimated using the Black-Scholes option-pricing model. The equity value of the Company used within the Black-Scholes option-pricing model was estimated using discounted cash flow and guideline public company methodologies, while using an option-pricing model to estimate the allocation of value. The Company used the following assumptions within the model:
|  | September 30, 2021 |  | December 31, 2020
Discount for lack of marketability |  | 14.0% – 37.0% |  | 10.0%
Equity value |  | $727,808,000 – $736,000,000 |  | $525,034,000
Expected volatility |  | 45.5% – 62.2% |  | 59.50%
Dividend rate |  | — |  | —
Expected term (in years) |  | 0.58 – 2.50 |  | 3.00
Risk-free interest rate |  | 0.04% – 0.5% |  | 0.17%
The table below provides a reconciliation of the beginning and ending balances for the liabilities measured at fair value using significant unobservable inputs (Level 3).
Warrants: |  | (in thousands)
Balance as of December 31, 2020 |  | $ | 101,325 |
Vesting of Vendor Warrants |  |  | 5,504 |
Fair value adjustment for Vendor Warrants |  |  | (11,930 | )
Fair value adjustment for Financing Warrants |  |  | 73,117 |
Balance as of September 30, 2021 |  | $ | 168,016 |
| 7. Fair Value NextNav uses observable and unobservable inputs to determine the value of its assets and liabilities recorded at fair value. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect internal market assumptions. The three-tier hierarchy for inputs used to measure fair value, which prioritizes the inputs used in the methodologies of measuring fair value for assets and liabilities, where applicable, is as follows: • Level 1 — Quoted prices in active markets for identical assets or liabilities • Level 2 — Observable inputs other than quoted prices in active markets for identical assets and liabilities • Level 3 — No observable pricing inputs in the market Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurements. NextNav’s assessment of the significance of a particular input to the fair value measurements requires judgment and may affect the valuation of the assets and liabilities being measured and their placement within the fair value hierarchy. NextNav effectuates transfers between levels of the fair value hierarchy, if any, as of the date of the actual circumstance that caused the transfer. The following table presents the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis (in thousands):
|  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (in thousands)
December 31, 2020 |  |  |  |  |  |  |  |  |  |
Warrants |  | — |  | — |  | $ | 101,325 |  | $ | 101,325
December 31, 2019 |  |  |  |  |  |  |  |  |  |
Warrants |  | — |  | — |  | $ | 3,531 |  | $ | 3,531
The carrying values of cash and cash equivalents, accounts payable, accrued expenses, amounts included in other current assets, and current liabilities that meet the definition of a financial instrument, approximate fair value due their short-term nature. Level 3 Liabilities The fair value of warrants issued to vendors and in connection with financing activities are measured quarterly using unobservable inputs, the most significant of which is the underlying value of NextNav’s equity value. The Company engaged a third-party valuation firm to assist with the fair value analysis of the warrants. The analysis used commonly accepted valuation methodologies and best practices to determine the fair value of the equity, in accordance with fair value standards and U.S. GAAP. NextNav uses a Black Scholes option pricing model, utilizing certain assumptions to allocate the equity value to the warrants at each reporting date. The following table shows the assumptions used:
|  | December 31, 2020 |  | December 31, 2019
OPM Inputs/Assumptions |  | Values |  | Values
Equity Value |  | $ | 525,034,000 |  |  | 20,369,000 |
Holding Period/Term (years) |  |  | 3.00 |  |  | 5.00 |
Volatility |  |  | 59.50 | % |  | 51.00 | %
Risk-Free Rate |  |  | 0.17 | % |  | 1.67 | %
Discount for Lack of Marketability |  |  | 10.0 | % |  | 9.5 | %
The table below provides a reconciliation of the beginning and ending balances for the liabilities measured at fair value using significant unobservable inputs (Level 3).
Warrants: |  | (in thousands)
Balance as of January 1, 2020 |  | $ | 3,531
Issuance of warrants in connection with Fortress Financing Agreement |  |  | 190
Fair value adjustment of outstanding warrants |  |  | 97,604
Balance as of December 31, 2020 |  | $ | 101,325

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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 -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=123874694&loc=d3e19207-110258 + Details
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