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Fair Value Measurements
 3 Months Ended
Mar. 31, 2022
Fair Value Disclosures [Abstract]  
Fair Value Disclosures [Text Block]

Note 16 — Fair Value Measurements

 

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. In determining fair value, the Company uses various methods including market, income and cost approaches. Based upon these approaches, the Company often utilizes certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and/or the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market-corroborated, or unobservable inputs. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Based upon observable inputs used in the valuation techniques, the Company is required to provide information according to the fair value hierarchy. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values into three broad levels as follows:

 

Level 1:

Valuations for assets and liabilities traded in active markets from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 2:

Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third-party pricing services for identical or similar assets or liabilities.

Level 3:

Valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities.

 

In instances where the determination of the fair value measurement is based upon inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based upon the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

 

The following tables summarize the Company's financial liabilities measured at fair value on a recurring basis as of March 31, 2022 and December 31, 2021 (in thousands):

 

           

Fair Value Measurements

  
           

as of March 31, 2022

  
   

Carrying Amount as of

   

 

    

 

    

 

  
   

March 31, 2022

     Level 1     Level 2     Level 3  

Preferred stock derivative liability

   $ 21,927     $ —     $ —     $ 21,927  

 

           

Fair Value Measurements

  
           

as of December 31, 2021

  
   

Carrying Amount as of

   

 

    

 

    

 

  
   

December 31, 2021

     Level 1     Level 2     Level 3  

Preferred stock derivative liability

   $ 21,282     $ —     $ —     $ 21,282  

 

The following tables provide a reconciliation of the beginning and ending balances of liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) (in thousands):

 

3.25% convertible senior notes due in 2023

  

2022

    

2021

  

Balance, January 1,

   $ —     $ 34,134  

Conversion of convertible senior notes

     —       (5,631 )

Change in fair value

     —       9,047  

PIK interest

     —       158  

Balance, March 31,

   $ —     $ 37,708  

 

Preferred stock derivative liability

  

2022

    

2021

  

Balance, January 1,

   $ 21,282     $ 8,063  

Change in fair value

     645       7,375  

Balance, March 31,

   $ 21,927     $ 15,438  

 

The Company’s derivative liability is classified within Level 3 of the fair value hierarchy because unobservable inputs were used in estimating the fair value. The fair value of the redemption provision embedded in the Series A Preferred Stock is estimated based on a discounted cash flow model and probability assumptions based on management’s estimates of a change of control event occurring. In subsequent periods, the derivative liability is accounted for at fair value, with changes in fair value recognized as other income (expense) on the Company's condensed consolidated statements of operations.

 

The Company has elected the fair value option of measurement for the 3.25% 2023 Notes, under ASC 815, Derivatives and Hedging. As a result, these notes are re-measured each reporting period using Level 3 inputs (Monte Carlo simulation model and inputs for stock price, risk-free rate and volatility), with changes in fair value reflected in current period earnings in its condensed consolidated statements of operations.

 

The fair value of the Series A Preferred Stock derivative liability is calculated using unobservable inputs (Level 3 fair measurements). The value of the redemption provision explicitly considered the present value of the potential premium that would be paid related to, and the probability of, an event that would trigger its payment. The probability of a triggering event was based on management’s estimates of the probability of a change of control event occurring.

 

The Company’s accounts receivable, accounts payable, and accrued expenses represent financial instruments. The carrying value of these financial instruments is a reasonable approximation of fair value.