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FAIR VALUE MEASUREMENTS | 12 Months Ended
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Dec. 31, 2022
Fair Value Disclosures [Abstract] |
FAIR VALUE MEASUREMENTS | FAIR VALUE MEASUREMENTS The Company follows ASC 820, which establishes a common definition of fair value to be applied when U.S. GAAP requires the use of fair value, establishes a framework for measuring fair value, and requires certain disclosure about such fair value measurements. 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):
| December 31, 2022
| Total Assets at Fair Value |  | Cash Equivalents and Restricted Cash |  | Short-Term Investments
Level 1: |  |  |  |  |
Money market funds | $ | 27,993 |  |  | $ | 27,993 |  |  | $ | — |
U.S. Treasury securities | 19,944 |  |  | — |  |  | 19,944 |
Total Level 1 | 47,937 |  |  | 27,993 |  |  | 19,944 |
Level 2: |  |  |  |  |
Certificate of deposit | 75 |  |  | 75 |  |  | — |
U.S. agency securities | 55,319 |  |  | — |  |  | 55,319 |
Commercial paper | 35,756 |  |  | 5,972 |  |  | 29,784 |
Total Level 2 | 91,150 |  |  | 6,047 |  |  | 85,103 |
Total assets measured at fair value | $ | 139,087 |  |  | $ | 34,040 |  |  | $ | 105,047 |
| December 31, 2021
| Total Assets at Fair Value |  | Cash Equivalents and Restricted Cash |  | Short-Term Investments
Level 1: |  |  |  |  |
Money market funds | $ | 237,897 |  |  | $ | 237,897 |  |  | $ | — |
Level 2: |  |  |  |  |
Certificate of deposit | 125 |  |  | 125 |  |  | — |
Total assets measured at fair value | $ | 238,022 |  |  | $ | 238,022 |  |  | $ | — |
The following tables present the Company’s fair value hierarchy for its financial liabilities measured at fair value on a recurring basis (in thousands):
| December 31, 2022
| Level 1 |  | Level 2 |  | Level 3 |  | Total
Liabilities: |  |  |  |  |  |  |
Earnout warrant liabilities | $ | — |  |  | $ | 163 |  |  | $ | — |  |  | $ | 163 |
Public common stock warrants | 2,066 |  |  | — |  |  | — |  |  | 2,066 |
Private common stock warrants | — |  |  | 980 |  |  | — |  |  | 980 |
Total liabilities measured at fair value | $ | 2,066 |  |  | $ | 1,143 |  |  | $ | — |  |  | $ | 3,209 |
| December 31, 2021
| Level 1 |  | Level 2 |  | Level 3 |  | Total
Liabilities: |  |  |  |  |  |  |
Earnout warrant liabilities | $ | — |  |  | $ | 1,476 |  |  | $ | — |  |  | $ | 1,476 |
Public common stock warrants | 18,666 |  |  | — |  |  | — |  |  | 18,666 |
Private common stock warrants | — |  |  | 8,855 |  |  | — |  |  | 8,855 |
Total liabilities measured at fair value | $ | 18,666 |  |  | $ | 10,331 |  |  | $ | — |  |  | $ | 28,997 |
There were no transfers among Level 1, Level 2, or Level 3 categories during the periods presented. The carrying amounts of the Company’s notes payable and accounts payable approximate their fair values due to their short maturities. Level 1 Assets: The Company invests in money market funds and U.S. Treasury securities that have maturities of 90 days or less. These assets are valued using observable inputs that reflect quoted prices for securities with identical characteristics. Level 2 Assets: The Company invests in a certificate of deposit, U.S. agency securities, and commercial paper. These assets are valued using observable inputs that reflect quoted prices for securities with similar characteristics and other observable inputs (such as interest rates that are observable at commonly quoted intervals). Level 1 Liabilities: The Company values its public common stock warrants based on the market price of the warrants. Level 2 Liabilities: The Company values its earnout warrant liabilities and private common stock warrants based on the market price of the Company’s public common stock warrants. Level 3 Liabilities: The Company values the following as Level 3 liabilities: Bridge Loan The Company accounted for the Bridge Loan under the fair value option election wherein the Bridge Loan was initially measured at its issue-date fair value and then subsequently re-measured at estimated fair value on a recurring basis at each reporting date. As a result of applying the fair value option, direct costs and fees related to the Bridge Loan were expensed as incurred. The fair value of the Bridge Loan was based on significant inputs including, estimated time to maturity, which causes them to be classified as a Level 3 measurement within the fair value hierarchy. The valuation used assumptions and estimates the Company believed would be made by a market participant in making the same valuation. The Bridge Loan was repaid on October 8, 2021 as part of the Business Combination. See Note 10, Borrowings for further details. Legacy ESS Warrants Freestanding warrants to purchase redeemable convertible preferred stock were accounted for as liability awards and recorded at fair value on their initial issuance date and adjusted to fair value at each reporting date, with the change in fair value being recorded in the consolidated statements of operations and other comprehensive loss. The warrants were accounted for as liabilities as the underlying preferred shares were contingently redeemable upon occurrence of a change in control, which was outside the control of the Company. The Company measured its warrant liabilities using Level 3 unobservable inputs within the Black-Scholes Merton option-pricing model. The Company used various key assumptions, such as the fair value of redeemable convertible preferred stock Series B and Series C, the volatility of peer companies’ stock prices, the risk-free interest rate based on the U.S. treasury yield, and the expected term (based on remaining term to a significant event). The Company measured the fair value of the redeemable convertible preferred stock warrants at each reporting date, with subsequent gains and losses from remeasurement of Level 3 financial liabilities recorded through other expense, net in the consolidated statements of operations and comprehensive loss. In connection with the Business Combination, all Legacy ESS warrants were exercised during the year ended December 31, 2021. Rights to Purchase Legacy ESS Series C-2 Redeemable Convertible Preferred Stock Legacy ESS Series C Preferred Stock Purchase Agreement initially provided additional committed funding of up to $79,999 thousand, through the purchase of up to 39,971,716 shares of Series C-2 redeemable convertible preferred stock based on the completion of certain operational milestones at a predetermined price of $2.00 per share, to certain Series C-1 Investors. This commitment was called the Series C-2 Redeemable Convertible Preferred Stock Issuance Right, see Note 12, Legacy ESS Redeemable Convertible Preferred Stock. The value of the Series C-2 Redeemable Convertible Preferred Stock Issuance Right was determined based on significant inputs not observable in the market, which represented a Level 3 measurement within the fair value hierarchy. The Company utilized a probability weighting of successful completion of the Business Combination versus probability of the Company staying private in establishing the quantity of purchase rights to value and the fair value of the Series C-2 Redeemable Convertible Preferred Stock Issuance Right. The fair value of the Series C-2 Redeemable Convertible Preferred Stock Issuance Right was determined using a discounted cash flow model, which took into account the estimated value of Series C-2 stock, estimated time to purchase, probability of purchase and the risk-free interest rate based on the U.S. treasury yield. The Company measured the fair value of the Series C-2 Redeemable Convertible Preferred Stock Issuance Right at each reporting date, with subsequent gains and losses from remeasurement of Level 3 financial liabilities recorded through other expense, net in the consolidated statements of operations and comprehensive loss. The Company included the valuation of the related Series C-2 warrants that were only exercisable upon completion of the Business Combination with the valuation of the Series C-2 Redeemable Convertible Preferred Stock Issuance Right. The following table sets forth a summary of changes in the fair value of the Company’s Level 3 liabilities at fair value on a recurring basis for the years ended December 31, 2022 and 2021 (in thousands):
| 2022 |  | 2021
Bridge loan: |  |  |
Beginning balance January 1 | $ | — |  |  | $ | — |
Fair value of Bridge loan funded | — |  |  | 20,000 |
Accrued interest | — |  |  | 1,578 |
Change in fair value | — |  |  | — |
Repayment of loan principal and interest | — |  |  | (21,578) |
Ending balance December 31 | — |  |  | — |
Legacy ESS Warrant liabilities: |  |  |
Beginning balance January 1 | — |  |  | 3,329 |
Change in fair value | — |  |  | 17,753 |
Fair value of warrants issued | — |  |  | 5,096 |
Fair value of warrants exercised | — |  |  | (26,178) |
Ending balance December 31 | — |  |  | — |
Series C-2 Redeemable Convertible Preferred Stock Issuance Right liability: |  |  |
Beginning balance January 1 | — |  |  | 22,911 |
Change in fair value | — |  |  | 223,165 |
Fair value of derivatives extinguished | — |  |  | (23,152) |
Fair value of Series C-2 Redeemable Convertible Preferred Stock Issuance Right exercised | — |  |  | (222,924) |
Ending balance December 31 | — |  |  | — |
Total | $ | — |  |  | $ | — |

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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 https://asc.fasb.org/extlink&oid=126976982&loc=d3e19207-110258 + Details
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