Fair Value of Financial Instruments

3 Months Ended

Mar. 31, 2022

Fair Value Disclosures [Abstract]

Fair Value of Financial Instruments

Note 13: Fair Value of Financial Instruments

The carrying amount of certain of the Company’s financial instruments, including cash and cash equivalents, net accounts receivable, accounts payable, and other accrued liabilities, approximate fair value due to their short-term nature.

During the year ended December 31, 2021, Reneo completed its initial public offering.  As a result, the fair value of the Company’s investment in Reneo’s common stock now has a readily determinable market value and is no longer eligible for the practical expedient for investments without readily determinable fair market values.    

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The Company evaluates its financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level in which to classify them for each reporting period. This determination requires significant judgments. The following table summarizes the conclusions reached regarding fair value measurements as of March 31, 2022, and December 31, 2021 (in thousands):

	Balance at March 31, 2022		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Equity securities with readily determinable fair value	$	1,694	$	1,694	$	—	$	—
Total	$	1,694	$	1,694	$	—	$	—
Liabilities:
Warrant liability, related party (1)	$	770					$	770
Total	$	770	$	—	$	—	$	770

	Balance at December 31, 2021		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Equity securities with readily determinable fair value	$	4,928	$	4,928	$	—	$	—
Total	$	4,928	$	4,928	$	—	$	—
Liabilities:
Warrant liability, related party (1)	$	1,262	$	—	$	—	$	1,262
Total	$	1,262	$	—	$	—	$	1,262

(1) Fair value determined using the Black-Scholes option pricing model. Expected volatility is based on the historical volatility of the Company’s common stock over the most recent period. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of valuation.

	Changes in Level 3 instruments for the three months ended March 31,
	Balance at January 1		Net Change in fair value included in earnings			Purchases / Issuance		Sales / Repurchases		Balance at March 31,
2022
Warrant liability, related party	$	1,262	$	(492	)	$	—	$	—	$	770
Total	$	1,262	$	(492	)	$	—	$	—	$	770
2021
Warrant liability, related party	$	2,871	$	1,648		$	—	$	—	$	4,519
Total	$	2,871	$	1,648		$	—	$	—	$	4,519

There were no transfers into or out of level 3 instruments and/or between level 1 and level 2 instruments during the three months ended March 31, 2022, and 2021, respectively.  Gains and losses recognized due to the change in fair value of the warrant liability, related party are recognized as a component of other (expense) income, related party in the Condensed Consolidated Statements of Operations.  

The fair value of the Letter Agreement Warrants was determined using the Black-Scholes option pricing model or option pricing models based on the Company’s current capitalization. Expected volatility is based on the historical volatility of the Company’s common stock over the most recent period.  The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of valuation. Significant inputs utilized in the valuation of the Letter Agreement Warrants as of March 31, 2022, and December 31, 2021, were:

	March 31, 2022		December 31, 2021
	Range	Weighted Average	Range	Weighted Average
Expected volatility	83.73% - 135.37%	119.98%	82.68% - 142.86%	128.13%
Risk-free interest rate	2.40% - 2.44%	2.43%	0.95% - 1.26%	1.15%

The weighted average expected volatility and risk-free interest rate was based on the relative fair values of the warrants.

Changes in the unobservable inputs noted above would impact the amount of the liability for the Letter Agreement Warrants.  Increases (decreases) in the estimates of the Company’s annual volatility would increase (decrease) the liability and an increase (decrease) in the annual risk-free rate would increase (decrease) the liability.