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Fair Value

6 Months Ended

Jun. 30, 2023

4. Fair Value

The following table summarizes the fair value measurements of assets and liabilities that are measured at fair value on a recurring basis.


		Fair Value Measurement as of June 30, 2023
											Total
		Level 1			Level 2			Level 3			Fair Value
Assets
Money market mutual funds		$	74,073		$	—		$	—		$	74,073
Debt securities:
U.S. Treasuries			28,047			—			—			28,047
Obligations of states and municipalities			—			10,672			—			10,672
Corporate bonds			—			32,395			—			32,395
Residential and commercial mortgage-backed securities			—			16,295			—			16,295
Other loan-backed and structured securities			—			5,321			—			5,321
		$	102,120		$	64,683		$	—		$	166,803
Liabilities, Noncurrent
Contingent consideration - business combinations		$	—		$	—		$	21,328		$	21,328
Contingent consideration - earnout			—			—			44			44
Private warrant liability			—			—			347			347
Embedded derivatives			—			—			26,820			26,820
		$	—		$	—		$	48,539		$	48,539


		Fair Value Measurement as of December 31, 2022
											Total
		Level 1			Level 2			Level 3			Fair Value
Assets
Money market mutual funds		$	6,619		$	—		$	—		$	6,619
Debt securities:
U.S. Treasuries			35,322			—			—			35,322
Obligations of states and municipalities			—			10,225			—			10,225
Corporate bonds			—			28,227			—			28,227
Residential and commercial mortgage-backed securities			—			11,533			—			11,533
Other loan-backed and structured securities			—			6,334			—			6,334
		$	41,941		$	56,319		$	—		$	98,260


Liabilities
Contingent consideration - business combinations		$	—		$	—		$	24,546		$	24,546
Contingent consideration - earnout			—			—			44			44
Private warrant liability			—			—			707			707
		$	—		$	—		$	25,297		$	25,297

Financial Assets

Money market mutual funds are valued at the closing price reported by the fund sponsor from an actively traded exchange. As the funds are generally maintained at a net asset value which does not fluctuate, cost approximates fair value. These are included as a Level 1 measurement in the table above. The fair values for available-for-sale fixed-

maturity securities are based upon prices provided by an independent pricing service. We have reviewed these prices for reasonableness and have not adjusted any prices received from the independent provider. Level 2 securities represent assets whose fair value is determined using observable market information such as previous day trade prices, quotes from less active markets or quoted prices of securities with similar characteristics. There were no transfers between Level 1 and Level 2.

Contingent Consideration – Business Combinations

We estimated the fair value of the business combination contingent consideration related to the Floify acquisition in October 2021 and triggered by stock price milestones using the Monte Carlo simulation method. The fair value is based on the simulated market price of our common stock over the maturity date of the contingent consideration. As of June 30, 2023, the key inputs used to determine the fair value of $15.1 million included the stock price of $1.38, strike price of $36.00, discount rate of 14.4% and volatility of 100%. As of December 31, 2022, the key inputs used in the determination of the fair value of $15.5 million included the stock price of $1.88, strike price of $36.00, discount rate of 10.3% and volatility of 95%.

We estimated the fair value of the business combination contingent consideration based on specific metrics related to the acquisition of Residential Warranty Services (“RWS”) in April 2022, using the discounted cash flow method. The fair value is based on a percentage of revenue over the maturity date of the contingent consideration. As of June 30, 2023, the key inputs used to determine the fair value of $9.0 million were management’s cash flow estimates and the discount rate of 16%. As of December 31, 2022, the key inputs used to determine the fair value of $9.0 million were management’s cash flow estimates and the discount rate of 17%.

Contingent Consideration – Earnout

We estimated the fair value of the earnout contingent consideration using the Monte Carlo simulation method. The fair value of $0.1 million is based on the simulated market price of our common stock until the maturity date of the contingent consideration and increased by certain employee forfeitures. As of June 30, 2023, the key inputs used to determine the fair value included exercise price of $22.00, volatility of 100%, forfeiture rate of 15%, and stock price of $1.38 As of December 31, 2022, the key inputs used in the determination of the fair value included exercise price of $22.00, volatility of 100%, forfeiture rate of 15% and stock price of $1.88.

Private Warrants

We estimated the fair value of the private warrants using the Black-Scholes-Merton option pricing model. As of June 30, 2023, the key inputs used to determine the fair value included exercise price of $11.50, expected volatility of 95%, remaining contractual term of 2.48 years, and stock price of $1.38. As of December 31, 2022, the key inputs used to determine the fair value included exercise price of $11.50, expected volatility of 90%, remaining contractual term of 2.98 years, and stock price of $1.88.

Embedded Derivatives

In connection with the issuance of senior secured convertible notes in April 2023 (see Note 7) and in accordance with Accounting Standards Codification 815-15, Derivatives and Hedging – Embedded Derivatives, certain features of the senior secured convertible notes were bifurcated and accounted for separately from the notes. The following features are recorded as derivatives.

●

Repurchase option. If more than $30 million principal remains outstanding on June 14, 2026, holders have the right to require us to repurchase for cash on June 15, 2026, all or any portion of the notes at a

repurchase price equal to 106.5% of the principal amount of the notes to be repurchased, plus accrued interest.

●

Fundamental change option. If we undergo a fundamental change, as defined in the indenture and subject to certain conditions, holders have the right to require us to repurchase for cash all or any portion of the notes at a repurchase price equal to 105.25% of the principal amount of the notes to be repurchased, plus accrued interest. A fundamental change includes events such as a change in control, recapitalization, liquidation, dissolution, or delisting.

●

Asset sale repurchase option. If we sell assets, we must offer to repurchase for cash a portion of the notes equal to 50% of the aggregate net cash sales proceeds in excess of $20 million at a repurchase price equal to 100% of the principal, plus accrued interest.

The inputs for determining fair value of the embedded derivatives are classified as Level 3 inputs. Level 3 fair value is based on unobservable inputs based on the best information available. These inputs include the probabilities of a repurchase, a fundamental change, and qualifying asset sales, ranging from 1% to 35%.

Level 3 Rollforward

Fair value measurements categorized within Level 3 are sensitive to changes in the assumptions or methodology used to determine fair value, and such changes could result in a significant increase or decrease in the fair value.

The changes for Level 3 items measured at fair value on a recurring basis using significant unobservable inputs are as follows:


					Contingent
		Contingent			Consideration -						Private
		Consideration -			Business			Embedded			Warrant
		Earnout			Combinations			Derivatives			Liability
Fair value as of December 31, 2022		$	44		$	24,546		$	—		$	707
Additions			—			—			23,870			—
Settlements			—			(408)			—			—
Change in fair value, loss (gain) included in net loss⁽¹⁾			—			(2,810)			2,950			(360)
Fair value as of June 30, 2023		$	44		$	21,328		$	26,820		$	347


					Contingent
		Contingent			Consideration -			Private
		Consideration -			Business			Warrant
		Earnout			Combinations			Liability
Fair value as of December 31, 2021		$	13,866		$	9,617		$	15,193
Additions			—			15,555			—
Settlements			—			—			—
Change in fair value, loss (gain) included in net loss⁽¹⁾			(13,766)			4,686			(14,267)
Fair value as of June 30, 2022		$	100		$	29,858		$	926

(1)

Changes in fair value of contingent consideration related to business combinations are included in general and administrative expenses in the unaudited condensed consolidated statements of operations. Changes in fair value of the earnout contingent consideration and private warrant liability are disclosed separately in the unaudited condensed consolidated statements of operations. Changes in the fair value of the embedded derivatives are included in change in fair value of derivatives in the unaudited condensed consolidated statements of operations.

Fair Value Disclosure

As of June 30, 2023, and December 31, 2022, the fair value of the 2026 Notes (see Note 7) is $72.0 million and $238.6 million, respectively. The decrease of $166.6 million is primarily due to the decline in the stock price at June 30, 2023, as compared to December 31, 2022. As of June 30, 2023, the fair value of the 2028 Notes (see Note 7) was $216.7 million. The fair values of the line of credit, advance funding arrangement and other notes approximate the unpaid principal balance. All debt, other than the convertible notes which are Level 2, is considered a Level 3 measurement.

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.

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