XML 27 R11.htm IDEA: XBRL DOCUMENT

Fair Value Considerations

9 Months Ended

Sep. 30, 2020

Fair Value Considerations

Fair Value Considerations

5.	Fair Value Considerations

Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy defines a three-level valuation hierarchy for classification and disclosure of fair value measurements as follows:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company classifies cash equivalents and investments according to the hierarchy of techniques used to determine fair value based on the types of inputs. The Company has elected the Fair Value Option for all investments in debt securities.

On June 30, 2020, the Company entered into the Oberland Facility (see Note 10 Long Term Debt), concluding that the term debt instrument included certain embedded features that required separate accounting (the “Debt Derivative Liability”) and that the equity contract entered into concurrently was required to be classified as a liability and recorded at its fair value (the “Common Stock Derivative Option Liability”). These instruments were determined to be financial liabilities requiring Level 3 fair value measurements.

Debt Derivative Liability

The debt derivative liability was measured using a ‘with and without’ valuation model to compare the fair value of the Oberland Facility including the identified embedded derivative features and the fair value of a plain vanilla note with the same terms. The fair value of the Oberland Facility including the embedded derivative features was determined using a probability-weighted expected return model (“PWERM”) based on four potential settlement scenarios for the Oberland Facility due to a mandatory prepayment event between January 1, 2024 and June 30, 2027; (a) the prepayment of the Oberland Facility at the Company’s option; and (b) the repayment of the Oberland Facility at its maturity in accordance with the terms of the debt agreement. The estimated settlement value of each scenario, which would include any required make-whole payment (see Note 10 Long Term Debt) is then discounted to present value using a discount rate that is derived based on the initial terms of the Oberland Facility at issuance and corroborated utilizing a synthetic credit rating analysis.

The significant inputs that are included in the valuation of the debt derivative liability include:


		September 30, 2020
Input
Remaining term (years)			6.75 years
Maturity date			June 30, 2027
Coupon rate			9.50%
Revenue participation payments			Maximum each year
Discount rate			10.03%	⁽¹⁾
Probability of mandatory prepayment before 2024			5.0%	⁽¹⁾
Estimated timing of mandatory prepayment event before 2024			December 31, 2023	⁽¹⁾
Probability of mandatory prepayment 2024 or after			15.0%	⁽¹⁾
Estimated timing of mandatory prepayment event 2024 or after			March 31, 2026	⁽¹⁾
Probability of optional prepayment event			5.0%	⁽¹⁾
Estimated timing of optional prepayment event			December 31, 2025	⁽¹⁾

(1)

Represents a significant unobservable input

Common Stock Derivative Option Liability

The common stock option liability was measured using a Monte Carlo simulation model to simulate the future changes in the Company’s common stock price from the issuance date of the option agreement through the termination date of the option agreement. The 45-day volume weighted average price (“VWAP”) (see Note 10 Long Term Debt) is calculated for each simulation trial to determine the effective exercise price and number of common shares to be issued. The model assumes the holder will only exercise the option if the common stock is in the money on the exercise date. The value of the option is then determined based on the number of shares to be issued and the stock price on the date that the option is exercised. This option value is then discounted back to present value. The calculated present value of the option is then estimated using the average of 100,000 trials of the simulation model.

The significant inputs that are included in the valuation of the common stock option liability include:


		September 30, 2020
Input
Option term			6.75 years
Company stock price		$	11.63
Risk free rate			0.45%
Equity volatility			60%	⁽¹⁾
Simulation trials			100,000

(1)

Represents a significant unobservable input

The following table represents the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2020:


		(Level 1)			(Level 2)			(Level 3)			Total
September 30, 2020
Assets:
Money market funds		$	39,112		$	—		$	—		$	39,112
U.S. government securities			4,520			—			—			4,520
Corporate bonds			—			6,441			—			6,441
Commercial paper			—			28,165			—			28,165
Asset-backed securities			—			—			—			—
Total assets		$	43,632		$	34,606		$	—		$	78,238

Liabilities
Debt derivative liability		$	—		$	—		$	2,450		$	2,450
Common stock derivative option liability			—			—			183			183
Total liabilities		$	—		$	—		$	2,633		$	2,633

		(Level 1)			(Level 2)			(Level 3)			Total
December 31, 2019
Assets:
Money market funds		$	26,812		$	—		$	—		$	26,812
U.S. government securities			4,544			—			—			4,544
Corporate bonds			—			17,754			—			17,754
Commercial paper			—			24,679			—			24,679
Asset-backed securities			—			13,808			—			13,808
Total assets		$	31,356		$	56,241		$	—		$	87,597

There were no changes in the levels or methodology of the measurement of financial assets or liabilities during the three and nine months ended September 30, 2020. The maturity date of the Company’s investments is less than one year.

The following represents the rollforward of the fair value of instruments classified as Level 3 measurements for the three and nine months ended September 30, 2020:



Quarter Ending September 30, 2020
Beginning Balance, July 1, 2020		$	2,562
Change in fair value of option derivative			11
Change in fair value of debt derivative			60
Ending Balance, September 30, 2020		$	2,633

Year Ending December 31, 2020
Beginning Balance		$	—
Option to purchase shares			183
Fair Value of Derivative Feature			2,450
Ending Balance, September 30, 2020		$	2,633

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 + Details