FAIR VALUE MEASUREMENTS AND INVESTMENTS

3 Months Ended

Mar. 31, 2022

FAIR VALUE MEASUREMENTS AND INVESTMENTS

FAIR VALUE MEASUREMENTS AND INVESTMENTS

7. FAIR VALUE MEASUREMENTS AND INVESTMENTS

In accordance with the provisions of fair value accounting, a fair value measurement assumes that a transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability, and defines fair value based upon an exit price model.

The fair value measurement guidance establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The guidance describes three levels of inputs that may be used to measure fair value:

Level 1	Quoted prices in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset and liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 assets and liabilities include money market funds, debt and equity securities and derivative contracts that are traded in an active exchange market.
Level 2	Observable inputs other than Level 1 prices, 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 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments and derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category generally includes corporate obligations and non-exchange traded derivative contracts.
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. Level 3 assets and liabilities include financial instruments and intangible assets that have been impaired whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

Assets and liabilities of the Company measured at fair value on a recurring basis as of March 31, 2022 and December 31, 2021 are summarized as follows (in thousands):

	March 31, 2022
	Significant Other
	Quoted Prices in		Observable		Unobservable
	Active Markets		Inputs		Inputs
Description	(Level 1)		(Level 2)		(Level 3)		Total
Money market funds	$	3,164	$	—	$	—	$	3,164
Short term investments		300		—		—		300
Other investments		—		—		2,024		2,024
Alaska Communications redeemable common units		—		—		(22,640)		(22,640)
Warrants on Alaska Communications redeemable common units		—		—		(559)		(559)
Interest rate swap		—		(279)		—		(279)
Total assets and liabilities measured at fair value	$	3,464	$	(279)	$	(21,175)	$	(17,990)

	December 31, 2021
	Significant Other
	Quoted Prices in		Observable		Unobservable
	Active Markets		Inputs		Inputs
Description	(Level 1)		(Level 2)		(Level 3)		Total
Money market funds	$	3,301	$	—	$	—	$	3,301
Short term investments		300		—		—		300
Other investments		—		—		1,925		1,925
Alaska Communications redeemable common units		—		—		(22,640)		(22,640)
Warrants on Alaska Communications redeemable common units		—		—		(559)		(559)
Interest rate swap		—		(894)		—		(894)
Total assets and liabilities measured at fair value	$	3,601	$	(894)	$	(21,274)	$	(18,567)

During the three months ended March 31, 2022, the fair value of the remaining Level 3 investments increased $0.1 million due to income recognized in the other income line of the Company’s statement of operations.

Certificate of Deposit

As of March 31, 2022 and December 31, 2021 this asset class consisted of a time deposit at a financial institution denominated in US dollars. The asset class is classified within Level 2 of the fair value hierarchy because the fair value was based on observable market data.

Money Market Funds

As of March 31, 2022 and December 31, 2021, this asset class consisted of a money market portfolio that comprises Federal government and US Treasury securities. The asset class is classified within Level 1 of the fair value hierarchy because its underlying investments are valued using quoted market prices in active markets for identical assets.

Other Investments

In 2019, the Company made a $14.4 million investment in a renewable energy partnership as a tax equity investor. In 2020, the Company received an investment tax credit of $12.0 million from its investment and will receive future cash distributions from the partnership’s operations. The Company elected the deferral method to account for the credit and elected the fair value option to account for the equity investment. The Company’s investment had a fair value of $2.0 million at March 31, 2022, and $1.9 million at December 31, 2021. The asset is classified within Level 3 of the fair value hierarchy. The Company used the income approach to fair value the investment and the inputs consisted of a discount rate and future cash flows calculated based on the investment attributes.

Also in 2019, the Company made an investment in an early-stage venture through the acquisition of a convertible debt instrument. The instrument converted into equity during the first quarter of 2021. Upon conversion the Company accounted for the investment under the cost method of accounting as the investment does not have a readily determinable fair value. Prior to conversion, the Company accounted for the investment under the fair value option using Level 3 inputs. The book value of the investment remained unchanged at $16.5 million at March 31, 2022 and December 31, 2021.

The Company also holds investments in equity securities consisting of noncontrolling investments in privately held companies. These investments, over which the Company does not have the ability to exercise significant influence, are without readily determinable fair values. The investments are measured at cost, less any impairment, adjusted for observable price changes of similar investments of the same issuer. Fair value is not estimated for these investments if there are no identified events or changes in circumstances that may have an effect on the fair value of the investment. The carrying value of the investment was $6.1 million and $1.3 million at March 31, 2022 and December 31, 2021, respectively. This increase of $4.8 million is due to a gain recognized from an observable price change in the security during the three months ended March 31, 2022. These investments are included with other assets on the consolidated balance sheets.

Equity Method Investments

In the first quarter of 2020, the Company increased its ownership in one investment of a privately held company to approximately 24% of the outstanding voting equity through an additional $2.8 million investment. With this investment the Company obtained the ability to exercise significant influence over the investee and began accounting for the investment under the equity method of accounting including the recording of its share of the investee’s earnings or losses. The carrying value of the investment was $14.8 million at March 31, 2022 and December 31, 2021, respectively. The value remained unchanged from the December 31, 2021 balance due to $0.4 million of the Company’s share of investee losses offset by currency gains of $0.4 million. The investment is included with other assets on the consolidated balance sheets.

In the first quarter of 2021, the Company began to account for its former India solar operations under the equity method of accounting. Subsequent to the close of the Vibrant Transaction in January 2021, the value of the investment decreased from $13.9 million at December 31, 2021 to $13.4 million at March 31, 2022. The decrease of $0.5 million was due to currency losses of $0.2 million and operating losses of $0.3 million.

Redeemable Common Units and Warrants

The Company issued redeemable common units, and warrants to purchase additional common units, in a subsidiary of the Company in conjunction with its acquisition of Alaska Communications. (Refer to Note 5). The instruments are redeemable at the option of the holder. Both the common units and warrants to purchase common units are recorded at fair value in the Company’s financial statements. The common units are recorded in redeemable noncontrolling interest and the warrants are recorded in other liabilities on the Company’s balance sheets. The Company calculates the fair value of the instruments using a market approach with Level 3 inputs.

Other Fair Value Disclosures

The carrying amounts of cash and cash equivalents, accounts receivable, and accounts payable and accrued expenses approximate their fair values because of the relatively short-term maturities of these financial instruments. The fair value of the interest rate swap is measured using Level 2 inputs.

The fair value of long-term debt is estimated using Level 2 inputs. At March 31, 2022, the fair value of long-term debt, including the current portion, was $400.8 million and its book value was $394.0 million. At December 31, 2021, the fair value of long-term debt, including the current portion, was $373.7 million and its book value was $366.5 million.