Annual report pursuant to Section 13 and 15(d)

Fair Value Measurement

v3.20.4
Fair Value Measurement
 12 Months Ended
Dec. 31, 2020
Fair Value Disclosures [Abstract]  
Fair Value Measurement Fair Value Measurement
The Company has elected the FVO for all investments in debt securities. 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 and investments in U.S. government securities as Level 1 within the fair value hierarchy. Accounts receivable, short-term other assets, accounts payable and accrued liabilities are also classified as Level 1. The carrying amounts of these assets and liabilities approximate their fair values due to their relatively short-term nature. Investments in corporate bonds and commercial paper are classified as Level 2 within the fair value hierarchy. The fair value of long-term debt is estimated by calculating the net present value of future debt payments at current market interest rates and is classified as Level 2.
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. The Common Stock Derivative Option Liability was physically settled on December 10, 2020 (see Note 10 - Long-Term Debt).
The following table represents the Company’s fair value hierarchy for its financial assets measured at fair value on a recurring basis as of December 31, 2020:
(Level 1) (Level 2) (Level 3) Total
December 31, 2020
Assets:
Money market funds $ 23,044  $ —  $ —  $ 23,044 
U.S. government securities 12,123  —  —  12,123 
Corporate bonds —  6,408  —  6,408 
Commercial paper —  36,668  —  36,668 
Total assets $ 35,167  $ 43,076  $ —  $ 78,243 
Liabilities:
Oberland facility $ —  $ —  $ 36,855  $ 36,855 
Debt derivative liability —  —  2,497  2,497 
Total liabilities $ —  $ —  $ 39,352  $ 39,352 
(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 

Oberland Facility

The Company estimates the fair value of long-term debt under the Oberland Facility using a discounted cash flow analysis and rates being offered for similar loans to borrowers with similar credit ratings. The discounted cash flow model uses unobservable inputs, including estimates of discount rates and loan prepayments. The Oberland Facility is classified as Level 3. The estimated fair value of the Company’s long-term debt under the Oberland facility was $36,855 at December 31, 2020 (see Note 10 - Long-Term Debt).

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:
December 31, 2020
Input
Remaining term (years) 6.5
Maturity date June 30, 2027
Coupon rate 9.50%
Revenue participation payments Maximum each year
Discount rate 8.70  % 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
The following represents the rollforward of the fair value of instruments classified as Level 3 measurements for the year ended December 31, 2020:

Year ended December 31, 2020
Beginning Balance $ — 
Fair Value of Oberland Facility 36,855 
Fair Value of Derivative Feature 2,387 
Fair Value of Oberland Option 176 
Gains (losses) included in earnings 117 
Settlement of Oberland Option (182)
Ending Balance, December 31, 2020 $ 39,352 
There were no changes in the levels or methodology of the measurement of financial assets or liabilities during the year ended December 31, 2020 and December 31, 2019. The maturity date of all of the Company’s investments is less than one year.