Fair Value Measurements

3 Months Ended

Mar. 31, 2021

Note 9 — Fair Value Measurements

The following table presents information about the Company’s assets that are measured at fair value on a recurring basis at March 31, 2021 and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:

	March 31,		Quoted Prices In Active Markets		Significant Other Observable Inputs		Significant Other Unobservable Inputs
	2021		(Level 1)		(Level 2)		(Level 3)
Description

Warrant liabilities – Public warrants	$	6,900,000	$	6,900,000	$	-	$	-
Warrant liabilities – Private warrants		4,026,000				-		4,026,000
Total	$	10,926,000	$	6,900,000	$	-	$	4,026,000

The Company utilized a Monte Carlo simulation model for the initial valuation of the Public Warrants. The subsequent measurement of the Public Warrants as of March 31, 2021 is classified as Level 1 due to the use of an observable market quote in an active market.

The Company utilizes a Modified Black-Scholes model to value the Private Placement Warrants at each reporting period, with changes in fair value recognized in the statement of operations. The estimated fair value of the Private Placement warrant liability is determined using Level 3 inputs. Inherent in a binomial options pricing model are assumptions related to expected share-price volatility, expected life, risk-free interest rate and dividend yield. The Company estimates the volatility of its common stock based on historical volatility that matches the expected remaining life of the warrants. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected remaining life of the warrants. The expected life of the warrants is assumed to be equivalent to their remaining contractual term. The dividend rate is based on the historical rate, which the Company anticipates to remain at zero.

The aforementioned warrant liabilities are not subject to qualified hedge accounting.

There were no transfers between Levels 1, 2 or 3 during the quarter ended March 31, 2021, other than the transfer of Public warrants liabilities from Level 3 to Level 1

The following table provides a reconciliation of changes in fair value of the beginning and ending balances for our liabilities classified as Level 3:

	Warrant Liability
Fair value at December 31, 2020	$	-
Initial value of public and private warrant liabilities		14,793,000
Public warrants reclassified to level 1		(6,900,000	)
Change in fair value		(3,867,000	)
Fair Value at March 31, 2021	$	4,026,000

The following table provides quantitative information regarding Level 3 fair value measurements:

	At January 26, 2021 (Initial Measurement)			At March 31, 2021
Stock price	$	9.59		$	9.67
Strike price	$	11.50		$	11.50
Term (in years)		6.53			6.34
Volatility		14.7	%		12.8	%
Risk-free rate		0.71	%		1.24	%
Dividend yield		0.0	%		0.0	%

The following table presents the changes in the fair value of warrant liabilities:

	Public			Private Placement			Warrant Liabilities

Fair value as of December 31, 2020	$	—		$	—		$	—
Fair value at issuance on January 26, 2021		9,315,000			5,478,000			14,793,000
Change in fair value		(2,415,000	)		(1,452,000	)		(3,867,000	)
Fair value as of March 31, 2021	$	6,900,000		$	4,026,000		$	10,926,000

- Definition

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

Virtuoso Acquisition Corp. 10-Q