Fair Value Measurements

12 Months Ended

Dec. 31, 2022

NOTE 9. FAIR VALUE MEASUREMENTS

The Company follows the guidance in ASC 820 for its financial assets and liabilities that arere-measured and reported at fair value at each reporting period, and non-financial assets and liabilities that arere-measured and reported at fair value at least annually.

The fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:

Level 1:		Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2:		Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active.

Level 3:		Unobservable inputs based on our assessment of the assumptions that market participants would use in pricing the asset or liability.

At December 31, 2022 and 2021, assets held in the Trust Account were $278,664,377 and $276,079,114, respectively, which is invested primarily in U.S. Treasury Securities. Through December 31, 2022 and 2021, the Company withdrew an amount of $1,112,748 and 0 from the interest earned on the Trust Account to pay franchise and income taxes, respectively.

The following table presents information about the Company’s assets and liabilities that are measured at fair value on a recurring basis at December 31, 2022 and 2021 and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value.

	Level	December 31, 2022		December 31, 2021
Assets:
Marketable securities held in Trust Account	1	$	278,664,377	$	276,079,114
Liabilities:
Warrant Liability – Private Placement Warrants	2		363,500		6,906,500
Warrant Liability – Public Warrants	1		276,000		5,244,000

Warrant Liabilities

The Warrants were accounted for as liabilities in accordance with ASC 815-40 and are presented within warrant liabilities on our accompanying December 31, 2022 and 2021 balance sheets. The warrant liabilities are measured at fair value at inception and on a recurring basis, with changes in fair value presented within change in fair value of warrant liabilities in the statements of operations.

The Public Warrants and the Private Warrants were initially valued using a Modified Black Scholes Option Pricing Model, which is considered to be a Level 3 fair value measurement. The Modified Black Scholes model’s primary unobservable input utilized in determining the fair value of the Private Warrants is the expected volatility of the common stock. The expected volatility as of the IPO date was derived from observable public warrant pricing on comparable ‘blank-check’ companies without an identified target. The expected volatility as of subsequent valuation dates was implied from the Company’s own public warrant pricing. A Monte Carlo simulation methodology was used in estimating the fair value of the public warrants for periods where no observable traded price was available, using the same expected volatility as was used in measuring the fair value of the Private Warrants. For periods subsequent to the detachment of the warrants from the Units on February 11, 2021, the close price of the public warrant price will be used as the fair value as of each relevant date. At December 31, 2021 the Private Warrants transferred to Level 2 due to the use of an observable market quote for a similar asset in an active market.

At December 31, 2022, the values of the Public Warrants and Private Placement Warrants were $276,000 and $363,500, respectively, based on a fair value of $0.05 per warrant.

At December 31, 2021, the values of the Public Warrants and Private Placement Warrants were $5,244,000 and $6,906,500, respectively, based on a fair value of $0.95 per warrant.

The following table presents the changes in the fair value of Level 3 warrant liabilities:

	Private Placement			Public			Warrant Liabilities
Initial measurement on February 11, 2021	$	11,711,970		$	8,892,720		$	20,604,690
Change in valuation inputs or other assumptions		981,450			745,200			1,726,650
Transfer to Level 1		—			(9,637,920	)		(9,637,920	)
Change in fair value		(6,295,820	)		—			(6,295,820	)
Transfer to Level 2		(6,397,600	)		—			(6,397,600	)
Fair value as of December 31, 2021	$	—		$	—		$	—

Transfers to/from Levels 1, 2 and 3 are recognized at the end of the reporting period in which a change in valuation technique or methodology occurs. The estimated fair value of the Public Warrants transferred from a Level 3 measurement to a Level 1 fair value measurement during the year ended December 31, 2021 was $9,637,920. The estimated value of the Private Placement Warrants transferred from a Level 3 measurement to a Level 2 measurements during the year ended December 31, 2021 was $6,397,600.

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

	Private Placement (1)			Public			Warrant Liabilities
Initial measurement on February 11, 2021	$	11,711,970		$	8,892,720		$	20,604,690
Change in valuation inputs or other assumptions		(4,805,470	)		(3,648,720	)		(8,454,190	)
Fair value as of December 31, 2021	$	6,906,500		$	5,244,000		$	12,150,500

(1)

As a result of the difference in fair value of $1.61 per share of the Private Placement warrants and the purchase of $1.00 per share (see Note 4), the Company recorded a charge of $4.4 million as of the date of the Private Placement which is included in the private placement liability initial measurement within this table but is reported as part of the change in fair value of the warrant liability in the statements of operations.

	Private Placement			Public			Warrant Liabilities
Fair value as of December 31, 2021	$	6,906,500		$	5,244,000		$	12,150,500
Change in valuation inputs or other assumptions		(6,543,000	)		(4,968,000	)		(11,511,000	)
Fair value as of December 31, 2022	$	363,500		$	276,000		$	639,500

- 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

Pivotal Investment Corp III 10-K