Spire Global, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurement

Fair Value Measurement

9 Months Ended

Sep. 30, 2021

8.	Fair Value Measurement

The Company follows the guidance in ASC 820, “Fair Value Measurement” for its liabilities that are

re-measured

and reported at fair value at each reporting period.

The fair value of the Company’s common and preferred stock warrant 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. 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.

The Company classifies financial instruments in Level 3 of the fair value hierarchy when there is reliance on at least one significant unobservable input to the valuation model. In addition to these unobservable inputs, the valuation models for Level 3 financial instruments typically also rely on a number of inputs that ar

readily observable, either directly or indirectly. The Company’s assessment of a particular input to the fair value measurement requires management to make judgments and consider factors specific to the asset or liability. The fair value hierarchy requires the use of observable market data when available in determining fair value. The Company recognizes transfers between levels within the fair value hierarchy, if any, at the end of each period.

The following tables present the Company’s fair value hierarchy for its financial instruments that are measured at fair value on a recurring basis:


	September 30, 2021
	Level 1		Level 2		Level 3		Total
Current Liabilities:
EIB warrants	$	—	$	22,582	$	—	$	22,582

Long-term Liabilities:
Public warrants	$	19,550	$	—	$	—	$	19,550
Private Placement warrants		—		11,220		—		11,220
Contingent Earnout liability		—		—		77,130		77,130

	$	19,550	$	11,220	$	77,130	$	107,900


	December 31, 2020
	Level 1		Level 2		Level 3		Total
Long-term Liabilities:
EIB warrants	$	—	$	—	$	4,007	$	4,007

Public Warrants

The fair value of the Public Warrants is based on quoted market process and is classified as a Level 1 financial instrument.

Private Placement Warrants

The fair value of the Private Warrants is estimated using the Black-Scholes model with inputs that include the Company’s stock price in an actively traded market, making this fair value classified as a Level 2 financial instrument. The other significant assumptions used in the model are the exercise price, expected term, volatility, interest rate, and dividend yield.

The table below quantifies the significant inputs used for the Private Warrants:


	September 30, 2021			August 16, 2021
Fair value of the Company’s common stock	$	12.53		$	9.93
Exercise price	$	11.50		$	11.50
Risk-free interest rate		0.98	%		0.75	%
Expected volatility factor		6.0	%		22.0	%
Expected dividend yield		—			—
Remaining contractual term (in years)		4.88			5.00

EIB Warrant Liabilities

The warrant liability in the tables above consisted of the fair value of warrants to purchase the Company’s common stock at a price of $0.0001 per share (or redeem for cash) and preferred stock and was based on the significant inputs not observable in the market, which prior to the Merger represented a Level 3 measurement within the fair value hierarchy. The Company’s valuation of the stock warrants utilized the Black-Scholes option-pricing model, which incorporates assumptions and estimates to value the stock warrants. Changes in the fair value of the stock warrants are recognized in Other income (expense), net in the Condensed Consolidated Statements of Operations.

The quantitative inputs utilized in the fair value measurement of the stock warrant liability include the fair value per share of the Company’s common stock, the remaining contractual term of the warrants, risk-free interest rate, expected dividend yield and expected volatility of the price of the Company’s common stock. Prior to the Merger, the Company determined the fair value per share of the Company’s common and preferred stock using a hybrid valuation method that utilized a combination of an option pricing model method and the Probability-Weighted Expected Return Method (“PWERM”). The PWERM is a scenario-based methodology that estimates the fair value of equity securities based upon an analysis of future values, assuming various outcomes. As the probability of the Merger closing increased, the fair value of the EIB warrant liability increased as of the date of the exercise. The risk-free interest rate is based on a treasury instrument for which the term is consistent with the expected life of the warrants. As there was no public market for the Company’s common and preferred stock, the Company determined the expected volatility for warrants granted based on an analysis of reported data for a peer group of companies.

After the Merger, the EIB warrant liabilities moved from Level 3 to Level 2, as a result of the Company’s common stock now being traded on the New York Stock Exchange. The Company used a

20-day

VWAP valuation method using the Company’s publicly traded stock price for 1,551,933 warrants as of September 30, 2021 for Tranche A and Tranche B (Note 6 and Note 12).

The table below quantifies the inputs used for the EIB warrants:


	September 30, 2021			December 31, 2020
Fair value of the Company’s common stock	$	14.55		$	4.19
Exercise price	$	0.0001		$	0.0001
Risk-free interest rate		0.98	%		0.13	%
Expected volatility factor		70.0	%		68.4	%
Expected dividend yield		—			—
Remaining contractual term (in years)		3.9			4.7

Contingent Earnout Liability

The estimated fair value of the contingent earnout liability was determined using a Monte Carlo simulation using a distribution of potential outcomes on a monthly basis over the Earnout Period (Note 3) prioritizing the most reliable information available. The assumptions utilized in the calculation are based on the achievement of certain stock price milestones, including the current price of the Company’s common stock, expected volatility, risk-free rate, expected term and dividend rate.

The table below quantifies the significant inputs used for the Contingent Earnout Liability:


	September 30, 2021			August 16, 2021
Fair value of the Company’s common stock	$	12.53		$	9.93
Risk-free interest rate		0.98	%		0.75	%
Expected volatility factor		70.0	%		70.0	%
Expected dividend yield		—			—
Remaining contractual term (in years)		0.004			0.004

The following tables present the Company’s fair value hierarchy for its warrants classified as equity that are measured at fair value on a nonrecurring basis:


	September 30, 2021
	Level 1		Level 2		Level 3		Total
Equity:
Warrants	$	—	$	—	$	970	$	970


	December 31, 2020
	Level 1		Level 2		Level 3		Total
Equity:
Warrants	$	—	$	—	$	970	$	970

The warrant liability in the table above classified as equity was recorded at fair value on the date of issuance and is not remeasured. The fair value of warrants was based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. The Company’s valuation of the stock warrants utilized the Black-Scholes option-pricing model, which incorporates assumptions and estimates to value the stock warrants.

The following table presents a summary of the changes in the fair value of the Company’s Level 3 financial instruments that are measured at fair value on a recurring basis:


	Contingent Earnout Liability		Contingent Interest Embedded Derivative			Warrant Liability

Fair value at December 31, 2019	$	—	$	—		$	197
Issuance of warrants to EIB		—		—			1,806
Fair value at September 30, 2020	$	—	$	—		$	2,003

Fair value at December 31, 2020	$	—	$	—		$	4,007
Issuance of warrants to Silicon Valley Bank		—		—			308
Conversion of Silicon Valley Bank warrants to common stock		—		—			(308	)
Exercise of series C preferred warrants		—		—			(891	)
Contingent interest embedded derivative recognized relating to the FP Term Loan agreement		—		8,922			—
Contingent interest embedded derivative derecognized upon the execution of the FP Amendment		—		(8,922	)		—
Contingent earnout liability recognized upon the closing of the reverse recapitalization		77,170		—			—
Change in fair value included in other income (expense), net(1)		—		—			19,466
Transferred to Level 2 upon the closing of the reverse recapitalization		—		—			(22,582	)

Fair value at September 30, 2021	$	77,170	$	—		$	—

(1)

Included in the Change in fair value recorded in other income (expense), net was $9,290 and $0 for the three months ended September 30, 2021 and 202

, respectively.

During the nine months ended September 30, 2021, the Company issued

32,412

warrants at a fair value of $308 to Silicon Valley Bank with an exercise price of

$1.60.

The warrants allow the holder to acquire the Company’s common stock. Silicon Valley Bank exercised the Series C warrants and they were converted into common stock upon the Closing.

Certain holders of Series C preferred stock exercised their warrants at a nominal amount to purchase

146,919

shares of the Company’s common stock at a fair value of $891 during the nine months ended September 30, 2021.

Based on the recent rounds of debt financing during the nine months ended September 30, 2021 and the year ended December 31, 2020 and the terms of those debt agreements, current market conditions and the Company’s financial condition, the carrying amounts for Long-term debt and Convertible notes payable approximate fair value. The carrying amounts reported on the Condensed Consolidated Balance Sheets of other assets and liabilities which are considered to be financial instruments approximate fair value based on their short-term nature and current market indicators and are classified as Level 3.

- 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.

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