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

Quarterly report pursuant to Section 13 or 15(d)

Financial Instruments

Financial Instruments

9 Months Ended

Sep. 30, 2021

Investments All Other Investments [Abstract]

NOTE 5. FINANCIAL INSTRUMENTS

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy is based on three levels of inputs that may be used to measure fair value. Level 1 and Level 2 are considered observable and Level 3 is considered unobservable, as follows:

•

Level 1—quoted prices (unadjusted) 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; or

•

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.

Cash and Cash Equivalents

The Company’s money market funds are categorized as Level 1 within the fair value hierarchy. As of September 30, 2021, the Company’s cash and cash equivalents balances were as follows:

			Gross				Cash and
			Unrealized		Fair		Cash
	Cost		Losses		Value		Equivalents
Cash	$	71,616	$	—	$	71,616	$	71,616
Level 1:
Money market funds		1,029		—		1,029		1,029
Total	$	72,645	$	—	$	72,645	$	72,645

As of December 31, 2020, the Company’s cash and cash equivalents balances were as follows:

			Gross				Cash and
			Unrealized		Fair		Cash
	Cost		Losses		Value		Equivalents
Cash	$	44,795	$	—	$	44,795	$	44,795
Level 1:
Money market funds		70,022		—		70,022		70,022
Total	$	114,817	$	—	$	114,817	$	114,817

Contingent Consideration

All of the Company’s contingent consideration liabilities are categorized as Level 3 within the fair value hierarchy. Contingent consideration was valued at the time of acquisition using the Monte Carlo simulation model. This model incorporates revenue volatility, internal rate of return, and risk free rate. The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s management with the assistance of a third-party valuation specialist.

As of September 30, 2021, the Company’s contingent consideration liabilities current and non-current balances were as follows:


			Changes in		Indemnified		Fair		Contingent
	Cost		Fair Value		Accretion		Value		Consideration
Level 3:
Contingent consideration, current	$	19,199	$	106	$	2	$	19,307	$	19,307
Contingent consideration, non-current		8,383		150		—		8,533		8,533
Total	$	27,582	$	256	$	2	$	27,840	$	27,840

Included in the contingent consideration liabilities as of September 30, 2021 is $1,261 which relates to contingent consideration resulting from an acquisition made by Pandologic prior to execution of the Merger Agreement. As discussed in Note 8, the Company is indemnified against this contingent consideration and related accretion.