Mondee Holdings, Inc. - 10-Q filing on 2023-05-16

FAIR VALUE MEASUREMENT

3 Months Ended

Mar. 31, 2023

The Company evaluates assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level in which to classify them for each reporting period.

The following table sets forth the Company’s financial liabilities that were measured at fair value, on a recurring basis:


	March 31, 2023
	Level 1		Level 2		Level 3		Total
Liabilities
Foreign currency exchange derivatives(3)	$	—	$	176	$	—	$	176
Orinter earn-out consideration(2)	$	—	$	—	$	3,890	$	3,890
Warrant liability - private warrants(1)	$	—	$	—	$	1,314	$	1,314
Total liabilities	$	—	$	176	$	5,204	$	5,380


	December 31, 2022
	Level 1		Level 2		Level 3		Total

Liabilities
Warrant liability - private warrants(1)	$	—	$	—	$	1,293	$	1,293

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(1)			On February 1, 2021, with the closing of the IPO, ITHAX consummated the sale of 675,000 private placement units, including the exercise by the underwriters of their over-allotment option. As of March 31, 2023, the Company had 232,500 Private Placement Warrants outstanding.
(2)			The Orinter earn-out consideration represents arrangements to pay the former owners of Orinter acquired by the Company in 2023. The undiscounted maximum payment under the arrangement is $10,000 in aggregate at the end of fiscal years 2023 through 2025. As of March 31, 2023 no payments were made. Earn-out consideration is included in Accrued expenses and other current liabilities and as a separate line in Long-Term Liabilities within the Company's Condensed Consolidated Balance Sheets.
(3)			The Company uses foreign currency forwards contracts with maturities of up to four months to hedge a portion of anticipated exposures. The foreign currency exchange derivatives are recognized on the Condensed Consolidated Balance Sheet at fair value within Accrued Expenses and Other Current Liabilities.

The Private Warrants are accounted for as liabilities in accordance with ASC 815-40 and are presented within warrant liability in the Condensed Consolidated Balance Sheets. The warrant liability is measured at fair value using a Black-Scholes option pricing model at inception and on a recurring basis, with changes in fair value presented within change in fair value of warrant liability in the Condensed Consolidated Statements of Operations. The Warrants were classified as Level 3 at the initial measurement date, and March 31, 2023 due to the use of unobservable inputs.

The foreign currency exchange derivatives are reported at fair value on the Condensed Consolidated Balance Sheets in Accrued Expenses and Other Current Liabilities. As of March 31, 2023, the Company did not designate any derivatives as hedges for accounting purposes. The notional amount of the foreign currency exchange derivatives outstanding as of March 31, 2023 is $5,834. The notional amount of a foreign currency forward contract is the contracted amount of foreign currency to be exchanged and is not recorded in the balance sheets. The effect off foreign currency exchange derivatives recorded in Other Income (Expense) in the Condensed Consolidated Statement of Operations for the three months ended March 31, 2023 is $12.

Regarding the Level 3 Orinter earn-out consideration, the Company assesses the fair value of expected earn-out consideration at each reporting period using the Monte Carlo Method, which is consistent with the initial measurement of the expected earn-out consideration. This fair value measurement is considered a Level 3 measurement because the Company estimates projections during the earn-out period utilizing various potential pay-out scenarios. The Monte Carlo simulation method repeats a process thousands of times in an attempt to predict all the possible future outcomes. At the end of the simulation, several random trials produce a distribution of outcomes that are then analyzed to determine the average present value of earn-out. The earn-out consideration is included in accrued expenses and other current liabilities and as a separate line within Long-Term Liabilities on the Company’s Condensed Consolidated Balance Sheets. Change in the fair value of earn-out consideration is reflected in our Condensed Statements of Operations. Changes to the unobservable inputs do not have a material impact on the Company’s Consolidated Financial Statements. The Company established the initial fair value of the Private Warrants on July 18, 2022, the date of the Company’s Initial Public Offering, and revalued on March 31, 2023, using a Black-Scholes option pricing model. The Warrants were classified as Level 3 at the initial measurement date, and March 31, 2023 due to the use of unobservable inputs.

Roll-forward of Level 3 Recurring Fair Value Measurements

The following tables summarizes the fair value adjustments for earn-out consideration and private warrant liability measured using significant unobservable inputs (level 3):

Earn-out consideration


	Three Months Ended March 31,
	2023		2022
Balance, beginning of period	$	—	$	597
Additions of earn-out consideration with the acquisition of Orinter	3,719		—
Change in the estimated fair value of earn-out consideration	171		165
Balance, end of the period	$	3,890	$	762

Private warrant liability


	Three Months Ended March 31,
	2023		2022
Balance, beginning of period	1,293		—
Change in the estimated fair value of warrants	21		—
Balance, end of the period	$	1,314	$	—

The fair value of Company’s short term financial assets and liabilities including cash and cash equivalents, accounts receivable, accounts payable, deferred underwriting fee, and accrued expenses approximated their carrying values as of March 31, 2023 and December 31, 2022, due to their short-term nature. The Company’s restricted short-term investments are certificate of deposits held at banks and it is management’s intent to hold to maturity. As such, the Company records restricted short-term investments, long-term debt, and long-term debt due from related parties on an amortized cost basis.

There were no transfers between Level 1, Level 2 or Level 3 fair value hierarchy categories of financial instruments for the three-month period ended March 31, 2023 and for the year ended December 31, 2022.

Assets Measured at Fair Value on a Nonrecurring Basis

Our non-financial assets, such as goodwill, intangible assets and property and equipment, are not required to be measured at fair value on a recurring basis. However, if certain triggering events occur such that a non-financial instrument is required to be evaluated for impairment and an impairment is recorded to reduce the non-financial instrument’s carrying value to the fair value as a result of such triggering events, the non-financial assets are measured at fair value for the period such triggering events occur.

For the three months ended March 31, 2023 and March 31, 2022 respectively, the Company has not recorded any impairment charges on non-financial assets.