FAIR VALUE MEASUREMENTS

9 Months Ended

Sep. 30, 2022

The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The carrying amounts of our cash and cash equivalents, accounts receivable, income taxes receivable, accounts payable, accrued expenses and income taxes payable, approximate fair value because of the short-term maturity of those instruments.

Private Placement Warrants

We record the fair value of the Private Placement Warrants as a liability in our consolidated balance sheet as of September 30, 2022 and 2021, respectively. The fair value of the Private Placement Warrants is considered a Level 3 valuation and is determined using the Black-Scholes-Merton valuation model. Changes in fair value of the Private Placement Warrants are presented under Change in the fair value of warrant liabilities on the Income Statement. As of September 30, 2022, the Company has approximately 4.0 million Private Placement Warrants outstanding.

The significant assumptions were as follows:


	September 30, 2022
Private Placement Warrants Fair Value Per Share	$	0.37
Private Placement Warrant valuation inputs:
Stock price - DMS Inc. Class A Common Stock	$	1.92

Remaining contractual term in years	2.79
Estimated volatility	90.0		%
Dividend yield	0.0		%
Risk free interest rate	4.20		%

Contingent consideration payable related to acquisitions

The fair value of the contingent considerations payable for the AAP and Traverse acquisitions (described in Note 6. Acquisitions) were determined using a Monte Carlo fair value analysis and a scenario-based methodology, respectively, based on estimated performance and the probability of achieving certain targets. As certain inputs are not observable in the market, the contingent consideration is classified as a Level 3 instrument. Changes in fair value of contingent consideration are presented under “Change in fair value of contingent consideration liabilities” on the statement of operations.

The contingent consideration payable for the Crisp acquisition was finalized on April 1, 2022, the end of the earnout period. As the full target was met, the payment was made on July 1, 2022 in the form of Class A Common Stock. (See Note 6. Acquisitions).

The following table presents the contingent consideration assumptions.


	Aimtell / PushPros






Revenue Volatility	25	%
Iteration (actual)	100,000
Risk adjustment discount rate	10.25	%
Risk free / Credit risk	12.75	%
Days gap from period end to payment	90

	Aramis
CYE2022 Earnout Successful Probability	99.0	%
Iteration (actual)	100,000
Risk free / Credit risk	12.75	%
Days gap from period end to payment	90

	Traverse
CYE2023 Earnout Successful Probability	95.0	%

Risk free / Credit risk	12.75	%
Days gap from period end to payment	90

The following table presents assets and liabilities measured at fair value on a recurrent basis (in thousands):


		September 30, 2022
Category	Balance Sheet Location	Level 1		Level 2		Level 3		Total
Liabilities:
Private Placement Warrant liabilities	Total liabilities	$	—	$	—	$	1,480	$	1,480

Contingent consideration - Aramis	Contingent consideration payable - current	—		—		933		933
Contingent consideration - Traverse	Contingent consideration payable - current	—		—		438		438
Contingent consideration - Aimtell/PushPros	Contingent consideration payable - non-current	—		—		31		31
Total		$	—	$	—	$	2,882	$	2,882

The following table represents the change in the warrant liability and contingent consideration (in thousands):


	Private Placement Warrants		Contingent Consideration
Balance, July 1, 2022	$	480	$	11,403
Additions	—		2
Changes in fair value	1,000		(3)
Settlements	—		(10,000)
Balance, September 30, 2022	$	1,480	1,402


	Private Placement Warrants		Contingent Consideration
Balance, December 31, 2021	$	3,960	$	8,439
Additions	—		430
Changes in fair value	(2,480)		2,533
Settlements	—		(10,000)
Balance, September 30, 2022	$	1,480	$	1,402

- 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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