Fair Value Measurements

6 Months Ended

Jun. 30, 2019

Fair Value Disclosures [Abstract]

Fair Value Measurements

NOTE 3. Fair Value Measurements

The Company applies a three-level valuation hierarchy for fair value measurements.  This hierarchy prioritizes the inputs into three broad levels.  Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.  Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the asset or liability.  Level 3 inputs are unobservable inputs based on management’s assumptions used to measure assets and liabilities at fair value.  A financial asset’s or liability’s fair value measurement classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

The following tables provide the assets and liabilities carried at fair value measured on a recurring basis at June 30, 2019 and December 31, 2018:

			Fair Value Measurements Using
	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
June 30, 2019
Assets:
Available-for-sale debt securities:
Municipal notes and bonds	$	67,892	$	—	$	67,892	$	—
Total assets	$	67,892	$	—	$	67,892	$	—
Liabilities:
Contingent consideration - acquisitions	$	939	$	—	$	—	$	939
Foreign currency forward contracts		38		—		38		—
Total liabilities	$	977	$	—	$	38	$	939
December 31, 2018
Assets:
Available-for-sale debt securities:
Municipal notes and bonds	$	62,684	$	—	$	62,684	$	—
Total assets	$	62,684	$	—	$	62,684	$	—
Liabilities:
Contingent consideration - acquisitions	$	2,060	$	—	$	—	$	2,060
Foreign currency forward contracts		32		—		32		—
Total liabilities	$	2,092	$	—	$	32	$	2,060

Level 1 inputs are based on quoted market prices that are available in active markets.  The Company does not have any recurring financial assets and liabilities that are recorded in its Condensed Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018 that are classified as Level 1 inputs.

The Company’s available-for-sale debt securities classified as Level 2 are valued using observable inputs to quoted market prices, benchmark yields, reported trades, broker/dealer quotes or alternative pricing sources with reasonable levels of price transparency.  The foreign currency forward contracts are primarily measured based on the foreign currency spot and forward rates quoted by the banks or foreign currency dealers.  Investment prices are obtained from third party pricing providers, which model prices utilizing the above observable inputs, for each asset class.

Level 3 liabilities consisted of contingent consideration related to an acquisition for which the Company uses a discounted cash flow model to value these liabilities.  The Level 3 assumptions used in the discounted cash flow model for the contingent consideration included projected revenue, timing of cash flows and estimates of discount rates of 9.2% and 9.4% for the six months ended June 30, 2019 and 2018, respectively.  A significant decrease in the projected revenue or increase in discount rates could result in a significantly lower fair value measurement for the contingent consideration.  

This table presents a reconciliation of all liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the six months ended June 30, 2019:

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Balance at December 31, 2018	$	2,060
Additions		—
Payments		(1,121	)
Transfer into (out of) Level 3		—
Balance at June 30, 2019	$	939

See Note 4 for additional discussion regarding the fair value of the Company’s marketable securities.

Fair Value of Other Financial Instruments

The carrying value of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximates fair value because of the short-term maturity of these instruments.  The estimated fair value of these obligations is based primarily on a market approach, comparing the Company’s interest rates to those rates the Company believes it would reasonably receive upon re-entry into the market.  Judgment is required to estimate the fair value, using available market information and appropriate valuation methods.

The carrying amount of the convertible notes receivable approximates fair value based on current interest rates for instruments with similar characteristics.  Convertible notes receivable are initially recognized at fair value. The Company does not subsequently adjust the fair value of these convertible notes receivable unless it is determined that the convertible notes receivable are impaired. The Company considers the issuer’s financial condition, payment history, and other relevant factors when assessing the collectability of a convertible note and to reserve the portion of such convertible note for which collection does not appear likely. Interest income is recognized as earned.