XML 23 R13.htm IDEA: XBRL DOCUMENT

Fair Value Measurements

9 Months Ended

Sep. 30, 2022

(6) Fair Value Measurements

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate fair value because of the short maturity of these items.

Certain assets, including long-lived assets, goodwill and intangible assets are also subject to measurement at fair value on a non-recurring basis if they are deemed to be impaired as a result of an impairment review. For the nine months ended September 30, 2022 and year ended December 31, 2021, no impairments were identified of those assets requiring measurement at fair value on a non-recurring basis.

The following table summarizes the Company's financial assets and liabilities measured at fair value on a recurring basis by level within the fair value hierarchy. Financial assets and financial liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement (in thousands):


	As of September 30, 2022
	Quoted		Significant
	Prices in		Other		Significant
	Active		Observable		Unobservable
	Markets		Inputs		Inputs		Total Fair
	(Level 1)		(Level 2)		(Level 3)		Value
Assets:
Cash equivalents:
Money market funds	$	412,462	$	—	$	—	$	412,462
Derivative instruments - cash-settled capped call options		—		1,340		—		1,340
Total financial assets	$	412,462	$	1,340	$	—	$	413,802
Liabilities:
Contingent consideration	$	—	$	—	$	—	$	—
Total financial liabilities	$	—	$	—	$	—	$	—

	As of December 31, 2021
	Quoted		Significant
	Prices in		Other		Significant
	Active		Observable		Unobservable
	Markets		Inputs		Inputs		Total Fair
	(Level 1)		(Level 2)		(Level 3)		Value
Assets:
Cash equivalents:
Money market funds	$	409,692	$	—	$	—	$	409,692
Total financial assets	$	409,692	$	—	$	—	$	409,692
Liabilities:
Contingent consideration	$	—	$	—	$	59	$	59
Total financial liabilities	$	—	$	—	$	59	$	59

The Company classifies and discloses fair value measurements in one of the following three categories of fair value hierarchy:


Level 1 -	Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets and liabilities.


Level 2 -	Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly.


Level 3 -	Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

The Company’s assets that are measured by management at fair value on a recurring basis are generally classified within Level 1 or Level 2 of the fair value hierarchy. The Company did not have any transfers into or out of Level 3 during the nine months ended September 30, 2022.

The Company considers all highly liquid investments purchased with a remaining maturity of three months or less to be cash equivalents. The fair value of the Company’s investments in certain money market funds is their face value and such instruments are classified as Level 1 and are included in cash and cash equivalents on the condensed consolidated balance sheets.

The following tables summarize the changes in Level 3 financial instruments (in thousands):


Fair value at December 31, 2020	$	10,619
Contingent consideration from RedSky acquisition		9,135
Adjustment for one2many acquisition		(690	)
Adjustment for SnapComms acquisition		732
Foreign currency translation		(465	)
Fair value at March 31, 2021		19,331
Adjustment for one2many acquisition		38
Adjustment for SnapComms acquisition		(23	)
Payment for SnapComms acquisition		(720	)
Foreign currency translation		149
Fair value at June 30, 2021		18,775
Adjustment for one2many acquisition		1,060
Adjustment for RedSky acquisition		(8,163	)
Payment for one2many acquisition		(10,679	)
Payment for RedSky acquisition		(972	)
Foreign currency translation		(21	)
Fair value at September 30, 2021	$	—


Fair value at December 31, 2021	$	59
Adjustment for Anvil acquisition		(52	)
Foreign currency translation		(1	)
Fair value at March 31, 2022		6
Adjustment for Anvil acquisition		(5	)
Foreign currency translation		(1	)
Fair value at June 30, 2022		—
Fair value at September 30, 2022	$	—

The valuation of the contingent consideration was derived using estimates of the probability of achievement within specified time periods based on projections of future revenue metrics per the terms of the applicable agreements. These include estimates of the Company’s assessment of the probability of meeting such results, with the probability-weighted earn-out using a Monte Carlo Simulation Model then discounted to estimate fair value. Fair value is estimated using the probability weighted cash flow estimate closer to the measurement date. The various operating performance measures included in these contingent consideration agreements primarily relate to product revenue. As these are unobservable inputs, the contingent consideration liabilities are included in Level 3 inputs.

In connection with the issuance of the 2022 Notes, the Company entered into capped call transactions with certain counterparties affiliated with the initial purchasers and other financial institutions. See Note 9 for details on the 2022 Notes capped call transactions. In September 2022, the Company modified the capped call agreements to elect cash settlement as the final settlement method of the capped call options with two of the counterparties. Management analyzed the capped call options which will be settled in cash for derivative accounting consideration under ASC 815, Derivatives and Hedging, and determined that they qualify for derivative accounting. The derivative assets were not designated as a hedging instrument. In September 2022, the Company reclassified the fair value of the capped call options which will be settled in cash of $6.1 million from additional paid-in capital to other current assets on the condensed consolidated balance sheet in accordance with ASC 815. The assets, which are classified as Level 2 of the fair value hierarchy, were marked-to-market and the decrease in fair value during the three months ended September 30, 2022 of $4.7 million was recorded as a component of loss on extinguishment of convertible notes, capped call modification and change in fair value on the condensed consolidated statement of operations and on the condensed consolidated statement of cash flows. The fair value was derived using a Black-Scholes option-pricing model. The valuation model uses various market-based inputs, including stock price, remaining contractual term, expected volatility, risk-free interest rate and expected dividend yield. The Company applies judgment when determining expected volatility. The Company considers both historical and implied volatility levels of the underlying equity security. In November 2022, the Company received the related cash as final settlement of the capped call options.

During the nine months ended September 30, 2022, as a result of assessing the probabilities of payment for the potential contingent consideration for The Anvil Group (International) Limited, Anvil Worldwide Limited and The Anvil Group Limited (collectively, “Anvil”) through June 30, 2023, the Company recognized a decrease in the fair value of Anvil’s contingent consideration obligation in the amount of $0.1 million.

The Company estimates the fair value of the convertible senior notes based on market-observable inputs (Level 2). As of September 30, 2022 and December 31, 2021, the fair value of the 2026 Notes was determined to be $322.5 million and $318.3 million, respectively, and the principal amount of the notes was $375.0 million for each period. As of September 30, 2022 and December 31, 2021, the fair value of 2024 Notes was determined to be $387.0 million and $440.6 million, respectively, and the principal amount of the notes was $450.0 million for each period. As of September 30, 2022 and December 31, 2021, the fair value of the 2022 Notes was determined to be $8 thousand and $16 thousand, respectively, and the principal amount of the notes was $8 thousand for each period.

- 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.

+ References + Details