Fair Value of Financial Instruments

9 Months Ended

Sep. 30, 2020

Fair Value Disclosures [Abstract]

Fair Value of Financial Instruments

13. FAIR VALUE OF FINANCIAL INSTRUMENTS

As of September 30, 2020 and December 31, 2019, the following financial liabilities are measured at fair value on a recurring basis using significant unobservable inputs (Level 3).

	September 30,		December 31,
	2020		2019
Business acquisitions contingent consideration, current	$	49,170	$	8,614
Business acquisitions contingent consideration, long-term		9,742		379
Contingent put option		—		7,100
Warrant option		—		16,878
Conversion option		18,059		—
Total	$	76,971	$	32,971

The estimated fair value amounts shown above are not necessarily indicative of the amounts that the Company would realize upon disposition, nor do they indicate the Company’s intent or ability to dispose of the financial instrument.

The following table sets forth the Company’s financial instruments that were measured at fair value on a recurring basis for the nine months ended September 30, 2020 and September 30, 2019:

	Level 3
	Embedded Option			Business Acquisitions Contingent Consideration, Current(1)			Business Acquisitions Contingent Consideration, Long-term(2)			Contingent Put Option			Warrant Options			Total
Balance—at December 31, 2018	$	—		$	2,754		$	—		$	—		$	12,818		$	15,572
Acquisitions					31			—			—			—			31
Changes in fair value included in earnings		—			(670	)		—			—			4,059			3,389
Payment of contingent consideration         payable		—			(554	)		—			—			—			(554	)
Balance—at September 30, 2019	$	—		$	1,561		$	—		$	—		$	16,877		$	18,438
Balance—at December 31, 2019	$	—		$	8,614		$	379		$	7,100		$	16,878		$	32,971
Foreign currency translation of contingent        consideration payment		—			(208	)		—			—			—			(208	)
Payment of contingent consideration        payable		—			(12,464	)		—			—			—			(12,464	)
Acquisitions					34,661			10,543									45,204
Series A-2 compound embedded option		(9,361	)		—			—			—			—			(9,361	)
Issuance of warrant option		—			—			—			—			30,097			30,097
Reclass of long term to short term contingent       liabilities		—			180			(180	)		—			—			—
Changes in fair value included in earnings		27,420			18,387			(1,000	)		(19,240	)		9,312			34,879
Write off of the contingent put option		—			—			—			12,140			—			12,140
Exercise of warrant options		—			—			—			—			(56,287	)		(56,287	)
Balance—at September 30, 2020	$	18,059		$	49,170		$	9,742		$	—		$	—		$	76,971

(1) Current portion of the contingent consideration is recorded in business acquisitions contingent consideration, current.

(2) Long term portion of the contingent consideration is recorded in business acquisitions contingent consideration, long-term.

Quantitative Information about Assets and Liabilities Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs (Level 3):

Business Acquisitions Contingent Consideration—The fair value of the contingent consideration payable associated with the acquisition of CTEH was determined using a Monte Carlo simulation of earnings in a risk-neutral Geometric Brownian Motion framework. The fair values of the contingent consideration payables for the other acquisitions were calculated based on expected target achievement amounts, which are measured quarterly and then subsequently adjusted to actuals at the target measurement date.

The method used to price these liabilities is considered level 3 due to the subjective nature of the unobservable inputs used to determine the fair value. The input is the expected achievement of earnout thresholds.

Conversion Option—The fair value of the embedded derivative associated with the issuance of the Convertible and Redeemable Series A-2 Preferred Stock (Note 16) was estimated using a “with-and-without” method. The “with-and-without” methodology considers the value of the security on an as-is basis and then without the embedded conversion premium. The difference between the two scenarios is the implied fair value of the embedded derivative. The unobservable input is the required rate of return on the Series A-2. The considerable quantifiable inputs in the valuation relate to the timing of conversions or redemptions.

Contingent Put Option—The fair value of the contingent put option associated with the issuance of the Redeemable Series A-1 Preferred Stock was estimated using a “with-and-without” method. The “with-and-without” methodology considers the value of the security on an as-is basis and then without the embedded contingent put option. The difference between the two scenarios is the implied fair value of the embedded derivative, recorded as the contingent put option liability. In this case the Series A-1 was redeemed on the date of value so the value of the “with” scenario is known. The unobservable input is the required rate of return on the Series A-1 through to maturity in the “without” scenario. The contingent put option was redeemed in July 2020 (Note 15).

Warrant Options—The warrant options were exercised on July 30, 2020 (Note 11). The fair value of the warrant options associated with the issuance of the Redeemable Series A-1 Preferred Stock and the Convertible and Redeemable Series A-2 Preferred Stock was calculated based on the Black-Sholes pricing model using the following assumptions:

	July 30,			September 30,
Series A-1 Preferred Stock Warrant Option	2020			2019
Common stock value (per share)	$	22.22		$	31.60
Expected volatility		44.35	%		47.63	%
Risk-free interest rate		0.55	%		1.68	%
Expected life (years)		10			10
	July 30,			September 30,
Series A-2 Preferred Stock Warrant Option	2020			2019
Common stock value (per share)	$	22.22		n/a
Expected volatility		44.35	%	n/a
Risk-free interest rate		0.55	%	n/a
Expected life (years)		10		n/a

The method used to price these liabilities is considered Level 3 due to the subjective nature of the unobservable inputs (common stock value and expected volatility) used to determine the fair value.