Fair Value of Financial Instruments

3 Months Ended

Mar. 31, 2021

Fair Value Disclosures [Abstract]

Fair Value of Financial Instruments

13. FAIR VALUE OF FINANCIAL INSTRUMENTS

The following financial liabilities are measured at fair value on a recurring basis using significant unobservable inputs (Level 3):

	March 31,		December 31,
	2021		2020
Business acquisitions contingent consideration,    current	$	50,364	$	49,902
Business acquisitions contingent consideration,    long-term		16,971		4,565
Conversion option		21,488		20,886
Total	$	88,823	$	75,353

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:

	Business Acquisitions Contingent Consideration, Current			Business Acquisitions Contingent Consideration, Long-term		Conversion Option		Contingent Put Option		Warrant Option			Total
Balance—at January 1, 2020	$	8,614		$	379	$	—	$	7,100	$	16,878		$	32,971
Changes in fair value included in earnings		—			—		—		29,627		(1	)		29,626
Payment of contingent consideration        payable		(4,703	)		—		—		—		—			(4,703	)
Foreign currency translation of contingent        consideration payment		(208	)		—		—		—		—			(208	)
Balance—at March 31, 2020	$	3,703		$	379	$	—	$	36,727	$	16,877		$	57,686
Balance—at January 1, 2021	$	49,902		$	4,565	$	20,886	$	—	$	—		$	75,353
Acquisitions		—			1,804		—		—		—			1,804
Changes in fair value included in earnings		462			10,602		602		—		—			11,666
Balance—at March 31, 2021	$	50,364		$	16,971	$	21,488	$	—	$	—		$	88,823

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 and MSE 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 earn-out 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 Option—The warrant option was exercised on July 30, 2020 (Note 11). The fair value of the warrant option associated with the issuance of the Redeemable Series A-1 Preferred Stock was calculated based on the Black-Sholes pricing model using the following assumptions:

	March 31,
	2020
Common stock value (per share)	$	31.60
Expected volatility		35.93	%
Risk-free interest rate		0.70	%
Expected life (years)	10

The method used to price this liability 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.