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Fair Value of Financial Instruments
9 Months Ended
Sep. 30, 2021
Fair Value Disclosures [Abstract]  
Fair Value of Financial Instruments

14. FAIR VALUE OF FINANCIAL INSTRUMENTS

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

 

 

 

September 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Business acquisitions contingent consideration,

   current

 

$

31,152

 

 

$

49,902

 

Business acquisitions contingent consideration,

   long-term

 

 

4,200

 

 

 

4,565

 

Conversion option

 

 

22,537

 

 

 

20,886

 

Total

 

$

57,889

 

 

$

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:

 

 

Compound Embedded Option

 

 

Business Acquisitions Contingent Consideration, Current

 

 

Business Acquisitions Contingent Consideration,

Long-term

 

 

Conversion Option

 

 

Contingent

Put Option

 

 

Warrant

Options

 

 

Total Liabilities

 

Balance—at January 1, 2020

$

 

 

$

8,614

 

 

$

379

 

 

$

 

 

$

7,100

 

 

$

16,878

 

 

$

32,971

 

   Series A-2 compound embedded option

 

(9,361

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

(9,361

)

   Issuance of warrant option

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30,097

 

 

$

30,097

 

   Acquisitions

 

 

 

 

34,661

 

 

 

10,543

 

 

 

 

 

 

 

 

 

 

 

$

45,204

 

   Changes in fair value included in earnings

 

27,420

 

 

 

18,387

 

 

 

(1,000

)

 

 

 

 

 

(19,240

)

 

 

9,312

 

 

$

34,879

 

    Payment of contingent consideration

       payable

 

 

 

 

(12,464

)

 

 

 

 

 

 

 

 

 

 

 

 

 

$

(12,464

)

    Foreign currency translation of contingent

       consideration payment

 

 

 

 

(208

)

 

 

 

 

 

 

 

 

 

 

 

 

 

$

(208

)

   Reclass of long term to short term

      contingent liabilities

 

 

 

 

180

 

 

 

(180

)

 

 

 

 

 

 

 

 

 

 

$

 

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

 

 

.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance—at January 1, 2021

$

 

 

$

49,902

 

 

$

4,565

 

 

$

20,886

 

 

$

 

 

$

 

 

$

75,353

 

   Acquisitions

 

 

 

 

1,000

 

 

 

6,004

 

 

 

 

 

 

 

 

 

 

 

 

7,004

 

   Changes in fair value included in earnings

 

 

 

 

13,774

 

 

 

10,261

 

 

 

1,651

 

 

 

 

 

 

 

 

 

25,686

 

    Payment of contingent consideration

       payable

 

 

 

 

(50,154

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(50,154

)

   Reclass of long term to short term

      contingent liabilities

 

 

 

 

 

16,630

 

 

 

(16,630

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance—at September 30, 2021

$

 

 

$

31,152

 

 

$

4,200

 

 

$

22,537

 

 

$

 

 

$

 

 

$

57,889

 

 

 

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

Compound Embedded Option—Prior to the Company’s IPO, the fair value of the compound embedded option associated with the issuance of the Convertible and Redeemable Series A-2 Preferred Stock (Note 17) was estimated using a “with-and-without” method. The “with-and-without” methodology involves valuing the whole instrument on an as-is basis and then valuing the instrument without the embedded derivative feature. The difference between the entire instrument with the embedded derivative feature compared to the instrument without the embedded derivative feature is the fair value of the derivative. The unobservable inputs were based on a 100.0% probability of an IPO event and IPO date. The considerable quantifiable inputs in the compound embedded option were: (i) the future value of the compound embedded option, (ii) the fair value of the Convertible and Redeemable Series A-2 Preferred Stock, (iii) the present value of the total instrument, as well as the present value of the compound embedded feature plus the fair value of the instrument, and (iv) the risk free, discount rates, conversion date and maximum conversion amounts.

Business Acquisitions Contingent Consideration—The fair value of the contingent consideration payable associated with the acquisition of CTEH, MSE and Sensible 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—Upon the Company’s IPO, the fair value of the conversion option associated with the issuance of the Convertible and Redeemable Series A-2 Preferred Stock (Note 17) 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 16).

Warrant OptionsThe warrant options were exercised on July 30, 2020 (Note 12). 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:

 

 

 

July 30,

 

 

 

2020

 

Common stock value (per share)

 

$

22.22

 

Expected volatility

 

 

44.35

%

Risk-free interest rate

 

 

0.55

%

Expected life (years)

 

10

 

As of July 30, 2020, the date the warrant options were exercised in full, the fair value of the warrant option associated with the issuance of the Convertible and Redeemable Series A-2 Preferred Stock (Note 17) was calculated based on the Black-Scholes pricing model with assumptions for (i) stock price, (ii) volatility based on the median historical volatility of publicly listed comparable companies’ stock price returns, (iii) risk-free rates based on U.S. treasury yields and (iv) dividend yield.

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.