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 Options—The 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.