FAIR VALUE MEASUREMENTS

6 Months Ended

Jun. 30, 2023

We record the fair value of assets and liabilities in accordance with ASC 820, Fair Value Measurement ("ASC 820"). ASC 820 defines fair value as the price received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity.

In addition to defining fair value, ASC 820 expands the disclosure requirements around fair value and establishes a fair value hierarchy for valuation inputs. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of the three levels, which is determined by the lowest level input that is significant to the fair value measurement in its entirety.

During the year ended December 31, 2022 we recognized a goodwill impairment of $396.2 million. The fair value of our reporting units was classified in Level 3 of the fair value hierarchy due to the significance of unobservable inputs developed using company-specific information. Refer to Note 4 - Goodwill and Acquired Intangibles for further details.

These levels are:

•Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities.

•Level 2 - quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.

•Level 3 - unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or liability at fair value.

Contingent consideration for the acquisition of Bridg

The contingent consideration for the acquisition of Bridg is composed of the First Anniversary Payment and the Second Anniversary Payment. The fair value of contingent consideration in connection with the Bridg acquisition is as follows (in thousands):


	December 31, 2022
	Level 1		Level 2		Level 3		Total
Liabilities:
Current contingent consideration	$	—	$	—	$	104,121	$	104,121

Total liabilities	$	—	$	—	$	104,121	$	104,121


	June 30, 2023
	Level 1		Level 2		Level 3		Total
Liabilities:
Current contingent consideration	$	—	$	—	$	18,987	$	18,987

Total liabilities	$	—	$	—	$	18,987	$	18,987

The following table shows a reconciliation of the beginning and ending fair value measurements of our contingent consideration, which we have valued using level 3 inputs:


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2023		2022		2023
Beginning balance	$	167,245	$	69,537	$	232,295	$	104,121
Decrease due to earnout settlement	—		(61,808)		—		(61,808)
(Gain) loss in fair value of contingent consideration	(2,968)		11,258		(68,018)		$	(23,326)
Ending balance	$	164,277	$	18,987	$	164,277	$	18,987

On April 28, 2023, the independent accountant made its determination of the appropriate amount of the First Anniversary ARR, determining the First Anniversary ARR to be $23.2 million. Consequently, based on the First Anniversary ARR as determined by the independent accountant, we calculated the First Anniversary Payment to be $208.1 million.

Pursuant to the Merger Agreement, we were obligated to pay at least 30% of the First Anniversary Payment in cash, and could elect to pay the remainder of the First Anniversary Payment in cash or our common stock, based on a share price of $40.15 per share, or a combination thereof. In the event we chose to pay 30% of the First Anniversary Payment, as determined by the independent accountant, in cash and the remainder in common stock, we would have paid $65.3 million in cash and issued 3,556,717 shares of our common stock to complete the First Anniversary Payment, inclusive of brokerage fees and transaction bonuses and accounting for all true-ups and credits. The amount of cash and shares is different than previously reported in our Form 8-K dated May 1, 2023 and our Form 10-Q dated May 4, 2023 – in which we had calculated that $72.6 million in cash and 3,374,383 shares of common stock would be paid in the event we paid the First Anniversary Payment based on the independent accountant’s determination – due to subsequent discussions and agreements reached by the relevant parties related to the amount of the brokerage fees.

However, we believe that the independent accountant exceeded its authority with respect to its determination related to one specific contract at issue. As a result, we filed a verified complaint in the Delaware Court of Chancery in May 2023 seeking a declaratory judgment that the portion of the independent accountant's determination related to that one contract be stricken as null and void. Since the lawsuit is pending, we have not made the portion of the First Anniversary Payment related to the one specific contract at issue. After adjusting the First Anniversary ARR to not include the contract for which we believe the independent accountant exceeded its authority, we have determined the First Anniversary ARR to be $20.8 million. Consequently, based on the adjusted First Anniversary ARR, we calculated the First Anniversary Payment to be $160.1 million. Based on this calculation, and due to our decision to pay 30% of the First Anniversary Payment in cash and the remainder in common stock, we calculated that $50.1 million of cash and 2,740,418 shares of our common stock would be needed to complete the First Anniversary Payment of $160.1 million, inclusive of brokerage fees and transaction bonuses and accounting for all true-ups and credits. As of June 30, 2023, we have paid $50.1 million in cash and delivered 2,740,418 shares of our common stock related to the First Anniversary Payment, inclusive of brokerage fees and transaction bonuses and accounting for all true-ups and credits. Solely related to the disputed contract at issue in the Delaware court proceeding and included in our current contingent consideration and accrued expenses on our consolidated balance sheet we are withholding $15.2 million and 816,299 shares of our common stock, inclusive of brokerage fees and transaction bonuses and accounting for all true-ups and credits.

Additionally, we now estimate the Second Anniversary ARR to be less than the First Anniversary ARR, and thus the Second Anniversary Payment to be $0, inclusive of brokerage fees and transaction bonuses and accounting for all true-ups and credits. Refer to Note 3 - Business Combinations for further information about the Bridg acquisition and related contingent consideration.

The following table summarizes key assumptions used for estimating the fair value of the contingent consideration:


	December 31, 2022
Revenue volatility	20.0	%
Revenue discount rate	8.7	%
Weighted average cost of capital	17.0	%
Common stock volatility	156.0	%
Portion to be paid in cash	30.0	%

- 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.

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