Note 3 - Fair Value Measurement

12 Months Ended

Dec. 31, 2022

Notes to Financial Statements

Fair Value Disclosures [Text Block]

3. Fair value measurement

In accordance with FASB ASC Topic 820, Fair Value Measurements and Disclosures, (“ASC Topic 820”), the Company measures its financial instruments at fair value on a recurring basis. The carrying values of certain of our financial instruments including cash and cash equivalents, accounts receivable, accounts payable, and accrued liabilities approximate fair value because of their short maturities. The carrying value of our marketable debt securities, which are accounted for as available-for-sale, are classified within either Level 1 or Level 2 in the fair value hierarchy because we use quoted market prices or alternative pricing sources and models utilizing market observable inputs to determine their fair value. The carrying values of our long-term debt, which is classified within Level 2 in the fair value hierarchy, approximates fair value as our borrowings with lenders are at interest rates that approximate market rates for comparable loans. The fair values of investments and contingent consideration classified as Level 3 were derived from management assumptions (see Note 1: Organization and Significant Accounting Policies.). The Company also measures certain assets and liabilities at fair value on a non-recurring basis when applying acquisition accounting. ASC Topic 820 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, ASC Topic 820 establishes a three-tier value fair hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1 – Observable inputs that reflect quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 – Observable inputs other than quoted prices included in Level 1 for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities.

Level 3 – Unobservable data points for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.

For the investment in iVexSol convertible debt that was converted to Series A-1 preferred stock in November 2020, the significant Level 3 inputs were the expected term of the instrument, the underlying creditworthiness of iVexSol and the valuation of various embedded features in the note, which were based on future financings of iVexSol. We considered a range of probability-weighted financing or payoff settlements between 5% and 50% with outcomes occurring over a range of 1 to 2 years. The estimated market interest rate of approximately 8.0% was based on an average of indexes of below investment grade debt. The market rate was calibrated to the rate implied in the original issuance in September 2019 and adjusted for changes in market rates quarterly.

The fair value of the SciSafe contingent consideration liability was initially valued based on unobservable inputs using a Monte Carlo simulation. These inputs included the estimated amount and timing of projected future revenue, a discount rate of 4.5%, a risk-free rate of approximately 0.20%, asset volatility of 60%, and revenue volatility of 15%. Significant changes in any of those inputs in isolation would result in significant changes in fair value measurement. Generally, changes used in the assumptions for projected future revenue and revenue volatility would be accompanied by a directionally similar change in the fair value measurement. Conversely, changes in the discount rate would be accompanied by a directionally opposite change in the related fair value measurement. However, due to the contingent consideration having a maximum payout amount, changes in these assumptions would not affect the fair value of the contingent consideration if they vary beyond certain amounts. At the acquisition date, the contingent consideration was determined to have a fair value of $3.7 million. Subsequent to the acquisition date, the contingent consideration liability was re-measured to fair value with changes recorded in the change in fair value of contingent consideration in the Consolidated Statements of Operations. During the most recent re-measurement of the contingent consideration liability as of December 31, 2022, the Company used a discount rate of 12.8%, a risk-free rate of approximately 4.1%, asset volatility of 68%, and revenue volatility of 30%. This contingent consideration liability is included in the Consolidated Balance Sheets as of December 31, 2022 and 2021 in the amounts of $4.3 million and $9.9 million, respectively. The changes in fair value of contingent consideration of $5.6 million and $3.0 million associated with this liability are included within the Change in Fair Value of Contingent Consideration in the Consolidated Statements of Operations for the years ended December 31, 2022 and 2021, respectively.

For the warrant liability, the significant Level 3 inputs included the contractual remaining term of the warrants and the volatility of the Company’s common stock. For the estimated term of the warrants, we used the actual terms of the warrants, which expired March 25, 2021. For the volatility of the Company’s stock as of December 31, 2020, we used historical volatility for the remaining term of each warrant. These amounts ranged from 56.8% to 84.6%. We did not make any adjustments to the historical volatility. Certain assumptions used in estimating the fair value of the warrants are uncertain by nature. On March 25, 2021, the expiration date of all remaining warrants, all remaining warrants were exercised via a “cashless” exercise and the warrant liability was revalued to its intrinsic value, as the Company’s stock price was observable as of that date.

There were no remeasurements to fair value during the year ended December 31, 2022 of financial assets and liabilities that are not measured at fair value on a recurring basis.

The following tables set forth the Company’s financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2022 and 2021, based on the three-tier fair value hierarchy:

(In thousands)

As of December 31, 2022	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market accounts	$	11,416	$	-	$	-	$	11,416
Available-for-sale securities:
U.S. government securities		15,051		-		-		15,051
Corporate debt securities		-		26,047		-		26,047
Other debt securities		-		3,494		-		3,494
Total		26,467		29,541		-		56,008
Liabilities:
Contingent consideration - business combinations		-		-		4,456		4,456
Debt		-		25,607		-		25,607
Total	$	-	$	25,607	$	4,456	$	30,063

As of December 31, 2021	Level 1		Level 2		Level 3		Total
Assets:
Money market accounts	$	63,873	$	-	$	-	$	63,873
Total		63,873		-		-		63,873
Liabilities:
Contingent consideration - business combinations		-		-		10,027		10,027
Total	$	-	$	-	$	10,027	$	10,027

There have been no transfers of assets or liabilities between the fair value measurement levels. 

The following table presents the changes in fair value of contingent consideration liabilities which are measured using Level 3 inputs for the years ended December 31, 2022, 2021, and 2020:

	Year Ended December 31,
(In thousands)	2022			2021		2020
Beginning balance as of December 31, 2021, 2020, and 2019	$	10,027		$	7,152		1,914
Additions		-			-		3,663
Change in fair value recognized in net (loss) income		(4,754	)		2,875		1,575
Payment of contingent consideration earned		(817	)		-		-
Ending balance	$	4,456		$	10,027	$	7,152

The following table presents the changes in fair value of warrant liabilities which are measured using Level 3 inputs for the years ended December 31, 2021 and 2020:

(In thousands)	2021			2020
Beginning balance as of December 31, 2020 and 2019	$	2,780			39,602
Exercised warrants		(2,901	)		(33,221	)
Change in fair value recognized in net (loss) income		121			(3,601	)
Ending balance	$	-		$	2,780

There was no warrant liability activity during the year ended December 31, 2022.