Fair Value Measurement

9 Months Ended

Sep. 30, 2020

Note 20. Fair Value Measurement

The following table summarizes information about the Company’s financial instruments measured at fair value on a recurring basis, grouped into Level 1 to 3 based on the degree to which the input to fair value is observable (in thousands):


		September 30, 2020
	Level I		Level II		Level III		Total
Contingent consideration¹	$	—	$	—	$	777	$	777
Contingent consideration²		—		—		10,913		10,913

Note

¹ This represents the liability incurred in connection with the acquisition of DBOT shares during the three months ended September 30, 2019 and as remeasured as of April 17, 2020 as disclosed in Note 6(c). The contractual period which required periodic remeasurement has expired, and therefore the Company will not remeasure this liability in the future. The Company issued 1.6 million shares in the three months ended September 30, 2020 and partially satisfied this liability.

² This represents the liability incurred in connection with the acquisition of Tree Technology shares during the three months ended December 31, 2019 and as subsequently remeasured as of September 30, 2020 as disclosed in Note 6(a).

The fair value of the DBOT contingent consideration as of December 31, 2019 and March 31, 2020 was valued using the Black-Scholes Merton model.

The following table summarizes the significant inputs and assumptions used in the Black-Scholes Merton model:


	March 31, 2020		December 31, 2019
Risk-free interest rate	0.1	%	1.6	%
Expected volatility	30	%	30	%
Expected term	0.08 years		0.25 years
Expected dividend yield	—	%	—	%

Significant increases or decreases in any of those inputs in isolation would result in a significantly different fair value measurement.

The fair value of the Tree Technology contingent consideration as of September 30, 2020 and December 31, 2019 was valued using a scenario-based method which incorporates various estimates, including projected gross revenue for the periods, probability estimates, discount rates and other factors.

The following table summarizes the significant inputs and assumptions used in the scenario-based method:


	December 31, 2019
Weighted-average cost of capital	15.0	%

Significant increases or decreases in any of those inputs in isolation would result in a significantly different fair value measurement.

The following table summarizes the reconciliation of Level 3 fair value measurements (in thousands):


	Contingent
	Consideration
January 1, 2020	$	24,656
Measurement period adjustment		(1,990)
Settlement		(8,076)
Remeasurement (loss)/gain recognized in the income statement		(2,900)
September 30, 2020	$	11,690

- 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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