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Fair Value Measurements

6 Months Ended

Mar. 31, 2020

Financial assets and liabilities are classified in the following fair value hierarchy based on the lowest level input that is significant to the fair value measurement: Level 1 (unadjusted quoted prices in active markets for identical assets or liabilities); Level 2 (observable market inputs, other than quoted prices included in Level 1); and Level 3 (unobservable inputs that cannot be corroborated by observable market data). The following tables provide information by level for financial assets and liabilities that are measured at fair value on a recurring basis (in thousands):



	Total Fair Value at		Fair Value Measurements Using Inputs Considered as
	March 31, 2020		Level 1		Level 2		Level 3
Liabilities:
Contingent consideration on acquired businesses	$	10,379	$	—	$	—	$	10,379
Total liabilities measured at fair value	$	10,379	$	—	$	—	$	10,379



	Total Fair Value at		Fair Value Measurements Using Inputs Considered as
	September 30, 2019		Level 1		Level 2		Level 3
Assets:
Money market	$	56,700	$	56,700	$	—	$	—
Total assets measured at fair value	$	56,700	$	56,700	$	—	$	—
Liabilities:
Contingent consideration on acquired businesses	$	5,407	$	—	$	—	$	5,407
Total liabilities measured at fair value	$	5,407	$	—	$	—	$	5,407

In connection with our acquisition of Bluenica Corporation ("Bluenica") in October 2015, we agreed to make contingent earn-out payments over a period of up to 4 years, subject to achieving specified revenue thresholds for sales of Bluenica products. To date, we have paid a total of $2.7 million for contingent consideration. The fair value of the remaining liability for the contingent consideration period was $2.9 million at March 31, 2020.

5. FAIR VALUE MEASUREMENTS (CONTINUED)

In connection with our acquisition of Accelerated in January 2018, we agreed to make contingent earn-out payments if specified revenue thresholds for sales of Accelerated products were achieved. We made the first installment payment of $3.5 million in the third quarter of fiscal 2019. The earn-out period for this acquisition ended on January 22, 2020. The fair value of the liability for the remaining contingent consideration was $2.4 million at March 31, 2020.

In connection with our acquisition of Opengear, Inc., we agreed to make contingent payments, based upon certain revenue thresholds (see Note 2 to the condensed consolidated financial statements). The fair values of the liability for contingent consideration for the acquisition of Opengear was $5.1 million at March 31, 2020. We expect to pay the first installment of $0.9 million during the third quarter of fiscal 2020.

The following table presents a reconciliation of the contingent consideration liability measured at fair value on a recurring basis using significant unobservable inputs (Level 3) (in thousands):



	Three months ended March 31,						Six months ended March 31,
	2020			2019			2020			2019
Fair value at beginning of period	$	14,766		$	10,147		$	5,407		$	10,065
Contingent consideration recognized for acquired business	(4,000		)	—			5,100			—
Contingent consideration payments	—			(2,187		)	—			(2,348		)
Change in fair value of contingent consideration	(387		)	567			(128		)	810
Fair value at end of period	$	10,379		$	8,527		$	10,379		$	8,527

The change in fair value of contingent consideration reflects our estimates of the probabilities of achieving the relevant targets and is discounted based on our estimated discount rate. We have estimated the fair value of the contingent consideration at March 31, 2020 based on the probability of achieving the specified revenue thresholds at 100% for Bluenica, 100% for Accelerated and a range 49% to 86% for Opengear. A significant change in our estimates of achieving any relevant target could materially change the fair value of the contingent consideration liability.

- 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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