XML 27 R16.htm IDEA: XBRL DOCUMENT

Fair Value Measurements

9 Months Ended

Sep. 30, 2021

Fair value is defined as the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company categorizes financial assets and liabilities into the three levels of the fair value hierarchy. The hierarchy prioritizes the inputs to valuation techniques used to measure fair value and bases categorization within the hierarchy on the lowest level of input that is available and significant to the fair value measurement.

•Level 1 — Quoted prices in active markets for identical assets or liabilities;

•Level 2 — Observable inputs other than Level 1, such as quoted prices 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 assets or liabilities; and

•Level 3 — Significant unobservable inputs that are supported by little or no market activity or that are based on the reporting entity’s assumptions about the inputs.

Fair Value of Other Financial Instruments

The carrying amounts of certain financial instruments, including cash and cash equivalents, accounts receivable, and accounts payable approximate fair value due to the short-term nature of these accounts. The PPP loan for Flotek approximates fair value as of September 30, 2021. Subsequent to the third quarter balance sheet date, the Company received notice that a request to extend the Flotek PPP loan maturity date from April 15, 2022 to April 15, 2025 was confirmed. Additionally, upon receipt of the SBA’s final decision on the Company’s reimbursement request to forgive the FTK PPP loan, any remaining balances not forgiven by the SBA will be measured on a recurring basis.

Liabilities Measured at Fair Value on a Recurring Basis

The following table presents the Company’s liabilities that are measured at fair value on a recurring basis and the level within the fair value hierarchy (in thousands):


							Balance at September 30,								Balance at December 31,
	Level 1		Level 2		Level 3		2021		Level 1		Level 2		Level 3		2020
Contingent consideration	$	—	$	—	$	715	$	715	$	—	$	—	$	1,416	$	1,416

On September 30, 2021, and December 31, 2020, the estimated fair value of the remaining stock performance earn-out provision, with respect to the JP3 transaction, was recorded as a contingent liability. The estimated fair value of the earn-out provision at the end of each period was valued using the Monte Carlo model analyzing 20,000 simulations performed using Geometric Brownian Motion with inputs such as risk-neutral expected growth and volatility. There were no transfers in or out of either Level 1, Level 2, or Level 3 fair value measurements during the periods ending September 30, 2021 and December 31, 2020.

Assets Measured at Fair Value on a Nonrecurring Basis

The Company’s non-financial assets, including property and equipment, goodwill and other intangible assets, are measured at fair value on a non-recurring basis and are subject to fair value adjustment in certain circumstances. During the three months ended March 31, 2020, the Company recorded an impairment of $57.5 million for impairment of long-lived assets. Management inputs used in fair value measurements were classified as Level 3. During the three months ended September 30, 2020, the Company recorded additional impairment expenses of $12.5 million. Total impairment expenses recorded during the nine months ended September 30, 2020 was $70.0 million of long-lived and intangible assets.

Management inputs used in fair value measurements were classified as Level 3.

Level 3 Rollforward for Assets and Liabilities Measured at Fair Value on a Recurring Basis

In conjunction with the May 2020 acquisition of JP3, the Company recorded contingent consideration of $1.2 million. Management inputs used in the fair value measurement were classified as Level 3. During 2020, the first stock performance target for the contingent consideration was achieved and settled. The Company estimated the fair value of the remaining stock performance earn-out provision at September 30, 2021, and decreased the estimated fair value of the contingent liability to $0.7 million. The Company records changes in the fair value of the contingent consideration and achievement of performance targets in operating expenses.

The following table presents the changes in contingent consideration balances classified as Level 3 balances for the three and nine months ended September 30, 2021 and 2020 (in thousands):


	Three months ended September 30,				Nine months ended September 30,
	2021		2020		2021		2020
Balance - beginning of period	$	1,115	$	1,200	$	1,416	$	—
Additions / issuances	—		—		—		1,200
Change in fair value	(400)		3,200		(701)		3,200

Transfer out of Level 3	—		(2,500)		—		(2,500)
Balance - end of period	$	715	$	1,900	$	715	$	1,900

- 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.

+ References + Details