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FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

12 Months Ended

Dec. 31, 2022

FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

5. Financial instruments and fair value measurements

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table summarizes the Company’s Fair Value Hierarchy for its financial assets and liabilities measured at fair value on a recurring basis:


		Fair Value Measurements Using
As of December 31, 2022		Fair Value			Prices in active markets for identical assets (Level 1)			Significant other observable inputs (Level 2)			Significant unobservable inputs (Level 3)
Money market funds		$	67,430		$	67,430		$	—		$	—
Commercial Paper			9,660			—			9,660			—
U.S. Treasury Securities			5,203			—			5,203			—
Tellutax Contingent Consideration			4,800			—			—			4,800
Foreign currency forward contracts			569			—			569			—

		Fair Value Measurements Using
As of December 31, 2021		Fair Value			Prices in active markets for identical assets (Level 1)			Significant other observable inputs (Level 2)			Significant unobservable inputs (Level 3)
Money market funds		$	10,703		$	10,703		$	—		$	—
Tellutax Contingent Consideration			2,500			—			—			2,500
Foreign currency forward contracts			(62)			—			(62)			—

The Company has investments in Money Market Funds, which are included in cash and cash equivalents on the consolidated balance sheets. Fair value inputs for these investments are considered Level 1 measurements within the Fair Value Hierarchy since Money Market Fund fair values are known and observable through daily published floating net asset values. Securities classified as available-for-sale are reported at fair value using Level 2 inputs. For the Commercial Paper, Corporate Bonds and U.S. Treasury Securities, the Company believes that Level 2 designation is appropriate under ASC 820-10, as these securities are fixed income securities, none are exchange traded, and all are priced by correlation to observed market data. For these securities the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, U.S. government and agency yield curves, live trading levels, trade execution data, market consensus prepayment speeds, credit information, and the security’s terms and conditions, among other factors.

Tellutax Contingent Consideration

The Tellutax acquisition entitled the sellers to contingent consideration if sales targets are met during a period of time following the acquisition. The estimated fair value of the Tellutax Contingent Consideration as of the acquisition date of January 25, 2021 was $2,200.

The Tellutax Contingent Consideration is based on three potential earn-out payments determined by periodic revenue achievements over a thirty-month period. Such estimate represents a recurring fair value measurement with significant unobservable inputs, which management considers to be Level 3 measurements under the Fair Value Hierarchy. The significant assumptions used in these calculations included forecasted results and the estimated likelihood for each performance scenario. The fair value of Tellutax Contingent Consideration is estimated using a Monte Carlo Simulation to compute the expected cash flows from earn-out payments specified in the purchase agreement. The Tellutax Contingent Consideration is based on three potential earn-out payments determined by periodic revenue achievements over a thirty-month period. Earn-out payments have no maximum limit, but if certain targets are not met, there will be no earn-out payment for the applicable measurement period.

An adjustment to the Tellutax Contingent Consideration fair value of $2,300 and $300 was recorded in other operating expense, net for the years ended December 31, 2022 and 2021, respectively. At December 31, 2022, the Tellutax Contingent Consideration of $1,400 and $3,400 is included in purchase commitment and contingent consideration liabilities, current, and purchase commitment and contingent consideration liabilities, net of current portion, respectively, in the consolidated balance sheets. At December 31, 2021, the Tellutax Contingent Consideration of $2,500 is included in purchase commitment and contingent consideration liabilities, net of current portion in the consolidated balance sheets.

Tellutax Contingent Consideration fair value and unobservable inputs used for the Monte Carlo Simulation valuation were as follows:


		December 31, 2022
Liability		Fair Value			Valuation Technique		Unobservable Inputs
Tellutax Contingent Consideration		$	4,800		Monte Carlo Simulation		Revenue volatility		75.0	%
							Revenue discount rate		22.4	%
							Term (in years)		2.4

		December 31, 2021
Liability		Fair Value			Valuation Technique		Unobservable Inputs
Tellutax Contingent Consideration		$	2,500		Monte Carlo Simulation		Revenue volatility		95.0	%
							Revenue discount rate		20.0	%
							Term (in years)		3.6

Beginning and ending balances in fair value of Tellutax Contingent Consideration were as follows:


		Tellutax
		Contingent
		Consideration

Balance, January 1, 2021		$	—
Acquisition of Tellutax			2,200
Fair value adjustments			300
Balance, December 31, 2021		$	2,500
Fair value adjustments			2,300
Balance, December 31, 2022		$	4,800

Assets and Liabilities for Which Fair Value is Only Disclosed

The carrying amounts of cash and cash equivalents and the carrying amount of funds held for customers were the same as their respective fair values and are considered Level 1 measurements.

The carrying amount of our bank debt approximates fair value as the variable rates on the debt approximate those commercially available in the market, and is considered a Level 3 measurement.

Non-recurring Fair Value Measurements

The LCR-Dixon acquisition on September 22, 2021, the Taxamo acquisition on May 12, 2021, the Tellutax acquisition on January 25, 2021, and the Systax acquisition on January 10, 2020, were accounted for as business combinations and the total purchase price for each acquisition was allocated to the net assets acquired and liabilities assumed based on their estimated fair values.

The LCR-Dixon deferred purchase consideration of $19,824 (See Note 3) and the Purchase Commitment Liability of $9,761 (See Note 3) are recorded in the consolidated balance sheet at December 31, 2022. The carrying amounts of both approximated their respective fair values at December 31, 2022 and are considered Level 3 non-recurring fair value measurements.

The Company’s obligation with respect to future purchase commitments to the original Systax Quotaholders was determined to be a forward contract necessitating initial recognition based on fair value. We estimated the initial fair value of our Purchase Commitment Liability using a Monte Carlo Simulation, which we consider to be a Level 3 measurement. The significant assumptions used in the Monte Carlo Simulation include, among other variables, forecasted cash flow projections consistent with those used to support the overall purchase price, selection of comparable companies, asset volatility and discount rate determinations and the total number of simulations to compute. Subsequent remeasurements of the Purchase Commitment Liability, as and if required, are not expected to be based on fair value.

Derivative Instruments

We may periodically enter into derivative contracts to reduce our exposure to foreign currency exchange rates. Historically we have not designated derivative contracts as hedges. The derivative contracts are typically designed to manage specific risks according to our strategies, which may change from time to time.

In May 2020, we entered into a series of foreign currency forward contracts to reduce our exposure to adverse fluctuations in the Brazilian Real associated with a portion of our Purchase Commitment Liability. Such forward contracts, have not been designated as a hedge, do not qualify for hedge accounting and are not material to our consolidated financial statements. We remeasure these forward contacts at fair value on a recurring basis and include them in other assets in our consolidated balance sheets with changes in their estimated fair value recognized as interest expense in our consolidated statements of comprehensive loss. Our fair value determinations are based on foreign currency exchange rates in active markets, which we consider to be Level 2 measurements within the Fair Value Hierarchy.

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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