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Fair Value Measures and Disclosures (Notes) | 9 Months Ended
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Sep. 30, 2021
Fair Value Disclosures [Abstract] |
Fair Value Disclosures | Fair Value Measurement Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. There are three levels of inputs that may be used to measure fair value: •Level 1: quoted prices in active markets for identical assets or liabilities; •Level 2: inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities 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; or •Level 3: unobservable inputs that are supported by little or no market activity and that are significant to the fair values of the assets or liabilities. Earn-out Liability In August 2021, we entered into an agreement with one of our international distributors whereby that distributor would not compete with us in a specific territory for a three-year period that will end in September 2024. The terms of the agreement include a contingent earn-out payment. The contingent earn-out payment shall not exceed $6.0 million, which will be earned based on certain revenue targets over a twelve-month measurement period determined by the highest four consecutive quarters commencing over a two-year period starting on the closing date of the agreement and provided that the distributor is in compliance with its obligations under the agreement. As of September 30, 2021, the fair value of the contingent earn-out is estimated at $3.1 million. The estimated fair value of the contingent earn-out was calculated using a probability-weighted cash flow model based on historical revenue streams and the likelihood that the revenue targets will be met. In the fourth quarter of 2019, we recognized an earn-out liability related to the acquisition of Pursuit Vascular, Inc. ("Pursuit"). Pursuit's former equity holders were entitled up to $50.0 million in additional cash consideration contingent upon the achievement of certain sales and gross profit targets for specific customers. The earn-out was calculated as a percentage of gross profit achieved during the earn-out period against a pre-determined target gross profit, not to exceed $50.0 million. During the earn-out period, we used a Monte Carlo simulation model to determine the fair value of the earn-out liability. The Monte Carlo simulation model utilized multiple input variables to determine the value of the earn-out liability including historical volatility, a risk free interest rate, counter party credit risk and projected future gross profit (see the simulation input table below related to Pursuit). The historical volatility was based on the median of ICU and a certain peer group. The risk-free interest rate was equal to the yield, as of the valuation date, of the zero-coupon U.S. Treasury bill that was commensurate with the term of the earn-out. The counter party credit risk was based on a synthetic credit rating of B1. As of June 30, 2021, the earn-out measurement period ended. Based on the actual sales and gross profit achieved during the measurement period, we calculated the actual earn-out amount to be $26.3 million. The $26.3 million earn-out calculation was finalized and accepted by Pursuit's former equity holders and was paid out in October 2021. The Pursuit earn-out liability was transferred out of Level 3 and into Level 2 as the amount of the actual payment in known. Our contingent earn-out liabilities are separately stated in our condensed consolidated balance sheets. The following tables provide a reconciliation of the Level 3 earn-out liabilities measured at estimated fair value (in thousands):
|  | Earn-out Liability
Accrued balance, January 1, 2021 |  | $ | 26,300 |
Change in fair value of earn-out (included in income from operations as a separate line item) |  | — |
Accrued balance, March 31, 2021 |  | $ | 26,300 |
Change in fair value of earn-out (included in income from operations as a separate line item) |  | — |
Accrued balance, June 30, 2021 |  | $ | 26,300 |
Contingent earn-out - non-compete arrangement |  | 3,100 |
Transfer of Pursuit earn-out liability into Level 2 |  | (26,300) |
Accrued balance, September 30, 2021 |  | $ | 3,100 |
|  | Earn-out Liability
Accrued balance, January 1, 2020 |  | $ | 17,300 |
Change in fair value of earn-out (included in income from operations as a separate line item) |  | — |
Accrued balance, March 31, 2020 |  | $ | 17,300 |
Change in fair value of earn-out (included in income from operations as a separate line item) |  | 2,700 |
Accrued balance, June 30, 2020 |  | $ | 20,000 |
Change in fair value of earn-out (included in income from operations as a separate line item) |  | 4,300 |
Accrued balance, September 30, 2020 |  | $ | 24,300 |
The following tables provide quantitative information about Level 3 inputs for fair value measurement of our earn-out liabilities during the earn-out measurement period: Pursuit Earn-out
Simulation Input |  | As of December 31, 2020 |  | As of September 30, 2020
Revenue/Gross Profit Volatility |  | 25.00 | % |  | 35.00 | %
Discount Rate |  | 12.50 | % |  | 12.50 | %
Risk Free Rate |  | 0.09 | % |  | 0.12 | %
Counter Party Risk |  | 3.10 | % |  | 4.50 | %
Investments and Foreign Currency Contracts The fair value of our investments is estimated using observable market-based inputs such as quoted prices, interest rates and yield curves or Level 2 inputs, which consisted of corporate bonds. The fair value of our Level 2 forward currency contracts are estimated using observable market inputs such as known notional value amounts, spot and forward exchange rates. These inputs relate to liquid, heavily traded currencies with active markets which are available for the full term of the derivative. Our assets and liabilities measured at fair value on a recurring basis consisted of the following Level 1, 2 and 3 inputs as defined above (in thousands):
| Fair value measurements at September 30, 2021
| Total carrying value |  | Quoted prices in active markets for identical assets (level 1) |  | Significant other observable inputs (level 2) |  | Significant unobservable inputs (level 3)
Assets: |  |  |  |  |  |  |
Available for sale securities: |  |  |  |  |  |  |
Short-term | $ | 18,009 |  |  | $ | — |  |  | $ | 18,009 |  |  | $ | — |
Long-term | 7,172 |  |  | — |  |  | 7,172 |  |  | — |
Foreign exchange forwards: |  |  |  |  |  |  |
Prepaid expenses and other current assets | 772 |  |  | — |  |  | 772 |  |  | — |
Total Assets | $ | 25,953 |  |  | $ | — |  |  | $ | 25,953 |  |  | $ | — |
Liabilities: |  |  |  |  |  |  |
Earn-out liability | $ | 29,400 |  |  | $ | — |  |  | $ | 26,300 |  |  | $ | 3,100 |
Total Liabilities | $ | 29,400 |  |  | $ | — |  |  | $ | 26,300 |  |  | $ | 3,100 |
| Fair value measurements at December 31, 2020
| Total carrying value |  | Quoted prices in active markets for identical assets (level 1) |  | Significant other observable inputs (level 2) |  | Significant unobservable inputs (level 3)
Assets: |  |  |  |  |  |  |
Available for sale securities: |  |  |  |  |  |  |
Short-term | $ | 14,687 |  |  | $ | — |  |  | $ | 14,687 |  |  | $ | — |
Long-term | 12,974 |  |  | — |  |  | 12,974 |  |  | — |
Foreign exchange forwards: |  |  |  |  |  |  |
Prepaid expenses and other current assets | 3,555 |  |  | — |  |  | 3,555 |  |  | — |
Total Assets | $ | 31,216 |  |  | $ | — |  |  | $ | 31,216 |  |  | $ | — |
Liabilities: |  |  |  |  |  |  |
Earn-out liability | $ | 26,300 |  |  | $ | — |  |  | $ | — |  |  | $ | 26,300 |
Total Liabilities | $ | 26,300 |  |  | $ | — |  |  | $ | — |  |  | $ | 26,300 |

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- 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 Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=123874694&loc=d3e19207-110258 + Details
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