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Fair Value Measurements
 3 Months Ended
Mar. 31, 2023
Fair Value Disclosures [Abstract]  
Fair Value Measurements

Note 4. Fair Value Measurements

Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants on the measurement date in the principal or most advantageous market for the asset or liability. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

The Company’s cash equivalents are carried at fair value (Level 1) as determined according to the fair value hierarchy described above. The Company’s cash equivalents include money market funds, which are measured at fair value using the net asset value (NAV) per share practical expedient. The carrying values of accounts receivable, funds receivable from payment partners, unbilled receivables, prepaid expenses, accounts payable, funds payable to clients and accrued expenses and other current liabilities approximate their respective fair values due to the short-term nature of these assets and liabilities. The Company’s contingent consideration is carried at fair value, determined using Level 3 inputs in the fair value hierarchy.

The following tables present the Company’s fair value hierarchy for its financial assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2023 and December 31, 2022 (in thousands):

 

Measured at NAV as of
March 31, 2023:

 

 

Measured at Fair Value as of March 31, 2023:

 

 

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

770

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

770

 

Foreign exchange contracts

 

 

—

 

 

 

—

 

 

 

—

 

 

 

91

 

 

 

91

 

 

 

$

770

 

 

$

—

 

 

$

—

 

 

$

91

 

 

$

861

 

Financial Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration

 

$

—

 

 

$

—

 

 

$

—

 

 

$

41

 

 

$

41

 

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

41

 

 

$

41

 

 

 

 

Measured at NAV as of December 31, 2022:

 

 

Measured at Fair Value as of December 31, 2022:

 

 

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

9,145

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

9,145

 

 

 

$

9,145

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

9,145

 

Financial Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange contracts

 

$

—

 

 

$

—

 

 

$

—

 

 

$

133

 

 

$

133

 

Contingent consideration

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1,332

 

 

 

1,332

 

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

1,465

 

 

$

1,465

 

During the three months ended March 31, 2023 and year ended December 31, 2022, there were no transfers between Level 1, Level 2 or Level 3.

Contingent consideration

Cohort Solutions Pty Ltd. (Cohort Go)

During March 2023, the Company made a payment of contingent consideration of $1.7 million, in the form of cash, based on Cohort Go's successful and timely achievement of the contracted milestones. No additional contingent consideration is due or payable with respect to the Cohort Go acquisition. Refer to Note 8 - Business Combinations for additional details on the Cohort Go acquisition.

The fair value of the contingent consideration was determined using a scenario-based method. The following table presents the unobservable inputs incorporated into the valuation of contingent consideration related to the Cohort Go acquisition as of December 31, 2022.

 

 

December 31,
2022

 

Discount rate

 

 

11.2

%

Probability of successful achievement *

 

75% - 100%

 

 

* Probability of successful achievement was set at different targets based on the Company’s best estimates on achieving them.

Increases or decreases in any of the probabilities of success in which the specific post-acquisition milestones were expected to be achieved would result in a higher or lower fair value measurement, respectively. Increases or decreases in the discount rate would result in a lower or higher fair value measurement, respectively.

WPM Group Ltd. (WPM)

On December 14, 2021, Flywire completed its acquisition of WPM, a leading software provider that enables seamless and secure receivables payment experiences for universities and colleges across the U.K. The acquisition of WPM was intended to build on Flywire’s existing education payments business and to further accelerate the Company's market share in the U.K. education sector. The acquisition of WPM was accounted for as a business combination.

Pursuant to the terms of the business combination agreement, the Company acquired all outstanding equity of WPM for estimated total purchase consideration of $59.6 million, which consisted of $56.1 million in cash, net of cash acquired and $3.5 million in estimated fair value of contingent consideration. The contingent consideration is potentially payable at various intervals through March 2024 in the form of cash or up to approximately 225,000 shares of common stock at Flywire's option, and is dependent upon the Company's achievement of specified minimum payment volume targets and integration targets. The first payment volume target was based on a period of fifteen months from January 1, 2022 to March 31, 2023 and the second payment volume target is based on a period of twelve months from April 1, 2023 to March 31, 2024. Integration targets were established through a period ending April 1, 2022. A portion of the contingent consideration is also tied to continuing employment of certain key employees. As of March 31, 2023, the Company expects a potential contingent consideration payment of less than $0.1 million will be payable with respect to the WPM acquisition.

The fair value of the contingent consideration related to the payment volume targets was determined using an option pricing model and the fair value of the contingent consideration related to the integration targets was determined using a scenario-based method. The following table presents the unobservable inputs incorporated into the valuation of contingent consideration related to the WPM acquisition as of December 31, 2022. As of March 31, 2023, the Company expects a potential contingent consideration payment of less than $0.1 million will be payable with respect to the WPM acquisition.

 

 

December 31,
2022

 

Market price of risk adjustment for revenue

 

 

6.7

%

Revenue volatility

 

 

22.7

%

Probability of successful achievement*

 

0% - 100%

 

Performance period

 

1.25 years

 

 

* Probability of successful achievement was set at different targets based on the Company’s best estimates on achieving them.

Increases or decreases in expectations regarding the level at which payment volumes are expected to be achieved would result in a higher or lower fair value measurement, respectively. Increases or decreases in the market price of risk adjustment of revenue would result in a decrease or increase in the fair value measurement, respectively. Increases or decreases in the revenue volatility would result in a decrease or increase in the fair value measurement, respectively.

Changes in the fair value of contingent consideration are included as a component of general and administrative expense within the condensed consolidated statements of operations and comprehensive loss. Contingent consideration ending balance consists of a potential contingent consideration payment of less than $0.1 million with respect to the WPM acquisition and contingent consideration of less than $0.1 million related a 2021 asset acquisition. The following table summarizes the changes in the carrying value of the contingent consideration for the three months ended March 31, 2023 and 2022 (in thousands):

 

 

Three Months Ended March 31,

 

 

2023

 

 

2022

 

Beginning balance

 

$

1,332

 

 

$

11,309

 

Additions

 

 

2

 

 

 

—

 

Change in fair value

 

 

410

 

 

 

(70

)

Contingent consideration paid *

 

 

(1,674

)

 

 

(7,844

)

Foreign currency translation adjustment

 

 

(29

)

 

 

(95

)

Ending balance

 

$

41

 

 

$

3,300

 

* For the three months ended March 31, 2023 and 2022, contingent consideration paid related to the acquisition of Cohort Go and Simplificare Inc. (Simplee) have been bifurcated between the financing and operating sections of the condensed consolidated statement of cash flows. Amounts paid up to the fair value initially recorded in purchase accounting is reported in the financing section of the condensed consolidated statement of cash flows, while any excess is reported in the operating section of the condensed consolidated statement of cash flows.