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Fair Value Measurements | 12 Months Ended
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Sep. 30, 2018
Fair Value Disclosures [Abstract] |
FAIR VALUE MEASUREMENTS | FAIR VALUE MEASUREMENTS Fair value is defined as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. This standard also establishes a hierarchy for inputs used in measuring fair value. This standard maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability based on market data obtained from independent sources. Unobservable inputs are inputs that reflect our assumptions about the factors market participants would use in valuing the asset or liability based upon the best information available in the circumstances. The categorization of financial assets and liabilities within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The hierarchy is broken down into three levels. Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable for the asset or liability and their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable. Level 3 may also include certain investment securities for which there is limited market activity or a decrease in the observability of market pricing for the investments, such that the determination of fair value requires significant judgment or estimation. Fair value is applied to financial assets such as our marketable securities, which are classified and accounted for as available-for-sale and to financial liabilities for contingent consideration. These items are stated at fair value at each reporting period using the above guidance. The following tables provide information by level for financial assets and liabilities that are measured at fair value on a recurring basis (in thousands):
|  |  | Fair Value Measurements at September 30, 2018 using:
| Total carrying value at September 30, 2018 |  | Quoted price in active markets (Level 1) |  | Significant other observable inputs (Level 2) |  | Significant unobservable inputs (Level 3)
Assets: |  |  |  |  |  |  |
Money market | $ | 24,318 |  |  | $ | 24,318 |  |  | $ | — |  |  | $ | — |
Certificates of deposit | 4,736 |  |  | — |  |  | 4,736 |  |  | — |
Total assets measured at fair value | $ | 29,054 |  |  | $ | 24,318 |  |  | $ | 4,736 |  |  | $ | — |
Liabilities: |  |  |  |  |  |  |
Contingent consideration on acquired business | $ | 10,065 |  |  | $ | — |  |  | $ | — |  |  | $ | 10,065 |
Total liabilities measured at fair value | $ | 10,065 |  |  | $ | — |  |  | $ | — |  |  | $ | 10,065 |
8. FAIR VALUE MEASUREMENTS (CONTINUED)
|  |  | Fair Value Measurements at September 30, 2017 using:
| Total carrying value at September 30, 2017 |  | Quoted price in active markets (Level 1) |  | Significant other observable inputs (Level 2) |  | Significant unobservable inputs (Level 3)
Assets: |  |  |  |  |  |  |
Money market | $ | 39,524 |  |  | $ | 39,524 |  |  | $ | — |  |  | $ | — |
Corporate bonds | 28,255 |  |  | — |  |  | 28,255 |  |  | — |
Certificates of deposit | 8,513 |  |  | — |  |  | 8,513 |  |  | — |
Total assets measured at fair value | $ | 76,292 |  |  | $ | 39,524 |  |  | $ | 36,768 |  |  | $ | — |
Liabilities: |  |  |  |  |  |  |
Contingent consideration on acquired business | $ | 6,388 |  |  | $ | — |  |  | $ | — |  |  | $ | 6,388 |
Total liabilities measured at fair value | $ | 6,388 |  |  | $ | — |  |  | $ | — |  |  | $ | 6,388 |
Our money market funds, which have been determined to be cash equivalents, are measured at fair value using quoted market prices in active markets for identical assets and are therefore classified as Level 1 assets. We value our Level 2 assets using inputs that are based on market indices of similar assets within an active market. There were no transfers into or out of our Level 2 financial assets during fiscal 2018. The use of different assumptions, applying different judgment to matters that are inherently subjective and changes in future market conditions could result in different estimates of fair value of our securities or contingent consideration, currently and in the future. If market conditions deteriorate, we may incur impairment charges for securities in our investment portfolio. We may also incur changes to our contingent consideration liability as discussed below. We are required to make contingent payments for our acquisitions. In connection with the October 2015 acquisition of Bluenica Corporation (“Bluenica”), we are required to make contingent payments over a period of up to four years, subject to achieving specified revenue thresholds for sales of Bluenica products. The fair value of the liability for contingent payments recognized upon acquisition was $10.4 million and was $5.5 million at September 30, 2018. We paid $0.5 million for the period ended September 30, 2016 and zero for the period ended September 30, 2017. In connection with the November 2016 acquisition of FreshTemp®, LLC (“FreshTemp®”), we are required to make a contingent payment after June 30, 2018, for revenue related to specific customer contracts signed by June 30, 2017. The fair value of the liability recognized upon acquisition was $1.3 million and was $0.2 million at September 30, 2018. We have paid the $0.2 million in November 2018. For the January 2017 acquisition of SMART Temps® LLC (“SMART Temps®”), we were required to make a contingent payment after December 31, 2017 based on achieving specified revenue thresholds. The fair value of the liability for contingent payments recognized upon acquisition of SMART Temps® was $10,000. Since the revenue threshold was not met, no payment was made. For the TempAlert acquisition, we are required to make contingent payments for the twelve month periods ending December 31, 2018 and December 31, 2019 based on the total Digi IoT Solutions segment revenue. The fair value of the liability for contingent payments recognized upon acquisition of TempAlert and at September 30, 2018 was zero. For the Accelerated acquisition, we are required to make contingent payments for the twelve month periods ending January 21, 2019 and January 21, 2020, based upon specified revenue thresholds. The fair values of the liability for contingent payments recognized upon acquisition of Accelerated and at September 30, 2018 was $2.3 million and was $4.4 million, respectively. The increase is a result of Accelerated outperforming initial revenue expectations. The fair values of these contingent payments were estimated by discounting to present value the probability-weighted contingent payments expected to be made. Assumptions used in these calculations include the discount rate and various probability factors. This liability is considered to be a Level 3 financial liability that is re-measured each reporting period as a charge or credit to general and administrative expense within the Consolidated Statements of Operations. 8. FAIR VALUE MEASUREMENTS (CONTINUED) 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):
|  | Fiscal years ended September 30,
|  | 2018 |  | 2017
Fair value at beginning of period |  | $ | 6,388 |  |  | $ | 9,960 |
Purchase price contingent consideration |  | 2,300 |  |  | 1,310 |
Contingent consideration payments |  | — |  |  | (518 | )
Change in fair value of contingent consideration |  | 1,377 |  |  | (4,364 | )
Fair value at end of period |  | $ | 10,065 |  |  | $ | 6,388 |
The change in fair value of contingent consideration relates to the acquisitions of Accelerated, Bluenica, FreshTemp® and SMART Temps® and is included in general and administrative expense. The change in fair value of contingent consideration reflects our estimate of the probability of achieving the relevant targets and is discounted based on our estimated discount rate. We have estimated the fair value of the contingent consideration based on the probability of achieving the specified revenue thresholds at 44.4% to 100.0% for Accelerated 98.6% for Bluenica, 100% for FreshTemp® and 0% for SMART Temp. A significant increase (decrease) in our estimates of achieving the relevant targets could materially increase (decrease) the fair value of the contingent consideration liability.

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -URI http://asc.fasb.org/topic&trid=2155941 + Details
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