Fair Value Measurements

3 Months Ended

Mar. 31, 2022

Note 10 - Fair Value Measurements

The following tables present the Company’s financial instruments that are measured at fair value on a recurring basis (in thousands):


	March 31, 2022
	Level 1		Level 2		Level 3		Total Fair Value Measurements
Assets:
Cash and cash equivalents	$	308,788	$	—	$	—	$	308,788
Derivative asset		—		15,824		—		15,824
Equity investments		—		—		2,609	$	2,609
	$	308,788	$	15,824	$	2,609	$	327,221
Liabilities:
Contingent earn-out liability	$	—	$	—	$	78,991	$	78,991
	$	—	$	—	$	78,991	$	78,991


	December 31, 2021
	Level 1		Level 2		Level 3		Total Fair Value Measurements
Assets:
Cash and cash equivalents	$	369,175	$	—	$	—	$	369,175
Derivative asset		—		5,008		—		5,008
Equity investments		—		—		2,610		2,610
	$	369,175	$	5,008	$	2,610	$	376,793
Liabilities:
Contingent earn-out liability	$	—	$	—	$	96,600	$	96,600
	$	—	$	—	$	96,600	$	96,600

There were no transfers between levels between March 31, 2022 and December 31, 2021.

The carrying value of accounts receivable, accounts payable, income tax payable, accrued expenses and other payables approximate their fair values due to the short-term maturities of these instruments.

The Company’s contingent earn-out liability that is measured at fair value on a recurring basis using significant unobservable inputs (Level 3) totaled $79.0 million and $96.6 million as of March 31, 2022 and December 31, 2021. Contingent earn-out liability is included is included in “Other liabilities” in the accompanying condensed consolidated balance sheets.

As of March 31, 2022, there is a contingent consideration arrangement, consisting of an earn-out payment to former shareholders of Worldwide Vision Limited of up to $150 million. The Company determined the fair value of the contingent earn-out liability by using a probability-weighted analysis to determine the amount of the liability, and, if the arrangement is long-term in nature, applying a discount rate that captures the risks associated with the obligation. The number of scenarios in the probability-weighted analyses vary; generally, more scenarios are prepared for longer duration and more complex arrangements. As of March 31, 2022 and December 31, 2021, the fair value of the contingent earn-out liability reflects a risk-free rate of 1.8% and 0.5%, respectively.

In addition, as of March 31, 2022, there is a contingent consideration arrangement, consisting of an earn-out payment of up to $10 million in connection with the acquisition of Fruitz in January 2022. The Company determined the fair value of the contingent earn-out liability using a probability-weighted analysis and applied a discount rate that captures the risks associated with the obligation that is long-term in nature. As of March 31, 2022, the fair value of the contingent earn-out liability reflects a risk-free rate of 2.2%.

The Company classified contingent earn-out arrangements as liabilities at the time of the acquisition, as they will be settled in cash, and remeasures the fair values of the contingent earn-out liabilities each reporting period thereafter until settled. The fair value of the contingent earn-out liabilities are sensitive to changes in the forecasts of earnings and/or the relevant operating metrics and changes in discount rates. Changes in fair values of contingent earn-out liabilities are recognized in “General and administrative expense” in the accompanying condensed consolidated statements of operations. The change in fair value of the contingent earn-out liability was ($20.7) million and $72.0 million for the three months ended March 31, 2022 and 2021, respectively.

- 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