FAIR VALUE OF FINANCIAL INSTRUMENTS

12 Months Ended

Dec. 31, 2022

FAIR VALUE OF FINANCIAL INSTRUMENTSThe Company measures certain financial assets and liabilities at fair value. The accounting standards related to fair value measurements define fair value and provide a consistent framework for measuring fair value under the authoritative literature.

The following table summarize the assets and liabilities measured at fair value on a recurring basis as of December 31, 2022 and 2021, respectively.


	December 31, 2022
	Level 1		Level 2		Level 3		Total
Financial Assets

Short term investments
Certificates of Deposit	$	—	$	25,148	$	—	$	25,148
Exchange Trade Mutual Funds	$	18,939	$	—	$	—	$	18,939
Treasury Bonds	$	65,040	$	—	$	—	$	65,040
Asset Backed Securities	$	—	$	—	$	—	$	—
Other	$	172	$	—	$	—	$	172
Financial Liabilities
Contingent Consideration	$	—	$	—	$	2,980	$	2,980
	December 31, 2021
	Level 1		Level 2		Level 3		Total
Financial Assets

Short term investments

Corporate Bonds	$	22,476	$	—	$	—	$	22,476
Treasury Bonds	$	14,317	$	—	$	—	$	14,317
Asset Backed Securities	$	—	$	8,272	$	—	$	8,272
Other	$	837	$	—	$	—	$	837
Financial Liabilities
Contingent Consideration	$	—	$	—	$	28,910	$	28,910

The Company's level 1 assets consist of short-term, liquid investments with original maturity of three months or less at inception and other short term investments which are comprised of exchange traded mutual funds and marketable securities with a maturity date greater than 3 months.

The Company's level 2 assets pertain to certain asset-backed securities, collateralized by non-mortgage-related consumer debt, or certificates of deposit. These securities are predominately priced by third parties, either by a pricing vendor or dealer with significant inputs observable in active markets.

The Company's Level 3 instruments consist of contingent consideration. The fair value of the contingent consideration liability assumed in business combinations is recorded as part of the purchase price consideration of the acquisition and is determined using a discounted cash flow model or probability simulation model. The significant inputs of such models are not always observable in the market, such as forecasted annual revenues, expected volatility and discount rates. The adjustments in the fair value of the contingent consideration payments resulted in income of $25,930 and income of $1,800 for the year ended December 31, 2022 and 2021, respectively. $3,520 of expense was recorded in 2020.

The following table summarizes the change in fair value of the Level 3 instrument:


	Total

Balance at December 31, 2020	30,710
Change in fair value of contingent consideration	(1,800)
Balance at December 31, 2021	$	28,910
Change in fair value of contingent consideration	(25,930)
Balance at December 31, 2022	$	2,980

The recurring Level 3 fair value measurements of the contingent consideration liability associated with the ApiFix system sales milestone include the following significant unobservable inputs as of December 31, 2022, 2021 and 2020, respectively:


	December 31, 2022		December 31, 2021		December 31, 2020
Valuation techniques	Discounted cash flow, Monte Carlo
Present value discount rate(1)	16.6	%	18.4	%	25.8	%
Volatility factor	48.0	%	50.3	%	51.8	%
Expected Years	1.4 years		2.4 years		3.5 years

(1) The present value discount rate includes estimated risk premium.

- 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.

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