FAIR VALUE OF FINANCIAL INSTRUMENTS

6 Months Ended

Jun. 30, 2023

The 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. A fair value hierarchy was established, which prioritizes the inputs used in measuring fair value into three broad levels.

Level 1 – Quoted prices in active markets for identical assets or liabilities;

Level 2 – Observable market-based inputs or unobservable inputs that are corroborated by market data; and

Level 3 – Significant unobservable inputs that are not corroborated by market data. Generally, these fair value measures are model-based valuation techniques such as discounted cash flows, and are based on the best information available, including our own data.

The following table summarize the assets and liabilities measured at fair value on a recurring basis as of June 30, 2023 and December 31, 2022.


	June 30, 2023
	Level 1		Level 2		Level 3		Total
Financial Assets

Short-term investments
Certificates of Deposit	$	—	$	25,113	$	—	$	25,113
Exchange Trade Mutual Funds	$	12,162	$	—	$	—	$	12,162
Treasury Bonds	$	46,189	$	—	$	—	$	46,189

Other	$	8	$	—	$	—	$	8
Financial Liabilities
Contingent Consideration	$	—	$	—	$	6	$	6

	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

Other	$	172	$	—	$	—	$	172
Financial Liabilities
Contingent Consideration	$	—	$	—	$	2,980	$	2,980

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 included an income adjustment of $2,304 and $5,010 for the three months ended June 30, 2023 and June 30, 2022, respectively, and $2,974 and $2,440 for the six months ended June 30, 2023 and June 30, 2022, respectively, which are recorded in other (income) expenses on the condensed consolidated statements of operations.

The following table summarizes the change in fair value of Level 3 instruments in 2023:


	Total
Balance at January 1, 2023	$	2,980

Change in fair value of contingent consideration	(2,974)
Balance at June 30, 2023	$	6

The recurring Level 3 fair value measurements of contingent consideration liabilities associated with commercial sales milestones include the following significant unobservable inputs as of June 30, 2023 and December 31, 2022:


	June 30, 2023		December 31, 2022
Valuation techniques	Discounted cash flow, Monte Carlo
Present value discount rate(1)	15.5	%	16.6	%
Volatility factor	38.1	%	48.0	%
Expected years	0.9 years		1.4 years

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

The estimated fair value reflects assumptions made by management as of June 30, 2023; however, the actual amount ultimately paid could be higher or lower than the fair value of the remaining contingent consideration.

- 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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