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Fair Value
 6 Months Ended
Nov. 30, 2021
Fair Value Disclosures [Abstract]  
Fair Value FAIR VALUE
On a recurring basis, the Company measures certain financial assets and financial liabilities at fair value based upon quoted market prices, where available. Where quoted market prices or other observable inputs are not available, the Company applies valuation techniques to estimate fair value. FASB ASC Topic 820, Fair Value Measurements and Disclosures, establishes a three-level valuation hierarchy for disclosure of fair value measurements. The categorization of financial assets and financial liabilities within the valuation hierarchy is based upon the lowest level of input that is significant to the measurement of fair value. The three levels of the hierarchy are defined as follows:
•Level 1 - Inputs to the valuation methodology are quoted market prices for identical assets or liabilities.
•Level 2 - Inputs to the valuation methodology are other observable inputs, including quoted market prices for similar assets or liabilities and market-corroborated inputs.
•Level 3 - Inputs to the valuation methodology are unobservable inputs based on management’s best estimate of inputs market participants would use in pricing the asset or liability at the measurement date, including assumptions about risk.
The Company's financial instruments include cash and cash equivalents, accounts receivable, accounts payable and contingent consideration. The carrying amount of cash and cash equivalents, accounts receivable, and accounts payable approximates fair value due to their immediate or short-term maturities. The recurring fair value measurements using significant unobservable inputs (Level 3) relate to contingent consideration liabilities.
The following tables provide information by level for assets and liabilities that are measured at fair value on a recurring basis:
Fair Value Measurements using inputs considered as:
Fair Value at Nov 30, 2021
(in thousands)Level 1Level 2Level 3
Financial Liabilities
Contingent consideration for acquisition earn outs$— $— $16,540 $16,540 
Total Financial Liabilities$— $— $16,540 $16,540 
Fair Value Measurements using inputs considered as:
Fair Value at May 31, 2021
(in thousands)Level 1Level 2Level 3
Financial Liabilities
Contingent consideration for acquisition earn outs$— $— $15,741 $15,741 
Total Financial Liabilities$— $— $15,741 $15,741 
There were no transfers between Level 1, 2 and 3 for the three and six months ended November 30, 2021 and 2020.
The table below presents the changes in fair value components of Level 3 instruments:
Three Months Ended Nov 30, 2021
(in thousands)Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Balance, August 31, 2021$15,936 
Total gains or losses (realized/unrealized):
Change in present value of contingent consideration (1)
609 
Currency gain from remeasurement(5)
Balance, November 30, 2021
$16,540 
Six Months Ended Nov 30, 2021
(in thousands)Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Balance, May 31, 2021
$15,741 
Total gains or losses (realized/unrealized):
Change in present value of contingent consideration (1)
804 
Currency gain from remeasurement(5)
Balance, November 30, 2021
$16,540 
(1) Change in the fair value of contingent consideration is included in earnings and comprised of changes in estimated earn out payments based on projections of Company performance and amortization of the present value discount.
Contingent Liability for Acquisition Earn Outs
Some of the Company's business combinations involve the potential for the payment of future contingent consideration upon the achievement of certain product development milestones or various other performance conditions. Payment of the additional consideration is generally contingent on the acquired company reaching certain performance milestones, including attaining specified revenue levels or product development targets. Contingent consideration is recorded at the estimated fair value of the contingent payments on the acquisition date. The fair value of the contingent consideration is remeasured at the estimated fair value at each reporting period with the change in fair value recognized as income or expense within change in fair value of contingent consideration in the Consolidated Statements of Operations.
The Company measures the initial liability and remeasures the liability on a recurring basis using Level 3 inputs as defined under authoritative guidance for fair value measurements, which is determined using a discounted cash flow model applied to projected net sales, using probabilities of achieving projected net sales and projected payment dates. Projected net sales are based on internal projections and extensive analysis of the target market and the sales potential. Increases or decreases in any valuation inputs in isolation may result in a significantly lower or higher fair value measurement in the future.
The recurring Level 3 fair value measurements of the contingent consideration liabilities include the following significant unobservable inputs as of November 30, 2021:
(in thousands)Fair ValueValuation TechniqueUnobservable InputRange
Revenue based payments$16,540 Discounted cash flowDiscount rate5%
Probability of payment
66% - 100%
Projected fiscal year of payment2023 - 2025
At November 30, 2021, the amount of undiscounted future contingent consideration that the Company expects to pay as a result of all completed acquisitions is approximately $20.0 million. The milestones, including revenue projections and technical milestones associated with the contingent consideration must be reached in future periods ranging from fiscal years 2022 to 2029 in order for the associated consideration to be paid.