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Fair Value Measurements | 12 Months Ended
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Mar. 31, 2020
Fair Value Measurements [Abstract] |
Fair Value Measurements |
14. | Fair Value Measurements
The Company defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company uses a three-tier valuation hierarchy based upon observable and unobservable inputs:
| • | Level 1 — Valuation is based upon quoted prices (unadjusted) in active markets for identical assets or liabilities.
| • | Level 2 — Valuation is based upon quoted prices for similar assets and liabilities in active markets, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
| • | Level 3 — Valuation is based upon unobservable inputs that are significant to the fair value measurement.
The fair value hierarchy requires the use of observable market data when available. In instances in which the inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset or liability. The following sets forth by level within the fair value hierarchy, the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis according to the valuation techniques the Company used to determine their fair values at:
|  |  |  |  | March 31, 2020 |  |  |  |  |  | March 31, 2019 |
|  |  |  |  | Fair Value Measurements Using Inputs Considered as |  |  |  |  |  | Fair Value Measurements Using Inputs Considered as |
|  | Fair Value |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Fair Value |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Short-term investments Mutual funds |  | $ | 850,000 |  |  | $ | 850,000 |  |  | $ | - |  |  | $ | - |  |  | $ | 3,273,000 |  |  | $ | 3,273,000 |  |  | $ | - |  |  | $ | - |
Prepaid expenses and other current assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Forward foreign currency exchange contracts |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 207,000 |  |  |  | - |  |  |  | 207,000 |  |  |  | - |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Accrued liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Short-term contingent consideration |  |  | 2,190,000 |  |  |  | - |  |  |  | - |  |  |  | 2,190,000 |  |  |  | 2,816,000 |  |  |  | - |  |  |  | - |  |  |  | 2,816,000 |
Other current liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deferred compensation |  |  | 850,000 |  |  |  | 850,000 |  |  |  | - |  |  |  | - |  |  |  | 3,273,000 |  |  |  | 3,273,000 |  |  |  | - |  |  |  | - |
Forward foreign currency exchange contracts |  |  | 6,284,000 |  |  |  | - |  |  |  | 6,284,000 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Other liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Long-term contingent consideration |  |  | 463,000 |  |  |  | - |  |  |  | - |  |  |  | 463,000 |  |  |  | 1,905,000 |  |  |  | - |  |  |  | - |  |  |  | 1,905,000 |
Short-term Investments and Deferred Compensation The Company’s short-term investments, which fund its deferred compensation liabilities, consist of investments in mutual funds. These investments are classified as Level 1 as the shares of these mutual funds trade with sufficient frequency and volume to enable the Company to obtain pricing information on an ongoing basis. Forward Foreign Currency Exchange Contracts The forward foreign currency exchange contracts are primarily measured based on the foreign currency spot and forward rates quoted by the banks or foreign currency dealers. During the years ended March 31, 2020 and 2019, losses of $6,491,000 and $972,000, respectively, were recorded in general and administrative expenses due to the change in the value of the forward foreign currency exchange contracts. Contingent Consideration In December 2018, the Company completed the acquisition of certain assets and assumption of certain liabilities from E&M. In connection with this acquisition, the Company is contingently obligated to make additional payments to the former owners of E&M up to an aggregate of $5,200,000 over the next three years. In January 2019, the Company completed the acquisition of all the equity interests of Dixie. In connection with this acquisition, the Company is contingently obligated to make additional payments to the former owners of Dixie up to $1,130,000 over the next two years. The Company’s contingent consideration is recorded in accrued expenses and other liabilities in its consolidated balance sheets at March 31, 2020 and 2019, and is a Level 3 liability measured at fair value. E&M Research and Development (“R&D”) Event Milestone The fair value of the two-year R&D event milestone based on technology development and transfer was $1,130,000 and $2,190,000 at March 31, 2020 and 2019, respectively, determined using a probability weighted method with commensurate with the term of the contingent consideration. The assumptions used to determine the fair value is as follows:
|  | March 31, 2020 |
Risk free interest rate |  |  | 0.16 | %
Counter party rate |  |  | 12.16 | %
Probability |  |  | 100.00 | %
The assumptions used to determine fair value of the two-year R&D event milestone at March 31, 2019 is as follows: (i) a risk-free interest rate ranging from 2.30% to 2.41%, (ii) counter party risk discount rate ranging from 6.30% to 6.41%, and (iii) total probability of 90% to 100%. Any subsequent changes in the fair value of the contingent consideration liability will be recorded in current period earnings as a general and administrative expense. E&M Gross Profit Earn-out Consideration The fair value of the three-year gross profit earn-out consideration was $1,230,000 and $1,660,000 at March 31, 2020 and 2019, respectively, determined using a Monte Carlo Simulation Model. The assumptions used to determine the fair value is as follows:
|  | March 31, 2020 |  |  | March 31, 2019 |
Risk free interest rate |  |  | 0.22 | % |  |  | 2.23 | %
Counter party rate |  |  | 12.22 | % |  |  | 6.23 | %
Expected volatility |  |  | 31.00 | % |  |  | 29.00 | %
Weighted average cost of capital |  |  | 13.75 | % |  |  | 16.00 | %
Any subsequent changes in the fair value of the contingent consideration liability will be recorded in current period earnings as a general and administrative expense. Dixie Revenue Earn-out Consideration The fair value of the two-year revenue earn-out consideration was $293,000 and $871,000 at March 31, 2020 and 2019, respectively, determined using a Monte Carlo Simulation Model. The assumptions used to determine the fair value is as follows:
|  | March 31, 2020 |  |  | March 31, 2019 |
Risk free interest rate |  |  | 0.16 | % |  |  | 2.58 | %
Counter party rate |  |  | 15.16 | % |  |  | 5.03 | %
Revenue discount rate |  |  | 2.50 | % |  |  | 6.50 | %
Expected volatility |  |  | 33.50 | % |  |  | 29.00 | %
Revenue volatility |  |  | 6.50 | % |  |  | 8.50 | %
Any subsequent changes in the fair value of the contingent consideration liability will be recorded in current period earnings as a general and administrative expense. The following table summarizes the activity for financial assets and liabilities utilizing Level 3 fair value measurements:
|  | Years Ended March 31, |
|  | 2020 |  |  | 2019 |
|  | Contingent Consideration |  |  | Contingent Consideration |
Beginning balance |  | $ | 4,721,000 |  |  | $ | - |
Newly issued |  |  | - |  |  |  | 4,400,000 |
Changes in revaluation of contingent consideration included in earnings |  |  | (113,000 | ) |  |  | 321,000 |
Exercises/settlements (1) |  |  | (1,955,000 | ) |  |  | - |
Ending balance |  | $ | 2,653,000 |  |  | $ | 4,721,000 |
During the years ended March 31, 2020 and 2019, the Company had no significant measurements of assets or liabilities at fair value on a nonrecurring basis subsequent to their initial recognition. The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their fair value due to the short-term nature of these instruments. The carrying amounts of the revolving loan, term loan and other long-term liabilities approximate their fair value based on the variable nature of interest rates and current rates for instruments with similar characteristics. Goodwill Fair value assessments of the reporting unit and the reporting unit’s net assets, which are performed for goodwill impairment tests, are considered Level 3 measurements due to the significance of unobservable inputs developed using company specific information. The Company considered a market approach as well as an income approach (a DCF model) to determine the fair value of the reporting unit. Refer to Financial Note 2, “Significant Accounting Policies for more information regarding goodwill impairment assumptions. Long-lived Assets and Intangible Assets The Company utilizes multiple approaches including the DCF model and market approaches for estimating the fair value of long-lived assets and intangible assets. The future cash flows used in the analysis are based on internal cash flow projections from its long-range plans and include significant assumptions by management. Accordingly, the fair value assessment of the long-lived assets and intangible assets are considered Level 3 fair value measurements. The Company measures certain long-lived and intangible assets at fair value on a nonrecurring basis when events occur that indicate an asset group may not be recoverable. If the carrying amount of an asset group is not recoverable, an impairment charge is recorded to reduce the carrying amount by the excess over its fair value.

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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://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=117815213&loc=d3e19207-110258 + Details
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