Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

v3.23.2
Fair Value Measurements
 6 Months Ended
Jun. 30, 2023
Fair Value Disclosures [Abstract]  
Fair Value Measurements Fair Value Measurements
U.S. GAAP defines the fair value of a financial instrument as the amount that would be received from the sale of an asset in an orderly transaction between market participants at the measurement date. The Company is responsible for the determination of fair value and the supporting methodologies and assumptions. The Company uses various pricing sources and third parties to provide and validate the values utilized.
The degree of judgment used in measuring the fair value of financial instruments is generally inversely correlated with the level of observable valuation inputs. Financial instruments with quoted prices in active markets generally have more pricing observability and less judgment is used in measuring fair value. Financial instruments for which no quoted prices are available have less observability and are measured at fair value using valuation models or other pricing techniques that require more judgment.
Assets recorded at fair value are measured and classified in accordance with a fair value hierarchy consisting of the three “levels” based on the observability of inputs available in the marketplace used to measure the fair values as discussed below:
•Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
•Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; or
•Level 3: Unobservable inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model. Management estimates include certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.
Recurring Fair Value Measurements
The Company values its investments including commercial paper and floating net asset value money market funds recorded in cash, cash equivalents, and restricted cash, investments in marketable debt securities, available-for-sale, assets held in the rabbi trust, deferred compensation liability and contingent and deferred consideration at fair value on a recurring basis.
Fair values for investments included in cash, cash equivalents, and restricted cash and marketable debt securities, available-for-sale were determined for each individual security in the investment portfolio and all securities are Level 1 or 2 measurements as appropriate.
Fair values for assets held in the rabbi trust and related deferred compensation liability were determined based on the cash surrender value of the Company-owned variable life insurance policies and underlying investments in the trust, and are Level 2 and Level 1 measurements, respectively.
Contingent consideration in connection with acquisitions, is carried at fair value and determined on a contract-by-contract basis, calculated using unobservable inputs based on a probability of achieving EBITDA and other performance requirements, and is a Level 3 measurement. Deferred consideration in connection with acquisitions is carried at fair value
and calculated using a discounted cash flow estimate with the only remaining condition on such payments being the passage of time, and is a Level 2 measurement.
Assets and liabilities carried at fair value on a recurring basis consisted of the following (in thousands):
June 30, 2023 December 31, 2022
Fair Value Level 1 Level 2 Level 3 Fair Value Level 1 Level 2 Level 3
Assets:
Assets held in rabbi trust $ 10,365  $ —  $ 10,365  $ —  $ 9,553  $ —  $ 9,553  $ — 
Cash equivalents (1):
             
Commercial paper $ 50,191  $ —  $ 50,191  $ —  $ 41,324  $ —  $ 41,324  $ — 
Money market funds 81,411  81,411  —  —  139,025  139,025  —  — 
$ 131,602  $ 81,411  $ 50,191  $ —  $ 180,349  $ 139,025  $ 41,324  $ — 
Marketable debt securities, available-for-sale:                
Short-term investments:                
U.S. treasuries $ 65,495  $ 65,495  $ —  $ —  $ 134,549  $ 134,549  $ —  $ — 
Corporate debt 99,361  —  99,361  —  118,041  —  118,041  — 
ABS and other —  —  —  —  844  —  844  — 
$ 164,856  $ 65,495  $ 99,361  $ —  $ 253,434  $ 134,549  $ 118,885  $ — 
Long-term investments:                
U.S. treasuries $ 17,409  $ 17,409  $ —  $ —  $ 20,715  $ 20,715  $ —  $ — 
U.S. government sponsored entities 510  —  510  —  536  —  536  — 
Corporate debt 42,250  —  42,250  —  41,358  —  41,358  — 
ABS and other 10,542  —  10,542  —  5,986  —  5,986  — 
$ 70,711  $ 17,409  $ 53,302  $ —  $ 68,595  $ 20,715  $ 47,880  $ — 
Liabilities:                
Contingent consideration $ 6,518  $ —  $ —  $ 6,518  $ 7,067  $ —  $ —  $ 7,067 
Deferred consideration $ 2,018  $ —  $ 2,018  $ —  $ 5,119  $ —  $ 5,119  $ — 
Deferred compensation liability $ 8,086  $ 8,086  $ —  $ —  $ 6,661  $ 6,661  $ —  $ — 
(1)
 Included in cash, cash equivalents, and restricted cash on the accompanying condensed consolidated balance sheets.
There were no transfers in or out of Level 3 during the six months ended June 30, 2023 and 2022.
During the six months ended June 30, 2023, the Company considered current and future interest rates and the probability of achieving EBITDA and other performance targets in its determination of fair value for the contingent consideration. The Company is uncertain as to the extent of the volatility in the unobservable inputs in the foreseeable future. Deferred consideration in connection with acquisitions is carried at fair value and calculated using a discounted cash flow estimate with the only remaining condition on such payments being the passage of time.
As of June 30, 2023 and December 31, 2022, contingent and deferred consideration had a maximum undiscounted payment to be settled in cash or stock of $17.3 million and $21.3 million, respectively. Assuming the achievement of the applicable performance criteria and/or service and time requirements, the Company anticipates these payments will be made over the next one to four-year period. Changes in fair value are included in selling, general and administrative expense in the condensed consolidated statements of operations.
A reconciliation of contingent consideration measured at fair value on a recurring basis consisted of the following (in thousands):
Six Months Ended
June 30,
2023 2022
Beginning balance $ 7,067  $ 9,312 
Contingent consideration in connection with acquisitions —  — 
Change in fair value of contingent consideration(1)
511  (493)
Payments of contingent consideration (1,060) (1,040)
Ending balance $ 6,518  $ 7,779 
(1)
 Includes immaterial impact of foreign currency translation.
Quantitative information about the valuation technique and significant unobservable inputs used in the valuation of the Company’s Level 3 financial liabilities measured at fair value on a recurring basis consisted of the following (dollars in thousands):
Fair Value at
June 30, 2023		 Valuation Technique Unobservable inputs
Range (Weighted Average)(1)
Contingent
consideration
 $ 6,518  Discounted cash flow Expected life of cash flows
0.1-4.3 years
 (2.2 years)
Discount rate
6.2%-7.3%
(6.8%)
Probability of achievement
0.0%-100.0%
(94.8%)
Fair Value at
December 31, 2022		 Valuation Technique Unobservable inputs
Range (Weighted Average)(1)
Contingent
consideration
 $ 7,067  Discounted cash flow Expected life of cash flows
0.4-4.8 years
 (2.7 years)
Discount rate
6.0%-7.0%
(6.5)%
Probability of achievement
0.0%-100.0%
(95.4)%
(1)
 Unobservable inputs were weighted by the relative fair value of the instruments.
Nonrecurring Fair Value Measurements
In accordance with U.S. GAAP, from time to time, the Company measures certain assets at fair value on a nonrecurring basis. The Company reviews the carrying value of intangibles, goodwill and other assets for indications of impairment at least annually. When indications of potential impairment are identified, the Company may be required to determine the fair value of those assets and record an adjustment for the carrying amount in excess of the fair value determined. Any fair value determination would be based on valuation approaches, which are appropriate under the circumstances and utilize Level 2 and Level 3 measurements as required.