Quarterly report pursuant to Section 13 or 15(d)

Fair Value

v3.21.2
Fair Value
9 Months Ended
Sep. 30, 2021
Fair Value  
Fair Value

4. Fair Value

The following table details the fair value measurements of assets and liabilities that are measured at fair value on a recurring basis:

Fair Value Measurement at September 30, 2021

Total 

Level 1

Level 2

    

Level 3

    

Fair Value

Assets

Money market mutual funds

$

10,080

$

$

$

10,080

Debt securities:

U.S. government obligations

10,985

10,985

Obligations of states and municipalities

4,371

4,371

Industrial and miscellaneous

32,343

32,343

Residential and commercial mortgage-backed securities

15,388

15,388

Other loan-backed and structured securities

5,701

5,701

$

21,065

$

57,803

$

$

78,868

Liabilities

Contingent consideration - business combinations

$

$

$

2,849

    

$

2,849

Contingent consideration - earnout

 

 

 

39,811

    

39,811

Private warrant liability

 

17,706

17,706

$

$

$

60,366

$

60,366

Fair Value Measurement at December 31, 2020

Total 

    

Level 1

    

Level 2

    

Level 3

    

Fair Value

Contingent consideration - business combinations

$

$

$

3,549

$

3,549

Contingent consideration - earnout

 

 

 

50,238

 

50,238

Private warrant liability

 

31,534

31,534

$

$

$

85,321

$

85,321

Financial Assets

Money market mutual funds are valued at the closing price reported by the fund sponsor from an actively traded exchange. As the funds are generally maintained at a net asset value which does not fluctuate, cost approximates fair value. These are included as a Level 1 measurement in the table above. The fair values for available-for-sale fixed-maturity securities are based upon prices provided by an independent pricing service. The Company has reviewed these prices for reasonableness and has not adjusted any prices received from the independent provider. Level 2 securities represent assets whose fair value is determined using observable market information such as previous day trade prices, quotes from less active markets or quoted prices of securities with similar characteristics. There were no transfers between Level 1 and Level 2.

Contingent Consideration – Business Combinations

The Company estimated the fair value of the business combination contingent consideration that is triggered by EBITDA or revenue milestones, which related to certain 2021 acquisitions, using the Monte Carlo simulation method. The fair value is based on the simulated revenue and net income (loss) of the Company over the maturity date of the contingent consideration. As of September 30, 2021, the key inputs used in the determination of the combined fair value of $624 included volatility of 34.3% to 65%, discount rate of 26.0% and weighted-average cost of capital of 26.0% to 29.5%.

The Company estimated the fair value of the business combination contingent consideration that is triggered by stock price milestones, which related to certain 2020 acquisitions, using the Monte Carlo simulation method. The fair value is based on the simulated stock price of the Company over the maturity date of the contingent consideration. As of

September 30, 2021, the key inputs used in the determination of the fair value of $1,143 included stock price of $17.68, strike price of $20.00, discount rate of 5.2% and volatility of 65%. As of December 31, 2020, the key inputs used in the determination of the fair value of $1,749 included price of $14.27, strike price of $20.00, discount rate of 9% and volatility of 60%.

The Company estimated the fair value of the 2018 business combination contingent consideration using a variation of the income approach known as the real options method. The fair value is based on the present value of the contingent payments to be made using a weighted probability of possible payments. In January 2021, the 2018 business combination contingent consideration was settled in full for a cash payment of $2,062. As of December 31, 2020, the key inputs used in the determination of fair value of $1,800 include projected revenues and expenses, discount rate of 9.96% to 9.98%, revenue volatility of 18.0% and weighted-average cost of capital of 21.5%. 

Contingent Consideration - Earnout

The Company estimated the fair value of the earnout contingent consideration using the Monte Carlo simulation method. The fair value is based on the simulated price of the Company over the maturity date of the contingent consideration and increased by the certain employee forfeitures. As of September 30, 2021, the key inputs used in the determination of the fair value included exercise price of $20.00 and $22.00, volatility of 65%, forfeiture rate of 15% and stock price of $17.68. As of December 31, 2020, the key inputs used in the determination of the fair value included exercise price of $18.00, $20.00 and $22.00, volatility of 60%, forfeiture rate of 16% and stock price of $14.27.

Private Warrants

The Company estimated the fair value of the private warrants using the Black-Scholes-Merton option pricing model. As of September 30, 2021, the key inputs used in the determination of the fair value included exercise price of $11.50, expected volatility of 53%, remaining contractual term of 4.23 years, and stock price of $17.68. As of December 31, 2020, the key inputs used in the determination of the fair value included exercise price of $11.50, expected volatility of 35%, remaining contractual term of 4.98 years, and stock price of $14.27.

Fair value measurements categorized within Level 3 are sensitive to changes in the assumptions or methodology used to determine fair value and such changes could result in a significant increase or decrease in the fair value.

The changes for Level 3 items measured at fair value on a recurring basis using significant unobservable inputs are as follows:

Contingent 

Contingent 

Consideration -

Private

Consideration -

Business

Warrant

Earnout

    

Combinations

    

Liability

Fair value as of January 1, 2021

$

50,238

$

3,549

$

31,534

Additions

1,742

Settlements

(25,815)

(2,062)

Change in fair value, loss (gain) included in net loss(1)

18,770

(275)

15,910

Fair value as of March 31, 2021

$

43,193

$

2,954

$

47,444

Additions

 

 

 

Settlements

 

 

 

(16,843)

Change in fair value, loss (gain) included in net loss(1)

 

4,031

 

(300)

 

4,302

Fair value as of June 30, 2021

$

47,224

$

2,654

$

34,903

Additions

 

 

 

Settlements

 

 

 

(14,505)

Change in fair value, loss (gain) included in net loss(1)

 

(7,413)

 

195

 

(2,692)

Fair value as of September 30, 2021

$

39,811

$

2,849

$

17,706

Redeemable 

Contingent 

Convertible 

Consideration -

Preferred Stock 

Business

    

Warrants

    

FVO Notes

Combinations

Fair value as of January 1, 2020

$

6,684

$

11,659

$

100

Additions

Settlements

Change in fair value, loss (gain) included in net loss(1)

1,214

454

(80)

Change in fair value, (gain) included in other comprehensive income

(3,856)

Fair value as of March 31, 2020

$

7,898

$

8,257

$

20

Additions

 

 

 

Settlements

 

 

(2,724)

 

Change in fair value, loss (gain) included in net loss(1)

 

785

 

(2,898)

 

1,480

Change in fair value, (gain) included in other comprehensive income

 

 

3,856

 

Fair value as of June 30, 2020

$

8,683

$

6,491

$

1,500

Additions

 

1,762

 

 

Settlements

 

 

 

Change in fair value, loss (gain) included in net loss(1)

 

(785)

 

(488)

 

100

Fair value as of September 30, 2020

$

9,660

$

6,003

$

1,600

(1) Changes in fair value of the redeemable convertible stock warrants and FVO Notes are included in other income (expense), net, and changes in fair value of contingent consideration related to business combinations are included in general and administrative expenses in the unaudited condensed consolidated statements of operations. Changes in fair value of the earnout contingent consideration and private warrant liability are disclosed separately in the unaudited condensed consolidated statements of operations.

Fair Value Disclosure

The fair value of the convertible senior notes (the “2026 Notes”) and other debt approximates the unpaid principal balance and is considered a Level 2 measurement. See Note 7.