Quarterly report pursuant to Section 13 or 15(d)

Financial Instruments

v3.24.3
Financial Instruments
 9 Months Ended
Sep. 30, 2024
Fair Value Disclosures [Abstract]  
Financial Instruments Financial Instruments
The composition of financial instruments is as follows:
Fair Value
September 30, 2024 December 31, 2023
(in thousands)
Liabilities
Contingent consideration (Note 3)
 $ 2,600  $ 2,462 
The fair value of the Company’s financial instruments is the amount that would be received in an asset sale or paid to transfer a liability in an orderly transaction between unaffiliated market participants and is recorded using a hierarchical disclosure framework based upon the level of subjectivity of the inputs used in measuring assets and liabilities. The levels are described below:
Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities.
Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.
Level 3: Unobservable inputs are used when little or no market data is available.
The Company classifies its financial instruments that are categorized within Level 1 or Level 2 of the fair value hierarchy on the basis of valuations using quoted market prices or alternate pricing sources and models utilizing market observable inputs, respectively.
The contingent consideration liability as of September 30, 2024 and December 31, 2023 is associated with the Company’s acquisition of Company Y in January 2023 (Note 3). The contingent consideration liability is classified as a Level 3 financial instrument. The contingent consideration as it relates to Company Y was subject to the acquired business’s satisfaction of certain personnel objectives by June 17, 2024. The fair value of contingent consideration is based on (1) applying the Monte Carlo simulation method, with underlying forecast mathematics based on Geometric Brownian motion in a risk-neutral framework, to forecast achievement of the acquired business’ financial objectives, if applicable, under various possible contingent consideration events and (2) a probability based methodology using management’s inputs and assumptions to forecast achievement of the acquired business’ personnel objectives which included an assumption of total payments up to $2.6 million to Company Y. Key inputs in the valuation include forecasted revenue, revenue volatility, discount rate and discount term as it relates to the financial objectives and probability of achievement, discount term and discount rate as it relates to the personnel objectives.
Fair Value Measurements at September 30, 2024
Balance at
September 30, 2024		 Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		 Significant
Other
Observable
Inputs
(Level 2)		 Significant
Unobservable
Inputs
(Level 3)
(in thousands)
Liabilities
Contingent consideration $ 2,600  $ —  $ —  $ 2,600 
Fair Value Measurements at December 31, 2023
Balance at December 31, 2023 Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		 Significant
Other
Observable
Inputs
(Level 2)		 Significant
Unobservable
Inputs
(Level 3)
(in thousands)
Liabilities
Contingent consideration $ 2,462  $ —  $ —  $ 2,462 
The following summarizes the activity in Level 3 financial instruments:
Nine Months Ended September 30,
2024 2023
(in thousands)
Contingent consideration
Beginning balance
 $ 2,462  $ 2,941 
Acquisitions(1)(Note 3)
—  2,200 
Payments —  (2,700)
Accretion of discount(1)
138  249 
Ending balance
 $ 2,600  $ 2,690 
_____________________
(1) These changes to the balance associated with the estimated fair value of contingent consideration for the nine months ended September 30, 2024 and 2023 were due to the addition of contingent consideration associated with the acquisition of Company Y in January 2023 and accretion of discounts on contingent consideration.
There were no transfers between Level 1, Level 2, or Level 3 fair value hierarchy categories of financial instruments. for the nine months ended September 30, 2024.
Financial Instruments Not Recorded at Fair Value on a Recurring Basis
Some of the Company’s financial instruments are recorded at amounts that approximate fair value due to their liquid or short-term nature or by election on investments in privately-held entities as described below. Such financial assets and financial liabilities include: cash and cash equivalents, restricted cash, net receivables, investments in privately-held entities, certain other assets, accounts payable, accrued price protection liability, accrued expenses, accrued compensation costs, and other current liabilities.
The Company’s long-term debt is not recorded at fair value on a recurring basis but is measured at fair value for disclosure purposes (Note 8).
Included in other long-term assets as of December 31, 2023 were investments in a privately held entity of $11.8 million, which were impaired in the three months ended September 30, 2024. The Company does not have the ability to exercise significant influence or control over such entity and had accounted for the investments as financial instruments. Given that fair values for such investments were not readily determinable, the Company had elected to measure these investments at cost, less any impairment, and adjust the carrying value to fair value if any observable price changes for similar investments in the same entity are identified. The impairment loss of $11.8 million is included in other expense in the consolidated statement of operations for the three and nine months ended September 30, 2024.