Quarterly report pursuant to Section 13 or 15(d)

Fair Value of Financial Instruments

v3.22.1
Fair Value of Financial Instruments
3 Months Ended
Mar. 31, 2022
Fair Value of Financial Instruments  
Fair Value of Financial Instruments

4. Fair Value of Financial Instruments

Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurement, defines fair value as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is  determined based upon assumptions that market participants would use in pricing an asset or liability. Fair value measurements are rated on a three-tier hierarchy as follows:

Level 1 inputs: Quoted prices (unadjusted) for identical assets or liabilities in active markets;
Level 2 inputs: Inputs, other than quoted prices, included in Level 1 that are observable either directly or indirectly; and
Level 3 inputs: Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions.

In many cases, a valuation technique used to measure fair value includes inputs from multiple levels of the fair value hierarchy described above. The lowest level of significant input determines the placement of the entire fair value measurement in the hierarchy.

The carrying amounts of the Company’s short-term financial instruments, including cash and cash equivalents, other current assets, accounts payable and accrued liabilities approximate fair value due to the relatively short period to maturity for these instruments.

In connection with the acquisition of VCN, we may pay up to $70.2 million in additional consideration related to the achievement of certain milestones, including regulatory filings completed noted in Note 3. The discounted cash flow method used to value this contingent consideration includes inputs of not readily observable market data, which are Level 3 inputs. As of the March 10, 2022 acquisition date, the contingent consideration had a fair value of $12.2 million. The fair value of the contingent consideration was $12.2 million as of March 31, 2022 and is reflected as current accrued contingent consideration of $7.5 million and non-current contingent consideration liability of $4.7 million in the consolidated balance sheet.

The fair value of financial instruments measured on a recurring basis is as follows:

    

As of March 10, 2022

Description

Total

Level 1

Level 2

Level 3

Liabilities:

 

  

 

  

 

  

 

  

Contingent consideration

$

12,159

 

 

$

12,159

    

As of March 31, 2022

Description

Total

Level 1

Level 2

Level 3

Liabilities:

 

  

 

  

 

  

 

  

Contingent consideration

$

12,159

 

 

$

12,159

4. Fair Value of Financial Instruments – (continued)

The recurring Level 3 fair value measurements of contingent consideration for which a liability is recorded include the following significant unobservable inputs:

As of March 10, 2022

 

Valuation

Significant

Weighted Average

 

    

Methodology

    

Unobservable Input

    

(range, if applicable)

 

Contingent Consideration

 

Probability weighted

 

Milestone dates

 

2022-2027

 

income approach

 

  

 

Discount rate

 

7.3% to 8.6%

 

  

 

Weighted Average Discount rate

 

7.77%

 

  

 

Probability of Occurrence (periodic for each Milestone)

 

9.9% to 82.4%

 

  

 

Probability of occurrence (cumulative through each Milestone)

 

5.1% to 62.8%

    

As of March 31, 2022

 

Valuation

Significant

Weighted Average

 

    

Methodology

    

Unobservable Input

    

(range, if applicable)

 

Contingent Consideration

 

Probability weighted

 

Milestone dates

 

2022-2027

income approach

 

 

Discount rate

7.1% to 8.7%

Weighted Average Discount rate

7.78%

Probability of Occurrence (periodic for each Milestone)

9.9% to 82.4%

 

 

Probability of occurrence (cumulative through each Milestone)

5.1% to 62.8%