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Fair Value Measurement

9 Months Ended

Sep. 30, 2021

(3) Fair Value Measurement

The Company utilizes a fair value hierarchy that is intended to increase consistency and comparability in fair value measurements and related disclosures. The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity’s pricing based upon their own market assumptions. The fair value hierarchy consists of the following three levels:

Level 1

Inputs are quoted prices in active markets for identical assets or liabilities.

Level 2

Inputs are quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable and market-corroborated inputs which are derived principally from or corroborated by observable market data.

Level 3

Inputs are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable.

Assets and Liabilities Measured at Fair Value on a Recurring Basis:

The carrying values of financial instruments such as cash and cash equivalents, restricted cash, accounts and other receivables, accounts payable and accrued liabilities approximate their fair values based on their short-term nature.

The Company classifies its contingent liability within Level 3 as it includes inputs not observable in the market. The Company estimates the fair value of contingent consideration as the present value of the expected contingent payments, determined using the revenue forecast for certain Optelian products through the end of 2023. The fair value of contingent liability is generally sensitive to changes in the revenue forecast. Refer to Note 2 Business Combinations for further information.

The following tables present information about the Company’s assets and liabilities that are measured at fair value on a recurring basis using the above input categories (in thousands):

	September 30, 2021
	Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	45,505		-		-	$	45,505
Restricted cash		6,884		-		-		6,884
Contingent liability		-		-		2,116		2,116
Total	$	52,389	$	-	$	2,116	$	54,505

	December 31, 2020
	Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	45,219		-		-	$	45,219
Restricted cash		9,200		-		-		9,200
Total	$	54,419	$	-	$	-	$	54,419

The change in fair value of the Company’s contingent liability is included in selling, marketing, general and administrative expenses on the unaudited condensed consolidated statement of comprehensive income (loss). The following table reconciles the beginning and ending balances of the Company’s Level 3 contingent liability (in thousands):

	Nine Months Ended
	September 30, 2021
Balance at the beginning of the period	$	-
Initial fair value of contingent liability		1,897
Net change in fair value		219
Balance at the end of the period	$	2,116

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis:

In conjunction with the restructuring in Hanover, Germany and the headquarters relocation to Plano, Texas, we wrote down certain long-lived assets held and used to their fair value of $0.2 million, resulting in an impairment charge of $4.5 million, which was included in earnings for the period. The impaired long-lived assets primarily consisted of right-of-use assets, and we used estimated sub-lease payment data to fair value the respective assets. We concluded that this fair value measurement should be categorized within Level 2.

- 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.

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