Note 14 - Fair Value Measurements

6 Months Ended

Jun. 30, 2020

Notes to Financial Statements

Fair Value Disclosures [Text Block]

14. Fair Value Measurements

The fair value accounting guidance requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:

• Level 1 — Quoted prices in active markets for identical assets or liabilities.

• Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

• Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

Level 1 assets being measured at fair value on a recurring basis as of June 30, 2020 included our short-term investment and short-duration bond mutual fund accounts.

We had no Level 2 assets being measured at fair value on a recurring basis as of June 30, 2020. 

As discussed in Note 4, several of our acquisition-related assets and liabilities have been measured using Level 3 techniques. During 2019, we recorded contingent liabilities associated with our acquisition of the CardioCel and VascuCel patch business from Admedus. The agreement included the potential for us to pay up to $7.8 million of additional consideration beyond payments made at closing, with $0.3 million contingent upon the delivery of audited financial statements of the acquired business to us, which was paid in November 2019; $2.0 million contingent on LeMaitre Vascular’s success in obtaining CE marks on the acquired products, $0.5 million contingent upon Admedus’ success in extending the shelf life of the acquired products as specified in the agreement, and another $5.0 million contingent on the achievement of specified levels of revenues in the first 12 and 24 months following the acquisition date. This additional contingent consideration was initially valued in total at $2.3 million and is being re-measured each reporting period until the payment requirement ends, with any adjustments reported in income from operations.

On June 22, 2020, we acquired the bovine carotid artery graft business from Artegraft. The agreement includes the potential for us to pay up to $17.5 million of additional consideration beyond payments made at closing, contingent on the achievement of specified unit sales during each of the years ended December 31, 2021, 2022 and 2023. The agreement includes a catch-up feature under which, if cumulative unit sales over the three-year period are at least 80% of the sum of the individual annual targets, the earn-out would be paid at that percentage of the maximum $17.5 million payout. This liability was recorded at an acquisition-date fair value of $0.4 million to reflect management’s estimate of the likelihood of achieving these targets, as well as the time value of money until payment, and will be re-measured each reporting period until the payment requirement ends, with any adjustments reported in income from operations.

The following table provides a rollforward of the fair value of these liabilities, as determined by Level 3 unobservable inputs including management’s forecast of future revenues for the acquired business, management’s estimate of the likelihood of obtaining CE marks on the acquired products, and management’s estimate of Admedus’ ability to extend the shelf life of the acquired products.

	Six months ended June 30,
	2020		2019
	(in thousands)
Beginning balance	$	1,765	$	72
Additions		406		-
Payments		-		(59	)
Change in fair value included in earnings		57		(13	)
Ending balance	$	2,228	$	-