Fair Value Measurements

3 Months Ended

Mar. 31, 2022

2.Fair Value Measurements

Assets and liabilities measured at fair value on a recurring basis

The following financial assets and liabilities are measured at fair value on a recurring basis. The fair values recognized in the accompanying consolidated balance sheets and the level within the fair value hierarchy in which the fair value measurements fall is as follows (in thousands):

			Fair Value Measurements Using
			Quoted Prices		Significant
			in Active		Other		Significant
			Markets for		Observable		Unobservable
	Fair		Identical Assets		Inputs		Inputs
March 31, 2022	Value		(Level 1)		(Level 2)		(Level 3)
Money market funds	$	1,405,965	$	1,405,965	$	—	$	—
Available-for-sale securities:
U.S. treasury securities		359		359		—		—
Earnouts related to business combinations		96,757		—		—		96,757

			Fair Value Measurements Using
			Quoted Prices		Significant
			in Active		Other		Significant
			Markets for		Observable		Unobservable
	Fair		Identical Assets		Inputs		Inputs
December 31, 2021	Value		(Level 1)		(Level 2)		(Level 3)
Money market funds	$	1,439,522	$	1,439,522	$	—	$	—
Available-for-sale securities:
U.S. treasury securities		370		370		—		—
Earnouts related to business combinations		113,978		—		—		113,978

Earnout Liability

Earnout liabilities recorded in connection with an acquisition accounted for as a business combination under ASC 805 are recorded at estimated fair value on a recurring basis. Business combinations included in the earnout liabilities table below are discussed in Note 4. Earnouts recorded in connection with asset acquisitions are recorded as earnout payments become known and are not remeasured on a recurring basis. As such, earnouts related to asset acquisitions, which are discussed in Note 6, are not included in these fair value disclosures.

Earnout liabilities related to business combinations are classified as Level 3 liabilities because the Company uses unobservable inputs to value them, reflecting its assessment of the assumptions market participants would use to value these liabilities. Changes in the fair value of earnout liabilities related to business combinations are recorded in fair value changes in earnout liabilities and included in total other income (expense), net in the consolidated statements of operations.

The Company estimates the fair value of earnout liabilities for business combinations using either probability-weighted discounted cash flows and Monte Carlo simulations or a scenario-based approach.

The following table provides summary information of the assumptions used to calculate the estimated earnout liabilities related to 2021 and 2020 acquisitions (in thousands):

						Discount Rate as of				Balance as of		Balance as of
Acquisition	Year of Acquisition		Earnout Target	Method	Earnout Period	March 31, 2022				March 31, 2022		December 31, 2021
CrowdReason		2021	Specific revenue growth thresholds through October 2024, a cap of $30.0 million is available; to be settled in cash.	Probability-weighted discounted cash flows and Monte Carlo simulation	October 2024		5.0	%	(a)	$	24,368	$	26,320
Track1099		2021	Specific revenue growth thresholds through April 2023, with a cap of $12.5 million; to be settled in cash.	Probability-weighted discounted cash flows and Monte Carlo simulation	April 2023		10.0	%	(a)		6,570		7,880
Davo		2021	Specific revenue growth thresholds through March 2023, with no cap; to be settled in cash.	Probability-weighted discounted cash flows and Monte Carlo simulation	March 2023		8.0	%	(a)		34,940		35,885
Transaction Tax Resources (“TTR”)		2020	Specific revenue growth thresholds through December 2022, with cap of $26.4 million; to be settled in cash.	Probability-weighted discounted cash flows and Monte Carlo simulation	December 2022		15.0	%	(c)		11,910		24,830
Business Licenses		2020	Achievement of certain performance metrics through November 2024, with cap of $20.7 million; to be settled in common stock.	Scenario-based approach	November 2024		6.2	%	(b)		18,969		19,063
Balance end of period										$	96,757	$	113,978

(a) The discount rate was calculated using the build-up method with a risk-free rate commensurate with the term of the earnout based on the equity, asset and revenue betas, size premium, and the Company’s specific risk premium, as well as the market risk premium using a bottom-up approach.
(b) The discount rate was based on the Company's estimated credit yield. The Business Licenses earnout was assumed by management to have a high probability of achievement.
(c) $13.2 million was paid on March 2, 2022 in satisfaction of the first earnout period for TTR. The second earnout period, if achieved, is payable in March 2023. The discount rate of 15% was only used for revenue that was non-contracted as of March 31, 2022. The discount rate of 15% was calculated using the build-up method with a risk-free rate commensurate with the term of the earnout based on the equity, asset and revenue betas, size premium, and the Company’s specific risk premium, as well as the market risk premium using a bottom-up approach. For contracted revenue, no risk adjusted discount rate was assumed, other than the cost of debt, as it is not subject to forecasting uncertainty.

A reconciliation of the beginning and ending balances of recurring fair value measurements recognized in the accompanying consolidated balance sheets using significant unobservable (Level 3) inputs, is as follows (in thousands):

	For the Three Months Ended March 31,
	2022			2021
Earnout liabilities related to business combinations:
Balance beginning of period	$	113,978		$	34,501
Measurement period adjustments		—			1,802
Payments of earnout liabilities		(13,220	)		—
Fair value changes included in total other expense (income), net		(4,001	)		1,350
Balance end of period	$	96,757		$	37,653

Assets and liabilities measured at fair value on a non-recurring basis

The Company’s non-financial assets and liabilities, which include goodwill, intangible assets, long-lived assets and deferred revenue, and the Company’s liabilities for the accrued purchase price related to acquisitions, are not required to be measured at fair value on a recurring basis. The estimation of fair value for these assets and liabilities requires the use of significant unobservable inputs, and as a result, the Company classifies these assets and liabilities as Level 3 within the fair value hierarchy.

Fair Value of Other Financial Instruments

The Company has $977.5 million in principal amount of the 2026 Notes. See Note 9 for further details. The Company carries the 2026 Notes at par value less unamortized debt issuance costs on its consolidated balance sheet as of March 31, 2022, and December 31, 2021, and presents the fair value for disclosure purposes only. The estimated fair value of the 2026 Notes, based on a market approach as of March 31, 2022, was approximately $837.1 million, which represents a Level 2 valuation estimate. The estimated fair value was determined based on the actual bids and offers of the 2026 Notes in an over-the-counter market on the last trading day of the quarter.

- 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.

+ References + Details