Fair Value Measurements

9 Months Ended

Sep. 30, 2019

Fair Value Measurements

Fair Value Measurements

16.     Fair Value Measurements

The Company’s financial instruments consist of accounts receivable, contract assets, accounts payable, contract liabilities, accrued expenses, acquisition-related contingent consideration, and long-term debt. The carrying values of accounts receivable, contract assets, accounts payable, contract liabilities and accrued expenses are representative of their fair value due to the relatively short-term nature of those instruments. The carrying value of the Company’s line of credit approximates fair value based on the terms of the debt arrangement. See below for additional information on the Company’s convertible senior subordinated notes.

The Company has classified liabilities measured at fair value on a recurring basis at September 30, 2019 and December 31, 2018 as follows:

	Fair Value Measurement
	at Reporting Date Using
							Balance as of
	Level 1		Level 2		Level 3		September 30, 2019
Liabilities
Acquisition-related contingent consideration - long-term	$	—	$	—	$	11,500	$	11,500

	Fair Value Measurement
	at Reporting Date Using
							Balance as of
	Level 1		Level 2		Level 3		December 31, 2018
Liabilities
Acquisition-related contingent consideration - short-term	$	—	$	—	$	43,397	$	43,397
Acquisition-related contingent consideration - long-term		—		—		7,800		7,800
	$	—	$	—	$	51,197	$	51,197

Acquisition-related contingent consideration is measured at fair value on a recurring basis using unobservable inputs, hence these instruments represent Level 3 measurements within the fair value hierarchy. The acquisition-related contingent consideration liability represents the estimated fair value of the additional cash and equity consideration payable that is contingent upon the achievement of certain financial and performance milestones. In accordance with Accounting Standards Codification 805, Business Combinations, all changes in liability-classified contingent consideration subsequent to the initial acquisition-date measurement are recorded in net income or loss.

In connection with the acquisition of the SRx business, additional contingent consideration was payable by the Company based on SRx’s EBITDA, as defined in the merger agreement, multiplied by a variable EBITDA multiple, which was based on a formula as set forth in the merger agreement. The SRx acquisition-related contingent consideration, which was liability-classified, was recorded at the estimated fair value at the acquisition date of September 6, 2017. The Company, with the assistance of a third-party appraiser, utilized a Monte Carlo simulation to derive estimates of the contingent consideration payments as of the acquisition date and at each subsequent period. During the three months ended September 30, 2018, the Company recorded a $8,319 remeasurement gain for the change in the fair value of the SRx acquisition-related contingent consideration primarily based on a decrease in SRx’s projected EBITDA for the year. During the nine months ended September 30, 2018, the Company recorded a $40,069 charge for the change in the fair value of the SRx acquisition-related contingent consideration primarily based on an increase in the projected EBITDA multiple used in the contingent consideration payment calculation as a result of an increase in the Company’s market capitalization. As of December 31, 2018, the fair value of the SRx acquisition-related contingent consideration was calculated to be $81,692, of which $39,774 was equity-classified. During the nine months ended September 30, 2019, the Company recorded a $624 charge for the change in fair value of the final SRx acquisition-related contingent consideration amount. During the first quarter of 2019, the Company made the final cash payment of $43,150 and issued 614,225 shares of its common stock, with a fair value of $39,166, in full satisfaction of the SRx acquisition-related contingent consideration payable.

The Peak PACE acquisition-related contingent consideration, which was liability-classified, was recorded at the estimated fair value at the acquisition date of May 1, 2018. The contingent consideration payable was based on Peak PACE’s EBITDA, as defined in the asset purchase agreement, multiplied by an EBITDA multiple. The Company, with the assistance of a third-party appraiser, utilized a Monte Carlo simulation to derive estimates of the contingent consideration payments as of the acquisition date and at each subsequent period. During the nine months ended September 30, 2019, the Company recorded a $163 charge for the change in the fair value of the Peak PACE acquisition-related contingent consideration amount. The fair value of the Peak PACE acquisition-related contingent consideration was calculated to be $1,479 as December 31, 2018. The Company made the final cash payment of $1,642

in full satisfaction of the Peak PACE acquisition-related contingent consideration payable during the second quarter of 2019.

The Cognify acquisition-related contingent consideration, which is liability-classified, was recorded at the estimated fair value at the acquisition date of October 19, 2018. The contingent consideration payable is based on a multiple of the excess of Cognify’s 2021 revenues and EBITDA over its 2018 revenues and EBITDA, as defined in the stock purchase agreement. The Company, with the assistance of a third-party appraiser, utilizes a Monte Carlo simulation to derive estimates of the contingent consideration payments as of the acquisition date and at each subsequent period. During the three and nine months ended September 30, 2019, the Company recorded a $1,300 and $3,700 charge, respectively, for the change in the fair value of Cognify acquisition-related contingent consideration primarily due to an amendment of the certain definitions used in the calculation of the contingent consideration set forth in the stock purchase agreement and the decreased discount period to the final measurement date. The fair value of the Cognify acquisition-related contingent consideration was calculated to be $11,500 and $7,800 as of September 30, 2019 and December 31, 2018, respectively. The final amount of the contingent consideration liability will be fixed as of December 31, 2021.

The DoseMe acquisition-related contingent consideration, which was liability-classified, was recorded at the estimated fair value at the acquisition date of January 2, 2019. The contingent consideration payable was based on a multiple of DoseMe’s revenues associated with signed contracts during the twelve-month period ending November 30, 2019, as defined in the share purchase deed. The Company, with the assistance of a third-party appraiser, utilized a Monte Carlo simulation to derive estimates of the contingent consideration payments as of the acquisition date and at each subsequent period. During the three and nine months ended September 30, 2019, the Company recorded a $210 and $30 charge, respectively, for the change in fair value of the final DoseMe acquisition-related contingent consideration amount. During the third quarter of 2019, the Company elected to accelerate the payment of the contingent consideration and made a final cash payment of $8,750 in full satisfaction of the DoseMe acquisition-related contingent consideration payable.

The changes in fair value of the Company’s acquisition-related contingent consideration for the nine months ended September 30, 2019 was as follows:

Balance at December 31, 2018	$	51,197
Acquisition date fair value of the DoseMe contingent consideration		8,720
Cash consideration paid		(53,542)
Adjustments to fair value measurement		4,516
Adjustment to reclassify amounts settled in cash (previously reflected in equity)		609
Balance at September 30, 2019	$	11,500

The following table presents the financial instruments that are not carried at fair value but require fair value disclosures as of September 30, 2019:

	Face Value		Carrying Value		Fair Value
1.75% Convertible Senior Subordinated Notes due 2026 (the “2026 Notes”)	$	325,000	$	223,202	$	353,909

The fair value of the 2026 Notes at each balance sheet date is determined based on recent quoted market prices for these notes which is a level 2 measurement. As discussed in Note 11, the 2026 Notes are carried at their aggregate face value of $325,000, less any unaccreted debt discount and unamortized debt issuance costs.