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Fair Value Measurement

9 Months Ended

Sep. 30, 2022

3. Fair Value Measurement

U.S. GAAP establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The hierarchy is broken down into the following three levels of inputs that may be used to measure fair value:

Level 1—Quoted prices are available in active markets for identical assets or liabilities as of the measurement date.

Level 2—Pricing inputs are other than quoted prices in active market, which are either directly or indirectly observable as of the report date. The nature of these securities includes investments for which quoted prices are available but traded less frequently and investments that are fair valued using other securities, the parameters of which can be directly observed.

Level 3—Securities that have little to no pricing observability as of the report date. These securities are measured using management’s best estimate of fair value, where the inputs into the determination of fair value are not observable and require significant management judgment or estimation.

The carrying values of certain of our financial instruments, including accounts receivable and accounts payable, approximate their fair values due to their short maturities. The following tables summarize our financial assets and financial liabilities that were measured at fair value on a recurring basis, and indicate the fair value hierarchy of the valuation inputs utilized to determine such fair value (in thousands):

	September 30, 2022
	(Level 1)		(Level 2)		(Level 3)		Total

Assets:
Foreign currency forward contracts⁽¹⁾	$	—	$	828	$	—	$	828
Available-for-sale debt securities ⁽²⁾		—		—		1,000		1,000
Total assets	$	—	$	828	$	1,000	$	1,828

Liabilities:
Deferred cash consideration in connection with a business acquisition—SCUF⁽³⁾	$	—	$	—	$	954	$	954
Foreign currency forward contracts⁽¹⁾		—		15		—		15
Total liabilities	$	—	$	15	$	954	$	969

	December 31, 2021
	(Level 1)		(Level 2)		(Level 3)		Total

Assets:
Foreign currency forward contracts⁽¹⁾	$	—	$	33	$	—	$	33
Other		—		3		—		3
Total assets	$	—	$	36	$	—	$	36

Liabilities:
Deferred cash consideration in connection with a business acquisition—SCUF⁽³⁾	$	—	$	—	$	1,250	$	1,250
Foreign currency forward contracts⁽¹⁾		—		427		—		427
Other		—		—		224		224
Total liabilities	$	—	$	427	$	1,474	$	1,901

(1)	The fair values of the forward contracts were based on similar exchange traded derivatives and the related asset or liability is included within Level 2 of the fair value hierarchy.

(2)

In May 2022, we invested in a convertible promissory note issued by a private company (the “Note”) for $1.0 million. The Note is interest bearing and matures in April 2023. The Note is classified as an available-for-sale security and is included in prepaid expenses and other assets in our condensed consolidated balance sheets. We included the Note as Level 3 in the fair value hierarchy due to the absence of quoted market prices or other observable data. The fair value of the Note is estimated based on a qualitative analysis using the most recent observable transaction price and other significant unobservable inputs requiring management judgement.

(3)

In December 2019, one of our subsidiaries entered into an Agreement and Plan of Merger with Scuf Holdings, Inc. and its subsidiaries (collectively “SCUF”) and acquired 100% of their equity interests (the “SCUF Acquisition”). The fair value of the SCUF contingent consideration was determined based on the estimates of acquired tax benefits owed to SCUF’s sellers according to the merger agreement, and these estimates represent a level 3 fair value measurement. The $1.3 million liability as of December 31, 2021 consisted of $0.3 million based on a contractual amount and the remaining $1.0 million is subject to update upon filing our tax return for tax year 2021. In March 2022, we paid the $0.3 million contractual amount, and the contingency around the remaining $1.0 million liability is expected to be resolved in the fourth quarter of 2022 and this amount is expected to be paid by the end of 2022.

- 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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