Fair Value Measures

3 Months Ended

Mar. 31, 2023

Fair Value Measures [Abstract]

Fair Value Measures

Note 4 — Fair Value Measures

Fair Values of Assets and Liabilities

In accordance with ASC Topic 820 “Fair Value Measurement”, the Company measures fair value at the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, the assumptions that market participants would use in pricing an asset or liability (the inputs) are based on a tiered fair value hierarchy consisting of three levels, as follows:

Level 1:	Observable inputs such as quoted prices for identical assets or liabilities in active markets.
Level 2:	Other inputs that are observable directly or indirectly, such as quoted prices for similar instruments in active markets or for similar markets that are not active.
Level 3:	Unobservable inputs for which there is little or no market data which require the Company to develop its own assumptions about how market participants would price the asset or liability.

Valuation techniques for assets and liabilities include methodologies such as the market approach, the income approach or the cost approach, and may use unobservable inputs such as projections, estimates and management’s interpretation of current market data. These unobservable inputs are only utilized to the extent that observable inputs are not available or cost-effective to obtain.

At March 31, 2023 and December 31, 2022, the Company’s assets and liabilities measured at fair value on a recurring basis were as follows:

	March 31, 2023								December 31, 2022
	Fair Value Measurements Using Input Types								Fair Value Measurements Using Input Types
(In thousands)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Mutual funds (included in cash and cash equivalents)	$	—	$	—	$	—	$	—	$	33	$	—	$	—	$	33
Money market funds		4		—		—		4		—		—		—		—
Cash receivables		10		—		—		10		—		—		—		—
Corporate bonds		—		—		—		—		427		—		—		427
Total assets	$	14	$	—	$	—	$	14	$	460	$	—	$	—	$	460
Liabilities:
Warrant liabilities - January 2022 warrants	$	—	$	—	$	6	$	6	$	—	$	—	$	4	$	4
Warrant liabilities - March 2022 warrants		—		—		29		29		—		—		34		34
Warrant liabilities - August 2022 warrants		—		—		71		71		—		—		93		93
Warrant liabilities - December 2022 warrants		—		—		3,207		3,207		—		—		5,854		5,854
Total liabilities	$	—	$	—	$	3,313	$	3,313	$	—	$	—	$	5,985	$	5,985

Fair Value of Financial Instruments

The Company has certain financial instruments which consist of cash and cash equivalents, marketable securities, warrant liabilities, and contingent consideration. Fair value information for each of these instruments as well as other balances of the Company are as follows:

● Cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and deferred revenue liabilities approximate their fair values, based on the short-term nature of these instruments.

● Marketable securities classified as current held-to-maturity securities are recorded at amortized cost, which at March 31, 2023, approximated fair value.

● The Company’s deferred consideration was recorded in connection with acquisitions during the three months ended March 31, 2023 and fiscal 2022 using an estimated fair value discount at the time of the transactions. As of March 31, 2023 and December 31, 2022, the carrying value of the deferred consideration approximated fair value, respectively.

● The Company’s warrant liabilities are marked-to-market each reporting period with the changes in fair value of warrant liabilities recorded in other income (expense), net in the accompanying consolidated statements of operations until the warrants are exercised. The fair value of the warrant liabilities are estimated using a Black-Scholes option-pricing model.

Marketable Securities

As of March 31, 2023, the Company held investments in, municipal bonds and corporate bonds. The municipal and corporate bonds are considered held-to-maturity securities and are recorded at amortized cost in the accompanying consolidated balance sheet. The fair values of these investments were estimated using recently executed transactions and market price quotations. The Company considers current assets as those investments which will mature within the next 12 months including, interest receivable on long-term bonds.

The composition of the Company’s marketable securities are as follows:

(In thousands)	March 31, 2023		December 31, 2022
Current marketable securities:
Money market funds	$	4	$	—
Cash receivables		10		—
Corporate bonds		—		427
Mutual funds		—		33
	$	14	$	460

Contingent Consideration

The Company has classified its net liability for contingent earn-out considerations to the sellers relating to one acquisition completed during the first quarter of 2022 and two acquisitions completed during fiscal 2021. The fair value for the contingent consideration associated with these acquisitions is within Level 3 of the fair value hierarchy because the associated fair value is determined using significant unobservable inputs, which included the key assumptions to model future revenue, costs of goods sold and operating expense projections. The company recorded no change in contingent consideration for the three months ended March 31, 2023 The contingent earn-out payments to the sellers for each acquisition are based on the achievement of certain revenue thresholds.

(In thousands)	Three months ended March 31, 2023		Year ended December 31, 2022
Contingent consideration – beginning of period	$	—	$	6,137
Accrued contingent consideration		—		1,420
Accretion of contingent consideration		—		149
Payments made on contingent liabilities		—		(5,550	)
Change in estimated fair value		—		(2,156	)
Contingent consideration – end of period	$	—	$	—

The Company included contingent consideration within accrued expenses and other current liabilities on its consolidated balance sheets as of March 31, 2023 and December 31, 2022.

See below for additional information related to each acquisition’s contingent consideration.

Contingent Consideration – PurePressure

The Company, in its review of actual revenue performance as compared to its originally projected revenue estimates, noted that PurePressure’s revenue trend is materially below the originally estimated revenue trends incorporated into the Company’s original fair value estimates at the time of the acquisition. As a result, the Company has reduced its fair value estimate of achievement for PurePressure’s first earn-out period. During the third quarter ended September 30, 2022, the Company reduced the estimated fair value of the contingent consideration liability associated with PurePressure’s first earn-out period by approximately $602 thousand and their second earn-out by approximately $170 thousand. As required by ASC Topic 805 Business Combination (“ASC 805”), the change in contingent consideration was recorded as a reduction in operating expenses during the third and fourth quarters of 2022, respectively.

Contingent Consideration – Lab Society

The Company, in its review of actual revenue performance as compared to its originally projected revenue estimates, noted that Lab Society’s revenue trend is materially below the originally estimated revenue trends incorporated into the Company’s original fair value estimates at the time of the acquisition. As a result, the Company has reduced its fair value estimate of achievement for Lab Society’s first earn-out period. During the second quarter ended June 30, 2022, the Company reduced the estimated fair value of the contingent consideration liability associated with Lab Society’s first earn-out period by approximately $1.0 million and their second earn-out by approximately $484 thousand. As required by ASC 805, the change in contingent consideration was recorded as a reduction in operating expenses during the second and fourth quarters of 2022, respectively.

Contingent Consideration – Precision and Cascade

The earn-out period for the potential contingent consideration to be earned by the former members of Precision and Cascade concluded on December 31, 2021. The Company, during the second quarter of 2022, increased the amount of the contingent consideration earned by the former members of Precision and Cascade by approximately $121 thousand, to reflect the final contingent consideration amount due. This amount was recorded as an increase in operating expenses during the second quarter of 2022. During the period ended December 31, 2022, the Company made the final payment on the contingent consideration of approximately $5.6 million to the members of Precision and Cascade.

Warrant Liabilities

The estimated fair value of the warrant liabilities on March 31, 2023 is determined using Level 3 inputs. Inherent in a Black-Scholes option-pricing model are assumptions used in calculating the estimated fair values represent the Company’s best estimate. The volatility rate is determined utilizing the Company’s own share price and the share price of competitors over time.

January 2022 Warrants

The following table summarizes the Company’s assumptions used in the valuation as of March 31, 2023 and for the year ended December 31, 2022:

	As of March 31, 2023			December 31, 2022
Stock price	$	3.40		$	6.66
Exercise price	$	1,496.00		$	1,496.00
Expected term (in years)		4.32			4.58
Volatility		126.00	%		98.30	%
Discount rate - treasury yield		3.67	%		4.05	%

The following table sets forth a summary of the changes in the fair value of the Level 3 warrant liabilities for the three months ended March 31, 2023:

(In thousands)	Three months ended March 31, 2023
Warrant liabilities – beginning of period	$	4
Change in estimated fair value		2
Warrant liabilities – end of period	$	6

March 2022 Warrants

The following table summarizes the Company’s assumptions used in the valuation as of March 31, 2023 and for the year ended December 31, 2022:

	As of March 31, 2023			December 31, 2022
Stock price	$	3.40		$	6.66
Exercise price	$	430.00		$	430.00
Expected term (in years)		4.88			5.13
Volatility		123.00	%		97.96	%
Discount rate - treasury yield		3.61	%		3.99	%

The following table sets forth a summary of the changes in the fair value of the Level 3 warrant liabilities for the three months ended March 31, 2023:

(In thousands)	Three months ended March 31, 2023
Warrant liabilities – beginning of period	$	34
Change in estimated fair value		(5	)
Warrant liabilities – end of period	$	29

August 2022 Warrants

The following table summarizes the Company’s assumptions used in the valuation as of March 31, 2023 and for the year ended December 31, 2022:

	As of March 31, 2023			December 31, 2022
Stock price	$	3.40		$	6.66
Exercise price	$	246.00		$	246.00
Expected term (in years)		4.88			5.13
Volatility		123.00	%		97.96	%
Discount rate - treasury yield		3.61	%		3.99	%

The following table sets forth a summary of the changes in the fair value of the Level 3 warrant liabilities for the three months ended March 31, 2023:

(In thousands)	Three months ended March 31, 2023
Warrant liabilities – beginning of period	$	93
Change in estimated fair value		(22	)
Warrant liabilities – end of period	$	71

December 2022 Warrants

The following table summarizes the Company’s assumptions used in the valuation as of March 31, 2023 and for the year ended December 31, 2022:

	As of March 31, 2023			December 31, 2022
Stock price	$	3.40		$	6.66
Exercise price	$	13.00		$	13.00
Expected term (in years)		4.88			4.98
Volatility		123.00	%		98.00	%
Discount rate - treasury yield		3.61	%		3.99	%

The following table sets forth a summary of the changes in the fair value of the Level 3 warrant liabilities for the three months ended March 31, 2023:

(In thousands)	Three months ended March 31, 2023
Warrant liabilities – beginning of period	$	5,854
Change in estimated fair value		(2,647	)
Warrant liabilities – end of period	$	3,207