FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

9 Months Ended

Sep. 30, 2022

FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

5.      FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table summarizes the Company’s Fair Value Hierarchy for its financial assets and liabilities measured at fair value on a recurring basis:

	Fair Value Measurements Using
As of September 30, 2022 (unaudited)	Fair Value		Prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Money Market Funds	$	38,553	$	38,553	$	—	$	—
Commercial Paper		9,529		—		9,529		—
Corporate Bonds		199		—		199		—
U.S. Treasury Securities		4,904		—		4,904		—
Tellutax Contingent Consideration		(4,500)		—		—		(4,500)
Foreign currency forward contracts		416		—		416		—
	Fair Value Measurements Using
As of December 31, 2021	Fair Value		Prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Money Market Funds	$	3,201	$	3,201	$	—	$	—
Tellutax Contingent Consideration		(2,500)		—		—		(2,500)
Foreign currency forward contracts		(62)		—		(62)		—

The Company has investments in Money Market Funds, which are included in cash and cash equivalents on the condensed consolidated balance sheets. Fair value inputs for these investments are considered Level 1 measurements within the Fair Value Hierarchy since Money Market Fund fair values are known and observable through daily published floating net asset values. Securities classified as available-for-sale are reported at fair value using Level 2 inputs. For the Commercial Paper, Corporate Bonds and U.S. Treasury Securities, the Company believes that Level 2 designation is appropriate under ASC 820-10, as these securities are fixed income securities, none are exchange traded, and all are priced by correlation to observed market data. For these securities the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, U.S. government and agency yield curves, live trading levels, trade execution data, market consensus prepayment speeds, credit information, and the security’s terms and conditions, among other factors.

In connection with the January 2021 Tellutax LLC (“Tellutax”) acquisition, the sellers are entitled to contingent consideration if sales targets are met during a period of time following the acquisition (the “Tellutax Contingent Consideration”).

The Tellutax Contingent Consideration is based on three potential earn-out payments determined by periodic revenue achievements over a thirty-month period. Such estimate represents a recurring fair value measurement with significant unobservable inputs, which management considers to be Level 3 measurements under the Fair Value Hierarchy. The significant assumptions used in these calculations included forecasted results and the estimated likelihood for each performance scenario. The fair value of Tellutax Contingent Consideration is estimated using a Monte Carlo Simulation to compute the expected cash flows from the payments specified in the purchase agreement. Such payments have no maximum limit, but if certain targets are not met, there will be no payment for the applicable measurement period.

A fair value adjustment of $1,300 and $2,000 was recorded in other operating expense, net for the three and nine months ended September 30, 2022, respectively. At September 30, 2022, the Tellutax Contingent Consideration of $1,400 and $3,100 is included in purchase commitment and contingent consideration liabilities, current, and purchase commitment and contingent consideration liabilities, net of current portion, respectively, in the condensed consolidated balance sheets. At December 31, 2021, the Tellutax Contingent Consideration of $2,500 is included in purchase commitment and contingent consideration liabilities, net of current portion in the condensed consolidated balance sheets.

Tellutax Contingent Consideration fair value as of September 30, 2022 and December 31, 2021 and unobservable inputs used for the Monte Carlo Simulation valuation were as follows:

	September 30, 2022
Liability	Fair Value		Valuation Technique	Unobservable Inputs
Tellutax Contingent Consideration	$	(4,500)	Monte Carlo Simulation	Revenue volatility	75.0	%
				Revenue discount rate	22.2	%
				Term (in years)	2.6
	December 31, 2021
Liability	Fair Value		Valuation Technique	Unobservable Inputs
Tellutax Contingent Consideration	$	(2,500)	Monte Carlo Simulation	Revenue volatility	95.0	%
				Revenue discount rate	20.0	%
				Term (in years)	3.6

Changes in the fair value of Tellutax Contingent Consideration during the nine months ended September 30, 2022 were as follows:

	Tellutax
	Contingent
	Consideration
Balance, January 1, 2022	$	(2,500)
Fair value adjustments		(2,000)
Balance, September 30, 2022	$	(4,500)

Assets and Liabilities for Which Fair Value is Only Disclosed

The carrying amounts of cash and cash equivalents and funds held for customers were the same as their respective fair values and are considered Level 1 measurements.

The carrying amount for floating rate debt approximates its fair value, as the calculation of fair value is dependent on the estimation of future interest rates and is considered a Level 2 measurement.

Non-recurring Fair Value Measurements

The LCR-Dixon acquisition on September 22, 2021, the acquisition of EVAT and its wholly owned subsidiaries (collectively, “Taxamo”) on May 12, 2021, the Tellutax acquisition on January 25, 2021, and the Systax acquisition on January 10, 2020, were accounted for as business combinations and the total purchase price for each acquisition was allocated to the net assets acquired and liabilities assumed based on their estimated fair values.

Deferred purchase consideration associated with the LCR-Dixon acquisition was $19,724 and $39,224 at September 30, 2022 and December 31, 2021, respectively.  See Note 3, “Business Combinations”, for additional information on such amounts.

The Company has a contractual commitment to acquire the remaining equity interest from the original Systax Quotaholders incrementally through 2024. Future purchase commitment payments for these incremental acquisition amounts are based on a multiple of Systax revenue and earnings before interest, depreciation, amortization and income taxes (“EBITDA”) performance at the end of 2022 and 2023, whereby the Company will have full ownership after the final transaction in 2024. Management determined these future purchase commitments to be a forward contract, resulting in the Company being required to estimate and record an estimated future purchase commitment amount (the “Purchase Commitment Liability”) in connection with recording the initial purchase. The fair value of the Purchase Commitment Liability at the acquisition date was finalized to be $12,592. This amount will fluctuate as a result of changes in foreign currency exchange rates and is reflected in purchase commitment and contingent consideration liabilities in the condensed consolidated balance sheets, with such changes in exchange rates being reflected in other comprehensive loss or income in the condensed consolidated statements of comprehensive loss. Adjustments to the settlement date value that arise as a result of remeasurement at future balance sheet dates will be recorded as interest expense related to financing costs in the

condensed consolidated statements of comprehensive loss in the period the change is identified. No such adjustments have been recorded through September 30, 2022.

The Purchase Commitment Liability included in purchase commitment and contingent consideration liabilities, current and purchase commitment and contingent liabilities, net of current portion in the condensed consolidated balance sheet at September 30, 2022 was $3,682 and $4,909, respectively. The remaining Purchase Commitment Liability is included in purchase commitment and contingent consideration liabilities, net of current portion in the condensed consolidated balance sheet at December 31, 2021 was $8,329.

The carrying amounts of both the LCR-Dixon deferred purchase consideration and the Systax Purchase Commitment Liability amounts discussed above approximated their respective fair values at such dates and are considered Level 3 non-recurring fair value measurements.

Derivative Instruments

The Company may periodically enter into derivative contracts to reduce our exposure to foreign currency exchange rates. Historically, the Company has not designated derivative contracts as hedges. Such derivative contracts are typically designed to manage specific risks according to our strategies, which may change from time to time.

The Company entered into a series of foreign currency forward contracts to reduce our exposure to adverse fluctuations in the Brazilian Real associated with a portion of the Systax Purchase Commitment Liability. Such forward contracts, have not been designated as a hedge, do not qualify for hedge accounting and are not material to our condensed consolidated financial statements. These forward contacts are remeasured at fair value on a recurring basis and are included in other assets in our condensed consolidated balance sheets with changes in their estimated fair value recognized as interest expense in our condensed consolidated statements of comprehensive loss. Our fair value determinations are based on foreign currency exchange rates in active markets, which are considered to be Level 2 measurements within the Fair Value Hierarchy.