Fair Value Measurements

6 Months Ended

Jun. 30, 2022

Fair Value Disclosures [Abstract]

Fair Value Measurements

12. Fair Value Measurements

ASC 820, Fair Value Measurements and Disclosures (“ASC 820”), defines fair value as the price that would be received for an asset, or paid to transfer a liability, in an orderly transaction between market participants on the measurement date, and establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value as follows:

Level 1 - Observable inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2 - Other inputs that are directly or indirectly observable in the marketplace.

Level 3 - Unobservable inputs that are supported by little or no market activity, including the Company’s own assumptions in determining fair value.

The Company’s financial assets and liabilities subject to the three-level fair value hierarchy consist principally of cash and equivalents, short-term investments, accounts receivable, accounts payable, long-term and short-term debt and contingent consideration payable. The estimated fair value of cash included in cash and cash equivalents, accounts receivable and accounts payable approximates their carrying value due to due to their short maturities (less than 12 months).

Debt

The Company’s short- and long-term debt are recorded at their carrying values in the condensed consolidated balance sheets, which may differ from their respective fair values. The carrying values and estimated fair values of the Company’s short- and long-term debt approximate their carrying values as of June 30, 2022 and December 31, 2021, based on interest rates currently available to the Company for similar borrowings.

Money market funds (included in cash and cash equivalents)

Money market funds are recorded at fair value using quoted market prices in active markets and are classified as Level 1 in the fair value hierarchy.

Short-term investments

The Company utilizes a third-party pricing service for the valuation of its short-term investments. U.S. treasuries consist of short-term treasury bills that are recorded at fair value using market information obtained from dealers and brokers and classified in Level 2 of the fair value hierarchy. Commercial paper is carried at fair value, which is determined using a market yield curve-based approach based on observable inputs. Commercial paper is classified as Level 2 in the fair value hierarchy.

Derivative financial instruments

Currently, the Company uses interest rate swaps to manage interest rate risk. The valuation of these instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities.

To comply with the provisions of ASC 820, the Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements.

Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparties. The Company has determined that the significance of the impact of the credit valuation adjustments made to its derivative contracts, which determination was based on the fair value of each individual contract, was not significant to the overall valuation. As a result, all of its derivatives held as of June 30, 2022 were classified as Level 2 in the fair value hierarchy.

Contingent consideration

The deferred consideration that resulted from the acquisition of Analytical Wizards in the first quarter of 2022, which is subject to the meeting of certain expense control metrics during the two-year period following the AW acquisition, is measured at fair value on a recurring basis. The fair value was estimated based on the present value of the amount expected to be paid at the end of the measurement period. At June 30, 2022, the fair value of the contingent consideration was estimated to be $1.0 million and is included in other long-term liabilities on the condensed consolidated balance sheet.

The contingent consideration that resulted from the earn-outs associated with the acquisition of Monocl Holding Company in October of 2020, which was included in accrued expense and other current liabilities in the condensed consolidated balance sheet as of December 31, 2021 was paid in the first quarter of 2022.

Earnout liabilities are classified within Level 3 in the fair value hierarchy because the methodology used to develop the estimated fair value includes significant unobservable inputs reflecting management’s own assumptions. The table below presents a reconciliation of earnout liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3):

(in thousands)	June 30, 2022			December 31, 2021
Balance at beginning of period	$	7,500		$	5,236
Additions		1,000			—
Net change in fair value and other adjustments		—			3,764
Payments		(7,500	)		(1,500	)
Balance at end of period	$	1,000		$	7,500

Non-recurring fair value measurements

Certain assets and liabilities, including property, plant and equipment, lease right-of-use assets, goodwill and other intangible assets, are measured at fair value on a non-recurring basis. These assets are remeasured when the derived fair value is below the carrying value on the Company’s condensed consolidated balance sheet. For these assets, the Company does not periodically adjust carrying value to fair value except in the event of impairment. When impairment has occurred, the Company measures the required charges and adjusts the carrying value as discussed in Note 2. Summary of Significant Accounting Policies of the notes to the consolidated financial statements in the Company’s 2021 Form 10-K.

During the three and six months ended June 30, 2022, in relation to our office relocations, the Company recorded an impairment charge of $1.0 million, comprised of $0.9 million relating to the operating lease right-of-use assets, and $0.1 million relating to the leasehold improvements. The fair value determination was based on valuation techniques using the best information available and included comparable market information and discounted cash flow projections.

At June 30, 2022, additional assets and liabilities measured at fair value on a recurring basis were as follows:

(in thousands)	Total		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents:
Money market funds	$	432	$	432	$	—	$	—
Commercial paper (maturities less than 90 days)		7,990		—		7,990		—
Short-term investments:
U.S. Treasuries		59,894		—		59,894		—
Commercial paper		58,322		—		58,322		—
Prepaid expenses and other current assets:
Interest rate swap contracts		1,453		—		1,453		—
Other Assets:
Interest rate swap contracts		1,887		—		1,887		—
Liabilities:
Other long-term liabilities:
Contingent consideration		1,000		—		—		1,000

At December 31, 2021, except for the contingent consideration noted above, the estimated fair values of all of the Company’s financial assets and liabilities subject to the three-level fair value hierarchy approximated their carrying values due to their short-term maturities (less than 12 months).