Fair Value Measurements

9 Months Ended

Sep. 30, 2020

The following table presents the Company’s hierarchy for its assets and liabilities measured at fair value on a recurring basis as of the following periods (in thousands):


	September 30, 2020								December 31, 2019
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:

Derivative assets	$	—	$	3	$	—	$	3	$	—	$	321	$	—	$	321
Total assets measured at fair value	$	—	$	3	$	—	$	3	$	—	$	321	$	—	$	321
Liabilities:

Derivative liabilities	$	—	$	1,799	$	—	$	1,799	$	—	$	433	$	—	$	433

Contingent consideration	—		—		11,340		11,340		—		—		16,535		16,535
Deferred consideration	—		114,408		—		114,408		—		151,382		—		151,382
Total liabilities measured at fair value	$	—	$	116,207	$	11,340	$	127,547	$	—	$	151,815	$	16,535	$	168,350

There were no transfers of assets or liabilities between Level 1, Level 2 and Level 3 categories of the fair value hierarchy during the three and nine-month periods ended September 30, 2020 and the year ended December 31, 2019.

Derivative financial instruments are measured based on observable inputs that are corroborated by market data. Observable inputs include broker quotes and daily market foreign currency rates, forward pricing curves.

In connection with the acquisition of the BNP Business, the Company pays annual installments of $42.0 million each in deferred consideration through April 2023 and up to $8.0 million each in contingent consideration through April 2022. The fair value of the deferred consideration is calculated based on the net present value of cash payments using an estimated borrowing rate based on a quoted price for a similar liability. The Company recorded $1.4 million and $5.0 million, respectively, for the accretion of interest on the deferred consideration during the three and nine months ended September 30, 2020. The fair value of contingent consideration is calculated using a discounted probability weighted valuation model. Significant assumptions used in the measurement include revenue projections and discount rates that are not observed in the market and thus represent Level 3 measurements. The discount rate of 3.5% used as of September 30, 2020 was based on estimated borrowing rate for a similar liability.

Changes in estimated fair value of contingent consideration liabilities from December 31, 2019 through September 30, 2020 were as follows (in thousands):


	Contingent consideration liabilities (Level 3 measurement)
Balance at December 31, 2019	$	16,535
Cash payments	(6,043)
Change in estimated fair value, recorded in general and administrative expenses	848


Balance at September 30, 2020	$	11,340

- 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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