Our financial assets and (liabilities) carried at fair value and measured on a recurring basis as of March 31, 2023 and December 31, 2022 consisted of the following (in thousands):

(1)	Our marketable securities, which consist entirely of available-for-sale equity securities, are valued using market prices in active markets. Level 1 instrument valuations are obtained from real-time quotes for transactions in active exchange markets involving identical assets.

(2)	The fair value of the interest rate contract is determined using Level 2 fair value inputs and is reported with other long-term assets in the consolidated balance sheets.

(3)

The fair value of the foreign currency contract assets (including those designated as hedging instruments and those not designated as hedging instruments) is determined using Level 2 fair value inputs and is recorded as prepaid expenses and other current assets or other long-term assets in the consolidated balance sheets.

(4)

The fair value of the foreign currency contract liabilities (including those designated as hedging instruments and those not designated as hedging instruments) is determined using Level 2 fair value inputs and is recorded as accrued expenses or other long-term obligations in the consolidated balance sheets.

Certain of our past business combinations involve the potential for the payment of future contingent consideration, generally based on a percentage of future product sales or upon attaining specified future revenue or other milestones. The contingent consideration liability is re-measured at the estimated fair value at the end of each reporting period with the change in fair value recognized within operating expenses in the accompanying consolidated statements of income for such period. We measure the initial liability and re-measure the liability on a recurring basis using Level 3 inputs as defined under authoritative guidance for fair value measurements. Changes in the fair value of our contingent consideration liabilities during the three-month periods ended March 31, 2023 and 2022 consisted of the following (in thousands):


	Three Months Ended
	March 31,
	2023		2022
Beginning balance	$	18,073	$	48,234
Contingent consideration expense		521		2,600
Contingent payments made		(2,594)		(24,491)
Effect of foreign exchange		—		(10)
Ending balance	$	16,000	$	26,333

As of March 31, 2023, $2.4 million in contingent consideration liability was included in other long-term obligations and $13.6 million in contingent consideration liability was included in accrued expenses in our consolidated balance sheet. As of December 31, 2022, $2.3 million in contingent consideration liability was included in other long-term obligations and $15.8 million in contingent consideration liability was included in accrued expenses in our consolidated balance sheet.

Payments related to the settlement of the contingent consideration liability recognized at fair value as of the applicable acquisition date of $2.6 million and $24.5 million for the three-month periods ended March 31, 2023 and 2022, respectively, have been reflected as a cash outflow from financing activities in the accompanying consolidated statements of cash flows. Payments related to increases in the contingent consideration liability subsequent to the date of acquisition of $26,000 for the three-month period ended March 31, 2023 are reflected as operating cash flows.

The recurring Level 3 measurement of our contingent consideration liabilities included the following significant unobservable inputs at March 31, 2023 and December 31, 2022 (amounts in thousands):


	Fair value at
	March 31,		Valuation			Weighted
Contingent consideration liability	2023		technique	Unobservable inputs	Range	Average⁽¹⁾
Revenue-based royalty payments contingent liability	$	2,209	Discounted cash flow	Discount rate	12% - 16%	14.8%
				Projected year of payments	2023-2034	2027

Revenue milestones contingent liability	$	13,375	Monte Carlo simulation	Discount rate	0% - 13.0%	0.1%
				Projected year of payments	2023-2035	2023

Regulatory approval contingent liability	$	416	Scenario-based method	Discount rate	5.1%
				Probability of milestone payment	50.0%
				Projected year of payment	2023-2030	2030


	Fair value at
	December 31,		Valuation			Weighted
Contingent consideration liability	2022		technique	Unobservable inputs	Range	Average⁽¹⁾
Revenue-based royalty payments contingent liability	$	2,097	Discounted cash flow	Discount rate	14% - 17%	15.7%
				Projected year of payments	2023-2034	2026

Revenue milestones contingent liability	$	13,064	Monte Carlo simulation	Discount rate	5.1% - 14.0%	5.2%
				Projected year of payments	2023-2033	2023

Regulatory approval contingent liability	$	2,912	Scenario-based method	Discount rate	5.7%
				Probability of milestone payment	90%
				Projected year of payment	2023-2030	2024

(1)	Unobservable inputs were weighted by the relative fair value of the instruments. No weighted average is reported for contingent consideration liabilities without a range of unobservable inputs.

The contingent consideration liability is re-measured to fair value each reporting period. Significant increases or decreases in projected revenues, based on our most recent internal operational budgets and long-range strategic plans, discount rates or the time until payment is made would have resulted in a significantly lower or higher fair value measurement. Our determination of the fair value of the contingent consideration liability could change in future periods based upon our ongoing evaluation of these significant unobservable inputs. We intend to record any such change in fair value to operating expenses in our consolidated statements of income.

Contingent Payments to Related Parties

During the three-month period ended March 31, 2022, we made a contingent payment of $1.6 million to a currently former director of Merit who is a former shareholder of Cianna Medical, Inc. (“Cianna Medical”), which we acquired in 2018. The terms of the acquisition, including contingent consideration payments, were determined prior to the appointment of the former Cianna Medical shareholder as a Merit director. As a former shareholder of Cianna Medical, the former Merit director is also eligible for additional payments for the achievement of sales milestones specified in our merger agreement with Cianna Medical. We made no such payments during the three-month period ended March 31, 2023.

Fair Value of Other Assets (Liabilities)

The carrying amount of cash and cash equivalents, receivables, and trade payables approximate fair value because of the immediate, short-term maturity of these financial instruments. Our long-term debt re-prices frequently due to variable rates and entails no significant changes in credit risk and, as a result, we believe the fair value of long-term debt approximates carrying value. The fair value of assets and liabilities whose carrying value approximates fair value is determined using Level 2 inputs, with the exception of cash and cash equivalents, which use Level 1 inputs.

We analyze our investments in privately-held companies to determine if they should be accounted for using the equity method based on our ability to exercise significant influence over operating and financial policies of the company in which we have invested. Investments not accounted for under the equity method of accounting are accounted for at cost minus impairment, if applicable, plus or minus changes in valuation resulting from observable transactions for identical or similar investments.

Impairment Charges

We recognize or disclose the fair value of certain assets, such as non-financial assets, primarily property and equipment, right-of-use operating lease assets, equity investments, intangible assets and goodwill in connection with impairment evaluations. Such assets are reported at carrying value and are not subject to recurring fair value measurements. We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Fair value is generally determined based on discounted future cash flow. All our nonrecurring valuations use significant unobservable inputs and therefore fall under Level 3 of the fair value hierarchy.

Intangible Assets. During the three-month period ended March 31, 2023, we had no losses related to acquired intangible assets. During the three-month period ended March 31, 2022, we recorded an impairment charge of $1.7 million related to the acquired intangible assets from our August 2019 acquisition of STD Pharmaceutical (see note 6).

Current Expected Credit Losses

Our outstanding long-term notes receivable, including accrued interest and an allowance for current expected credit losses, were $2.4 million and $2.4 million as of March 31, 2023 and December 31, 2022, respectively. As of March 31, 2023 and December 31, 2022, we had an allowance for current expected credit losses of $290,000 and $281,000, respectively, associated with these notes receivable. We assess the allowance for current expected credit losses on an individual security basis, due to the limited number of securities, using a probability of default model, which is based on relevant information about past events, including historical experience, current conditions and reasonable and supportable forecasts that affect the expected collectability of securities, and other security specific factors.

The table below presents a rollforward of the allowance for current expected credit losses on our notes receivable for the three-month periods ended March 31, 2023 and 2022 (in thousands):


	Three Months Ended
	March 31,
	2023		2022
Beginning balance	$	281	$	199
Provision for credit loss expense		9		—
Ending balance	$	290	$	199