Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

Fair Value Measurements

6 Months Ended

Jun. 30, 2022

Note 5. Fair Value Measurements

In October 2018, upon the acquisition of certain technology, referred to as HunchLab, from Azavea, Inc., the Company recognized a contingent consideration liability classified within Level III of the fair value hierarchy because some of the inputs used in its measurement were neither directly nor indirectly observable. In February 2021, based on the relevant revenues earned during the three-year contingent consideration period, the Company paid $0.4 million, resulting in a reduction of the contingent consideration liability.

In November 2020, using a Monte Carlo Simulation approach, the Company estimated the fair value of the contingent consideration liability classified within Level III of the fair value hierarchy at the acquisition date of LEEDS LLC, (“LEEDS”) to be $0.2 million. During the fourth quarter of fiscal 2021, the fair value of the contingent consideration was increased by $1.3 million based upon estimated 2022 revenue targets, representing an adjustment to the most likely

outcome expected for the liability. There have been no changes in the assumptions or fair value of the LEEDS contingent consideration liability during the three and six months ended June 30, 2022.

In January 2022, using a Monte Carlo Simulation approach, the Company estimated the fair value of the contingent consideration liability classified within Level III of the fair value hierarchy at the acquisition of Forensic Logic to be $12.4 million. During the three months ended June 30, 2022, the fair value of the contingent consideration was decreased by $3.4 million based upon revised estimated 2022 and 2023 revenue targets, representing an adjustment to the most likely outcome expected for the liability.

The changes in the fair value of contingent consideration liability for the six months ended June 30, 2022 and 2021 are as follows (in thousands):


	Six Months Ended June 30,
	2022			2021
Beginning balance	$	1,500		$	573
Payment of contingent consideration liability		—			(403	)
Contingent consideration - Forensic Logic ( Note 4 - Business Acquisitions)		12,400			—
Change in fair value of contingent consideration		(3,437	)		—
Ending balance	$	10,463		$	170

There were no transfers into or out of Level III during the six months ended June 30, 2022 and 2021. As of June 30, 2022, contingent consideration of $2.8 million is included in Accrued expenses and other current liabilities in the condensed consolidated balance sheet as it is forecasted that the achievement of milestones will occur within the next 12 months, and $7.6 million is included in Other liabilities in the condensed consolidated balance sheet.

- 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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