Fair Value Measurements

6 Months Ended

Jun. 30, 2019

Fair Value Measurements

Fair Value Measurements

Note 4—Fair Value Measurements

ASC Topic 820, “Fair Value Measurements and Disclosures”, defines fair value, establishes a framework for measuring fair value in GAAP and requires certain disclosures about fair value measurements. ASC Topic 820 addresses fair value GAAP for financial assets and financial liabilities that are re-measured and reported at fair value at each reporting period and for non-financial assets and liabilities that are re-measured and reported at fair value on a non-recurring basis.

In general, fair values determined by Level 1 inputs use quoted prices (unadjusted) in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs use data points that are observable such as quoted prices, interest rates and yield curves. Fair values determined by Level 3 inputs are “unobservable data points” for the asset or liability and include situations where there is little, if any, market activity for the asset or liability.

The following table presents, for each of the fair value hierarchy levels identified under ASC Topic 820, our financial assets and liabilities that are required to be measured at fair value at June 30, 2019 and December 31, 2018 (in thousands):

	Fair Value Measurements at Reporting Date
			Significant
	Quoted Prices		Other		Significant
	in Active Markets		Observable		Unobservable
	for Identical Assets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)
Assets as of June 30, 2019:
Cash and cash equivalents	$	54,114	$	—	$	—
Contingent consideration	$	—	$	—	$	938
Liabilities as of June 30, 2019:
Interest rate swap	$	—	$	7,023	$	—
Assets as of December 31, 2018:
Cash and cash equivalents	$	151,063	$	—	$	—
Liabilities as of December 31, 2018:
Interest rate swap	$	—	$	2,829	$	—

Other financial instruments not listed in the table consist of accounts receivable, accounts payable and certain accrued liabilities. These financial instruments generally approximate fair value based on their short-term nature. The carrying value of our long-term debt approximates fair value based on comparison with current prevailing market rates for loans of similar risks and maturities.

In the second quarter of 2019, we sold certain assets that included an earnout of $2.0 million, contingent upon the buyer meeting certain performance targets. The estimated fair value of the contingent consideration on the sale date was approximately $0.9 million. We measured the fair value of the contingent consideration using the income approach, which discounts the future cash payments expected upon meeting the performance targets to present value. The fair

value of the contingent consideration was impacted by two unobservable inputs, management’s estimate of the probability of meeting the performance target and the estimated discount rate (a rate that approximates our cost of capital). Significant changes in either of those inputs in isolation would result in a different fair value measurement.

The interest rate swap is measured at fair value using the income approach, which discounts the future net cash settlements expected under the derivative contracts to a present value. These valuations primarily utilize indirectly observable inputs, including contractual terms, interest rates and yield curves observable at commonly quoted intervals. See Note 10 – “Derivative Instruments” for additional information.