Fair Value of Financial Instruments

3 Months Ended

Mar. 31, 2023

Fair Value Disclosures [Abstract]

Fair Value of Financial Instruments

13. FAIR VALUE OF FINANCIAL INSTRUMENTS

The following financial instruments are measured at fair value on a recurring basis using significant unobservable inputs (Level 3):

	March 31,		December 31,
	2023		2022
Interest rate swap(1)	$	5,078	$	6,046
Total assets	$	5,078	$	6,046
Business acquisitions contingent consideration,    current	$	4,734	$	3,801
Business acquisitions contingent consideration,    long-term		3,121		4,454
Conversion option		26,636		25,731
Total liabilities	$	34,491	$	33,986

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(1) Included in other assets in the unaudited condensed consolidated statement of financial position.

The estimated fair value amounts shown above are not necessarily indicative of the amounts that the Company would realize upon disposition, nor do they indicate the Company’s intent or ability to dispose of the financial instrument.

The following table sets forth the Company’s financial instruments that were measured at fair value on a recurring basis:

	Interest Rate Swap			Total Assets			Business Acquisitions Contingent Consideration, Current			Business Acquisitions Contingent Consideration, Long-term			Conversion    Option		Total Liabilities
Balance—at January 1, 2022	$	—		$	—		$	31,450		$	4,350		$	23,081	$	58,881
Acquisitions		—			—			—			1,216			—		1,216
Changes in fair value included in earnings		3,005			3,005			(21	)		—			556		535
Payment of contingent consideration        payable		—			—			(30,000	)		—			—		(30,000	)
Balance—at March 31, 2022	$	3,005		$	3,005		$	1,429		$	5,566		$	23,637	$	30,632
Balance—at January 1, 2023	$	6,046		$	6,046		$	3,801		$	4,454		$	25,731	$	33,986
Acquisitions		—			—			25			—			—		25
Changes in fair value included in earnings		(968	)		(968	)		(515	)		117			905		507
Payment of contingent consideration        payable		—			—			(27	)		—			—		(27	)
Reclass of long term to short term       contingent liabilities		—			—			1,450			(1,450	)		—		—
Balance—at March 31, 2023	$	5,078		$	5,078		$	4,734		$	3,121		$	26,636	$	34,491

Quantitative Information about Assets and Liabilities Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs (Level 3):

Interest Rate Swap—The interest rate swap fair value is estimated based on a mid-market price for the swap as of the close of business of the reporting period. The fair value is prepared by discounting future cash flows of the swap to arrive at a current value of the swap. Forward curves and volatility levels inputs are determined on the basis of observable market inputs when available and on the basis of estimates when observable market inputs are not available. The Company does not apply hedge accounting but instead recognizes the instrument at fair value on the unaudited condensed consolidated statement of financial position within other assets, with changes in fair value recognized as other income (expense) in each reporting period.

Business Acquisitions Contingent Consideration—The fair value of the contingent consideration payable associated with the acquisitions of CTEH and Sensible was determined using a Monte Carlo simulation of earnings in a risk-neutral Geometric Brownian Motion framework. The fair value of the contingent consideration payable associated with the acquisition of Environmental Standards was determined using a Probabilistic (Scenario Based) method. The fair values of the contingent consideration payables for the other acquisitions were calculated based on expected target achievement amounts, which are measured quarterly and then subsequently adjusted to actuals at the target measurement date. The method used to price these liabilities is considered level 3 due to the subjective nature of the unobservable inputs used to determine the fair value. The input is the expected achievement of earn-out thresholds.

Conversion Option—The fair value of the conversion option associated with the issuance of the Convertible and Redeemable Series A-2 Preferred Stock (Note 15) was estimated using a “with-and-without” method. The “with-and-without” methodology considers the value of the security on an as-is basis and then without the embedded conversion premium. The difference between the two scenarios is the implied fair value of the embedded derivative. The unobservable input is the required rate of return on the Series A-2. The considerable quantifiable inputs in the valuation relate to the timing of conversions or redemptions.