Fair Value of Financial Instruments

3 Months Ended

Mar. 31, 2024

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,
	2024		2023
Interest rate swap(1)	$	3,778	$	3,461
Total assets	$	3,778	$	3,461

Business acquisitions contingent consideration, current	$	11,782	$	3,592
Business acquisitions contingent consideration, long-term		28,679		2,448
Conversion option		19,037		19,017
Total liabilities	$	59,498	$	25,057

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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 December 31, 2022	$	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

Balance at December 31, 2023	$	3,461		$	3,461		$	3,592		$	2,448		$	19,017	$	25,057
Acquisitions		—			—			9,628			26,137			—		35,765
Changes in fair value included in earnings		317			317			12			94			20		126
Payment of contingent consideration payable		—			—			(1,450	)		—			—		(1,450	)
Balance at March 31, 2024	$	3,778		$	3,778		$	11,782		$	28,679		$	19,037	$	59,498

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

Interest Rate Swaps—The interest rate swaps fair value is estimated based on a mid-market price for the swaps 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 (expense) income in each reporting period.

Business Acquisitions Contingent Consideration— 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. Prior to the second quarter of 2023, the fair value of the contingent consideration payable associated with the acquisition of Sensible was determined using a Monte Carlo simulation of earnings in a risk-neutral Geometric Brownian Motion framework. 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.

- 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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