Fair Value of Financial Instruments

3 Months Ended

Mar. 31, 2024

Fair value is defined as the price that would be received to sell an asset or that would be paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. A three-level fair value hierarchy prioritizes the inputs used to measure fair value. An asset or liability’s level in the hierarchy is based on the lowest level of input that is significant to the fair value measurement. The three levels of inputs used to measure fair value are as follows:


Level 1						Quoted prices in active markets for identical assets and liabilities.
Level 2						Quoted prices in active markets for similar assets and liabilities, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3						Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flows methodologies and similar techniques that use significant unobservable inputs.

The Company considers the recorded value of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses to approximate the fair value of the respective assets and liabilities as of March 31, 2024 and December 31, 2023 based upon the short-term nature of such assets and liabilities (Level 1). See Note 9, “Debt” for discussion of the fair value of the Company’s debt.

Interest rate swaps are measured at fair value on a recurring basis in the Company’s financial statements and are considered Level 2 financial instruments. Interest rate swaps are measured based on quoted prices for similar financial instruments and other observable inputs recognized. The currency forward agreements are typically cash settled in U.S. dollars for their fair value at or close to their settlement date.

Contingent consideration related to acquisitions is considered a Level 3 financial instrument. As of March 31, 2024, the fair value of contingent consideration related to the January 2, 2024 acquisition of Vault, the March 1, 2023 acquisition of A-Check and the November 30, 2021 acquisition of EBI. As of December 31, 2023, the fair value of contingent consideration related to the March 1, 2023 acquisition of A-Check and the November 30, 2021 acquisition of EBI. The contingent consideration consists of estimated future payments related to the Company’s acquisitions, based on metrics such as revenue retention and referral revenue. The fair value is determined using various assumptions and estimates, including revenue and customer projections to forecast a range of outcomes for the contingent consideration. The Company reassesses the estimated fair value of the contingent consideration at the end of each reporting period based on the information available at the time. Changes in the significant unobservable inputs used may result in a significantly higher or lower fair value measurement. Changes in fair value of contingent consideration are recorded in selling, general and administrative expense in the condensed consolidated statements of operations and comprehensive loss.

The following tables present information about the Company’s financial assets and liabilities that are measured at fair value on a recurring basis and their assigned levels within the valuation hierarchy as of the periods presented:


	March 31, 2024
(in thousands)	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents from money market funds	$	13,600	$	—	$	—	$	13,600
Interest rate swaps	$	—	$	1,952	$	—	$	1,952
Liabilities
Interest rate swaps	—		2,061		—		2,061
Contingent consideration	—		—		9,739		9,739


	December 31, 2023
(in thousands)	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents from money market funds	11,593		—		—		11,593
Interest rate swaps	—		1,187		—		1,187
Liabilities
Interest rate swaps	—		5,357		—		5,357
Contingent consideration	$	—	$	—	$	2,989	$	2,989

The following table summarizes the change in fair value of the Level 3 liabilities with significant unobservable inputs for the periods presented:


	Three Months Ended March 31,
(in thousands)	2024		2023
Fair value of contingent consideration, beginning of period	$	2,989	$	1,219
Acquired liabilities	2,750		4,706
Cash payments	—		—
Change in fair value of contingent consideration, net(1)	4,000		(305)
Fair value of contingent consideration, end of period(2)	$	9,739	$	5,620

_________________________

(1)During the three months ended March 31, 2024, the Company recorded a $4.0 million increase in the fair value of the contingent consideration, in accordance with the purchase agreement with EBI. Refer to Note 2. Summary of Significant Accounting Policies” for further information regarding this out-of-period adjustment.

(2)Recorded in Other current liabilities on the condensed consolidated balance sheets.

During the three months ended March 31, 2024 and 2023, the Company did not re-measure any financial assets or liabilities at fair value on a nonrecurring basis. There were no transfers between levels during the periods presented.

- 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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