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FAIR VALUE MEASUREMENTS

6 Months Ended

Jun. 30, 2021

NOTE 7 FAIR VALUE MEASUREMENTS

The Company measures its contingent consideration liability at fair value on a recurring basis using Level 3 inputs. The Company estimates the fair value of the contingent consideration liability based on the likelihood and timing of the contingent earn-out payments. The fair value is derived using valuation methodologies, such as a discounted cash flow model, and is not based on market exchange, dealer, or broker-traded transactions. This valuation incorporates certain assumptions and projections in determining the fair value assigned to such liability. The valuation methodology differs depending on the type of earn-out target. The following is the summary of the significant assumptions used for the fair value measurement of the contingent consideration liability as of June 30, 2021 (Successor) and December 31, 2020 (Successor).


Valuation Technique	Range of Significant Assumptions
		Successor
		June 30, 2021
Probability-weighted analysis	Probability	25% - 100%
based earn-outs (1)	Discount rate	8.65% - 8.68%

(1) During the second quarter of 2021, all contingent consideration liabilities previously estimated using a Monte Carlo Simulation EBITDA based earn-out technique transitioned, as deemed appropriate due to the remaining timing of the contracts and materiality of the underlying balances, to a probability-weighted analysis based on projected outcomes.


Valuation Technique	Range of Significant Assumptions
		Successor
		December 31, 2020
Monte Carlo Simulation	Expected EBITDA	Acquisition specific
EBITDA based earn-outs	Discount rate	16.15% - 19.65%
	Counter-party risk premium	8.46% - 8.77%
	Volatility	50%

Probability-weighted analysis	Probability	25% - 100%
FTE based earn-outs	Discount rate	8.65% - 8.68%

As of June 30, 2021 (Successor) and December 31, 2020 (Successor), the Company adjusted the fair value of the contingent consideration liability due to remeasurement at the reporting date. See Note 16 for discussion of payment of contingent consideration made related to prior year acquisitions, fair value adjustments, and a roll-forward of the contingent consideration balance from the prior year.

The following table presents information about the Company’s liabilities that are measured at fair value on a recurring basis using the above input categories:


June 30, 2021 (Successor)	Level 1		Level 2		Level 3		Total
Financial Instrument
Contingent consideration liability	$	—	$	—	$	14,123	$	14,123


December 31, 2020 (Successor)	Level 1		Level 2		Level 3		Total
Financial Instrument
Contingent consideration liability	$	—	$	—	$	16,414	$	16,414

At the closing of the TPG Acquisition (see Note 3), LifeStance TopCo recorded the acquired assets and assumed liabilities at their acquisition date fair values in accordance with ASC 805, Business Combinations. As disclosed in Note 4, the Company acquired several outpatient mental health practices during the three and six months ended June 30, 2021 (Successor), the period from April 13, 2020 to June 30, 2020 (Successor), the period from April 1, 2020 to May 14, 2020 (Predecessor) and the period from January 1, 2020 to May 14, 2020 (Predecessor). The values of net

tangible assets acquired, and the resulting goodwill and other intangible assets, were recorded at fair value using Level 3 inputs. The majority of the tangible assets acquired and liabilities assumed were recorded at their carrying values as of the respective dates of acquisition, as their carrying values approximated their fair values due to their short-term nature. The fair values of goodwill and other intangible assets acquired in these acquisitions were estimated with the assistance of a third-party valuation expert primarily based on the income approach. The income approach estimates fair value based on the present value of the cash flows that the assets are expected to generate in the future. The Company developed estimates for the expected future cash flows and discount rates used in the present value calculations. Other than assets acquired and liabilities assumed in these acquisitions, there were no material assets or liabilities measured at fair value on a nonrecurring basis 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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