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Financial Instruments and Contingent Consideration

12 Months Ended

Dec. 31, 2022

Financial Instruments and Contingent Consideration

NOTE 19. FINANCIAL INSTRUMENTS AND CONTINGENT CONSIDERATION

We do not hold or issue financial instruments for trading purposes. The estimated fair values of our financial instruments and contingent consideration are as follows:


	December 31, 2022						December 31, 2021
	Carrying amount			Estimated fair value			Carrying amount			Estimated fair value
Assets (liabilities), net:
Total long-term debt, including current portion	$	(651.1	)	$	(645.3	)	$	(631.4	)	$	(626.0	)
Interest rate swap contracts		11.4			11.4			(14.2	)		(14.2	)
Acquisition-related contingent consideration		(15.2	)		(15.2	)		(12.8	)		(12.8	)

The carrying amounts of cash and cash equivalents, receivables, accounts payable, and accrued expenses approximate fair value because of the short-term maturity of these instruments. The fair value estimates of long-term debt are based on quotes from a major financial institution of recently observed trading levels of our Term Loan A debt. The fair value estimates for interest rate swap contracts are estimated by obtaining quotes from major financial institutions with verification by internal valuation models. We

engaged independent, third-party valuation specialists to determine the fair value estimates for acquisition-related contingent consideration payable based on performance, which were measured using a Monte Carlo simulation. As of December 31, 2022 and 2021, $15.2 million and $8.6 million, respectively, of the carrying amount of contingent consideration liabilities payable, related to final achievement of certain financial and performance milestones through December 31, 2022 and 2021, respectively, for the acquisitions of Moz and Turf, was equal to fair value as milestone achievements were known.

The fair value measurement of assets and liabilities measured at fair value on a recurring basis and reported on the Consolidated Balance Sheets is summarized below:


	December 31, 2022		December 31, 2021
	Fair value based on		Fair value based on
	Other observable inputs		Other observable inputs			Other unobservable inputs
	Level 2		Level 2			Level 3
Assets (liabilities), net:
Interest rate swap contracts	$	11.4	$	(14.2	)	$	-
Acquisition-related contingent consideration		-		-			(4.2	)

As of December 31, 2021, the acquisition-related contingent consideration liability included $8.6 million related to the final achievement of certain financial and performance milestones through December 31, 2021, for the Moz and Turf acquisitions, which was paid in the first quarter 2022.

Acquisition-related contingent consideration of $4.2 million as of December 31, 2021 was measured with the use of significant unobservable inputs, which included financial projections over the earn-out period, the volatility of the underlying financial metrics and estimated discount rates. All changes in the contingent consideration liability subsequent to the initial acquisition-date measurements were recorded as a component of operating income on our Consolidated Statements of Operations and Comprehensive Income.

The following table summarizes the weighted-average of the significant unobservable inputs as of December 31, 2021:


	Turf
Unobservable input
Volatility		22.2	%
Discount rates		2.7	%

The changes in fair value of the acquisition-related contingent consideration liability for the years ended December 31, 2022, 2021 and 2020 were as follows:


	Fair Value of Contingent Consideration
Balance as of January 1, 2020	$	-
Acquisition date fair value of Moz contingent consideration		2.7
Acquisition date fair value of Turf contingent consideration		14.1
Loss related to change in fair value of contingent consideration		0.1
Balance as of December 31, 2020	$	16.9
(Gain) related to change in fair value of contingent consideration		(4.1	)
Balance as of December 31, 2021	$	12.8
Cash consideration paid		(8.6	)
Loss related to change in fair value of contingent consideration		11.0
Balance as of December 31, 2022	$	15.2

As of December 31, 2022, the acquisition-related contingent consideration liability represents the additional cash consideration payable related to our acquisition of Turf upon the final achievement of certain financial and performance milestones through December 31, 2022, which we paid in the first quarter of 2023 and is classified as a current liability. During 2022, the change in fair value was due to changes in Turf actual results over the earn out period. During 2021 and 2020, the change in fair value was primarily due to changes in Turf and Moz actual results or financial projections over the earn out period. During 2022, we paid $8.6 million of

additional cash consideration, which represented the final achievement of certain financial and performance milestones through December 31, 2021 for the acquisitions of Moz and Turf. The additional cash consideration paid was classified as cash flows from financing activities in our Consolidated Statements of Cash Flows, up to the acquisition date fair value. The portions of additional cash consideration paid in excess of the acquisition date fair value was classified as cash flows from operating activities in our Consolidated Statements of Cash Flows.

- 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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