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Note 5 - Fair Value Measurements
 6 Months Ended
Jun. 30, 2023
Notes to Financial Statements  
Fair Value Disclosures [Text Block]

5.   Fair Value Measurements

 

ASC 820-10, Fair Value Measurement, defines fair value, establishes a consistent framework for measuring fair value, and expands disclosure for each major asset and liability category measured at fair value on either a recurring basis or nonrecurring basis. ASC 820-10 clarifies that fair value is an exit price, representing the amount that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the pronouncement establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

 

The Company believes the carrying amount of its financial instruments (cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, short-term borrowings, and revolving facility borrowings), excluding Term Loan borrowings, approximates the fair value of these instruments based on their short-term nature. The fair value of the Term Loan B borrowing, which has a net carrying value of $524,114, was $528,013 (Level 2) at June 30, 2023, as calculated based on independent valuations which contain inputs and significant value drivers that are observable. As the Term Loan A is not actively traded, the fair value of Term Loan A approximates the carrying value. 

 

For the fair value of the derivatives measured on a recurring basis, refer to the fair value table in Note 4, “Derivative Instruments and Hedging Activities,” to the condensed consolidated financial statements. The fair value of all derivative contracts is classified as Level 2. The valuation techniques used to measure the fair value of derivative contracts, all of which have counterparties with high credit ratings, were based on quoted market prices or model driven valuations using significant inputs derived from or corroborated by observable market data. The fair value of the derivative contracts above considers the Company’s credit risk in accordance with ASC 820-10.

 

Contingent Consideration

 

Certain of the Company's business combinations involve potential payment of future consideration that is contingent upon the achievement of certain milestones. As part of purchase accounting, a liability is recorded for the estimated fair value of the contingent consideration on the acquisition date. The fair value of the contingent consideration is remeasured at each reporting period, and the change in fair value is recognized within general and administrative expenses in the Company's condensed consolidated statements of comprehensive income. The fair value measurement of contingent consideration is typically categorized as a Level 3 liability, as the measurement amount is based primarily on significant inputs that are not observable in the market.

 

At June 30, 2023, the fair value of contingent consideration is $39,579 in other long-term liabilities in the condensed consolidated balance sheets. At December 31, 2022, the Company had contingent consideration of $49,500 in other accrued liabilities and $32,033 in other long-term liabilities in the condensed consolidated balance sheets.

 

The following table provides a reconciliation of the activity for contingent consideration: 

 

Beginning balance, January 1, 2023

 $81,533 

Changes in fair value

  - 

Additional contingent consideration (1)

  11,490 

Payment of contingent consideration (2)

  (53,786)

Present value interest accretion

  342 

Ending balance, June 30, 2023

 $39,579 

 

(1) Represents $11,490 of contingent deferred consideration for the Pramac buyout. See Note 3, "Redeemable Noncontrolling Interest". 

(2) Includes payments of $479 in cash and $44,521 in shares for the ecobee acquisition, $4,286 in shares for the Chilicon acquisition, and $4,500 in cash for the Mean Green acquisition. The payment of common stock is accounted for as a non-cash item in the condensed consolidated statement of cash flows.