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Fair Value Measurements | 3 Months Ended
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Dec. 31, 2023
Fair Value Disclosures [Abstract] |
Fair Value Measurements | 4. FAIR VALUE MEASUREMENTS: The Company uses valuation approaches that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels: Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date. Level 2 - Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability. Level 3 - Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date. The following tables summarize the Company’s financial assets and liabilities measured at fair value in the accompanying Unaudited Condensed Consolidated Balance Sheets:
|  | December 31, 2023 |
|  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
|  | (Amounts in thousands) |
Assets: |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swap contract |  | $ | — |  |  | $ | 1,030 |  |  | $ | — |  |  | $ | 1,030 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Contingent consideration liabilities |  | $ | — |  |  | $ | — |  |  | $ | 84,641 |  |  | $ | 84,641 |
|  | September 30, 2023 |
|  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
|  | (Amounts in thousands) |
Assets: |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swap contract |  | $ | — |  |  | $ | 1,409 |  |  | $ | — |  |  | $ | 1,409 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Contingent consideration liabilities |  | $ | — |  |  | $ | — |  |  | $ | 86,059 |  |  | $ | 86,059 |
There were no transfers between the valuation hierarchy Levels 1, 2, and 3 for the three months ended December 31, 2023 and for the fiscal year ended September 30, 2023. The fair value of the Company's interest rate swap contract is calculated as the present value of expected future cash flows, determined on the basis of forward interest rates and present value factors. The inputs to the fair value measurements reflect Level 2 inputs. The interest rate swap contract balance is included in other long-term assets in the accompanying Unaudited Condensed Consolidated Balance Sheets. The interest rate swap contract is designated as a cash flow hedge with changes in fair value reported in other comprehensive income in the accompanying Unaudited Condensed Consolidated Statements of Comprehensive Income. For the three months ended December 31, 2022 and 2023, no significant amounts were reclassified out of accumulated other comprehensive income. The fair value of the Company's contingent consideration liabilities is based on the present value of the expected future payments to be made to the sellers of the acquired entities in accordance with the provisions outlined in the respective purchase agreements, which is a Level 3 fair value measurement. In determining fair value, we estimated the acquired entity’s future performance using financial projections developed by management for the acquired entity and market participant assumptions that were derived for revenue growth and/or profitability. We estimated future payments using the earnout formula and performance targets specified in each purchase agreement and the financial projections just described. The risk associated with the financial projections was evaluated using a Monte Carlo simulation analysis, pursuant to which the projections were discounted to present value using a discount rate that takes into consideration market-based rates of return, and then simulated to reflect the ability of the acquired entity to achieve the earnout targets. Such calculated earnout payments were further discounted at our estimated cost of debt, to account for counterparty risk. We note that changes in financial projections, market participant assumptions for revenue growth and/or profitability, or market risk factors, would result in a change in the fair value of recorded earnout obligations. The following table summarizes ranges for significant quantitative unobservable inputs we utilized in our fair value measurements with respect to contingent consideration liabilities:
Unobservable Input: |  | December 31, 2023
Earnout projected growth (including net operating income) |  | 23% - 25%
Discount rate |  | 11.0%
The contingent consideration liabilities balance is included in accrued expenses and other long-term liabilities in the accompanying Unaudited Condensed Consolidated Balance Sheets. Contingent consideration liabilities, recorded in other long-term liabilities, totaled approximately $80.7 million and $82.2 million as of September 30, 2023 and December 31, 2023, respectively. Changes in fair value and net present value of the contingent consideration liabilities are included in selling, general, and administrative expenses in the accompanying Unaudited Condensed Consolidated Statements of Operations. The following table sets forth the changes in fair value of our contingent consideration liabilities, which reflect Level 3 inputs, for the three months ended December 31, 2022 and 2023:
|  | Contingent Consideration Liabilities |
|  | 2022 |  |  | 2023 |
|  | (Amounts in thousands) |
Beginning balance - September 30, |  | $ | 15,207 |  |  | $ | 86,059 |
Additions from business acquisitions |  |  | 68,680 |  |  |  | 613 |
Settlement of contingent consideration liabilities |  |  | (4,000 | ) |  |  | (2,250 | )
Change in fair value and net present value of contingency |  |  | 1,047 |  |  |  | 219 |
Ending balance - December 31, |  | $ | 80,934 |  |  | $ | 84,641 |
We determined the carrying value of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, short-term borrowings, and the revolving mortgage facility approximate their fair values because of the nature of their terms and current market rates of these instruments. The fair value of our mortgage facilities and term loan, which are not carried at fair value in the accompanying Unaudited Condensed Consolidated Balance Sheets, was determined using Level 2 inputs based on the discounted cash flow method. We estimate the fair value of our mortgage facilities using a present value technique based on current market interest rates for similar types of financial instruments that reflect Level 2 inputs. The following table summarizes the carrying value and fair value of our mortgage facilities and term loan as of September 30, 2023 and December 31, 2023:
|  | September 30, 2023 |  |  | December 31, 2023 |
|  | Fair Value |  |  | Carrying Value |  |  | Fair Value |  |  | Carrying Value |
|  | (Amounts in thousands) |
Mortgage facility payable to Flagship Bank |  | $ | 6,027 |  |  | $ | 5,907 |  |  | $ | 6,268 |  |  | $ | 5,783 |
Mortgage facility payable to Seacoast National Bank |  |  | 17,223 |  |  |  | 16,735 |  |  |  | 18,013 |  |  |  | 16,396 |
Mortgage facility payable to Hancock Whitney Bank |  |  | 24,171 |  |  |  | 23,279 |  |  |  | 24,949 |  |  |  | 22,801 |
Term loan payable to M&T Bank |  |  | 379,650 |  |  |  | 377,500 |  |  |  | 379,644 |  |  |  | 370,000 |

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- 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. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Publisher FASB -URI https://asc.fasb.org//1943274/2147482106/820-10-50-2 + Details
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