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Fair Value Measurement
 9 Months Ended
Mar. 31, 2022
Fair Value Disclosures [Abstract]  
Fair Value Measurement

NOTE 12 – FAIR VALUE MEASUREMENT

The accounting guidance for fair value, among other things, 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 or nonrecurring basis. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The framework for measuring fair value consists of a three-level valuation hierarchy that prioritizes the inputs to valuation techniques used to measure fair value based upon whether such inputs are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions made by the reporting entity. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs utilize observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities. Fair values determined by Level 3 inputs are unobservable data points for the asset or liability and include situations where there is little, if any, market activity for the asset or liability. The fair value measurement level within the hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

Assets and liabilities measured at fair value are based on one or more of the following three valuation techniques:

•
Market approach: Prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities;
•
Cost approach: Amount that would be required to replace the service capacity of an asset (replacement cost); and
•
Income approach: Techniques to convert future amounts to a single present amount based upon market expectations, including present value techniques, option-pricing, and excess earning models.

Items Measured at Fair Value on a Recurring Basis

The following table sets forth the Company’s financial assets (liabilities) measured at fair value on a recurring basis:

 

(In thousands)

 

Fair Value Measurements as of March 31, 2022

 

 

 

Level 3

 

 

Total

 

Contingent consideration

 

$

(5,370

)

 

$

(5,370

)

Interest rate swap contracts (derivatives)

 

 

1,568

 

 

 

1,568

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements as of June 30, 2021

 

 

 

Level 3

 

 

Total

 

Contingent consideration

 

$

(7,263

)

 

$

(7,263

)

Interest rate swap contracts (derivatives)

 

 

6

 

 

 

6

 

 

 

The following table provides a reconciliation of the financial assets (liabilities) measured at fair value using significant unobservable inputs (Level 3):

 

(In thousands)

 

Contingent
Consideration

 

 

Interest rate swap contracts
(derivatives)

 

Balance as of June 30, 2020

 

$

(4,940

)

 

$

600

 

Contingent consideration paid

 

 

2,027

 

 

 

—

 

Change in fair value

 

 

(4,350

)

 

 

(594

)

 

 

 

 

 

 

 

Balance as of June 30, 2021

 

$

(7,263

)

 

$

6

 

Contingent consideration paid

 

 

2,500

 

 

 

—

 

Change in fair value

 

 

(607

)

 

 

1,562

 

 

 

 

 

 

 

 

Balance as of March 31, 2022

 

$

(5,370

)

 

$

1,568

 

 

The Company has contingent obligations to transfer cash payments and equity shares to former shareholders of acquired operations in conjunction with certain acquisitions if specified operating results and financial objectives are met over the next three fiscal years. Contingent consideration is measured quarterly at fair value, and any change in the fair value of the contingent liability is included in the condensed consolidated statements of comprehensive income. The change in fair value in each period is principally attributable to a net increase in management’s estimates of future earn-out payments through the remainder of the earn-out periods.

The Company uses projected future financial results based on recent and historical data to value the anticipated future earn-out payments. To calculate fair value, the future earn-out payments were then discounted using Level 3 inputs. The Company has classified the contingent consideration as Level 3 due to the lack of relevant observable market data over fair value inputs. The Company believes the discount rate used to discount the earn-out payments reflects market participant assumptions. Changes in assumptions and operating results could have a significant impact on the earn-out amount, up to a maximum of $5,973 through earn-out periods measured through January 2023, although there are no maximums on certain earn-out payments.

For contingent consideration the following table provides quantitative information about the significant unobservable inputs used in fair value measurement:

 

(In thousands)

 

Fair Value

 

 

Valuation Methodology

 

Unobservable Inputs

 

Contingent consideration

 

$

(5,370

)

 

Discounted cash flows

 

Actual and projected EBITDA over three-year earnout period

 

> $14,800

 

 

 

 

 

 

 

 

Risk adjusted discount rate

 

 

12

%

 

As discussed in Note 9, derivative instruments are carried at fair value on the condensed consolidated balance sheets. Interest rate swap contracts are included in deposits and other assets on March 31, 2022 and on June 30, 2021.

Fair Value of Financial Instruments

The carrying values of the Company’s cash equivalents, receivables, contract assets, accounts payable, commissions payable, accrued expenses, and the income tax receivable and payable approximate the fair values due to the relatively short maturities of these instruments. The carrying value of the Company’s Revolving Credit Facility and notes payable would not differ significantly from fair value (based on Level 2 inputs) if recalculated based on current interest rates.