Fair Value Measurements

The Fair Value Measurements and Disclosures Topic of the FASB ASC defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. This topic also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1—Quoted prices in active markets for identical assets or liabilities.

Level 2—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 assets or liabilities.

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Items Measured at Fair Value on a Recurring Basis:

The Company’s financial assets/liabilities required to be measured on a recurring basis were its: (i) deferred compensation asset included in other non-current assets; (ii) deferred compensation liability included in other long-term liabilities; (iii) interest rate swap agreement included in other current and other long-term liabilities as of December 31, 2018; and (iv) contingent consideration liabilities.

Deferred compensation—The Company utilizes Level 1 inputs to value its deferred compensation assets and liabilities. The Company’s deferred compensation assets and liabilities are measured using publicly available indices, as per the plan documents.

Interest rate swap agreement—The Company utilized Level 2 inputs to value its interest rate swap agreement through the date of its termination. See Note 8 - Debt and Note 9 - Derivatives.

Contingent consideration liabilities—Potential earnout payments related to the acquisition of Mediscan were contingent upon meeting certain performance requirements through 2019. The long-term portion of $4.9 million and $7.4 million as of December 31, 2019 and 2018, respectively, is reflected as contingent consideration and the short-term portion of $2.4 million and $0.3 million as of December 31, 2019 and 2018, respectively, is included in other current liabilities in the consolidated balance sheets. As of December 31, 2018, the Company utilized Level 3 inputs to value the contingent consideration as significant unobservable inputs were used in the calculation of their fair value. The liability had been measured at fair value using a discounted cash flow model in a Monte Carlo simulation setting, utilizing significant unobservable inputs, including the expected volatility of the acquisitions' gross profits and an estimated discount rate commensurate with the risks of the expected gross profit stream. As of December 31, 2019, due to the end of the earnout period, the Company measured the fair value of the liability based on the expected payout. See Note 4 - Acquisitions.

The fair value of contingent consideration is expected to be finalized in the first quarter of 2020 and adjusted when the actual settlement occurs with any changes reflected as acquisition-related contingent consideration in the consolidated statements of operations.

The table which follows summarizes the estimated fair value of the Company’s financial assets and liabilities measured on a recurring basis:

Fair Value Measurements



	December 31, 2019		December 31, 2018
Financial Assets:	(amounts in thousands)
(Level 1)
Deferred compensation asset	$	830	$	—
Financial Liabilities:
(Level 1)
Deferred compensation liability	$	2,216	$	1,725
(Level 2)
Interest rate swap agreement	$	—	$	234
(Level 3)
Contingent consideration liabilities	$	7,300	$	7,689

The opening balances of contingent consideration liabilities are reconciled to the closing balances for fair value measurements of these liabilities categorized within Level 3 of the fair value hierarchy as follows:



	Contingent Consideration
	Liabilities
	(amounts in thousands)

December 31, 2017	$	5,368
Payments	(280		)
Accretion expense	903
Valuation adjustment	1,698
December 31, 2018	7,689
Payments	(279		)
Accretion expense	500
Valuation adjustment	(610		)
December 31, 2019	$	7,300

Items Measured at Fair Value on a Non-recurring Basis:

The Company's non-financial assets, such as goodwill, trade names, other intangible assets, right-of-use assets, and property

and equipment, are measured at fair value when there is an indicator of impairment and are recorded at fair value only when an

impairment charge is recognized.

During an evaluation of goodwill, trade names, and other intangible assets during the fourth quarter of 2019, the Company determined that the fair value of its reporting units and indefinite-lived intangible assets exceeded their carrying value and concluded that no impairment of goodwill or the indefinite-lived trade name was warranted. During the fourth quarter of 2018 and 2017, the carrying value of goodwill and trade names in the Physician Staffing reporting unit exceeded their fair values. As a result, the Company recorded impairment charges that incorporated fair value measurements based on Level 3 inputs.

In the second quarter of 2019, the Company eliminated certain of its brands as part of a rebranding strategy. and as a result, recorded impairment charges of $14.5 million related to its trade names in Nurse and Allied Staffing. See Note 5 - Goodwill,

Trade Names, and Other Intangible Assets.

In the third quarter of 2019, the Company ceased use of several facilities and is in the process of seeking to sublet some of the space where possible. The decision and change in the use of space resulted in a right-of-use asset impairment charge of $1.2 million. This loss was determined by comparing the fair value of the impacted right-of-use assets to the carrying value of the assets as of the impairment measurement date, in accordance with the Property, Plant and Equipment Topic of the FASB ASC. The fair value of the right-of-use asset was based on the estimated sublease income for the space taking into consideration the time period it will take to obtain a subtenant, the applicable discount rate, and the sublease rate. Furthermore, the Company wrote-off $0.6 million of leasehold improvements and other property and equipment related to these locations. The measurement of the right-of-use asset impairments, using the assumptions described, is a Level 3 measurement.

Impairment charges in the consolidated statements of operations include impairment of the trade names, the right-of use assets, leasehold improvements, and property and equipment, and totaled $16.3 million for the year ended December 31, 2019.

Other Fair Value Disclosures:

Financial instruments not measured or recorded at fair value in the consolidated balance sheets consist of cash and cash equivalents, accounts receivable, and accounts payable and accrued expenses. The estimated fair value of accounts receivable and accounts payable and accrued expenses approximate their carrying amount due to the short-term nature of these instruments. The carrying amount of the Company's Senior Secured Asset-Based Loan approximates fair value because the interest rates are variable and reflective of market rates. The estimated fair value of the Company’s Term Loan was calculated using a discounted cash flow analysis and appropriate valuation methodologies using Level 2 inputs from available market information.

The carrying amounts and estimated fair value of the Company’s significant financial instruments that were not measured at fair value are as follows:



	December 31, 2019				December 31, 2018
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(amounts in thousands)
Financial Liabilities:
(Level 2)
Senior Secured Asset-Based Loan	$	70,974	$	70,974	$	—	$	—
Term Loan, net	$	—	$	—	$	83,179	$	81,800

Concentration of Risk:

The Company has invested its excess cash in highly-rated overnight funds and other highly-rated liquid accounts. The Company is exposed to credit risk associated with these investments, as the cash balances typically exceed the current Federal Deposit Insurance Corporation limit of $250,000. The Company minimizes its credit risk relating to these positions by monitoring the financial condition of the financial institutions involved and by primarily conducting business with large, well established financial institutions and diversifying its counterparties.

The Company generally does not require collateral and mitigates its credit risk by performing credit evaluations and monitoring at-risk accounts. The allowance for doubtful accounts represents the Company’s estimate of uncollectible receivables based on a review of specific accounts and historical collection experience. The Company writes off specific accounts based on an ongoing review of collectability as well as past experience with the customer. The Company’s contract terms typically require payment between 30 to 60 days from the date of invoice and are considered past due based on the particular negotiated contract terms. Overall, based on the large number of customers in differing geographic areas, primarily throughout the U.S. and its territories, the Company believes the concentration of credit risk is limited.