FAIR VALUE MEASUREMENTS

3 Months Ended

Mar. 31, 2020

The following table presents the fair value hierarchy for financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2020 (in thousands):



	Level 1		Level 2			Level 3			Total
Cash equivalents:
Money market funds	$	42,063	$	—		$	—		$	42,063
Other current liabilities:
Interest rate swaps	—		(16,949		)	—			(16,949		)
Contingent consideration	—		—			(3,828		)	(3,828		)
Other liabilities
Interest rate swaps	—		(57,950		)	—			(57,950		)
Contingent consideration	—		—			(13,071		)	(13,071		)
Total	$	42,063	$	(74,899	)	$	(16,899	)	$	(49,735	)

The following table presents the fair value hierarchy for financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2019 (in thousands):



	Level 1		Level 2			Level 3			Total
Cash equivalents:
Money market funds	$	41,933	$	—		$	—		$	41,933
Other current liabilities:
Interest rate swaps	—		(8,354		)	—			(8,354		)
Contingent consideration	—		—			(3,719		)	(3,719		)
Other liabilities:
Interest rate swaps	—		(30,957		)	—			(30,957		)
Contingent consideration	—		—			(13,071		)	(13,071		)
Total	$	41,933	$	(39,311	)	$	(16,790	)	$	(14,168	)

The Company determines the fair value of its security holdings based on pricing from its pricing vendors. The valuation techniques used to measure the fair value of financial instruments having Level 2 inputs were derived from non-binding consensus

prices that are corroborated by observable market data or quoted market prices for similar instruments. Such market prices may be quoted prices in active markets for identical assets (Level 1 inputs) or pricing determined using inputs other than quoted prices that are observable either directly or indirectly (Level 2 inputs). The Company performs procedures to ensure that appropriate fair values are recorded such as comparing prices obtained from other sources.

The following table presents financial instruments measured at fair value using unobservable inputs (Level 3) (in thousands):



	Fair Value Measurements Using Unobservable Inputs (Level 3)
	March 31, 2020			December 31, 2019
Balance, beginning of period	$	(16,790	)	$	(31,824	)
Fair value adjustment⁽¹⁾	17			532
Accretion expense (recognized in general and administrative expenses)	(126		)	(647		)
Settlement of liability	—			15,149
Total	$	(16,899	)	$	(16,790	)

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(1)	During 2019, the Company recognized an adjustment of $0.8 million in general and administrative expenses related to the change in fair value of contingent consideration, partially offset by an adjustment of $0.3 million recognized in goodwill, which was a purchase accounting adjustment attributable to the ABILITY Acquisition.

2018 Credit Facilities

The Company records debt on the balance sheet at carrying value. The estimated fair value of the Company’s debt is determined based on Level 2 inputs including current market rates for similar types of borrowings. The following table presents the carrying value and fair value of the Company’s debt (including the current portion thereof) as of March 31, 2020 (in thousands):



	March 31, 2020
Carrying value	$	990,439
Fair value	$	903,158

Interest Rate Swaps

In connection with the 2018 Credit Agreement, the Company entered into four interest rate swaps during the second quarter of 2018, each of which mature in March 2025, to mitigate the risk of a rise in interest rates. These interest rate swaps mitigate the exposure on the variable component of interest on the Company’s 2018 Credit Facility. The interest rate swaps fix the LIBOR component of interest on $700.0 million of the 2018 Term Facility at a weighted average rate of approximately 2.8%. See “Note 5—Debt” for additional information. These interest rate swaps are designated as cash flow hedges and are deemed highly effective under ASC 815, Derivatives and Hedging. During the first quarter of 2020, the Company elected to adopt the expedient in 848-50-25-2 to assert probability of the hedged interest transaction regardless of any expected modification in terms related to reference rate reform.

The interest rate swaps are recorded on the balance sheet at fair value as either assets or liabilities and any changes to the fair value are recorded through accumulated other comprehensive income and reclassified into interest expense in the same period in which the hedged transaction is recognized in earnings. Cash flows from interest rate swaps are reported in the same category as the cash flows from the items being hedged.

The following table presents the fair value of interest rate swaps on the balance sheet as of March 31, 2020 (in thousands):



	Liability Derivative
	Balance Sheet Location	Fair Value
Interest rate swap contract	Other current liabilities	$	(16,949	)
Interest rate swap contract	Other liabilities	$	(57,950	)

The following table presents the fair value of interest rate swaps on the balance sheet as of December 31, 2019 (in thousands):



	Liability Derivative
	Balance Sheet Location	Fair Value
Interest rate swap contract	Other current liabilities	$	(8,354	)
Interest rate swap contract	Other liabilities	$	(30,957	)

The following table presents the location and amount of gains and losses on interest rate swaps included in other comprehensive income (“OCI”) and the statement of operations for the three and three months ended March 31, 2020 and 2019 (in thousands):



Three Months Ended March 31, 2020	Gain (Loss) recognized in OCI			Statement of Operations Location	(Gain) Loss reclassified from OCI
Interest rate swap contract	$	(37,715	)	Interest expense	$	2,127



Three Months Ended March 31, 2019	Gain (Loss) recognized in OCI			Statement of Operations Location	(Gain) Loss reclassified from OCI
Interest rate swap contract	$	(12,408	)	Interest expense	$	529

The net amount of accumulated other comprehensive loss expected to be reclassified to interest expense in the next 12 months is $17.4 million.

- 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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