Fair Value Measurements

9 Months Ended

Sep. 30, 2020

(14) Fair Value Measurements

The following tables provide the financial assets and liabilities carried at fair value measured on a recurring basis as of September 30, 2020 and December 31, 2019 using the fair value hierarchy prescribed by U.S. GAAP. The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value. Level 1 refers to fair values determined based on quoted prices in active markets for identical assets. Level 2 refers to fair values estimated using significant other observable inputs, and Level 3 refers to fair values estimated using significant non-observable inputs. An asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.


	Fair Value Measurements at September 30, 2020
	Total		Level 1		Level 2		Level 3
	(In thousands)


Liabilities
Liabilities associated with interest rate swap and cap contracts	$	(58,710)	$	—	$	(58,710)	$	—
Liabilities associated with acquisition related contingent consideration	$	(6,818)	$	—	$	—	$	(6,818)


	Fair Value Measurements at December 31, 2019
	Total		Level 1		Level 2		Level 3
	(In thousands)
Assets
Assets associated with interest rate swap and cap contracts	$	10,638	$	—	$	10,638	$	—
Liabilities
Liabilities associated with interest rate swap and cap contracts	$	(17,420)	$	—	$	(17,420)	$	—
Liabilities associated with acquisition related contingent consideration	$	(16,851)	$	—	$	—	$	(16,851)
Liabilities associated with foreign currency forward contracts	$	(7,868)	$	—	$	(7,868)	$	—

Below are descriptions of the Company’s valuation methodologies for assets and liabilities measured at fair value. The methods described below may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

Cash and cash equivalents, accounts and notes receivable, net of allowance for doubtful accounts, prepaid expenses, deferred costs, and other current assets, accounts payable, accrued liabilities, and other current liabilities. These financial instruments are not carried at fair value, but are carried at amounts that approximate fair value due to their short-term nature and generally negligible credit risk.

Acquisition related intangible assets. The estimated fair values of acquisition related intangible assets are valued based on a discounted cash flows analysis using significant non-observable (Level 3) inputs. Intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. An assessment of non-amortized intangible assets is performed on an annual basis or more frequently based on the occurrence of events that might indicate a potential impairment.

Acquisition related contingent consideration. Liabilities from acquisition-related contingent consideration are estimated using market observable inputs and other significant non-observable inputs, as well as projections based on the Company’s best estimate of future operational results upon which the payment of these obligations are contingent. The contingent consideration payment amounts are estimated based upon a formula and projected performance relative to certain agreed-upon earnings targets. Subsequent to the Spark acquisition, the Company utilized a Monte Carlo simulation to estimate the fair value and account for the interdependency between the 2019 and 2020 performance periods. However, effective December 31, 2019, at the end of the first measurement period, the Company revised its methodology and used a Black-Scholes based model to estimate the fair value of the payments.

During the nine months ended September 30, 2020, the Company paid $5.2 million to satisfy the 2019 portion of its obligation under the Spark acquisition contingent consideration arrangement. During the nine months ended September 30, 2020, the Company recognized mark-to-market gains of $2.1 million, to revise the estimated fair value of the contingent consideration liability. The Company also recognized a net foreign exchange gains of $2.8 million during the nine months ended September 30, 2020, to remeasure the South African Rand denominated liability. During the three months ended September 30, 2020 the mark-to-market and foreign exchange impacts were immaterial. Both the revision to the estimated fair values and the net foreign exchange gains and losses are included in the Other income line in the Consolidated Statements of Operations. As of September 30, 2020, the estimated fair value of the Company’s acquisition related contingent consideration liability was $6.8 million, payable in the first quarter of 2021.

Future changes to the estimated contingent liability either higher or lower may occur as the estimated internal projections and other significant non-observable inputs for the calculation become available and are updated as deemed necessary. These future changes could result in a material change in the estimated contingent liability. The estimates and significant non-observable inputs may differ from actual results.

Long-term debt. The carrying amounts of the long-term debt balances related to borrowings under the Company’s Revolving credit facility and Term Loan approximate fair value due to the fact that any outstanding borrowings are subject to short-term floating interest rates. As of September 30, 2020, the fair values of the 2020 Convertible Notes and 2025 Notes were approximately $115.4 million and $301.8 million, respectively, based on the quoted prices in markets that are not active (Level 2). For additional information related to long-term debt, see Note 9. Current and Long-Term Debt.

Additions to asset retirement obligations liability. The Company estimates the fair value of additions to its ARO liability using expected discounted future cash flow at the Company’s credit-adjusted risk-free interest rate. Liabilities added to the ARO are measured at fair value at the time of the asset installations using significant non-observable (Level 3) inputs. These liabilities are evaluated periodically based on estimated current fair value. Amounts added to the ARO liability during the three months ended September 30, 2020 and 2019 totaled $2.8 million and $1.1 million, respectively.

Interest rate derivatives. As of September 30, 2020, the recognized fair value of the Company’s Interest Rate Derivatives resulted in current and long-term liabilities totaling $58.7 million. These financial instruments are carried at fair value and are valued using pricing models based on significant other observable inputs (Level 2), while taking into account the creditworthiness of the party that is in the liability position with respect to each trade. For additional information related to the valuation process of this asset or liability, see Note 13. Derivative Financial Instruments.