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Fair Value

3 Months Ended

Mar. 31, 2020

(16) Fair Value

The table below presents information about items, which are carried at fair value on a recurring basis:


		March 31, 2020
		(In thousands)
		Level 1			Level 2			Level 3			Total

Cash equivalents		$	15,644		$	—		$	—		$	15,644
Contingent consideration			—			—			(1,568)			(1,568)
Blueapple RNCI			(522,702)			—			—			(522,702)
eService RNCI			—			—			(96,503)			(96,503)
Total		$	(507,058)		$	—		$	(98,071)		$	(605,129)


		December 31, 2019
		(In thousands)
		Level 1			Level 2			Level 3			Total

Cash equivalents		$	7,715		$	—		$	—		$	7,715
Contingent consideration			—			—			(2,300)			(2,300)
Blueapple RNCI			(902,258)			—			—			(902,258)
eService RNCI			—			—			(150,190)			(150,190)
Total		$	(894,543)		$	—		$	(152,490)		$	(1,047,033)

Cash equivalents consist of a money market fund that is valued using a market price in an active market (Level 1). Level 1 instrument valuations are obtained from real-time quotes for transactions in active exchange markets involving identical assets.

Contingent consideration relates to potential payments that the Company may be required to make associated with acquisitions. To the extent that the valuation of these liabilities are based on inputs that are less observable or not observable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for measures categorized in Level 3.

The fair value of Blueapple’s RNCI is derived from the closing stock price of the Company’s Class A common stock on the last day of the period.

The fair value of eService’s RNCI is determined utilizing an income approach, weighted at 75%, based on the forecasts of expected future cash flows, and the market approach, weighted at 25%, based on the guideline public company data. In applying the income approach, significant unobservable inputs included the Weighted-Average Cost of Capital (“WACC”) used to discount the future cash flows, which was 14.5%, based on the markets in which the business operates and growth rates used within the future cash flows, which were up to 10.0%, based on historic trends, current and expected market conditions, and management’s forecast assumptions. A future increase in the WACC would result in a decrease in the fair value of RNCI in eService. Conversely, a decrease in the WACC would result in an increase in the fair value of RNCI in eService. In applying the market approach, the ranges of the valuation multiples as of March 31, 2020 were 2.75x-3.00x and 6.00x-6.25x for revenue and EBITDA, respectively.

The estimated fair value of receivables, settlement processing assets and obligations, due to and from related parties and settlement lines of credit approximate their respective carrying values due to their short term nature. The estimated fair value of long-term debt as of March 31, 2020 and December 31, 2019 was $639.0 million and $711.9 million, respectively. The estimated fair value of long-term debt, which is classified as Level 2 in the fair value hierarchy, is based on quoted bid-ask spreads within the lender syndicate.

Visa Series C preferred stock are carried at cost in the amount of $14.7 million as of March 31, 2020 and December 31, 2019, and are presented in other assets on the unaudited condensed consolidated balance sheets. The estimated fair value of the Visa Series C preferred stock of $32.4 million and $37.8 million as of March 31, 2020 and December 31, 2019 is based upon inputs classified as Level 3 of the fair value hierarchy. These inputs include the fair value of Visa Class A common stock as of March 31, 2020 and the conversion factor of Visa Series C preferred stock to Visa Class A common stock as of March 31, 2020, inclusive of a discount rate due to the lack of liquidity, which represents a measure of fair value that is unobservable or requires management’s judgment.

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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