23. Fair Value Measurements

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The Company’s assets and liabilities that are measured at fair value on a recurring basis consist of derivative financial instruments and contingent consideration obligations and prior to the Merger, a freestanding derivative. The following table below summarize these items, aggregated by the level in the fair value hierarchy within which those measurements fall, as of March 31, 2020 and 2019:


			Quoted in				Significant
	Balance at		Markets		Significant Other		Unobservable
	March 31,		Identical		Observable Inputs		Inputs
Description	2020		(Level 1)		(Level 2)		(Level 3)
Interest rate cap agreements	$	(47,408)	$	—	$	(47,408)	$	—
Contingent consideration obligation		(3,000)		—		—		(3,000)
Total	$	(50,408)	$	—	$	(47,408)	$	(3,000)


			Quoted in				Significant
	Balance at		Markets		Significant Other		Unobservable
	March 31,		Identical		Observable Inputs		Inputs
Description	2019		(Level 1)		(Level 2)		(Level 3)
Freestanding derivative	$	81,264	$	—	$	—	$	81,264
Total	$	81,264	$	—	$	—	$	81,264

Derivative Financial Instruments

The valuation of the Company’s derivative financial instruments is determined using widely accepted valuation techniques, including a discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivative, including the period to maturity, and uses observable market-based inputs, including interest rate curves. The fair value of the interest rate cap agreements are determined using the market standard methodology of netting the discounted future fixed cash payments (or receipts) and the discounted expected variable cash receipts (or payments) using the overnight index swap rate as the discount rate.

The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company considered the impact of netting and any applicable credit enhancements and measures the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio.

Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments utilize Level 3 inputs to evaluate the likelihood of default by itself and its counterparties. As of March 31, 2020, the Company determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the derivative valuations are classified in Level 2 of the fair value hierarchy.

Contingent Consideration

The valuation of the Company’s contingent consideration obligations was determined using a discounted cash flow method that involved a Monte Carlo simulation. This analysis reflects the contractual terms of the purchase agreements (i.e., minimum and maximum payments, length of earn-out periods, manner of calculating amounts due, etc.) and utilizes assumptions with regard to future cash flows that were determined using a Monte Carlo simulation which were then discounted to present value using an appropriate discount rate. Significant increases with respect to assumptions as to future revenue would have resulted in a higher fair value measurement while an increase in the discount rate would have resulted in a lower fair value measurement.

Freestanding Derivative

Prior to the Merger, the Company was entitled to receive an additional LLC Unit for each share of stock issued by the Company. In the case of equity-based awards, the requirement to receive an additional LLC Unit upon exercise of such awards represented a freestanding derivative. Because the fair value measurement of this derivative involved significant unobservable inputs, the most significant of which in the value of the Company’s stock, the Company determined that it represented a Level 3 fair value measurement.

Because the freestanding derivative was directly related to the Company’s equity-based compensation awards, the valuation of the derivative was determined with the valuation of the underlying equity-based awards. Changes in the value of the derivative are generally expected to fluctuate with changes in the value of the Company’s stock.

As the dividend receivable was initially received in connection with the contribution of assets to the Joint Venture, the initial fair value was treated as a component of the Company’s contribution of assets and receipt of its Investment in the Joint Venture. During the years ended March 31, 2020 and 2019, the Company recognized changes in the Dividend Receivable as a component of Loss from Equity Method Investment in the Joint Venture. The result is that no net equity-based compensation related to employees of the Joint Venture was recognized in the financial statements of the Company prior to the Merger.

Following the adoption of FASB ASU No. 2018-07, however, the measurement of equity-based compensation generally becomes fixed at the date of grant such that the fair value of the dividend receivable was no longer correlated with the amount of equity compensation recognized. As a result, following the adoption of FASB ASU No. 2018-07, the Loss from Equity Method Investment in the Joint Venture was subject to variability associated with changes in the fair value of the equity-based awards.

This freestanding derivative was settled as a result of the Merger and the fair value was included as part of the total purchase price of the transaction. The fair value of the freestanding derivative at March 31, 2020 and 2019 was $0 and $81,264, respectively. This was presented within Dividend receivable on the consolidated balance sheets.

The following table presents a reconciliation of the fair value of the freestanding derivative for which the Company uses significant unobservable inputs:


	Year Ended		Year Ended
	March 31, 2020		March 31, 2019
Balance at beginning of period	$	81,264	$	59,116
Increase in fair value based on ASC 505 equity-based compensation		—		20,135
Settlements due to exercise of awards		(5,077)		(1,297)
Change in fair value of equity-based awards		(33,409)		3,310
Settlement as component of Merger purchase price		(42,778)		—
Balance at end of period	$	—	$	81,264

Assets and Liabilities Measured at Fair Value upon Initial Recognition

The carrying amount and the estimated fair value of financial instruments held by the Company as of March 31, 2020 and 2019 were as follows:


	March 31, 2020				March 31, 2019
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Cash and cash equivalents	$	410,405	$	410,405	$	3,409	$	3,409
Accounts receivable	$	740,105	$	740,105	$	—	$	—
Investment in business purchase option	$	146,500	$	146,500	$	—	$	—
Senior Credit Facilities (Level 2)	$	3,682,457	$	3,452,687	$	—	$	—
Senior Notes (Level 2)	$	997,772	$	950,000	$	—	$	—
Debt component of tangible equity units (Level 2)	$	35,431	$	34,806	$	—	$	—

Additionally, the assets acquired and liabilities assumed as part of the Merger were recorded at fair value upon initial recognition. See Note 2, Business Combinations, for additional information.

As described in Note 9, Goodwill and Intangible Assets, fair value assessments of the reporting units used in the Company’s impairment analysis are considered a Level 3 measurement due to the significance of unobservable inputs developed using company specific information.

Investments in Businesses

In December 2018, the Joint Venture purchased $15,000 of preferred shares of a health care company and $500 of shares in a related company holding certain intellectual property, each of which is classified within Other noncurrent assets, net on the accompanying consolidated balance sheets. Because this investment has no readily determinable fair value, the Joint Venture measures this investment at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.