FAIR VALUE

12 Months Ended

Dec. 31, 2022

Fair Value Disclosures [Abstract]

FAIR VALUE

FAIR VALUE

Fair Value Measurement — Definition and Hierarchy

ASC 820-10, Fair Value Measurement, defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date.

ASC 820-10 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability, developed based on market data obtained from sources independent of the Company. Unobservable inputs reflect our own assumptions about the assumptions market participants would use in pricing the asset or liability, developed based on the best information available in the circumstances.

The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels, as follows:

Level 1 — Quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access.

Level 2 — Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Such inputs include quoted prices in markets that are not active, quoted prices for similar assets and liabilities in active and inactive markets, inputs other than quoted prices that are observable for the asset or liability and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3 — Unobservable inputs for the asset or liability, where there is little, if any, observable market activity or data for the asset or liability.

In general, and where applicable, we use quoted prices in active markets for identical assets or liabilities to determine fair value. This pricing methodology applies to our Level 1 assets and liabilities. If quoted prices in active markets for identical assets and liabilities are not available to determine fair value, then we use quoted prices for similar assets and liabilities or inputs other than the quoted prices that are observable, either directly or indirectly. This pricing methodology would apply to Level 2 assets and liabilities.

The following table presents the Company's fair value hierarchy for assets and liabilities measured at fair value on a recurring basis (in thousands):

		Fair Value
	Level in Fair	December 31,
	Value Hierarchy	2022		2021
Assets:
Other non-current assets:
Equity securities (1)	1	$	723	$	17,166
Liabilities:
Other long-term liabilities:
Contingent consideration associated with acquisitions	3	13,400		2,500

(1) Represents our investments in autonomous technology companies. For additional information regarding the valuation of these equity securities, see Note 7 – Investments.

The following table presents changes in the fair value of contingent consideration for the years ended December 31, 2022 and 2021 (in thousands):

Balance as of December 31, 2020	$	—
Contingent consideration associated with the acquisition of NEHDS (1)	2,500
Balance as of December 31, 2021	2,500
Contingent consideration associated with the acquisition of Baylor (1)	8,400
Contingent consideration associated with the acquisition of ReedTMS (1)	5,000
Change in fair value (2)	(2,500)
Balance as of December 31, 2022	$	13,400

(1) The estimated fair value of our contingent consideration arrangements were based upon probability-adjusted inputs for each acquired entity. For additional information regarding our contingent consideration arrangements, see Note 2 – Business Acquisitions.

(2) The contingent earnout period related to the NEHDS acquisition ended on December, 31, 2022 and did not result in any additional cash payments, as the financial performance goals were not achieved. The change in the contingent earnout liability was recorded in other operating expense on the consolidated statements of income.

Our ownership interests in Mastery Logistics Systems, Inc. (“MLSI”) and Fleet Defender, Inc. do not have readily determinable fair values and are accounted for using the measurement alternative in ASC 321, Investments - Equity Securities. For additional information regarding the valuation of these investments, see Note 7 – Investments.

Fair Value of Financial Instruments Not Recorded at Fair Value

Cash and cash equivalents, accounts receivable trade, and accounts payable are short-term in nature and accordingly are carried at amounts that approximate fair value. These financial instruments are recorded at or near their respective transaction prices and historically have been settled or converted to cash at approximately that value (categorized as Level 2 of the fair value hierarchy).

The carrying amount of our fixed-rate debt not measured at fair value on a recurring basis was $93.8 million and $97.5 million as of December 31, 2022 and 2021, respectively. The estimated fair value of our fixed-rate debt using the income approach, based on its net present value, discounted at our current borrowing rate, was $87.2 million as of December 31, 2022 (categorized as Level 2 of the fair value hierarchy) and approximated the carrying value as of December 31, 2021. The carrying amount of our variable-rate long-term debt approximates fair value due to the duration of our credit arrangement and the variable interest rate (categorized as Level 2 of the fair value hierarchy).