Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

v3.20.2
Fair Value Measurements
6 Months Ended
Jun. 30, 2020
Fair Value Disclosures [Abstract]  
Fair Value Measurements Fair Value Measurements
Assets and liabilities measured at fair value on a recurring basis:
Interest rate swap agreements: The fair value of our interest rate derivatives is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of the derivatives. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves. We incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements.
Although the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads, we have determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy. We have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and determined that the credit valuation adjustments are not significant to the overall valuation of our interest rate swaps. As a result, we determined that our interest rate swap valuation in its entirety is classified in Level 2 of the fair value hierarchy.
Foreign currency forward contracts: We enter into foreign exchange currency contracts to hedge fluctuations associated with foreign currency denominated monetary assets and liabilities, and the future payment of operating expenses by certain of our non-U.S. subsidiaries. The fair values of our foreign exchange currency contracts are based on quoted foreign exchange forward rates at the reporting date and are classified within Level 2 of the fair value hierarchy.
Contingent consideration obligations: The fair value of the contingent consideration obligations includes inputs not observable in the market and thus represents a Level 3 measurement. The amount to be paid under these obligations is contingent upon the achievement of stipulated operational or financial targets by the business subsequent to acquisition. The fair value for our contingent consideration obligations is estimated based on management’s assessment of the probability of achievement of operational or financial targets. The fair value estimate considers the projected future operating or financial results for the factor upon which the respective contingent obligation is dependent. The fair value estimate is generally sensitive to changes in these projections. We develop the projected future operating results based on an analysis of historical results, market conditions, and the expected impact of anticipated changes in our overall business and/or product strategies.
At June 30, 2020, the contingent consideration obligation consisted of a potential obligation related to our Hipercept acquisition. The fair value for this contingent consideration obligation is estimated using a probability weighted discount model which considers the achievement of the conditions upon which the contingent obligation is dependent. The probability of achieving the specified conditions is generally assessed by applying a Monte Carlo weighted-average model. The valuation model includes certain observable inputs including a discount rate which for the period ending June 30, 2020 was 4.5% and significant unobservable inputs including a measure of estimated volatility, a compounded annual growth rate of revenue, and a risk of target metric, which for the period ended June 30, 2020 were 17.1%, 41.2%, and 4.2%, respectively.
The following tables disclose the assets and liabilities measured at fair value on a recurring basis as of June 30, 2020 and December 31, 2019, by the fair value hierarchy levels as described above:
Fair value at June 30, 2020
Total Level 1 Level 2 Level 3
(in thousands)
Assets:
Foreign currency forward contracts $ 266    $ —    $ 266    $ —   
Total assets measured at fair value $ 266    $ —    $ 266    $ —   
Liabilities:
Interest rate swap agreements $ 7,055    $ —    $ 7,055    $ —   
Foreign currency forward contracts(1)
159    —    159    —   
Contingent consideration related to the acquisition of:
Hipercept 5,584    —    —    5,584   
Total liabilities measured at fair value $ 12,798    $ —    $ 7,214    $ 5,584   
(1) The fair value of foreign currency forward contracts includes those designated as cash flow hedge instruments and those designated as balance sheet hedge instruments.
Fair value at December 31, 2019
Total Level 1 Level 2 Level 3
(in thousands)
Assets:
Foreign currency forward contracts(1)
$ 237    $ —    $ 237    $ —   
Liabilities:
Interest rate swap agreements $ 2,193    $ —    $ 2,193    $ —   
Foreign currency forward contracts 14    —    14    —   
Contingent consideration related to the acquisition of:
Hipercept 6,536    —    —    6,536   
Total liabilities measured at fair value $ 8,743    $ —    $ 2,207    $ 6,536   
(1) The fair value of foreign currency forward contracts includes those designated as cash flow hedge instruments and those designated as balance sheet hedge instruments.
There were no transfers between Level 2 and Level 3 measurements during the six months ended June 30, 2020.
Changes in the fair value of Level 3 measurements were as follows for the six months ended June 30, 2020 and 2019:
Six Months Ended June 30,
2020 2019
(in thousands)
Balance at beginning of period $ 6,536    $ 6,000   
Settlements through cash payments —    (5,963)  
Net change in fair value (952)   (37)  
Balance at end of period $ 5,584    $ —   

Gains and losses recognized on the change in fair value of the above liabilities are reflected in the line “General and administrative” expense in the accompanying Condensed Consolidated Statements of Operations.
Assets and liabilities measured at fair value on a non-recurring basis:
In August 2016, we acquired a $3.0 million noncontrolling interest in CompStak, Inc. (“CompStak”), which is an unrelated company that specializes in the aggregation of commercial lease data. We have elected the measurement alternative for the CompStak equity investment, whereby we measure the investment at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer. During the first quarter of 2019, we recorded a gain of $2.6 million based on an observable price change, which is reflected in the line “Interest expense and other, net” in the accompanying Condensed Consolidated Statements of Operations. The factors considered in the remeasurement included the price at which the investee issued equity instruments similar to those of our investment and the rights and preferences of those equity instruments compared to ours. We concluded that this fair value measurement should be categorized within Level 2.
During the second quarter of 2019, we invested an additional $1.8 million in CompStak. The carrying value of this investment at June 30, 2020 and December 31, 2019 was $7.4 million, and is included in “Other assets” in the accompanying Condensed Consolidated Balance Sheets.
There were no liabilities measured at fair value on a non-recurring basis at June 30, 2020 and December 31, 2019.