Annual report pursuant to Section 13 and 15(d)

FAIR VALUE

v3.21.1
FAIR VALUE
12 Months Ended
Dec. 31, 2020
Fair Value Disclosures [Abstract]  
Fair Value FAIR VALUE
Fair Value Measurements

The following is a description of the valuation methodologies used for contingent consideration for business combinations and for the Goldman Sachs warrant prior to its July 2018 redemption (see Note 10, Long-Term Debt and Warrant Liability), both of which were initially recorded and remeasured at fair value at the end of each reporting period. The contingent consideration for business combinations are related to acquisitions made in 2018 and the contingency periods have expired at December 31, 2020. The Goldman Sachs warrant was fully redeemed in July 2018. Accordingly, at December 31, 2020, the Company no longer has any fair value estimates that are remeasured at the end of each reporting period.
Redeemed Goldman Sachs Warrant

Prior to its redemption in July 2018, the Goldman Sachs warrant was classified as level 3 in the fair value hierarchy. Historically, the fair value of the Goldman Sachs warrant was estimated based on the fair value of Priority Holdings, LLC using a weighted-average of values derived from generally accepted valuation techniques, including market approaches, which consider the guideline public company method, the guideline transaction method, the recent funding method, and an income approach, which considers discounted cash flows. Priority Holdings, LLC adjusted the carrying value of the warrant to fair value as determined by the valuation model and recognized the change in fair value as an increase or decrease in interest and other expense. On July 25, 2018, the Goldman Sachs warrant was fully redeemed in exchange for $12.7 million cash, which resulted in a gain of $0.1 million, as the value of the Goldman Sachs warrant immediately prior to the cancellation was $12.8 million.


Contingent Consideration for Business Combinations

The initial estimated fair value of approximately $1.0 million for the contingent consideration related to the 2018 business combinations for PPS Tech and PPS Northeast (see Note 4, Asset Acquisitions, Asset Contributions, and Business Combinations) were based on a weighted payout probability at the measurement date, which falls within Level 3 on the fair value hierarchy since these recurring fair value measurements are based on significant unobservable inputs. The probabilities used to estimate the payout probability of the contingent consideration for the two business combinations ranged between 15% and 35% for one and between 5.0% and 80% for the other. The weighted average probabilities were based on present value of estimated projections for financial metrics for the remaining earnout periods. At December 31, 2019 and 2018, the fair value of this contingent consideration was estimated to be an aggregate of approximately $0.4 million and $1.0 million, respectively. During the years ended December 31, 2020 and 2019, the carrying values of these contingent consideration arrangements were reduced by approximately $0.4 million and $0.6 million, respectively, and these amounts are reported within selling, general and administrative expense on the Company's consolidated statements of operations. The Company paid no amounts under either of these earnout arrangements which expired during the year ended December 31, 2020.

The following table shows a reconciliation of the beginning and ending balances for liabilities measured at fair value on a recurring basis using significant unobservable inputs that are classified as Level 3 in the fair value hierarchy for the years ended December 31, 2020, 2019, and 2018:
(in thousands) Warrant Liability Contingent Consideration
Balance at January 1, 2018 $ 8,701  $  
Extinguishment of GS 1.8% warrant liability (Note 10)
(8,701) — 
GS 2.2% warrant liability (Note 10)
12,182  — 
Adjustment to fair value included in earnings 591  — 
Extinguishment of GS 2.2% warrant liability (Note 10)
(12,701) — 
Change in fair value of warrant liability (72) — 
Earnout liabilities arising from business combinations (Note 4) —  980 
Balance at December 31, 2018   980 
Adjustment to fair value included in earnings   (620)
Balance at December 31, 2019   360 
Adjustment to fair value included in earnings   (360)
Balance at December 31, 2020 $   $ — 

There were no transfers among the fair value levels during the years ended December 31, 2020, 2019, or 2018.
Fair Value Disclosures

Notes Receivable

Notes receivable are carried at amortized cost. Substantially all of the Company's notes receivable are secured, and the Company believes that all of its notes receivable are collectible. The fair value of the Company's notes receivable at December 31, 2020 and December 31, 2019 was approximately $7.7 million and $5.7 million, respectively. On the fair value hierarchy, Level 3 inputs are used to estimate the fair value of these notes receivable.


Debt Obligations

The Borrower's outstanding debt obligations (see Note 10, Long-Term Debt and Warrant Liability) are reflected in the Company's consolidated balance sheets at carrying value since the Company did not elect to remeasure debt obligations to fair value at the end of each reporting period.

The fair value of the term loan facility under the Borrowers' Senior Credit Agreement at December 31, 2020 and 2019 was estimated to be approximately $278.0 million and $381.0 million, respectively. The fair value of these notes with a notional value and carrying value (gross of deferred costs and discounts) of $279.4 million and $388.8 million, respectively, was estimated using binding and non-binding quoted prices in an active secondary market, which considers the Borrowers' credit risk and market related conditions, and is within Level 3 of the fair value hierarchy.

The carrying values of the Borrowers' other long-term debt obligations approximate fair value due to mechanisms in the credit agreements that adjust the applicable interest rates and the lack of a market for these debt obligations.