Fair Value of Financial Instruments | 6. Fair Value of Financial Instruments The Company measures fair value based on the prices that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are based on a three-tier hierarchy that prioritizes the inputs used to measure fair value. These tiers include: Level 1, defined as observable inputs, such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions. The following table sets forth the Company’s financial assets and liabilities measured on a recurring basis at fair value, categorized by input level within the fair value hierarchy. September 30, 2022 (in thousands) Fair Value Level 1 Level 2 Level 3 Assets measured at fair value Derivative financial instruments $ 49,149 $ — $ 49,149 $ — Total assets measured at fair value $ 49,149 $ — $ 49,149 $ — Liabilities measured at fair value Warrant liability $ 733 $ — $ 733 $ — Contingent consideration liabilities 40,431 — — 40,431 Total liabilities measured at fair value $ 41,164 $ — $ 733 $ 40,431 December 31, 2021 (in thousands) Fair Value Level 1 Level 2 Level 3 Assets measured at fair value Derivative financial instruments $ 10,164 $ — $ 10,164 $ — Total assets measured at fair value $ 10,164 $ — $ 10,164 $ — Liabilities measured at fair value Derivative financial instruments $ 385 $ — $ 385 $ — Warrant liability 22,189 — — 22,189 Contingent consideration liabilities 58,366 — — 58,366 Total liabilities measured at fair value $ 80,940 $ — $ 385 $ 80,555 Interest Rate Cap Agreements The Company had interest rate cap contracts with an aggregate notional value of principal of $ 650.0 million and $ 2.2 billion as of September 30, 2022 and December 31, 2021, respectively, from various financial institutions to manage the Company’s exposure to interest rate movements on variable rate credit facilities. As of September 30, 2022, $ 49.1 million of fair value of the Company’s outstanding interest rate caps were included in “Prepaid expenses and other current assets” in the Condensed Consolidated Balance Sheets with changes in fair value recognized as a component of “Interest expense, net” in the Condensed Consolidated Statements of Operations and Comprehensive Income. As of December 31, 2021, $ 10.2 million and $ 0.4 million of the Company’s fair value of outstanding interest rate caps were included in “Prepaid expenses and other current assets” and “Other accrued expenses” in the Consolidated Balance Sheets, respectively, with changes in fair value recognized as a component of “Interest expense, net” in the Consolidated Statements of Operations and Comprehensive Income. During the three months ended September 30, 2022 and 2021, the Company recorded a gain of $ 14.5 million and a loss of $ 0.2 million, respectively, within Interest expense , net, related to changes in the fair value of its derivative instruments. During the nine months ended September 30, 2022 and 2021, the Company recorded gains of $ 41.1 million and $ 4.1 million, respectively, within Interest expense, net, related to changes in the fair value of its derivative instruments. Forward Contracts As of September 30, 2022, the Company had open euro forward contracts to hedge foreign currency exposure on a total of € 12.0 million with maturities in fiscal year 2022. As of December 31, 2021, the Company had no open euro forward contracts. During the three and nine months ended September 30, 2022, the changes in fair value of the forward contracts were $ 3.8 million and $ 5.5 million, respectively. During the three and nine months ended September 30, 2021, the Company recognized immaterial changes in fair value of the forward contracts. Warrant Liability As of September 30, 2022 and December 31, 2021, 7,333,333 private placement warrants, which were owned by Conyers Park II Sponsor LLC (“CP Sponsor”), remained outstanding at fair value of $ 0.7 million and $ 22.2 million, respectively. The warrant liability was remeasured to fair value with adjustment of $ 1.1 million and $ 21.5 million reflected in “Change in fair value of warrant liability” in the Condensed Consolidated Statements of Operations and Comprehensive Income during the three and nine months ended September 30, 2022, respectively. The warrant liability was remeasured to fair value with adjustments of $ 3.5 million and $ 5.0 million reflected in “Change in fair value of warrant liability” in the Condensed Consolidated Statements of Operations and Comprehensive Income during the three and nine months ended September 30, 2021, respectively. The warrant liability is stated at fair value at each reporting period with the change in fair value recorded on the Consolidated Statement of Operations and Comprehensive Income until the warrants are exercised, expire or other facts and circumstances lead the warrant liability to be reclassified as an equity instrument. The Company previously valued its private placement warrants using a Black-Scholes Model. The private placement warrants were classified as Level 3 at the initial measurement date due to the use of unobservable inputs. Beginning in the first quarter of 2022, they are classified as Level 2 based on the period of time the public warrants have been trading. The Company determined the fair value of the liability classified private placement warrants by approximating the value with the share price of the public warrants which is inherently less subjective and judgmental given it is based on observable inputs. Therefore, the value of the private placement warrants are measured at an indirectly observable quoted price in active markets for the public warrants. Transfers to/from Levels 1, 2 and 3 are recognized at the end of the reporting period in which a change in valuation technique or methodology occurs. Contingent Consideration Liabilities During each reporting period, the Company measures the fair value of its contingent liabilities by evaluating the significant unobservable inputs and probability weightings using Monte Carlo simulations. Any resulting decreases or increases in the fair value result in a corresponding gain or loss reported in “Selling, general, and administrative expenses” in the Condensed Consolidated Statements of Operations and Comprehensive Income. As of September 30, 2022, the maximum potential payment outcomes were $ 132.0 million. The following table summarizes the changes in the carrying value of estimated contingent consideration liabilities: September 30, (in thousands) 2022 2021 Beginning of the period $ 58,366 $ 45,901 Fair value of acquisitions 510 19,883 Changes in fair value 5,448 6,977 Payments ( 23,164 ) ( 6,399 ) Measurement period adjustments — ( 1,181 ) Foreign exchange translation effects ( 729 ) ( 69 ) End of the period $ 40,431 $ 65,112 Long-term Debt The following table sets forth the carrying values and fair values of the Company’s financial liabilities measured on a recurring basis, categorized by input level within the fair value hierarchy: (in thousands) Carrying Value Fair Value Balance at September 30, 2022 Term Loan Facility $ 1,301,813 $ 1,329,741 Notes 775,000 723,486 Government loans for COVID-19 relief 4,113 4,306 Other 1,492 1,492 Total long-term debt $ 2,082,418 $ 2,059,025 (in thousands) Carrying Value Fair Value Balance at December 31, 2021 Term Loan Facility $ 1,311,750 $ 1,406,552 Notes 775,000 894,611 Government loans for COVID-19 relief 5,212 5,615 Other 1,113 1,113 Total long-term debt $ 2,093,075 $ 2,307,891 |