|12 Months Ended|
Dec. 31, 2017
|Derivative Instruments and Hedging Activities Disclosure [Abstract]|
Interest Rate Swaps
The Company uses interest rate swaps to hedge variable interest payments due on certain of its term loans and aggregation facility. These swaps allow the Company to incur fixed interest rates on these loans and receive payments based on variable interest rates with the swap counterparty based on the one or three month LIBOR on the notional amounts over the life of the swaps.
The interest rate swaps have been designated as cash flow hedges. The credit risk adjustment associated with these swaps is the risk of non-performance by the counterparties to the contracts. In the twelve months ended December 31, 2017, the hedge relationships on the Company’s interest rate swaps have been assessed as highly effective as the critical terms of the interest rate swaps match the critical terms of the underlying forecasted hedged transactions. Accordingly, changes in the fair value of these derivatives are recorded as a component of accumulated other comprehensive income, net of income taxes. Changes in the fair value of these derivatives are subsequently reclassified into earnings, and are included in interest expense, net in the Company’s statements of operations, in the period that the hedged forecasted transactions affects earnings.
The Company recorded an unrealized loss of $5.7 million and an unrealized gain of $0.3 million for the years ended December 31, 2017 and 2016, respectively, net of applicable tax benefit of $3.6 million and $0.2 million, respectively. The Company recognized interest expense on derivatives into earnings of $1.1 million and $1.0 million for the years ended December 31, 2017 and 2016, respectively, net of tax expense of $0.7 million and $0.6 million, respectively. During the next twelve months, the Company estimates that an additional $2.0 million will be reclassified as an increase to interest expense.
At December 31, 2017, the Company had designated derivative instruments classified as derivative assets as reported in other assets of $1.9 million and derivative liabilities as reported in other liabilities of $8.6 million in the Company’s balance sheet. At December 31, 2017 the Company had the following derivative instruments (in thousands, other than quantity and interest rates):
In July 2015, the Company entered into a letter of intent to issue warrants to purchase up to 1,250,764 shares of the Company’s common stock to the former Series D and E preferred stockholders as an inducement to convert their shares of convertible preferred stock into shares of common stock immediately prior to the closing of the Company’s initial public offering and waive any potential anti-dilution adjustments resulting from the issuance of shares of the Company’s common stock in the Company’s initial public offering. The warrants were issued on September 30, 2015. The warrants are exercisable for three years from the date of grant and have an exercise price of $22.50 per share. The warrant derivatives are recorded at fair value as derivative liabilities as reported in other liabilities in the Company’s consolidated balance sheet. The fair market value of the warrants on the commitment date was $1.5 million. The warrants are remeasured at each reporting period with the changes in the fair value presented in other expenses (income), net in the Company’s statement of operations. At December 31, 2017 and 2016, the fair market value of the warrants was de minimis.
The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts.
Reference 1: http://www.xbrl.org/2003/role/presentationRef