Annual report pursuant to Section 13 and 15(d)

Fair Value Measurement

v3.24.0.1
Fair Value Measurement
 12 Months Ended
Dec. 31, 2023
Fair Value Disclosures [Abstract]  
Fair Value Measurement FAIR VALUE MEASUREMENT
We recognize certain financial assets and liabilities at fair value on a recurring basis (at least annually). Fair value is defined as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Three levels of inputs that may be used to measure fair value are as follows:
Level 1: Inputs are based on unadjusted quoted prices for identical instruments traded in active markets. 
Level 2: Inputs are based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities. 
Level 3: Inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques. 
The following table presents the input level used to determine the fair values of our financial instruments measured at fair value on a recurring basis:
Fair Value as of December 31,
Level 2023 2022
Assets
Interest rate swap instruments 2 $ 3,970  $ 5,202 
Liabilities
Interest rate swap instruments 2 $ 629  $ 9 
Make-whole provisions 2 6,012  5,348 
Contingent consideration 3 1,465  4,158 
Total liabilities $ 8,106  $ 9,515 
The fair value of our interest rate swaps was determined using cash flow analysis on the expected cash flow of the contract in combination with observable market-based inputs, including interest rate curves and implied volatility. As part of this valuation, we considered the credit ratings of the counterparties to the interest rate swaps to determine if a credit risk adjustment was required.
The fair value of our make-whole provisions was determined by comparing them against the rates of similar debt instruments under similar terms without a make-whole provision obtained from various highly rated third-party pricing sources.
The fair value of our contingent consideration liabilities was determined by evaluating the acquired asset’s future financial forecasts and evaluating which, if any, of the cumulative revenue targets, financial metrics and/or milestones are likely to be met. We classified contingent consideration related to certain acquisitions within level 3 of the fair value hierarchy because the fair value is derived using significant unobservable inputs, which include discount rates, probability-weighted cash flows, and volatility. We determined the fair value of our contingent consideration obligations based on a probability-weighted income approach derived from financial performance estimates and probability assessments of the attainment of certain targets for some
acquisitions. For other acquisitions, we derived the fair value of contingent consideration using a Monte Carlo simulation in an option pricing framework. We established discount rates utilized in our valuation models based on the cost to borrow that would be required by a market participant for similar instruments. In determining the probability of attaining certain technical, financial and operational targets, we utilized data regarding similar milestone events from our own experience, while considering the inherent difficulties and uncertainties in developing a product. On a quarterly basis, we reassess the probability factors associated with the financial, operational, and technical targets for our contingent consideration obligations. Significant judgment is employed in determining the appropriateness of these assumptions as of the acquisition date and for each subsequent period.
We derived the fair value of the contingent consideration of $2,160 from the acquisition of Plug Smart in December 2021 using a Monte Carlo simulated model. The key assumptions used in the model include two scenarios of EBITDA projections, a base case and a higher case, a risk-adjusted discount rate of 16.9%, and estimated EBITDA volatility of 75.0%.
The balances and subsequent key assumptions used in the model were as follows:
At December 31,
2023 2022
Balance of remaining contingent consideration $ 1,465  $ 3,800 
Risk-adjusted discount rate 16.9  % 16.9  %
Estimated EBITDA volatility 70.0  % 75.0  %
The balance of contingent consideration from the acquisition of certain assets of Chelsea Group Limited was decreased to $0 at December 31, 2023 from $358 at December 31, 2022 as the cumulative revenue earn-out targets were not achieved and the term expired
The following table sets forth a summary of changes in the fair value of contingent consideration liabilities classified as level 3:
Year Ended December 31,
2023 2022
Contingent consideration liabilities balance at the beginning of year $ 4,158  $ 2,838 
Remeasurement period adjustment —  (19)
Changes in fair value included in earnings 347  1,614 
Payment of contingent consideration (3,040) (275)
Contingent consideration liabilities balance at the end of year $ 1,465  $ 4,158 
The fair value of financial instruments is determined by reference to observable market data and other valuation techniques, as appropriate. Long-term debt is the only category of financial instruments where the difference between fair value and recorded book value is notable. At December 31, 2023 and 2022, the fair value of our long-term debt was estimated using discounted cash flows analysis, based on our current incremental borrowing rates for similar types of borrowing arrangements which are considered to be level two inputs. There have been no transfers in or out of level two or three for the years ended December 31, 2023 and 2022.
The following table sets forth the fair value and the carrying value of our long-term debt, excluding financing leases:
December 31, 2023 December 31, 2022
  Fair Value Carrying Value Fair Value Carrying Value
Long-term debt value (level 2) $ 1,466,458  $ 1,478,394  $ 869,771  $ 884,054 
We are also required to periodically measure certain other assets at fair value on a nonrecurring basis, including long-lived assets, goodwill, and other intangible assets. We calculated the fair value used in our annual goodwill impairment analysis utilizing a discounted cash flow analysis and determined that the inputs used were level 3 inputs. Other than intangible assets acquired from the Enerqos acquisition, as noted in Note 4, there were no other assets recorded at fair value on a non-recurring basis as of December 31, 2023 or 2022.