Fair Value Measurements

3 Months Ended

Mar. 31, 2025

Fair Value Measurements

Fair Value Measurements

4. Fair Value Measurements

Interest Rate Risk Management and Derivative Instruments

At times, we use derivative instruments to manage exposure to market risk, including interest rate risk. Unsettled amounts under our interest rate swaps, if any, are recorded in the Consolidated Balance Sheet at fair value in “Other Receivables” or “Other Current Liabilities.” Gains and losses on our interest rate swaps are recorded in the Consolidated Statement of Operations in “Interest Expense.” We currently do not have any derivatives that are accounted for as hedges under ASC 815.

Fair Value Measurement

We classify and disclose assets and liabilities carried at fair value in one of the following three categories:

● Level 1—quoted prices in active markets for identical assets and liabilities;

● Level 2—observable market-based inputs or unobservable inputs that are corroborated by market data; and

● Level 3—significant unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The following table summarizes the fair values, and levels within the fair value hierarchy in which the fair value measurements are included, for assets and liabilities measured on a recurring basis as of March 31, 2025 and December 31, 2024 (in thousands):

	Fair Value Measurements at March 31, 2025
	Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	204,758	$	—	$	—	$	204,758
U.S. Treasury bills	$	—	$	7,274	$	—	$	7,274
Contingent earn-out obligations	$	—	$	—	$	63,768	$	63,768
	Fair Value Measurements at December 31, 2024
	Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	549,939	$	—	$	—	$	549,939
Contingent earn-out obligations	$	—	$	—	$	140,156	$	140,156

Cash and cash equivalents consist primarily of deposit accounts and highly rated money market funds at a variety of well-known institutions with original maturities of three months or less. The original cost of these assets approximates fair value due to their short-term maturity. We believe the carrying value of our debt associated with our revolving credit facility approximates its fair value due to the variable rate on such debt. We believe the carrying values of our notes to former owners approximate their fair values due to the relatively short remaining terms on these notes.

We own U.S. Treasury bills with a 17-week maturity, which we classify as held-to-maturity in accordance with ASC 320 “Investments – Debt Securities,” given that the Company has the ability and intent to hold the investments until maturity. Due to their short-term maturity, the amortized cost of our U.S. Treasury bills approximates their fair value.

We value contingent earn-out obligations using a probability weighted discounted cash flow method. This fair value measurement is based on significant unobservable inputs in the market and thus represents a Level 3 measurement within the fair value hierarchy. This analysis reflects the contractual terms of the purchase agreements (e.g., minimum and maximum payments, length of earn-out periods, manner of calculating any amounts due, etc.) and utilizes assumptions with regard to future cash flows and operating income, probabilities of achieving such future cash flows and operating income and a weighted average cost of capital. Significant changes in any of these assumptions could result in a significantly higher or lower potential liability. The contingent earn-out obligations are measured at fair value each reporting period, and changes in estimates of fair value are recognized in earnings. As of March 31, 2025, cash flows were discounted using a weighted average cost of capital of 19.5%.

The table below presents a reconciliation of the fair value of our contingent earn-out obligations that use significant unobservable inputs (Level 3) (in thousands):

	Three Months Ended		Year Ended
	March 31, 2025		December 31, 2024
Balance at beginning of period	$	140,156	$	44,222
Issuances		218		51,784
Settlements		(80,364)		(43,996)
Adjustments to fair value		3,758		88,146
Balance at end of period	$	63,768	$	140,156