Fair Value Measurements

9 Months Ended

Sep. 30, 2022

Fair Value Measurements

Fair Value Measurements

15. Fair Value Measurements

The Company records the fair value of assets and liabilities in accordance with ASC 820, Fair Value Measurement (“ASC 820”). ASC 820 defines fair value as the price received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity.

In addition to defining fair value, ASC 820 expands the disclosure requirements around fair value and establishes a fair value hierarchy for valuation inputs. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of the three levels, which is determined by the lowest level input that is significant to the fair value measurement in its entirety.

These levels are:

● Level 1 — quoted prices (unadjusted) in active markets for identical assets or liabilities.

● Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.

● Level 3 — unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or liability at fair value.

Securities reported at fair value utilizing Level 1 inputs represent assets whose fair value is determined based upon observable unadjusted quoted market prices for identical assets in active markets. Level 2 securities represent assets whose fair value is determined using observable market information such as previous day trade prices, quotes from less active markets or quoted prices of securities with similar characteristics.  Available-for-sale securities are characterized as Level 2 assets, as their fair values are determined using observable market inputs. Equity securities are characterized as Level 1 assets, as their fair values are determined using active markets for identical assets. There were no transfers between Level 1, Level 2, or Level 3 for the three and nine months ended September 30, 2022.

Financial instruments not recorded at fair value on a recurring basis include equity method investments that have not been remeasured or impaired in the current period, such as our investments in HyVia, AccionaPlug S.L., and SK Plug Hyverse Co., Ltd. During the three and nine months ended September 30, 2022, the Company contributed approximately $9.1 million and $33.3 million, respectively, to HyVia, AccionaPlug S.L. and SK Plug Hyverse Co., Ltd.

Assets and liabilities measured at fair value on a recurring basis are summarized below (in thousands):

		As of September 30, 2022
		Carrying		Fair		Fair Value Measurements
		Amount		Value		Level 1		Level 2		Level 3
Assets
Cash equivalents	$	12,023	$	12,023	$	12,023	$	—	$	—
Corporate bonds		211,533		211,533		—		211,533		—
U.S. Treasuries		607,907		607,907		607,907		—		—
Equity securities		130,121		130,121		130,121		—		—
Swaps and forward contracts		650		650		—		—		650
Liabilities
Contingent consideration		94,485		94,485		—		—		94,485

		As of December 31, 2021
		Carrying		Fair		Fair Value Measurements
		Amount		Value		Level 1		Level 2		Level 3
Assets
Cash equivalents	$	115,241	$	115,241	$	115,241	$	—	$	—
Corporate bonds		226,382		226,382		—		226,382		—
U.S. Treasuries		1,013,883		1,013,883		1,013,883		—		—
Equity securities		147,995		147,995		147,995		—		—
Swaps and forward contracts		70		70		70		—		—
Liabilities
Contingent consideration		62,297		62,297		—		—		62,297
Swaps and forward contracts		981		981		981		—		—

The liabilities measured at fair value on a recurring basis that have unobservable inputs and are therefore categorized as level 3 are related to contingent consideration. The fair value as of September 30, 2022 is comprised of $76.6 million related to the acquisitions of Frames, Applied Cryo, and Joule, as well as $17.9 million from two acquisitions in 2020.  Giner ELX, Inc. was acquired in June 2020, and included in the purchase price are preliminary fair value associated with earnout payments of $16.0 million that the sellers are eligible to receive. The remaining contingent consideration as of September 30, 2022 is related to the achievement of the dry build electrolyzer stack earnout and the achievement of certain revenue targets for years 2022 through 2023. As of September 30, 2022, the remaining estimated fair value of contingent consideration for Giner ELX Inc. is $16.5 million. United Hydrogen Group Inc. was acquired in June 2020, and included in the purchase price was contingent consideration based on the future performance related to the expansion of the liquefication capacity of the Charleston, Tennessee liquid hydrogen plant. The Company’s liability for this contingent consideration was measured at fair value based on the Company’s expectations of achieving the expansion milestone. As of September 30, 2022, the remaining estimated fair value is $1.4 million. In the unaudited interim condensed consolidated balance sheets, contingent consideration is recorded in the contingent consideration, loss accrual

for service contracts, and other liabilities financial statement line item, and is comprised of the following unobservable inputs:

Financial Instrument	Fair Value		Valuation Technique	Unobservable Input	Range (weighted average)
Contingent Consideration	$	83,443	Scenario based method	Credit spread	16.24%
				Discount rate	17.56% - 19.19% (18.38%)
		10,350	Monte carlo simulation	Credit spread	16.24%
				Discount rate	18.84% - 19.09%
				Revenue volatility	49.11%
		692	Monte carlo simulation	Credit spread	16.24%
				Revenue volatility	40.7% - 24.4% (35.0%)
				Gross profit volatility	113.0% - 23.0% (65.0%)
		94,485

The change in the carrying amount of Level 3 liabilities for the three and nine month period ended September 30, 2022 was as follows (in thousands):

	Nine months ended
		September 30, 2022
Beginning balance at December 31, 2021	$	62,297
Payments		(2,667)
Additions due to acquisitions		41,732
Fair value adjustments		2,461
Foreign currency translation adjustment		(604)
Ending balance at March 31, 2022		103,219
Fair value adjustments		(5,066)
Foreign currency translation adjustment		(1,645)
Ending balance at June 30, 2022		96,508
Fair value adjustments		—
Foreign currency translation adjustment		(2,023)
Ending balance at September 30, 2022	$	94,485