Fair Value Measurements

6 Months Ended

Jun. 30, 2024

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

Authoritative guidance on fair value measurements provides a framework for measuring fair value and establishes a fair value hierarchy that prioritizes the inputs used to measure fair value, giving the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 inputs), observable inputs other than quoted prices in active markets (Level 2 inputs) and the lowest priority to unobservable inputs (Level 3 inputs).

The carrying value of cash and cash equivalents, receivables, accounts payable and accrued expenses approximates fair value based on the short-term nature of these accounts.

At December 31, 2023, the earn-out liability was measured at a fair value of $20.8 million using Level 3 unobservable inputs. The fair value at December 31, 2023 was determined based on the evaluation of the probability and amount of earn-out that may be achieved based on expected future performance of FlexSteel using a Monte Carlo simulation model. The Monte Carlo simulation model used assumptions including revenue volatilities, risk free rates, credit discount rates and revenue discount rates. The following table sets forth the range of inputs for the significant assumptions utilized to determine the fair value as of December 31, 2023:

	December 31, 2023
Risk-free interest rate	5.40%	to	5.63%
Expected revenue volatility	21.70%
Revenue discount rate	10.02%	to	10.23%
Credit discount rate	9.85%

The following table presents a summary of the changes in fair value of our liabilities measured using Level 3 inputs:

	Earn-out
Opening Balance	$	5,960
Changes in fair value	14,850
Balance at December 31, 2023	$	20,810

The FlexSteel acquisition contingent consideration earn-out period ended June 30, 2024. The earn-out payment is expected to be paid in August 2024 and represents the achievement of certain revenue targets met by FlexSteel.

The fair value of our foreign currency forwards was less than $0.1 million as of June 30, 2024 and was determined using market observable inputs including forward and spot prices (Level 2 inputs).