Fair value of financial instruments

6 Months Ended

Jun. 30, 2024

Fair value of financial instruments [Abstract]

Fair value of financial instruments

Note 6 ‑ Fair value of financial instruments:

ASC Topic 820, Fair Value Measurements and Disclosures, establishes a framework for measuring fair value and disclosing fair value measurements. ASC Topic 820 establishes a three‑level hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs in measuring fair value. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability on the measurement date.

• Level 1 ‑ Valuation is based on quoted prices in active markets for identical assets and liabilities;

• Level 2 ‑ Valuation is determined from quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar instruments in markets that are not active, or by model‑based techniques in which all significant inputs are observable in the market;

• Level 3 ‑ Valuation is derived from model‑based techniques in which at least one significant input is unobservable and based on the Company’s own estimates about the assumptions that market participants would use to value the asset or liability.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The Company’s assessment of the significance of particular inputs to those fair value measurements requires judgment and considers factors specific to each asset or liability.

The Company’s financial instruments measured or disclosed at fair value are summarized below. The summary excludes cash and cash equivalents, receivables and accounts payable, all of which had fair values approximating their carrying values due to the liquid nature and short maturities of these instruments.

		Fair Value (In Thousands)
Asset or Liability	Fair Value Hierarchy	June 30, 2024		December 31, 2023
Measured at fair value on a recurring basis:
Contingent consideration	Level 3	$	4,590	$	3,282
Disclosed at fair value:
Borrowings under Credit Facility	Level 2	$	—	$	71,000
Seller note payable	Level 2	$	3,859	$	4,627

The carrying value of the borrowings under the Credit Facility approximates fair value due to variable rate terms that approximate market rates.

The carrying value of the seller note payable approximates fair value because the interest rate on the note approximates market rates as of June 30, 2024 and December 31, 2023.

The fair value of the contingent consideration related to the Devon Street acquisition as of the acquisition date was estimated using a Monte Carlo simulation to model the likelihood of achieving the agreed‑upon gross margin target based on available information as of the acquisition date. The valuation methodology includes assumptions and judgments regarding the gross margin discount rate, gross margin volatility, drift rate, and cost of debt, which are primarily Level 3 assumptions. The contingent consideration liability is remeasured at fair value on a quarterly basis. As of June 30, 2024 and December 31, 2023, the Company remeasured the fair value of contingent consideration related to the Devon Street acquisition and adjusted the liability to $4.6 million and $3.3 million, respectively, based on actual results achieved, revised gross margin forecasts, and accretion of the liability. The Company recorded contingent consideration adjustments resulting in $1.2 million of expense and $1.3 million of expense for the three and six months ended June 30, 2024, respectively, which is included in other expense (income), net in the accompanying unaudited condensed consolidated statement of income. As of June 30, 2024, there were approximately 8 months remaining under the contingent consideration agreement.