v3.25.1
Fair Value Measurements
 3 Months Ended
Mar. 31, 2025
Fair Value Disclosures [Abstract]  
Fair Value Measurements Fair Value Measurements
The Company measures the fair value of financial assets and liabilities in accordance with ASC Topic 820 – Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. ASC Topic 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value and requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
•Level 1 — inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that are accessible at the measurement date;
•Level 2 — inputs other than quoted prices included in Level 1 that are observable for the asset or liability either directly or indirectly such as quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of assets or liabilities; and
•Level 3 — unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
The Company believes that the carrying amounts of its financial instruments, including cash and cash equivalents, trade accounts receivable and accounts payable, consist primarily of instruments without extended maturities, which approximate fair value primarily due to their short-term maturities and low risk of counterparty default. The Company considers all highly liquid investments purchased with a maturity of 90 days or less on the date of purchase to be cash equivalents. Cash equivalents as of March 31, 2025 and December 31, 2024 consisted of overnight repurchase agreements in which cash from the Company's main operating checking account is invested overnight in highly liquid, short term investments and certain investments in money market funds sponsored by a large financial institution. For the three months ending March 31, 2025 and 2024, the Company recognized interest income in the aggregate of approximately $0.4 million and $0.6 million, respectively, associated with its overnight repurchase agreements and money market funds. The Company has not experienced any losses in its cash and cash equivalents and management believes the Company is not exposed to significant credit risk with respect to such accounts.
Fair Value at Reporting Date Using
(in thousands)March 31, 2025Level 1Level 2Level 3
Cash equivalents:
Overnight repurchase agreements$32,018 $32,018 $— $— 
Money market fund4,744 4,744 — — 
Total$36,762 $36,762 $— $— 
 
December 31, 2024Level 1Level 2Level 3
Cash equivalents:
Overnight repurchase agreements$38,962 $38,962 $— $— 
Money market fund4,000 4,000 — — 
Total$42,962 $42,962 $— $— 
Second A&R Wintrust Revolving Loan
The Company also believes that the carrying value of the Second A&R Wintrust Revolving Loan approximates its respective fair value due to the variable rate on such debt. As of March 31, 2025, the Company determined that the fair value of the Second A&R Wintrust Revolving Loan was $10.0 million. Such fair value was determined using discounted estimated future cash flows using level 3 inputs.
Earnout Payments
As a part of the total consideration for the Company's July 2023 acquisition of ACME, the former owner of ACME is eligible to receive up to an aggregate of $2.5 million in cash, consisting of two individual tranches of $0.5 million and $2.0 million pursuant to the terms of the purchase agreement, if the gross profit of ACME equals or exceeds (i) $2.0 million in the 12-month period beginning from the closing date of the transaction (the “First ACME Earnout Period”) or (ii) $2.5 million in the 12-month period beginning on the first anniversary of the closing date of the transaction (the “Second ACME Earnout Period” and together with the First ACME Earnout Period, the “ACME Earnout Payments”). The Company initially recognized $1.5 million in contingent consideration as of the closing date of the transaction. The fair value of contingent ACME Earnout Payments is based on generating growth rates on the projected gross margins of ACME and calculating the associated contingent payments based on achieving the earnout targets, which are reassessed each reporting period. In September 2024, the Company made a payment in the amount of $0.5 million to the former owner of ACME related to the First ACME Earnout Period.
As a part of the total consideration for Company's November 2023 acquisition of Industrial Air, the former owner of Industrial Air is eligible to receive up to an aggregate of $6.5 million in cash, consisting of two individual tranches of $3.0 million and $3.5 million pursuant to the terms of the purchase agreement, if the gross profit of Industrial Air equals or exceeds (i) $7.6 million in the 12-month period beginning on the closing date of the transaction (the “First IA Earnout Period”) or (ii) $8.8 million in the 12-month period beginning on the first anniversary of the closing date of the transaction (the “Second IA Earnout Period” and together with the First IA Earnout Period, the “IA Earnout Payments”). The Company initially recognized
$3.2 million in contingent consideration as of the closing date of the transaction. The fair value of contingent IA Earnout Payments is based on generating growth rates on the projected gross margins of Industrial Air and calculating the associated contingent payments based on achieving the earnout targets, which are reassessed each reporting period. In February 2025, the Company made a payment in the amount of $3.0 million to the former owners of Industrial Air related to the First Industrial Air Earnout Period.
As a part of the total consideration for the Kent Island Transaction, the Company recognized $4.4 million in contingent consideration on the Kent Island Effective Date. The fair value of contingent Kent Island Earnout Payments is based on generating growth rates on the projected gross margins of Kent Island and calculating the associated contingent payments based on achieving the earnout targets, which are reassessed each reporting period. The Company determined the initial fair value of the Kent Island Earnout Payments based on the Monte Carlo Simulation method, which represented a Level 3 measurement. As of the Kent Island Effective Date, the Kent Island Earnout Payments associated with the Kent Island Transaction were valued utilizing a discount rate of 14.9%. The discount rate was calculated using the build-up method with a risk-free rate commensurate with the term of the Kent Island Earnout Payments based on the U.S. Treasury Constant Maturity Yield and certain metric risk premiums determined with reference to a long-term risk free rate, a weighted average cost of capital and certain adjustments for operational leverage.
As a part of the total consideration for the Consolidated Mechanical Transaction, the Company recognized $0.8 million in contingent consideration on the Consolidated Mechanical Effective Date. The fair value of contingent Consolidated Mechanical Earnout Payments is based on generating growth rates on the projected gross margins of Consolidated Mechanical and calculating the associated contingent payments based on achieving the earnout targets, which are reassessed each reporting period. The Company determined the initial fair value of the Consolidated Mechanical Earnout Payments based on the Monte Carlo Simulation method, which represented a Level 3 measurement. As of the Consolidated Mechanical Effective Date, the Consolidated Mechanical Earnout Payments associated with the Consolidated Mechanical Transaction were valued utilizing a discount rate of 10.4%. The discount rate was calculated using the build-up method with a risk-free rate commensurate with the term of the Consolidated Mechanical Earnout Payments based on the U.S. Treasury Constant Maturity Yield and certain metric risk premiums determined with reference to a long-term risk free rate, a weighted average cost of capital and certain adjustments for operational leverage.
Based on the Company’s ongoing assessment of the fair value of contingent earnout liabilities, the Company recorded a net increase in the estimated fair value of such liabilities of $0.4 million and $0.6 million for the three months ended March 31, 2025 and 2024, respectively, which was presented in the change in fair value of contingent consideration in the Company's condensed consolidated statements of operations. The Company determined the fair value of the earnout payments by utilizing the Monte Carlo Simulation method, which represents a Level 3 measurement.
The following table presents the carrying values of the Company's contingent earnout payment obligations included in the accompanying condensed consolidated balance sheets, which approximated fair value at March 31, 2025 and December 31, 2024.
Fair Value at Reporting Date Using
(in thousands)March 31, 2025Level 1Level 2Level 3
Accrued expenses and other current liabilities:
First Kent Island Earnout Period$2,365 $— $— $2,365 
First Consolidated Mechanical Earnout Period402 — — 402 
Second ACME Earnout Period1,857 — — 1,857 
Second IA Earnout Period3,314 — — 3,314 
Other long-term liabilities:
Second Kent Island Earnout Period2,244 — — 2,244 
Second Consolidated Mechanical Earnout Period436 — — 436 
Total$10,618 $— $— $10,618 
Fair Value at Reporting Date Using
(in thousands)December 31, 2024Level 1Level 2Level 3
Accrued expenses and other current liabilities:
First IA Earnout Period(1)
$3,000 $— $— $3,000 
First Kent Island Earnout Period2,297 — — 2,297 
First Consolidated Mechanical Earnout Period402 — — 402 
Second ACME Earnout Period1,713 — — 1,713 
Other long-term liabilities:
Second IA Earnout Period3,222 — — 3,222 
Second Kent Island Earnout Period2,201 — — 2,201 
Second Consolidated Mechanical Earnout Period355 — — 355 
Total$13,190 $— $— $13,190 
(1)    In February 2025, the Company made a $3.0 million payment to the former owner of Industrial Air related to the First IA Earnout Period.
Interest Rate Swap
The fair value of the interest rate swap is determined using widely accepted valuation techniques and reflects the contractual terms of the interest rate swap including the period to maturity, and while there are no quoted prices in active markets, it uses observable market-based inputs, including interest rate curves and implied volatilities. The fair value analysis also considers a credit valuation adjustment to reflect nonperformance risk of both the Company and the single counterparty. The fair value of the interest rate contract has been determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. The interest rate swap is classified as a Level 2 item within the fair value hierarchy. As of March 31, 2025, the Company determined that the fair value of the interest rate swap was approximately $0.1 million and is recognized in other assets on the Company's condensed consolidated balance sheets. For the three months ended March 31, 2025, the Company recognized a loss of $0.1 million on its condensed consolidated statements of operations associated with the change in fair value of the interest rate swap arrangement. For the three months ended March 31, 2024, the Company recognized a gain of approximately $0.1 million on its condensed consolidated statements of operations associated with the change in fair value of the interest rate swap arrangement.