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Fair Value Measurements

9 Months Ended

Sep. 30, 2023

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:

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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.

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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, 2023.

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, and SK Plug Hyverse. During the three and nine months ended September 30, 2023, the Company contributed approximately $17.8 million and $58.7 million, respectively, to HyVia, AccionaPlug and SK Plug Hyverse.

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


		As of September 30, 2023
		Carrying			Fair			Fair Value Measurements
		Amount			Value			Level 1			Level 2			Level 3
Assets
Cash equivalents		$	118		$	118		$	118		$	—		$	—
Corporate bonds			128,111			128,111			—			128,111			—
U.S. Treasuries			260,657			260,657			260,657			—			—
Equity securities			67,823			67,823			67,823			—			—

Liabilities
Contingent consideration			121,251			121,251			—			—			121,251


		As of December 31, 2022
		Carrying			Fair			Fair Value Measurements
		Amount			Value			Level 1			Level 2			Level 3
Assets
Cash equivalents		$	212,577		$	212,577		$	212,577		$	—		$	—
Corporate bonds			193,633			193,633			—			193,633			—
U.S. Treasuries			1,139,310			1,139,310			1,139,310			—			—
Equity securities			134,836			134,836			134,836			—			—

Liabilities
Contingent consideration			116,165			116,165			—			—			116,165

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, 2023 of $121.3 million is comprised of $74.2 million related to the acquisition of Joule, as well as $47.1 million from the Frames Holding B.V. (“Frames”) in 2021 and the Giner ELX, Inc. and United Hydrogen Group Inc. acquisitions in 2020.

In connection with the Frames acquisition, the Company recorded on its consolidated balance sheet a liability of $29.1 million representing the fair value of contingent consideration payable. The fair value of this contingent consideration was $28.3 million and $31.0 million as of September 30, 2023 and December 31, 2022, respectively. The change in fair value compared to December 31, 2022 was due to a decrease in the fair value of the liability balance as well as a change in the foreign currency translation. The Company recorded a decrease of $1.9 million and $2.7 million for the three and nine months ended September 30, 2023 in change in fair value of contingent consideration in the unaudited interim condensed consolidated statement of operations, respectively.

In connection with the Giner ELX, Inc. acquisition, the Company recorded on its consolidated balance sheet a liability of $16.0 million representing the fair value of contingent consideration payable. The fair value of this contingent consideration was $17.4 million and $14.5 million as of September 30, 2023 and December 31, 2022, respectively, and as a result, an increase of $0.6 million and $2.9 million was recorded in change in fair value of contingent consideration in the unaudited interim condensed consolidated statement of operations for the three and nine months ended September 30, 2023, respectively.

In connection with the United Hydrogen Group Inc. acquisition the Company recorded on its consolidated balance sheet a liability of $1.1 million representing the fair value of contingent consideration payable. The fair value of this contingent consideration was $1.4 million and $1.5 million as of September 30, 2023 and December 31, 2022, respectively, and as a result, a decrease of $0.3 million and $0.1 million was recorded in change in fair value of contingent consideration in the unaudited interim condensed consolidated statement of operations for the three and nine months ended September 30, 2023, respectively.

In the unaudited interim condensed consolidated balance sheets, contingent consideration is recorded in the contingent consideration, loss accrual for service contracts, and other current liabilities financial statement line item, and was comprised of the following unobservable inputs as of September 30, 2023:


Financial Instrument		Fair Value			Valuation Technique		Unobservable Input		Range (Weighted Average)
Contingent Consideration		$	75,491		Scenario based method		Credit spread		14.05% - 14.20%
							Discount rate		18.71% - 19.67%
			10,960		Monte carlo simulation		Credit spread		14.20%
							Discount rate		19.64%
							Revenue volatility		38.64%
			34,800		Monte carlo simulation		Credit spread		14.19%
							Revenue volatility		25.00%
							Gross profit volatility		55.00%
		$	121,251

In the unaudited interim condensed consolidated balance sheets, contingent consideration is recorded in the contingent consideration, loss accrual for service contracts, and other current liabilities financial statement line item, and was comprised of the following unobservable inputs as of December 31, 2022:


Financial Instrument		Fair Value			Valuation Technique		Unobservable Input		Range (Weighted Average)
Contingent Consideration		$	85,269		Scenario based method		Credit spread		15.73% - 15.74%
							Discount rate		19.85% - 20.68%
			11,310		Monte carlo simulation		Credit spread		15.74%
							Discount rate		20.00%-20.30%
							Revenue volatility		45.29%
			19,586		Monte carlo simulation		Credit spread		15.73%
							Revenue volatility		35.7% - 23.1% (35.0%)
							Gross profit volatility		106.7% - 23.2% (60.0%)
		$	116,165

The change in the carrying amount of Level 3 liabilities for the nine month period ended September 30, 2023 was as follows (in thousands):


		Nine Months Ended
		September 30, 2023
Beginning balance at December 31, 2022		$	116,165
Cash payments			(2,000)
Fair value adjustments			8,769
Foreign currency translation adjustment			539
Ending balance at March 31, 2023			123,473
Cash payments			(11,000)
Payment settled in stock			(8,000)
Fair value adjustments			15,308
Foreign currency translation adjustment			60
Ending balance at June 30, 2023		$	119,841
Fair value adjustments			2,239
Foreign currency translation adjustment			(829)
Ending balance at September 30, 2023		$	121,251

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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