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Fair Value Measurements
9 Months Ended
Sep. 30, 2024
Fair Value Disclosures [Abstract]  
Fair Value Measurements

(8) Fair Value Measurements

Contingent consideration

The following table presents the changes in the estimated fair value and level of the contingent consideration liability (in thousands):

 

 

 

 

Beginning balance - January 1, 2023

 

$

1,841

 

Change in fair value during the period

 

 

69

 

Payment made during the period

 

 

 

Balance - March 31, 2023

 

 

1,910

 

Change in fair value during the period

 

 

73

 

Payment made during the period

 

 

 

Balance - June 30, 2023

 

 

1,983

 

Change in fair value during the period

 

 

17

 

Payment made during the period

 

 

(2,000

)

Balance - September 30, 2023

 

 

 

Ending balance - December 31, 2023

 

$

 

Contingent consideration related to the BitAccess acquisition in July 2021 was measured at the probability-weighted fair value at the date of acquisition, which was estimated by applying an income valuation approach based on Level 3 inputs consisting primarily of a discount rate and probability of achieving the performance metrics. During the year-ended December 31, 2022, the Company made the first year payment of $2.0 million to the former owners of BitAccess as the performance conditions were determined to have been met. In addition, the Company amended the contingent consideration arrangement to remove the performance conditions for the second year payment such that the full $2.0 million related to the second year payment would be paid out in accordance with the agreement on July 31, 2023. As a result of the change in the agreement, the contingent liability changed from Level 3 to Level 1, in accordance with ASC 820. The change in fair value of the contingent consideration is recognized in interest expense in the Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income for the nine months ended September 30, 2023. The difference between the recorded fair value of the payments and the ultimate payment amounts was not material to any period. In July 2023, in accordance with the BitAccess acquisition agreement, the Company paid $2.0 million to settle the remaining contingent consideration.

Assets and Liabilities Measured at Fair Value on a Non-recurring Basis

The Company’s non-financial assets, such as goodwill, intangible assets, property and equipment and operating lease right-of-use assets are adjusted down to fair value when an impairment charge is recognized. Certain fair value measurements are based predominantly on Level 3 inputs. No impairment charges related to goodwill, intangible assets, operating lease right-of-use assets and property and equipment have been recognized for the nine months ended September 30, 2024 and 2023.

 

Assets and Liabilities Measured at Fair Value on a Recurring Basis

 

The carrying value of the Company’s cryptocurrency reflects any impairment charges recorded since its purchase or receipt based on Level 1 inputs. The Company's safeguarding liability and corresponding asset are valued using quoted prices on the principal market which are Level 1 inputs. The Company was not aware of any actual or possible safeguarding loss events as of September 30, 2024 or December 31, 2023, and accordingly, the bitcoin safeguarding obligation liability and the corresponding asset were recorded at the same value. The fair value of the safeguarding asset and liability is recognized in Prepaid and other current assets and Accrued expenses and other current liabilities on the Consolidated Balance Sheets, see Notes 9 and 10, respectively. Due to the change in fair values of the cryptocurrency and the variability of quantity held at each reporting period, the Company anticipates these balances could change significantly at the end of each reporting period.

Assets and Liabilities Not Measured and Recorded at Fair Value

The Company considers the carrying value of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses in the consolidated financial statements to approximate fair value due to their short maturities.

The Company estimates the fair value of its fixed-rated notes payable based on quoted prices in markets that are not active, which is considered a Level 2 valuation input. As of September 30, 2024, the estimated fair value of the fixed-rate notes were approximately $39.8 million and the carrying value was $40.2 million.

The carrying value of the notes payable related to the Company's franchise profit sharing arrangements was initially determined as the initial investment and is updated quarterly using a retrospective interest method. The effective interest rate used is determined based on actual and projected profit sharing payments which are generally unobservable inputs and are considered Level 3 fair value estimates. As of September 30, 2024, the estimated the carrying value and fair value of the notes payable related to the franchise profit sharing arrangements was approximately $6.3 million.