Climb Global Solutions, Inc. Fair Value Disclosure
14. Fair Value Measurements
Fair value is defined under US GAAP as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value hierarchy has been established for valuation inputs to prioritize 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:
Level 1 – observable inputs such as quoted prices for identical instruments traded in active markets.
Level 2 – inputs are based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models and similar techniques.
The Company’s assets and liabilities that are measured at fair value on a recurring basis, by level, within the fair value hierarchy as of December 31, 2024 and 2023, respectively, are as follows:
| | As of December 31, 2024 | |||||||||||||||
| | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Assets: | | | | | ||||||||||||
| Treasury bills | $ | — | $ | — | $ | — | $ | — | ||||||||
| Total assets | $ | — | $ | — | $ | — | $ | — | ||||||||
| | | | | | ||||||||||||
| Liabilities: | | | | | ||||||||||||
| Contingent earn-out | $ | — | $ | — | $ | 5,896 | $ | 5,896 | ||||||||
| Total liabilities | $ | — | $ | — | $ | 5,896 | $ | 5,896 | ||||||||
| | As of December 31, 2023 | |||||||||||||||
| Assets: | | | | | ||||||||||||
| Treasury bills | $ | 5,096 | $ | — | $ | — | $ | 5,096 | ||||||||
| Total assets | $ | 5,096 | $ | — | $ | — | $ | 5,096 | ||||||||
| | | | | | ||||||||||||
| Liabilities: | | | | | ||||||||||||
| Contingent earn-out | $ | — | $ | — | $ | 4,189 | $ | 4,189 | ||||||||
| Total liabilities | $ | — | $ | — | $ | 4,189 | $ | 4,189 | ||||||||
In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. Observable or market inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s assumptions based on the best information available. The approach to estimating the contingent earn-out associated with the Company’s business combinations uses unobservable factors such as projected cash flows over the term of the contingent earn-out periods.
The Company’s investment in treasury bills are measured at fair value on a recurring basis based on quoted market prices in active markets and are classified as level 1 within the fair value hierarchy. The Company’s contingent earn-out liability is measured at fair value on a recurring basis and is classified as level 3 within the fair value hierarchy. During the fourth quarter of each year, the Company evaluates goodwill for impairment at the reporting unit level. The Company uses qualitative factors to determine whether it is “more likely than not” that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a goodwill impairment test. This measurement is classified based on level 3 input.
The following table presents the changes in the Company’s level 3 financial instruments measured at fair value on a recurring basis:
| Balance January 1, 2023 | $ | 1,777 | ||
| Data Solutions acquisition - contingent earn-out | 2,227 | |||
|
| 185 | |||
| Balance December 31, 2023 | $ | 4,189 | ||
| DSS acquisition - contingent earn-out | 1,755 | |||
| Contingent earn-out paid | (3,638 | ) | ||
| Change in fair value of acquisition contingent consideration | 3,618 | |||
|
| (28 | ) | ||
| Balance December 31, 2024 | $ | 5,896 |
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2024 | Mar 11, 2025 | Showing above |
| 2023 | Mar 5, 2024 | |
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.