DXP ENTERPRISES INCDXPE
DXP ENTERPRISES INC Fair Value Disclosure
FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES
Authoritative guidance for financial assets and liabilities measured on a recurring basis applies to all financial assets and financial liabilities that are being measured and reported on a fair value basis. Fair value, as defined in the authoritative guidance, is 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. The authoritative guidance affects the fair value measurement of an investment with quoted market prices in an active market for identical instruments, which must be classified in one of the following categories:
Level 1 Inputs
Level 1 inputs come from quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 Inputs
Level 2 inputs are other than quoted prices that are observable for an asset or liability. These inputs include: quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from, or corroborated by, observable market data by correlation or other means.
Level 3 Inputs
Level 3 inputs are unobservable inputs for the asset or liability which require the Company's own assumptions. Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.
Our acquisitions may include contingent consideration as part of the purchase price. The fair value of the contingent consideration is estimated as of the acquisition date based on the present value of the contingent payments to be made using a weighted probability of possible payments. The unobservable inputs used in the determination of the fair value of the contingent consideration include management's assumptions about the likelihood of payment based on the established benchmarks and discount rates based on an internal rate of return analysis. The fair value measurement includes inputs that are Level 3 inputs as discussed above, as they are not observable in the market. Should actual results increase or decrease as compared to the assumptions used in our analysis, the fair value of the contingent consideration obligations will increase or decrease, up to the contracted limit, as applicable. Changes in the fair value of the contingent consideration are measured during each reporting period and reflected in our results of operations.
During the twelve months ended December 31, 2025, we recorded $13.8 million in other current and other long-term liabilities for contingent consideration. See further discussion at Note 16 - Business Acquisitions.
For the Company's assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3), the following table provides a reconciliation of the beginning and ending balances for each category therein and gains or losses recognized during the last three fiscal years (in thousands):
| Contingent Consideration | |||||
| Balance at December 31, 2022 | $ | 10,166 | |||
| Acquisitions and settlements: | |||||
| Acquisitions | 2,682 | ||||
Settlements | (5,833) | ||||
| Total remeasurement adjustments: | |||||
Changes in fair value recorded in other (income) expense, net | 1,738 | ||||
| Balance at December 31, 2023 | 8,753 | ||||
| Acquisitions and settlements: | |||||
Acquisitions | 11,932 | ||||
Settlements | (5,108) | ||||
| Total remeasurement adjustments: | |||||
Changes in fair value recorded in other (income) expense, net | 745 | ||||
Balance at December 31, 2024(1) | 16,322 | ||||
| Acquisitions and settlements: | |||||
| 4,813 | |||||
| Settlements | (8,766) | ||||
| Total remeasurement adjustments: | |||||
| Changes in fair value recorded in other (income) expense, net | 1,406 | ||||
Balance at December 31, 2025(1) | $ | 13,775 | |||
(1) Amounts included in other current liabilities were $9.4 million and $8.0 million for the periods ending December 31, 2025 and December 31, 2024, respectively. Amounts included in other long-term liabilities were $4.4 million and $8.3 million for the periods ending December 31, 2025 and December 31, 2024, respectively. | |||||
Quantitative Information about Level 3 Fair Value Measurements
The significant unobservable inputs used in the fair value measurement of the Company's contingent consideration liabilities designated as Level 3 are as follows:
| Fair Value at December 31, 2025 | Valuation Technique | Significant Unobservable Inputs | ||||||
| $ | 13,775 | Discounted cash flow | Annualized EBITDA and probability of achievement | |||||
Sensitivity to Changes in Significant Unobservable Inputs
The significant Level 3 unobservable inputs used in the fair value measurement of contingent consideration related to the acquisitions are annualized EBITDA forecasts developed by the Company's management and the probability of achievement of those EBITDA results. The discount rate used in the calculation was 8.3%. A decrease in discount rates would increase the contingent consideration liability, whereas an increase or decrease in EBITDA forecasts would increase or decrease the contingent liability. Changes in our unobservable inputs in isolation would result in a change to our fair value measurement. As of December 31, 2025, the maximum amount of contingent consideration payable under these arrangements is $14.9 million over three years.
Other financial instruments not measured at fair value on the Company's consolidated balance sheets at December 31, 2025 and December 31, 2024, but which require disclosure of their fair values include: cash, restricted cash, accounts receivable, trade accounts payable and accrued expenses. The Company believes that the estimated fair value of such instruments at December 31, 2025 and December 31, 2024 approximates their carrying value as reported on the consolidated balance sheets due to the relative short maturity of these instruments.
See Note 9 - Long-term Debt for fair value disclosures on our asset-backed line of credit and term loan debt under our syndicated credit agreement facilities.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 26, 2026 | Showing above |
| 2024 | Mar 10, 2025 | |
| 2023 | Mar 11, 2024 | |
| 2022 | Apr 17, 2023 | |
| 2021 | Apr 5, 2022 | |
| 2020 | Mar 18, 2021 | |
| 2019 | Mar 13, 2020 | |
| 2018 | Mar 8, 2019 | |
| 2017 | Mar 28, 2018 | |
| 2016 | Mar 31, 2017 | |
| 2015 | Feb 29, 2016 | |
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.