FAIR VALUE MEASUREMENTS
Recurring Fair Value Measurements
The interest rate swap agreement we entered into in connection with our Term Note, as discussed further in “Note (2) Summary of Significant Accounting Policies; (m) Interest Rate Swap Agreement” and “Note (10) Debt,”, is measured at fair value on a recurring basis using Level 2 inputs. The contingent consideration liability on our Consolidated Balance Sheet is measured at fair value on a recurring basis using Level 3 inputs.
Our contingent consideration liability is a result of our acquisition of Acculogic on December 21, 2021, and represents the estimated fair value of the additional cash consideration payable that is contingent upon sales to EV or battery customers. We may pay the seller up to an additional CAD $5.0 million in the five-year period from 2022 through 2026. The additional payments will be based on a percent of net invoices for which payments have been received on systems sold to EV or
battery customers in excess of CAD $2.5 million per year in each of the five years. The maximum payment is capped at CAD $5.0 million, which equates to approximately $3.7 million at December 31, 2025. There were no payments due to the seller for the years ended December 31, 2022 or 2023. We paid the contractually due amount for 2024 during the first quarter of 2025 and expect to make the payment for the amount due for 2025 in the first quarter of 2026. To estimate the fair value of the contingent consideration at the acquisition date, an option-based income approach using a Monte Carlo simulation model was utilized due to the non-linear payout structure. As of the acquisition date, this resulted in an estimated fair value of $1.4 million. This amount was recorded as a contingent consideration liability and included in the purchase price as of the acquisition date. We reassess the estimated fair value of this liability annually using this same approach, or more frequently, if we determine that there have been material changes to the assumptions used in the calculation of the probable payout.
The following fair value hierarchy tables presents our assets and (liabilities) measured at fair value on a recurring basis:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2025 |
| | | | Fair Value Measurement Using |
| (in thousands) | | Total | | Level 1 | | Level 2 | | Level 3 |
| Interest rate swap | | $ | 19 | | | $ | — | | | $ | 19 | | | $ | — | |
| Contingent consideration - current | | (258) | | | — | | | — | | | (258) | |
| Contingent consideration - long term | | (356) | | | — | | | — | | | (356) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2024 |
| | | | Fair Value Measurement Using |
| (in thousands) | | Total | | Level 1 | | Level 2 | | Level 3 |
| Interest rate swap | | $ | 117 | | | $ | — | | | $ | 117 | | | $ | — | |
| Contingent consideration - current | | (62) | | | — | | | — | | | (62) | |
| Contingent consideration - long term | | (825) | | | — | | | — | | | (825) | |
The fair value of our Level 3 contingent consideration liabilities for the years ended December 31, 2025 and 2024 changed as follows:
| | | | | | | | | | | | | | |
| | Year Ended |
| | December 31, |
| (in thousands) | | 2025 | | 2024 |
| Balance at beginning of period | | $ | 887 | | | $ | 1,093 | |
| Cash payments | | (34) | | | — | |
| Change in estimated fair value | | (276) | | | (123) | |
| Impact of foreign currency translation adjustments | | 37 | | | (83) | |
| Balance at end of period | | $ | 614 | | | $ | 887 | |
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.