Annual report [Section 13 and 15(d), not S-K Item 405]

Fair Value Measurements

v3.25.0.1
Fair Value Measurements
 12 Months Ended
Dec. 31, 2024
Fair Value Disclosures [Abstract]  
Fair value measurements

15. FAIR VALUE MEASUREMENTS

Recurring Measurements

Our assets and liabilities measured at fair value on a recurring basis consist of the following:

 

 

Fair Value Measurements Using

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

December 31, 2024:

 

 

 

 

 

 

 

 

 

Liabilities — Munger make-whole provision

 

$

—

 

 

$

—

 

 

$

8.6

 

 

 

 

 

 

 

 

 

 

 

December 31, 2023:

 

 

 

 

 

 

 

 

 

Assets — Investment in BPC

 

$

—

 

 

$

—

 

 

$

23.4

 

 

 

 

 

 

 

 

 

 

 

Liabilities — Munger make-whole provision

 

$

—

 

 

$

—

 

 

$

7.5

 

Investment in BPC

Before acquiring BPC in 2024, we elected the fair value option to account for our investment in BPC due to the complexities of the terms of the equity investment. The significant unobservable inputs used in the fair value measurement, which was valued using the income approach and the market approach, are forecasted results and a weighted-average cost of capital. The fair value of this asset is classified as investments in our consolidated balance sheets.

Munger Make-Whole Provision

In November 2021, we entered into an agreement (“Munger Right Agreement”) to acquire approximately 6,700 acres near Lamesa, Texas (“West Munger Property”) for a purchase price of $30.0 million (“West Munger Purchase”). Under the Munger Right Agreement, the sellers elected to receive their consideration in shares of our Class A common stock, which was valued at $38.1 million at our IPO date.

The Munger Right Agreement includes a ‘Make Whole’ provision. Under the Make Whole provision, as amended, if any seller liquidates 100% of their Class A Common Stock prior to the two-year anniversary of the IPO and the value of the shares sold does not equal such seller’s share of the $30.0 million cash purchase price, then we will pay the difference between their share of the cash purchase price and the amount they ultimately received upon the sale of their Class A shares. This Make Whole provision is accounted for as a written put option with a fair value of $8.6 million as of December 31, 2024 and is presented within other current liabilities in our consolidated balance sheet. The fair value of the Munger make-whole provision was estimated using a Black-Scholes model. The significant unobservable inputs used in the fair value measurement are the risk-free rate and volatility. The expiration date of the Munger make-whole provision is on May 17, 2025. The intrinsic value of the Munger Make-Whole provision was $8.7 million at December 31, 2024.

The following is a reconciliation of our recurring Level 3 fair value measurements:

 

 

Year Ended December 31,

 

 

2024

 

 

2023

 

 

Net asset (liability) balance at beginning of period

 

$

15.9

 

 

$

46.6

 

 

Change in fair value of Level 3 fair value measurements

 

 

0.4

 

 

 

(30.7

)

 

Transfer of investment in BPC to acquisition purchase consideration

 

 

(24.9

)

 

 

—

 

 

Net asset (liability) balance at end of period

 

$

(8.6

)

 

$

15.9

 

 

All of the changes in fair value of Level 3 fair value instruments were charged to income and classified as other income (expense), net on our consolidated statements of operations.

Nonrecurring Measurements

We have certain assets and liabilities that are not measured at fair value on an ongoing basis but were subjected to fair value adjustments at the time of acquisition. These include long-lived assets and liabilities acquired through our business combination activities and purchase consideration in the form of seller-financed long-term notes payable, the fair values of which were determined using applicable valuation models based on significant unobservable inputs classified as Level 3 in the fair value hierarchy. See “Note 4. Business Combinations” for additional information.

Financial Instruments

The estimated fair values of our financial instruments have been determined at discrete points in time based on relevant market information. Our financial instruments consist of cash and cash equivalents, restricted cash, accounts receivable, certain investments, accounts payable, accrued expenses and long-term debt.

The carrying amounts of our financial instruments other than long-term debt approximate fair value because of the short-term nature of the items. The carrying amounts of our floating rate debt approximate fair value due to their variable interest rates. The fair value of our fixed rate debt, classified as Level 2 in the fair value hierarchy, also approximated its carrying value.