Perimeter Solutions, SA Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS

9 Months Ended

Sep. 30, 2022

Fair Value Measurement

The carrying value of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other current liabilities approximates fair value due to the short-term nature of their maturities. Borrowings under the Company’s Revolving Credit Facility accrues interest at a floating rate tied to a standard short-term borrowing index, selected at the Company’s option, plus an applicable margin. The carrying amount of this floating rate debt approximates fair value based upon the respective interest rates adjusting with market rate adjustments. The carrying amount of the Company's Redeemable Preferred Shares also approximates fair value. At September 30, 2022 and December 31, 2021, the estimated fair value of the Company's Senior Notes, calculated using Level 2 inputs, based on bid prices obtained from a broker was approximately $550.1 million and $675.0 million, respectively.

The Company uses valuation approaches that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or a liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:

•Level 1 inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.

•Level 2 inputs: Other than quoted prices in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

•Level 3 inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.

Liabilities by Hierarchy Level

The following tables set forth the Company’s liabilities that were measured at fair value on a recurring basis, by level, within the fair value hierarchy as of September 30, 2022 and December 31, 2021 (in thousands):


	Fair Value Measurements Using:
September 30, 2022	Level 1		Level 2		Level 3		Total
Liabilities:
Founders advisory fees payable - related party	$	59,013	$	—	$	85,421	$	144,434
LaderaTech contingent earn-out included in other liabilities, non-current	—		—		6,937		6,937
Total liabilities	$	59,013	$	—	$	92,358	$	151,371

December 31, 2021
Liabilities:
Founders advisory fees payable - related party	$	114,276	$	—	$	251,513	$	365,789
LaderaTech contingent earn-out included in other liabilities, non-current	—		—		19,979		19,979
Total liabilities	$	114,276	$	—	$	271,492	$	385,768

At September 30, 2022 and December 31, 2021, the fair value of the contingent earn-out related to the May 2020 purchase of LaderaTech, Inc. (“LaderaTech”) is measured on a recurring basis using Level 3 fair value inputs. The earn-out is based on 20% of gross profits upon achieving a revenue threshold exceeding $5.0 million through December 31, 2026 and is valued using a Monte Carlo simulation model. As of September 30, 2022, the fair value of the contingent earn-out decreased primarily due to a change in the forecast of the product mix from an earn-out eligible fire retardant to a non earn-out eligible Company developed fire retardant. Significant changes in the projected revenue, projected gross margin, or discount rate would have a material impact on the fair value of the contingent consideration.

See Note 10, “Share-Based Compensation” for discussion of the fair value estimation on the founders advisory fees payable - related party.

Changes in Level 3 Liabilities

The reconciliations for all liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) are as follows (in thousands):


	Three Months Ended September 30, 2022				Nine Months Ended September 30, 2022
	Founders Advisory Fees Payable - Related Party		LaderaTech Contingent Earn-out		Founders Advisory Fees Payable - Related Party		LaderaTech Contingent Earn-out

Successor
Fair value, beginning of period	$	138,637	$	10,581	$	251,513	$	19,979
Settlements	—		—		(40,776)		—
Reclassification from liability to equity	—		—		(10,495)		—
Founders advisory fees - related party, change in fair value	(53,216)		—		(114,821)		—
Gain on contingent earn-out, change in fair value	—		(3,644)		—		(13,042)
Fair value, end of period	$	85,421	$	6,937	$	85,421	$	6,937


	LaderaTech Contingent Earn-out
	Three Months Ended September 30, 2021		Nine Months Ended September 30, 2021
Predecessor
Fair value, beginning of period	$	22,579	$	19,816

Loss on contingent earn-out, change in fair value	—		2,763
Fair value, end of period	$	22,579	$	22,579

The fair value of the LaderaTech contingent earn-out as of September 30, 2021 also included a contingency payment for the acquired technology being listed on the USDA Forest Service’s Qualified Product List (“QPL”). The QPL payment was also measured on a recurring basis using Level 3 fair value inputs and was valued using a scenario-based method with inputs based upon the probability and timing of achieving the QPL listing. The Company made the QPL payment of $3.0 million in the fourth quarter of 2021. As of September 30, 2021, the contingent earn-out had an estimated fair value of $19.6 million and the QPL was valued at $3.0 million.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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