Fair Value Measurements

6 Months Ended

Jun. 30, 2024

NOTE 9. FAIR VALUE MEASUREMENTS

The following table presents information about the Company’s assets and liabilities that are measured at fair value on a recurring basis as of June 30, 2024 and December 31, 2023 and indicates the fair value hierarchy of the valuation techniques that the Company utilized to determine such fair value:

June 30, 2024


Description	Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)
Assets:
Investments held in Trust Account - Money Market Funds (1)	$	50,735,549	$	—	$	—
Liabilities:
Derivative Warrant Liabilities - Public Warrants	$	621,000	$	—	$	—
Derivative Warrant Liabilities - Private Warrants	$	—	$		$	561,600
Working Capital Loan – Related Party	$	—	$	—	$	1,100,250

December 31, 2023


Description	Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)
Assets:
Investments held in Trust Account - Money Market Funds (1)	$	49,216,069	$	—	$	—
Liabilities:
Derivative Warrant Liabilities - Public Warrants	$	2,070,000	$	—	$	—
Derivative Warrant Liabilities - Private Warrants	$	—	$	—	$	1,872,000
Working Capital Loan – Related Party	$	—	$	—	$	1,100,250

(1)	Excludes $653 and $652 of cash balance held within the Trust Account as of June 30, 2024 and December 31, 2023, respectively

Transfers to/from Levels 1, 2, and 3 are recognized at the beginning of the reporting period. There were no transfers to/from Levels 1, 2, and 3 during the three and six months ended June 30, 2024 or 2023.

Level 1 assets include investments in U.S. government securities. The Company uses inputs such as actual trade data, quoted market prices from dealers or brokers, and other similar sources to determine the fair value of its investments.

The Public Warrants were valued using an observable market quote in an active market as of June 30, 2024 and December 31, 2023. As of June 30, 2024, the estimated fair value of the Private Placement Warrants and Working Capital Loans were based on the observable fair value of the Public Warrants as of June 30, 2024

with consideration of certain terms of the Private Placement Warrants and Working Capital Loans.

As of December 31, 2023, the estimated fair value of the Private Placement Warrants and Working Capital Loan was determined using a Black-Scholes option pricing model. For the three months ended June 30, 2024 and 2023, the Company recognized a

non-operating

gain from the change in fair value of derivative warrant liabilities of approximately $1.2 million and $6.7 million, respectively. For the six months ended June 30, 2024 and 2023, the Company recognized a

non-operating

gain from the change in fair value of derivative warrant liabilities of approximately $2.8 million and $3.5 million, respectively. There was no change in fair value of the working capital loan for any period presented in the accompanying unaudited condensed statements of operations.

The change in the valuation technique used to determine the fair value of the Private Placement Warrants and Working Capital loans was due to the limited market activity. The Company determined the fair value of each Private Warrant was consistent with that of a Public Warrant. For the fair value of the Working Capital Loans, the Company considered the expected settlement of the Working Capital Loans by a market participant and also relied on the fair value of the Public Warrants, as the warrants that would be converted from the Working Capital Loan would be identical to the Private Placement Warrants.

As of December 31, 2023 the estimated fair value of the Private Placement Warrants and Working Capital Loan was determined using Level 3 inputs. Inherent in a Black-Scholes option pricing model are assumptions related to expected stock-price volatility, expected life, risk-free interest rate, and dividend yield. The Company estimates the volatility of its warrants based on implied volatility from the Company’s traded warrants and from historical volatility of select peer companies’ ordinary shares that match the expected remaining life of the warrants. The risk-free interest rate is based on the U.S.

Treasury zero-coupon yield

curve on the grant date for a maturity similar to the expected remaining life of the warrants. The expected life of the warrants is assumed to be equivalent to their remaining contractual term. The dividend rate is based on the historical rate, which the Company anticipates remaining at zero.

The following table provides quantitative information regarding Level 3 fair value measurements input for Private Placement Warrants, and Working Capital Loan at their measurement dates:


	December 31, 2023
Exercise price	$	11.50
Stock price	$	10.69
Volatility		5.2	%
Term (years)		5.58
Risk-free rate		3.78	%
Dividend yield		0.00	%

(Note: To determine the fair value of the Working Capital Loan, the Company relied on the inputs of the Private Placement Warrants, as the warrants that would be converted from the Working Capital Loan would be identical to the Private Placement Warrants.)

The change in the fair value of the derivative warrant liabilities, measured using Level 3 inputs, for the period from December 31, 2022 through June 30, 2024, is summarized as follows:


Derivative warrant liabilities at December 31, 2022	$	2,556,800
Issuance of Additional Private Placement Warrants		552,000
Change in fair value of derivative warrant liabilities		(1,236,800	)

Derivative warrant liabilities at December 31, 2023	$	1,872,000
Change in fair value of derivative warrant liabilities		(1,310,400	)

Derivative warrant liabilities at June 30, 2024 (unaudited)	$	561,600

The change in the fair value of the Working Capital Loan-related party, measured using Level 3 inputs, for the period from December 31, 2022 through June 30, 2024, is summarized as follows:


Working Capital Loan - related party as of December 31, 2022	$	150,000
Additional Working Capital Loan - related party		950,250
Change in fair value of Working Capital Loan – related party		—

Working Capital Loan - related party as of December 31, 2023	$	1,100,250
Change in fair value of Working Capital Loan - related party		—

Working Capital Loan - related party as of June 30, 2024 (unaudited)	$	1,100,250

- 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.

+ References + Details

Kensington Capital Acquisition Corp. V 10-Q