KORE Group Holdings, Inc. 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, 2023

For financial reporting purposes, the Company follows a fair value hierarchy established under GAAP that is used to determine the fair value of financial instruments. This hierarchy prioritizes relevant market inputs in order to determine an “exit price” at the measurement date, or the price at which an asset could be sold or a liability could be transferred in an orderly process that is not a forced liquidation or distressed sale. Level 1 inputs are observable inputs that reflect quoted prices for identical assets or liabilities in active markets. Level 2 inputs are observable inputs other than quoted prices for an asset or liability that are obtained through corroboration with observable market data. Level 3 inputs are unobservable inputs (e.g., the Company’s data or assumptions) that are used when there is little, if any, relevant market activity for the asset or liability required to be measured at fair value.

In certain cases, inputs used to measure fair value fall into different levels of the fair value hierarchy. In such cases, the level at which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input requires judgment and considers factors specific to the asset or liability being measured.

As of September 30, 2023, the Company’s valuation policy and processes had not changed from those described in the consolidated financial statements for the year ended December 31, 2022, included in the Annual Report on Form 10-K. Included in Note 2 — Summary of Significant Accounting Policies to the Consolidated Financial Statements for the year ended December 31, 2022, in the Annual Report on Form 10-K is a detailed description of our financial instruments measured at fair value and their significant inputs, as well as the general classification of such instruments pursuant to the Level 1, Level 2, and Level 3 valuation hierarchy.

The fair value of cash, restricted cash, accounts receivable and payable, premium finance agreement, accrued liabilities, and other such assets and liabilities approximate their carrying values due to the short-term nature of these assets and liabilities.

Private Placement Warrants - Measured at Fair Value

The Company’s private placement warrants are measured quarterly at fair value. The fair value of the liability for these warrants is considered to be “Level 2” in the fair value hierarchy. The inputs for the fair value of the liability for these warrants is based on reference to the closing price of KORE.WS (the “Public Warrants”), with an insignificant adjustment for short-term marketability restrictions, as the private placement warrants have substantially the same terms as the Public Warrants.

As of September 30, 2023, and December 31, 2022, 272,779 private placement warrants remained outstanding with a fair value based on a price of $0.07 per warrant and $0.12 per warrant, respectively.

Financial Instruments Held at Amortized Cost — Fair Value Disclosure

The Company is a party to two financial instruments, the Senior Secured UBS Term Loan and Backstop Notes, for which fair value is required to be disclosed on a quarterly basis. The fair value of the Company’s Senior Secured UBS Term Loan is considered to be “Level 2” in the fair value hierarchy, and the Backstop Notes are considered to be “Level 3” in the fair value hierarchy.

To determine the fair value of the Company’s Senior Secured UBS Term Loan, the Company used a valuation technique based on observable market prices for similar instruments. To determine the fair value of the Backstop Notes, the Company used a valuation technique based primarily on a binomial lattice model with a number of time steps (each considered a “node”), which are points by which the Company examined the value of the notes to a holder to understand the investment decision that would occur at each node, modeling the decision to convert or hold by considering the maximum of the conversion or hold values at every node of the lattice in which the Backstop Notes are convertible, and choosing the action that maximizes the return to the Backstop Notes’ holders.

The table below sets forth the amortized cost and fair value of the Company’s Senior Secured UBS Term Loan and Backstop Notes as of September 30, 2023, and December 31, 2022. The fair value of this debt is not indicative of the amounts at which the Company could settle this debt.


Financial Instrument and Fair Value Level	Measurement	September 30, 2023		December 31, 2022
		($ in thousands)
Senior Secured UBS Term Loan (Level 2)	Amortized cost	$	297,979	$	298,956
	Fair value	$	284,222	$	283,612

Backstop Notes (Level 3)	Amortized cost	$	117,806	$	117,545
	Fair value	$	94,311	$	92,900

Additional disclosures regarding Level 3 unobservable inputs - Backstop Notes

We use a third‑party valuation firm who utilizes proprietary methodologies to value our Backstop Notes. This firm uses a lattice modeling technique to determine the fair value of this Level 3 liability. The use of this technique requires the determination of relevant inputs and assumptions, some of which represent significant unobservable inputs such as credit spreads and equity volatility based on guideline companies, as well as other valuation assumptions. Accordingly, a significant increase or decrease in any of these inputs in isolation may result in a significantly lower or higher fair value measurement. The following table sets forth information regarding the Company’s significant Level 3 inputs as of September 30, 2023, and December 31, 2022:

Financial Instrument disclosed as Level 3

Input

September 30, 2023

December 31, 2022

($ in thousands, except stock price)

Backstop Notes

Principal amount

$120,000

Term to maturity date

5.00 years

5.75 years

Stock price

$0.61

$1.26

Credit spreads

689 bps

759 bps

Selected equity volatility

98.6

85.6

- 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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