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Fair Value Measurements
 3 Months Ended 12 Months Ended
Mar. 31, 2024
Dec. 31, 2023
Fair Value Measurements [Line Items]    
FAIR VALUE MEASUREMENTS

Note 11 — FAIR VALUE MEASUREMENTS

Items Measured at Fair Value on a Recurring Basis:

The Company accounts for certain liabilities at fair value on a recurring basis and classifies these liabilities within the fair value hierarchy (Level 1, Level 2, or Level 3).

Liabilities subject to fair value measurements are as follows:

  

As of March 31, 2024
   

Level 1

  

Level 2

  

Level 3

  

Total

Liabilities

  

 

    

 

    

 

    

 

  

Earnout Shares liability

  

$

—

  

$

—

  

$

61,393,000

  

$

61,393,000

True Up Shares liability

  

 

—

  

 

—

  

 

286,000

  

 

286,000

Subject Vesting Shares liability

  

 

—

  

 

—

  

 

14,217,000

  

 

14,217,000

Total liabilities

  

$

—

  

$

—

  

$

75,896,000

  

$

75,896,000

Earnout Shares

The holders of Legacy Montana equity securities (“Eligible Equityholders”) have the opportunity to receive additional equity consideration (in each case, in accordance with their respective pro rata share) (“Earnout Shares”). The maximum value of the Earnout Shares is capped at $200 million (“Maximum Earnout Milestone Amount”) and the ability to receive Earnout Shares expires on the fifth anniversary of the Closing. A majority of the independent members of the Post-Combination Company Board then serving has sole discretion in determining, among other things, the achievement of the applicable milestones, the calculations of payments of Earnout Shares to the applicable Legacy Montana Equityholders, the dates on which construction and operational viability of new production capacity is deemed completed and whether to consent to a transfer of the applicable Legacy Montana Equityholder’s right to

receive Earnout Shares. Earnout Shares issuable in respect of Legacy Montana options outstanding as of immediately prior to the effective time of the Merger may be issued to the holder of such Legacy Montana option only if such holder continues to provide services (whether as an employee, director or individual independent contractor) to the Post-Combination Company or one of its subsidiaries through the date on which such Earnout Shares are issued, as determined by a majority of the independent members of the Post-Combination Company Board.

If the conditions for payment of the Earnout Shares are satisfied and assuming all originally designated holders of Legacy Montana options are then still providing services to the Post-Combination Company on the date such condition is met, approximately 21% of the aggregate Earnout Shares will be payable to the holders of Legacy Montana options (subject to the holder’s continued service with the Post-Combination Company or its subsidiaries through the applicable payment date) and 79% of the aggregate Earnout Shares will be payable to the holders of Legacy Montana common units, in accordance with their respective pro rata share immediately following the Closing.

The settlement of the Earnout Shares to the holders of Legacy Montana common units contains variations in something other than the fair value of the issuer’s equity shares. As such, management determined that they should be classified as a liability and recognized at fair value at each reporting period with changes in fair value included in earnings. The Earnout Shares to the holders of Legacy Montana options are subject to ASC 718 and are accounted for as post-combination compensation cost.

The estimated fair value of the Earnout Shares was determined with a Monte Carlo simulation using a distribution of potential outcomes for expected earnings before interest, taxes, depreciation, and amortization (“EBITDA”) and stock price at expected commission dates, utilizing a correlation coefficient for EBITDA and stock price, and assuming $50 million of Annualized EBITDA per production line, with six production lines commissioned over a five-year period. EBITDA was discounted to the valuation date with a weighted average cost of capital estimate and forecasted to each estimated commission date. Earnout mechanics at each estimated commission date were assessed, and if the Earnout Thresholds were achieved, the future value of the Earnout Shares was discounted to the valuation date utilizing a risk-free rate commensurate with the overall term. The commission dates used reflected XPDB’s management’s best estimates regarding the time to complete full construction and operational viability of a production line, including all permitting, regulatory approvals and necessary or useful inspections. The Earnout term of 5 years and the Earnout mechanics represent contractual inputs. Assumptions such as risk-free rate, stock price, volatility, and discount rate were based on market data. See the following summary of key inputs:

  

As of
March 31,
2024

  

As of
March 14,
2024

Stock Price(1)

  

$

11.29

 

  

10.00

 

Volatility

  

 

35

%

  

35

%

Risk free rate of return

  

 

4.17

%

  

4.24

%

Expected term (in years)

  

 

5.0

 

  

5.0

 

(1)      At March 14, 2024, the $10.00 price represents the Business Combination price.

  

For the
three months
ended
March 31,
2024

Earnout Shares Liability as of December 31, 2023

  

$

—

Assumed in the reverse recapitalization

  

 

53,721,000

Change in fair value

  

 

7,672,000

Balance as of March 31, 2024

  

$

61,393,000

As of March 31, 2024 and March 14, 2024, the estimated fair value of all the Earnout Shares ($61.4 million and $53.7 million, respectively) represents approximately 4,702,064 and 4,627,294 Earnout Shares, respectively. The Earnout Shares liability in the preceding table represent the fair value of the contingent obligation to issue Earnout Shares to Legacy Montana Equityholders (excluding the shares to be issued to holders of Legacy Montana options accounted for under ASC 718) upon the achievement of certain Earnout milestones.

True Up Shares liability

As discussed in note 4, on March 8, 2024, XPDB and the PIPE investor entered into the Subscription Agreement pursuant to which XPDB agreed to sell 588,235 shares of Class A common stock to the PIPE investors for an aggregate purchase price of approximately $5.0 million, contingent on the Closing of the Business Combination. The Subscription Agreement provides that, subject to certain conditions set forth therein, XPDB may be required to issue to PIPE investors up to an additional 840,336 shares of Class A common stock (“True Up Shares”) if the trading price of the Class A common stock falls below the per share purchase price within one year of the Closing of the Business Combination. The True Up Shares were accounted for as a liability recognized at fair value at each reporting period with changes in fair value included in earnings. See Note 11 — Fair Value Measurements.

The following table presents the changes in the fair value of the True Up Shares liability at March 31, 2024.

  

For the
three months
ended
March 31,
2024

Balance as of December 31, 2023

  

$

—

 

Assumed in the Business Combination

  

 

555,000

 

Change in fair value

  

 

(269,000

)

Balance as of March 31, 2024

  

$

286,000

 

The estimated fair value of the true up share liability was determined utilizing a Monte Carlo simulation, with underlying forecast mathematics based on geometric Brownian motion in a risk-neutral framework. The Calculation of the value of the True Up Shares considered the 15-day average price over the one-year period following the Closing Date.

Subject Vesting Shares liability

In connection with the execution of the Merger Agreement and pursuant to the terms of the sponsor support agreement (the “Sponsor Support Agreement”) entered into among the XPDB sponsor, XPDB, Montana Technologies LLC and other holders of the Company’s Class B common stock, $0.0001 par value per share (the “Class B common stock”), the sponsor and the other holders of Class B common stock agreed to, among other things, (i) vote any Class A common stock, $0.0001 par value per share (the “Class A common stock”), of XPDB or Class B common stock (collectively, the “Sponsor Securities”), held of record or thereafter acquired in favor of the proposals presented by XPDB at a special meeting to approve the proposed Business Combination, (ii) be bound by certain other covenants and agreements related to the proposed Business Combination, (iii) be bound by certain transfer restrictions with respect to the Sponsor Securities and (iv) waive certain antidilution protections with respect to the Sponsor Securities, in each case, on the terms and subject to the conditions set forth in the Sponsor Support Agreement. In addition, pursuant to the terms of the Sponsor Support Agreement, the Sponsor has agreed to waive its redemption rights with respect to any Sponsor Securities in connection with the completion of a Business Combination (which waiver was provided in connection with the IPO and without any separate consideration paid in connection with providing such waiver), has agreed not to transfer any public shares and founder shares held by it during the time prior to (i) Closing or (ii) the termination of the Business Combination Agreement, has agreed to waive anti-dilution protections and has agreed to subject certain of the shares of Combined Company Class A common stock held by Sponsor following the conversion of the founder shares as of the Closing to certain vesting provisions. Specifically, the Sponsor Support

Agreement provides that as of immediately prior to (but subject to) the Closing, 1,380,736 shares of Combined Company Class A common stock held by the Sponsor following the conversion of the Founder Shares as of the Closing (the “Subject Vesting Shares”) will be subject to an earnout, with the Subject Vesting Shares vesting during the period beginning on the date of Closing and ending five (5) years following the date of Closing (i) simultaneously with the Earnout Payments made to the Montana equity holders in a proportionate amount to the payment achieved in relation to the maximum issuance of Earnout Shares of equity interests of $200 million (the “Performance Vesting Trigger”) and (ii) up to 50% of the Subject Vesting Shares (including any vested Subject Vesting Shares from the Performance Vesting Trigger) vesting on any day following the Closing when the closing price of a share of Combined Company Class A common stock on the Nasdaq (the “Closing Share Price”) equals or exceeds $12.00 (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) and all remaining Subject Vesting Shares vesting when the Closing Share Price equals or exceeds $14.00 (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like).

The following table presents the changes in the fair value of the Subject Vesting Shares liability at March 31, 2024.

  

For the
three months
ended
March 31,
2024

Balance as of December 31, 2023

  

$

—

Assumed in the Business Combination

  

 

11,792,000

Change in fair value

  

 

2,425,000

Balance as of March 31, 2024

  

$

14,217,000

The estimated fair value of the Subject Vesting Share liability was determined utilizing a Monte Carlo simulation, with underlying forecast mathematics based on geometric Brownian motion in a risk-neutral framework. The Calculation of the value of the Subject Vesting Shares considered the $12.00 and $14.00 vesting conditions in addition to the vesting related to the Earnout Milestone Amount.

Items Measured at Fair Value on a Non-recurring Basis:

The Company’s non-financial assets, such as goodwill, in-process research and development, right-of-use assets, and property and equipment, are measured at fair value when acquired and when there is impairment. The fair value of the non-controlling interest in AirJoule’s JV was determined on March 4, 2024, the date of the agreement. See Note 5 — Variable Interest Entity.

  
Power & Digital Infrastructure Acquisition II Corp. [Member]    
Fair Value Measurements [Line Items]    
FAIR VALUE MEASUREMENTS  

NOTE 9 — FAIR VALUE MEASUREMENTS

The following table presents information about the Company’s assets that are measured at fair value on a recurring basis as of December 31, 2023 and 2022 and indicates the fair value hierarchy of the valuation techniques that the Company utilized to determine such fair value.

Description

  

Level 1

  

Level 2

  

Level 3

December 31, 2023 – Assets

  

 

          

Investments held in Trust Account

  

$

114,641,527

  

—

  

—

December 31, 2022 – Assets

  

 

          

Investments held in Trust Account

  

$

294,395,846

  

—

  

—

Transfers to/from Levels 1, 2, and 3 are recognized at the beginning of the reporting period. There were no transfers between levels for the period from March 23, 2021 (inception) through December 31, 2023.

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