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Fair value measurements and investments | 6 Months Ended
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Jun. 30, 2023
Fair Value Measurements And Investment Disclosure [Abstract] |
Fair value measurements and investments | 7. Fair value measurements and investments The fair value measurements of the Company’s financial assets and liabilities measured on a recurring basis were as follows:
|  | June 30, 2023 |  |  | December 31, 2022 |
(Unaudited, U.S. Dollars, in thousands) |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |  |  | Total |
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Neo Medical convertible loan agreements |  | $ | — |  |  | $ | — |  |  | $ | 7,690 |  |  | $ | 7,690 |  |  | $ | 7,140 |
Neo Medical preferred equity securities |  |  | — |  |  |  | 6,084 |  |  |  | — |  |  |  | 6,084 |  |  |  | 6,084 |
Bone Biologics equity securities |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Other investments |  |  | — |  |  |  | — |  |  |  | 1,986 |  |  |  | 1,986 |  |  |  | 1,726 |
Total |  | $ | — |  |  | $ | 6,084 |  |  | $ | 9,676 |  |  | $ | 15,760 |  |  | $ | 14,950 |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Lattus contingent consideration |  | $ | — |  |  | $ | — |  |  |  | (9,900 | ) |  | $ | (9,900 | ) |  | $ | — |
Spinal Kinetics contingent consideration |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Deferred compensation plan |  |  | — |  |  |  | (1,467 | ) |  |  | — |  |  |  | (1,467 | ) |  |  | (1,515 | )
Total |  | $ | — |  |  | $ | (1,467 | ) |  | $ | (9,900 | ) |  | $ | (11,367 | ) |  | $ | (1,515 | )
Neo Medical Convertible Loan Agreements and Equity Investment In October 2020, the Company purchased preferred equity securities of Neo Medical SA, a privately held Swiss-based company developing a new generation of products for spinal surgery ("Neo Medical"), for consideration of $5.0 million. The Company also entered into a Convertible Loan Agreement pursuant to which the Company loaned Neo Medical CHF 4.6 million, or $5.0 million at the date of issuance (the “Convertible Loan”). In October 2021, the Company entered into a second Convertible Loan Agreement (the “Second Convertible Loan” and together with the Convertible Loan, the “Neo Medical Convertible Loans”), pursuant to which the Company loaned Neo Medical an additional CHF 0.6 million, or $0.7 million as of the date of issuance. The preferred equity securities are recorded in other long-term assets and are considered an investment that does not have a readily determinable fair value. As such, the Company measures this investment at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer. The table below presents a reconciliation of the beginning and ending balances of the Company’s investment in Neo Medical preferred equity securities:
(Unaudited, U.S. Dollars, in thousands) |  | 2023 |  |  | 2022 |
Fair value of Neo Medical preferred equity securities at January 1 |  | $ | 6,084 |  |  | $ | 5,413 |
Conversion of loan into preferred equity securities |  |  | — |  |  |  | 671 |
Fair value of Neo Medical preferred equity securities at June 30 |  |  | 6,084 |  |  |  | 6,084 |
Cumulative unrealized gain on Neo Medical preferred equity securities |  |  | 413 |  |  |  | 413 |
The Company elected to convert the Second Convertible Loan into shares of Neo Medical’s preferred equity securities in January 2022. The Convertible Loan is recorded in other long-term assets as an available for sale debt security as of June 30, 2023. The fair value of the Convertible Loan is based upon significant unobservable inputs, including the use of option-pricing models, Monte Carlo simulations for certain periods, and a probability-weighted discounted cash flow model, requiring the Company to develop its own assumptions. Therefore, the Company categorized this investment as a Level 3 financial asset. Some of the more significant unobservable inputs used in the fair value measurement of the Convertible Loan include applicable discount rates, implied volatility, the likelihood and projected timing of repayment or conversion, and projected cash flows in support of the estimated enterprise value of Neo Medical. Holding other inputs constant, changes in these assumptions could result in a significant change in the fair value of the Convertible Loan. If the amortized cost of the Convertible Loan exceeds its estimated fair value, the security is deemed to be impaired, and must be evaluated for the recognition of a credit loss. As of June 30, 2023, the Company has no t recognized any credit loss related to the Convertible Loan. The following table provides a reconciliation of the beginning and ending balances of the Convertible Loans, measured at fair value using significant unobservable inputs (Level 3):
(Unaudited, U.S. Dollars, in thousands) |  | 2023 |  |  | 2022 |
Fair value of Neo Medical Convertible Loans at January 1 |  | $ | 7,140 |  |  | $ | 7,148 |
Interest recognized in interest income, net |  |  | 238 |  |  |  | 217 |
Foreign currency remeasurement recognized in other expense, net |  |  | 195 |  |  |  | (257 | )
Unrealized gain (loss) recognized in other comprehensive loss |  |  | 117 |  |  |  | (615 | )
Conversion of Second Convertible Loan into preferred equity securities |  |  | — |  |  |  | (671 | )
Fair value of Neo Medical Convertible Loans at June 30 |  |  | 7,690 |  |  |  | 5,820 |
Amortized cost basis of Neo Medical Convertible Loans at June 30 |  |  | 6,340 |  |  |  | 5,496 |
The following table provides quantitative information related to certain key assumptions utilized within the valuation as of June 30, 2023:
(Unaudited, U.S. Dollars, in thousands) |  | Fair Value as of June 30, 2023 |  |  | Unobservable inputs |  | Estimate |
Neo Medical Convertible Loan |  | $ | 7,690 |  |  | Cost of equity discount rate |  |  | 18.0 | %
|  |  |  |  | Estimated equity volatility |  |  | 74.1 | %
Bone Biologics Equity Securities Until August 2022, the Company held an investment in common stock of Bone Biologics Inc. (“Bone Biologics”, NASDAQ: BBLG), a developer of orthobiologic products. The Company disposed of its remaining holdings in Bone Biologics equity securities during the third quarter of 2022. Other Investments Other investments represent assets and investments recorded at fair value that are not deemed to be material for disclosure on an individual basis. The fair value of these assets is based upon significant unobservable inputs, such as probability-weighted discounted cash flow models, requiring the Company to develop its own assumptions. Therefore, the Company has categorized these assets as Level 3 financial assets. As of June 30, 2023, this balance was classified within other current assets. Spinal Kinetics Contingent Consideration The Company recognized a contingent consideration obligation in connection with the acquisition of Spinal Kinetics in 2018. The fair value of the remaining Spinal Kinetics contingent consideration, attributable to a revenue-based milestone, was concluded to be zero as of June 30, 2023, as the Company did not achieve the milestone prior to April 30, 2023, the end of the measurement period for achieving such milestone. The following table provides a reconciliation of the beginning and ending balances for the Spinal Kinetics contingent consideration measured at estimated fair value using significant unobservable inputs (Level 3):
(Unaudited, U.S. Dollars, in thousands) |  | 2023 |  |  | 2022 |
Spinal Kinetics contingent consideration estimated fair value at January 1 |  | $ | — |  |  | $ | 17,200 |
Decrease in fair value recognized in acquisition-related amortization and remeasurement |  |  | — |  |  |  | (16,214 | )
Spinal Kinetics contingent consideration estimated fair value at June 30 |  | $ | — |  |  | $ | 986 |
Lattus Contingent Consideration In connection with the Merger, the Company assumed a contingent consideration obligation under a purchase agreement between SeaSpine and Lattus Spine LLC ("Lattus") executed in December 2022. Under the terms of the agreement, the Company may be required to make installment payments at certain dates based on future net sales of certain products (the "Lateral Products"). The estimated fair value of the Lattus contingent consideration as of the closing of the Merger, January 5, 2023, was $11.2 million. The estimated fair value of the Lattus contingent consideration is determined using a probability-weighted discounted cash flow model and significant inputs which are not observable in the market. The significant inputs include assumptions related to the timing and probability of the product launch dates, estimated future sales of the products, estimated commission rates, discount rates matched to the timing of payments, and probability of success rates. The following table provides a reconciliation of the beginning and ending balances for the Lattus contingent consideration measured at estimated fair value using significant unobservable inputs (Level 3):
(Unaudited, U.S. Dollars, in thousands) |  | 2023 |  |  | 2022 |
Lattus contingent consideration estimated fair value at January 5 |  | $ | 11,200 |  |  | $ | — |
Decrease in fair value recognized in acquisition-related amortization and remeasurement |  |  | (1,300 | ) |  |  | — |
Lattus contingent consideration estimated fair value at June 30 |  | $ | 9,900 |  |  | $ | — |
The following table provides quantitative information related to certain key assumptions utilized within the valuation as of June 30, 2023:
(Unaudited, U.S. Dollars, in thousands) |  | Fair Value as of June 30, 2023 |  |  | Unobservable inputs |  | Estimate |
Lattus Contingent Consideration |  | $ | 9,900 |  |  | Counterparty discount rate |  |  | 9.0 | %
|  |  |  |  | Revenue risk-adjusted discount rate |  |  | 6.5 | %

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