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Fair value measurements and investments | 3 Months Ended
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Mar. 31, 2024
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:
|  | March 31, 2024 |  |  | December 31, 2023 |
(Unaudited, U.S. Dollars, in thousands) |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |  |  | Total |
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Neo Medical convertible loan agreements |  | $ | — |  |  | $ | 8,355 |  |  | $ | — |  |  | $ | 8,355 |  |  | $ | 6,760 |
Neo Medical preferred equity securities |  |  | — |  |  |  | 4,951 |  |  |  | — |  |  |  | 4,951 |  |  |  | 4,951 |
Other investments |  |  | — |  |  |  | — |  |  |  | 1,331 |  |  |  | 1,331 |  |  |  | 1,309 |
Total |  | $ | — |  |  | $ | 13,306 |  |  | $ | 1,331 |  |  | $ | 14,637 |  |  | $ | 13,020 |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Lattus contingent consideration |  | $ | — |  |  | $ | — |  |  |  | (9,670 | ) |  | $ | (9,670 | ) |  | $ | (8,500 | )
Deferred compensation plan |  |  | — |  |  |  | (1,604 | ) |  |  | — |  |  |  | (1,604 | ) |  |  | (1,674 | )
Total |  | $ | — |  |  | $ | (1,604 | ) |  | $ | (9,670 | ) |  | $ | (11,274 | ) |  | $ | (10,174 | )
Neo Medical Convertible Loan Agreements and Equity Investment Since October 2020, the Company has held preferred equity securities of Neo Medical SA, a privately held Swiss-based company developing a new generation of products for spinal surgery ("Neo Medical") and 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”). 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 Company's equity investment with Neo Medical is subject to certain sales restrictions, such as right of first refusal, tag-along provisions, and drag-along provisions. Permitted transfers include (i) sales of shares to an affiliate of such shareholder, (ii) transfer of shares as part of a compensation package offered to employees, or (iii) Neo Medical may repurchase shares at a price no greater than that originally paid by the shareholder. 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) |  | 2024 |  |  | 2023 |
Fair value of Neo Medical preferred equity securities at January 1 |  | $ | 4,951 |  |  | $ | 6,084 |
Conversion of loan into preferred equity securities |  |  | — |  |  |  | — |
Foreign currency remeasurement recognized in other income (expense), net |  |  | — |  |  |  | — |
Unrealized loss recognized in other income (expense), net |  |  | — |  |  |  | — |
Fair value of Neo Medical preferred equity securities at March 31 |  | $ | 4,951 |  |  | $ | 6,084 |
Cumulative unrealized gain (loss) on Neo Medical preferred equity securities |  | $ | (720 | ) |  | $ | 413 |
The Convertible Loan is recorded in other long-term assets as an available for sale debt security as of March 31, 2024. In April 2024, the Company and Neo Medical agreed to convert the Convertible Loan into shares of Neo Medical preferred equity securities, with such conversion occurring on April 19, 2024. As such, the Company estimated the fair value of the Convertible Loan based upon the estimated fair value of equivalent preferred shares as of March 31, 2024. Therefore, as this fair value estimate is based upon a valuation method using observable market inputs, the Company has now classified this investment as a Level 2 financial asset. The following table provides a reconciliation of the beginning and ending balances of the Convertible Loans, which was measured at fair value using significant unobservable inputs in 2023:
(Unaudited, U.S. Dollars, in thousands) |  | 2024 |  |  | 2023 |
Fair value of Neo Medical Convertible Loans at January 1 |  | $ | 6,760 |  |  | $ | 7,140 |
Interest recognized in interest income, net |  |  | 135 |  |  |  | 116 |
Foreign currency remeasurement recognized in other income (expense), net |  |  | (471 | ) |  |  | 61 |
Unrealized gain (loss) recognized in other comprehensive loss |  |  | 1,671 |  |  |  | (137 | )
Reversal of expected credit loss recognized in other income (expense), net |  |  | 260 |  |  |  | — |
Fair value of Neo Medical Convertible Loans at March 31 |  | $ | 8,355 |  |  | $ | 7,180 |
Contractual value of Neo Medical Convertible Loans at January 1 |  | $ | 6,683 |  |  | $ | 6,084 |
Allowance for credit loss recognized in other income (expense), net |  |  | — |  |  |  | — |
Amortized cost basis of Neo Medical Convertible Loans at March 31 |  | $ | 6,683 |  |  | $ | 6,084 |
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 March 31, 2024, this balance was classified within other current assets. 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 is determined using a Monte Carlo simulation and a discounted cash flow model requiring significant inputs which are not observable in the market. The significant inputs include assumptions related to the timing and probability of certain product launch dates, estimated future sales of the products, revenue risk-adjusted discount rate, revenue volatility, and discount rates matched to the timing of payments. 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) |  | 2024 |  |  | 2023 |
Lattus contingent consideration estimated fair value at January 1 |  | $ | 8,500 |  |  | $ | — |
Contingent consideration assumed in Merger |  |  | — |  |  |  | 11,500 |
Increase (decrease) in fair value recognized in acquisition-related amortization and remeasurement |  |  | 1,170 |  |  |  | — |
Lattus contingent consideration estimated fair value at March 31 |  | $ | 9,670 |  |  | $ | 11,500 |
The following table provides quantitative information related to certain key assumptions utilized within the valuation as of March 31, 2024:
(Unaudited, U.S. Dollars, in thousands) |  | Fair Value as of March 31, 2024 |  |  | Unobservable inputs |  | Estimate
Lattus Contingent Consideration |  | $ | 9,670 |  |  | Counterparty discount rate |  | 15.0% - 15.6%
|  |  |  |  | Revenue risk-adjusted discount rate |  | 7.10% - 7.86%

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