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Fair Value Measurements
 9 Months Ended 12 Months Ended
Sep. 30, 2024
Dec. 31, 2023
Fair Value Disclosures [Abstract]    
Fair Value Measurements
10.
Fair Value Measurements
The following tables present the fair value hierarchy for the Company’s assets and liabilities that are measured at fair value at issuance date and on a recurring basis and indicate the level within the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value (in thousands):
 
Fair Value Measurement as of September 30, 2024
  
    
Total Carrying Value
     
Level 1
     
Level 2
     
Level 3
  
Assets:
            
Cash equivalents
            
Money market funds
    $ 23,749      $ 23,749      $ —       $ —   
  
 
 
     
 
 
     
 
 
     
 
 
  
Total assets
    $ 23,749      $ 23,749      $ —       $ —   
  
 
 
     
 
 
     
 
 
     
 
 
  
Liabilities:
            
Legacy Allurion Common Stock Warrant Liabilities
    $ 71      $ —       $ —       $ 71  
Public Warrants
      531        531        —         —   
Public Offering Warrants
      5,970        —         —         5,970  
Private Placement Warrants
      810        —         —         810  
Revenue Interest Financing
      38,500        —         —         38,500  
PIPE Conversion Option
      9,850        —         —         9,850  
Earn-out
Liability
      1,850        —         —         1,850  
RTW Convertible Notes
      36,090        —         —         36,090  
Success Fee Derivative Liability
      14        —         —         14  
  
 
 
     
 
 
     
 
 
     
 
 
  
Total Liabilities
    $ 93,686      $ 531      $ —       $ 93,155  
  
 
 
     
 
 
     
 
 
     
 
 
  
 
 
Fair Value Measurement as of December 31, 2023
  
    
Total Carrying Value
     
Level 1
     
Level 2
     
Level 3
  
Assets:
            
Cash equivalents
            
Money market funds
    $ 30,582      $ 30,582      $ —       $ —   
  
 
 
     
 
 
     
 
 
     
 
 
  
Total assets
    $ 30,582      $ 30,582      $ —       $ —   
  
 
 
     
 
 
     
 
 
     
 
 
  
Liabilities:
            
Legacy Allurion Common Stock Warrant Liabilities
    $ 821      $ —       $ —       $ 821  
Public Warrants
      5,943        5,943        —         —   
Revenue Interest Financing
      36,200        —         —         36,200  
PIPE Conversion Option
      5,600        —         —         5,600  
Earn-out
Liability
      23,990        —         —         23,990  
Term Loan Derivative Liability
      1,895        —         —         1,895  
Success Fee Derivative Liability
      14        —         —         14  
  
 
 
     
 
 
     
 
 
     
 
 
  
Total Liabilities
    $ 74,463      $ 5,943      $ —       $ 68,520  
  
 
 
     
 
 
     
 
 
     
 
 
  
Public Warrants
As a result of the Business Combination on August 1, 2023, the Company recorded a liability for Public Warrants to purchase the Company’s Common Stock. The Public Warrants are traded on the NYSE and are recorded at fair value using the closing price as September 30, 2024 of $0.04, which is a Level 1 input.
 
Legacy Allurion Warrants, Public Offering Warrants, and Private Placement Warrants
The Company has classified the Legacy Allurion Common Stock Warrants, Public Offering Warrants (defined below), and Private Placement Warrants (defined below) within Level 3 of the hierarchy as the fair value is derived using the Black-Scholes option pricing model, which uses a combination of observable (Level 2) and unobservable (Level 3) inputs. See table below for the assumptions used in the pricing model of the Legacy Allurion Common Stock Warrants, Public Offering Warrants, and Private Placement Warrants:
 
    
Measurement Date
     
Interest
Rate
     
Exercise
Price
     
Estimated Fair
Value of
Underlying Share
Price
     
Expected
Volatility
    
Expected Life
(Years)
  
Legacy Allurion Series C Preferred Stock warrants (as converted to Common)
      September 30, 2024        3.65%      $ 6.73      $ 0.61        90 %      6.50  
Legacy Allurion Other Common Stock
      September 30, 2024        3.59%        1.05        0.61        90 %      2.94  
Legacy Allurion
Series D-1
Preferred Stock warrants (as converted to Common)
      September 30, 2024       
3.65% -

3.71%		  
 		      12.14        0.61        90 %     
6.5 - 7.96
  
Public Offering Warrants
      September 30, 2024        3.58%        1.20        0.61        90 %      4.75  
Private Placement Warrants
      September 30, 2024        3.58%        1.20        0.61        90 %      4.75  
 
    
Measurement Date
     
Interest
Rate
    
Exercise
Price
     
Estimated Fair
Value of
Underlying Share
Price
     
Expected
Volatility
    
Expected Life
(Years)
  
Legacy Allurion Series C Preferred Stock warrants (as converted to Common)
      December 31, 2023        3.88 %      6.73      $ 3.74        100 %      7.25  
Legacy Allurion Other Common Stock
      December 31, 2023        3.95 %      1.05        3.74        100 %      3.69  
Legacy Allurion
Series D-1
Preferred Stock warrants (as converted to Common)
      December 31, 2023        3.88 %      12.14        3.74        100 %     
7.25 - 8.71
  
Expected dividend yield for all calculations is 0.00%.
The following table reconciles the changes in fair value for the three and nine months ended September 30, 2024 and 2023 of the warrant liabilities valued using Level 3 inputs:
 
   
Preferred Stock Warrants
(as converted to Common)
    
Common Stock
Warrants
    
Public Offering
Warrants
    
Private Placement
Warrants
    
Total
  
Balance – June 30, 2023
   $ 2,679     $ 1,351       —        —      $ 4,030  
Change in fair value
     (1,571 )      (555 )      —        —        (2,126 ) 
Exercise of warrants
     (53 )      —        —        —        (53 ) 
Derecognition of liability to equity
     (340 )      (589 )      —        —        (929 ) 
 
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Balance – September 30, 2023
   $ 715     $ 207     $ —      $ —      $ 922  
 
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Balance – June 30, 2024
   $ 110     $ 35       —        —      $ 145  
Fair value at issuance
     —        —        13,157       1,670       14,827  
Change in fair value
     (55 )      (19 )      (7,187 )      (860 )      (8,121 ) 
 
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Balance – September 30, 2024
   $ 55     $ 16     $ 5,970     $ 810     $ 6,851  
 
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
   
Preferred Stock Warrants
(as converted to Common)
          
Common Stock
Warrants
    
Public Offering
Warrants
          
Private Placement
Warrants
    
Total
  
Balance – January 1, 2023
   $ 1,777       $ 596     $ —        $ —      $ 2,373  
Change in fair value
     (647 )        200       —          —        (447 ) 
Exercise of warrants
     (75 )        —        —          —        (75 ) 
Derecognition of liability to equity
     (340 )        (589 )      —          —        (929 ) 
 
 
 
      
 
 
    
 
 
      
 
 
    
 
 
  
Balance – September 30, 2023
   $ 715       $ 207     $ —        $ —      $ 922  
 
 
 
      
 
 
    
 
 
      
 
 
    
 
 
  
Balance – January 1, 2024
   $ 642       $ 179     $ —        $ —      $ 821  
Fair value at issuance
     —        —        —        13,157         1,670       14,827  
Change in fair value
     (587 )        (163 )      (7,187 )        (860 )      (8,797 ) 
 
 
 
      
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Balance – September 30, 2024
   $ 55       $ 16     $ 5,970     $ —     $ 810     $ 6,851  
 
 
 
      
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
2019 Term Loan Success Fee Derivative Liability
The derivative liability for the success fee associated with Legacy Allurion’s November 2019 loan and security agreement with Western Alliance Bank (the “2019 Term Loan” and such fee, the “Success Fee”) was recorded at fair value as of September 30, 2024 and December 31, 2023 using the following assumptions: weighted-average probability for the likelihood of a change in control or liquidity event within four years from the initial valuation date of the derivative liability and a market-based discount rate that will increase or decrease each period based on changes in the probability in the future cash flows.
2023 Convertible Notes
The 2023 Convertible Notes were accounted for using the FVO election. Under the FVO election, the financial instrument is initially measured at its issue-date estimated fair value and subsequently
re-measured
at estimated fair value on a recurring basis at each reporting period date. The fair value was measured as of August 1, 2023, just prior to the conversion of the 2023 Convertible Notes, using the share price at conversion ($7.04 per share). Upon the conversion of the 2023 Convertible Notes, the convertible note liability was derecognized.
Revenue Interest Financing and PIPE Conversion Option
The Revenue Interest Financing is accounted for using the FVO election. Under the FVO election, the financial instrument is initially measured at its issue-date estimated fair value and subsequently remeasured at estimated fair value on a recurring basis at each reporting period date. The fair value of the Revenue Interest Financing was remeasured as of September 30, 2024 and December 31, 2023 using a discounted cash flow (“DCF”) method under the income approach utilizing future revenue projections and a discount rate of 23.5% and 24.4%, respectively.
The fair value of the PIPE Conversion Option was accounted for as a derivative under ASC 815. The instrument is measured using a Monte Carlo Simulation Method (“MCSM”) using the number of shares convertible of 1,065,341 and the following assumptions:
 
    
September 30,
2024
    
December 31,
2023
  
Stock Price
    $ 0.61     $ 3.74  
Risk-free interest rate
      4.03 %      4.46 % 
Expected term (in years)
      0.8       1.6  
Expected volatility
      130.0 %      82.5 % 
 
Earn-Out
Liability
Upon the closing of the Business Combination, the
Earn-Out
Shares were accounted for as a liability because the triggering events that determine the number of shares to be earned included events that were not indexed to Allurion Common Stock, with the change in fair value recognized in Change in the fair value of
earn-out
liabilities in the consolidated statement of operations. The estimated fair value of the
Earn-Out
Shares was determined using a MCSM with the following assumptions at each valuation date:
 
    
September 30,
2024
    
December 31,
2023
  
Stock Price
    $ 0.61     $ 3.74  
Risk-free interest rate
      3.6 %      3.9 % 
Expected term (in years)
      3.8       4.6  
Expected volatility
      105.0 %      87.0 % 
Term Loan Derivative Liability
The Term Loan derivative liability associated with the Fortress Term Loan was derecognized during the second quarter of 2024 as the Fortress Term Loan was repaid on April 16, 2024.
RTW Convertible Notes
The RTW Convertible Notes are accounted for using the FVO election. Under the FVO election, the financial instrument is initially measured at its issue-date estimated fair value and subsequently measured at estimated fair value on a recurring basis at each reporting period date. The fair value of the RTW Convertible Notes was remeasured as of September 30, 2024 using a DCF method under the income approach with a MCSM applied to determine the simulated stock price at each payment date and event that may trigger conversion of the RTW Convertible Notes. The fair value was measured using the $48.0 million principal amount of the RTW Convertible Notes and the following assumptions:
 
    
September 30,
2024
  
Stock Price
    $ 0.61  
Risk-free interest rate
      3.6 % 
Expected term (in years)
      6.5  
Expected volatility
      90.0 % 
 
The changes in the fair values of the Success Fee derivative liability, 2023 Convertible Notes, Revenue Interest Financing, PIPE Conversion Option,
Earn-out
liability, Term Loan Derivative liability, RTW Convertible Notes, PubCo Share liability, Base PubCo and Backstop Share liability, and Warrant Overallotment Liability categorized with Level 3 inputs for the three and nine months ended September 30, 2024 and 2023 were as follows:
 
   
Success
Fee
Derivative
Liability
    
2023
Convertible
Notes
    
Revenue
Interest
Financing
    
PIPE
Conversion
Derivative
    
Earn-Out

Liability
    
Term
Loan
Derivative
Liability
    
RTW
Convertible
Notes
    
PubCo
Share
Liability
    
Base
PubCo &
Backstop
Share
Liability
    
Total
  
Balance – June 30, 2023
   $ 213     $ 16,793     $ —      $ —      $ —      $ —      $ —      $ 3,327     $ 3,305     $ 23,638  
Fair value upon issuance
     —        9,150     $ 40,000       3,340       53,040       —        —        —        —      $ 105,530  
Change in fair value
     (201 )      6,008       (3,400 )      2,100       (24,330 )      —        —        (599 )      10,065     $ (10,357 ) 
Repayments of debt
     —        (10,250 )      —        —        —        —        —        —        —      $ (10,250 ) 
Derecognition of liability to equity
     —        (21,701 )      —        —        —        —        —        (2,728 )      (13,370 )    $ (37,799 ) 
 
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Balance – September 30, 2023
   $ 12     $ —      $ 36,600     $ 5,440     $ 28,710     $ —      $ —      $ —      $ —      $ 70,762  
 
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Balance – June 30, 2024
   $ 14     $ —      $ 39,000     $ 5,450     $ 4,110     $ —      $ 40,950     $ —      $ —      $ 89,524  
Change in fair value
     —        —        6,704       4,400       (2,260 )      —        (1,790 )      —        —        7,054  
Change in fair value – OCI
     —        —        (5,800 )      —        —        —        (3,070 )      —        —        (8,870 ) 
Repayments of debt
     —        —        (1,404 )      —        —        —        —        —        —        (1,404 ) 
 
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Balance – September 30, 2024
   $ 14     $ —      $ 38,500     $ 9,850     $ 1,850     $ —      $ 36,090     $ —      $ —      $ 86,304  
 
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Balance – January 1, 2023
   $ 178     $ —      $ —      $ —      $ —      $ —      $ —      $ —      $ —      $ 178  
Fair value upon issuance
     —        28,700     $ 40,000       3,340       53,040       —        —        3,370       3,264       131,714  
Change in fair value
     (166 )      3,751       (3,400 )      2,100       (24,330 )      —        —        (642 )      10,106       (12,581 ) 
Repayments of debt
     —        (10,750 )      —        —        —        —        —        —        —        (10,750 ) 
Derecognition of liability to equity
     —        (21,701 )      —        —        —        —        —        (2,728 )      (13,370 )      (37,799 ) 
 
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Balance – September 30, 2023
   $ 12     $ —      $ 36,600     $ 5,440     $ 28,710     $ —      $ —      $ —      $ —      $ 70,762  
 
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
 
   
Success
Fee
Derivative
Liability
    
2023
Convertible
Notes
    
Revenue
Interest
Financing
    
PIPE
Conversion
Derivative
    
Earn-Out

Liability
    
Term
Loan
Derivative
Liability
    
RTW
Convertible
Notes
    
PubCo
Share
Liability
    
Base
PubCo &
Backstop
Share
Liability
    
Total
  
Balance – January 1, 2024
   $ 14     $ —      $ 36,200     $ 5,600     $ 23,990     $ 1,895     $ —      $ —      $ —      $ 67,699  
Fair value upon issuance
     —        —        —        —        —        —        49,100       —        —        49,100  
Change in fair value
     —        —        5,358       4,250       (22,140 )      (1,895 )      (10,020 )      —        —        (24,447 ) 
Change in fair value – OCI
     —        —        (600 )      —        —        —        (2,990 )      —        —        (3,590 ) 
Repayments of debt
     —        —        (2,458 )      —        —        —        —        —        —        (2,458 ) 
 
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Balance – September 30, 2024
   $ 14     $ —      $ 38,500     $ 9,850     $ 1,850     $ —      $ 36,090     $ —      $ —      $ 86,304  
 
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
The change in fair value of the Success Fee derivative liability, 2023 Convertible Notes, Revenue Interest Financing, PIPE Conversion Option,
Earn-Out
liability, Term Loan Derivative liability, RTW Convertible
Not
es, Pubco Share liability, and Base PubCo and Backstop Share liability at each period is recorded as a component of Other income (expense) in the condensed consolidated statements of operations, with the exception of the changes in fair value associated with the change in credit risk related to the Revenue Interest Financing and RTW Convertible Notes, which is recorded as a component of other comprehensive loss.
10.
Fair Value Measurements
The following tables present the fair value hierarchy for assets and liabilities that are measured at fair value at issuance date and on a recurring basis and indicate the level within the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value (in thousands):
 
Fair Value Measurement as of December 31, 2023
  
    
Total Carrying Value
     
Level 1
     
Level 2
     
Level 3
  
Assets:
            
Cash equivalents
            
Money market funds
    $ 30,582      $ 30,582      $ —       $ —   
  
 
 
     
 
 
     
 
 
     
 
 
  
Total assets
    $ 30,582      $ 30,582      $ —       $ —   
  
 
 
     
 
 
     
 
 
     
 
 
  
Liabilities:
            
Legacy Allurion Common Stock Warrant Liabilities
    $ 821      $ —       $ —       $ 821  
Public Warrants
      5,943        5,943        —         —   
Revenue Interest Financing
      36,200        —         —         36,200  
PIPE Conversion Option
      5,600        —         —         5,600  
Earn-out
Liability
      23,990        —         —         23,990  
Term Loan Derivative Liability
      1,895        —         —         1,895  
Success Fee Derivative Liability
      14        —         —         14  
  
 
 
     
 
 
     
 
 
     
 
 
  
Total Liabilities
    $ 74,463      $ 5,943      $ —       $ 68,520  
  
 
 
     
 
 
     
 
 
     
 
 
  
 
Fair Value Measurement as of December 31, 2022
  
    
Total Carrying Value
     
Level 1
     
Level 2
     
Level 3
  
Assets:
            
Cash equivalents
            
Money market funds
    $ 4,925      $ 4,925      $ —       $ —   
  
 
 
     
 
 
     
 
 
     
 
 
  
Total assets
    $ 4,925      $ 4,925      $ —       $ —   
  
 
 
     
 
 
     
 
 
     
 
 
  
Liabilities:
            
Legacy Allurion Series C Common Stock Warrant Liability
    $ 340      $ —       $ —       $ 340  
Legacy Allurion Series B Preferred Stock Warrant Liability
      303        —         —         303  
Legacy Allurion Series
A-1
Preferred Stock Warrant Liability
      82        —         —         82  
Other Common Stock Warrant Liabilities
      255        —         —         255  
Legacy Allurion Series C Preferred Stock Warrant Liability
      684        —         —         684  
Derivative Liability-Success Fee
      180        —         —         180  
Legacy Allurion Series
D-1
Preferred Stock Warrant Liability
      707        —         —         707  
  
 
 
     
 
 
     
 
 
     
 
 
  
Total Liabilities
    $ 2,551      $ —       $ —       $ 2,551  
  
 
 
     
 
 
     
 
 
     
 
 
  
Public Warrants
As a result of the Business Combination on August 1, 2023, the
Company
recorded a liability for Public Warrants to purchase the Company’s Common Stock. The Public Warrants are traded on the NYSE and are recorded at fair value using the closing price as of December 31, 2023 of $0.45, which is a Level 1 input.
 
Legacy Allurion Warrants
The Company has classified the warrants within Level 3 of the hierarchy as the fair value is derived
using
the Black-Scholes option pricing model, which uses a combination of observable (Level 2) and unobservable (level 3) inputs. See table below for the assumptions used in the pricing model:
 
   
Measurement Date
    
Interest
Rate
    
Exercise
Price
    
Estimated Fair
Value of
Underlying Share
Price
    
Expected
Volatility
    
Expected Life
(Years)
  
Legacy Allurion Series C Preferred Stock warrants (as converted to Common)
     December 31, 2023       3.88 %      6.73       3.74       100 %      7.25  
Other Common Stock
     December 31, 2023       3.95 %      1.05       3.74       100 %      3.69  
Legacy Allurion Series
D-1
Preferred Stock warrants (as converted to Common)
     December 31, 2023       3.88 %      12.14       3.74       100 %     
7.25
 - 
8.71
  
Legacy Allurion Series
A-1
Preferred Stock warrants (as converted to Rollover warrants)
     December 31, 2022       4.42 %    $ 1.90     $ 6.75       69 %      0.25  
Legacy Allurion Series B Preferred Stock warrants (as converted to Rollover warrants)
     December 31, 2022       4.41 %      2.38       6.91       65 %      2.00  
Legacy Allurion Series C Common Stock warrants (as converted to Rollover warrants)
     December 31, 2022       4.11 %      0.01       4.54       63 %      4.00  
Legacy Allurion Series C Preferred Stock warrants (as converted to Rollover warrants)
     December 31, 2022       3.92 %      6.58       7.24       63 %      8.20  
Other Common Stock Warrants
     December 31, 2022       3.99 %     
1.02
 
- 1.10
       4.54       63 %     
4.6
 - 
4.7
  
Legacy Allurion Series
D-1
Preferred Stock warrants (as converted to Rollover warrants)
     December 31, 2022      
3.88
-
3.92
 %      11.87       11.31       63 %     
8.2
 - 
9.7
  
Expected dividend yield for all calculations is 0.00%.
The following table reconciles the changes in fair value for the years ended December 31, 2023 and 2022 of the warrant liabilities valued using Level 3 inputs:
 
    
Preferred Stock Warrants
(as converted to Common)
     
Common Stock
Warrants
     
Total
  
Balance – January 1, 2022
    $ 510      $ 231      $ 741  
Fair value upon issuance
      834        —         834  
Change in fair value
      456        365        821  
Exercise of warrants
      (23 )       —         (23 ) 
  
 
 
     
 
 
     
 
 
  
Balance – December 31, 2022
    $ 1,777      $ 596      $ 2,373  
Change in fair value
      (720 )       172        (548 ) 
Exercise of warrants
      (75 )       —         (75 ) 
Derecognition of liability to equity
      (340 )       (589 )       (929 ) 
  
 
 
     
 
 
     
 
 
  
Balance – December 31, 2023
    $ 642      $ 179      $ 821  
  
 
 
     
 
 
     
 
 
  
 
2019 Term Loan Success Fee Derivative Liability
The derivative liability for the success fee associated with Legacy Allurion’s November 2019 loan and security agreement with Western Alliance Bank (the “2019 Term Loan” and such fee, the “Success Fee”) was recorded at fair value as of December 31, 2023 using the following assumptions: weighted-average probability for the likelihood of a change in control or liquidity event within four years from the initial valuation date of the derivative liability and a market-based discount rate that will increase or decrease each period based on changes in the probability in the future cash flows.
2023 Convertible Notes
The 2023 Convertible Notes were accounted for using the FVO election. Under the FVO election, the financial instrument is initially measured at its issue-date estimated fair value and subsequently
re-measured
at estimated fair value on a recurring basis at each reporting period date. The fair value was measured as of August 1, 2023, just prior to the conversion of the notes, using the share price at conversion ($7.04 per share). Upon the conversion of the notes, the convertible note liability was derecognized.
PubCo Additional Shares Liability
The PubCo Additional Shares liability was initially recorded at fair value as of May 2, 2023 and revalued as of August 1, 2023,
just
prior to the close of the Business Combination, using the number of shares issued at the close of the Business Combination of 387,696 and an estimated price of shares at settlement of $7.04. Upon the issuance of shares, the PubCo Additional Shares liability was derecognized.
Base PubCo Shares and Backstop Shares Liability
The Base PubCo Shares and Backstop Shares liability was initially recorded at fair value as of May 2, 2023 and revalued as of August 1, 2023, just prior to the close of the Business Combination, using the number of shares for each Backstop Purchaser at the close of the Business Combination of 950,000 and an estimated price of shares at settlement of $7.04. Upon the issuance of shares, the Base PubCo Shares and Backstop Shares liability was derecognized.
Revenue Interest Financing and PIPE Conversion Option
The Revenue Interest Financing was accounted for using the FVO election. Under the FVO election, the financial instrument is initially measured at its issue-date estimated fair value and subsequently remeasured at estimated fair value on a recurring basis at each reporting period date. The fair value of the Revenue Interest Financing was remeasured as of December 31, 2023 using a discounted cash flow (“DCF”) method under the income approach utilizing future revenue projections and a discount rate of 24.4%.
The fair value of the PIPE Conversion Option was accounted for as a derivative under ASC 815. The instrument is measured using a Monte Carlo Simulation Method using the number of shares convertible of 1,065,341 and the following assumptions:
 
    
December 31,
2023
  
Stock Price
      3.74  
Risk-free interest rate
      4.46 % 
Expected term (in years)
      1.6  
Expected volatility
      82.5 % 
 
Earn-Out
Liability
Upon the closing of the Business Combination, the
Earn-Out
Shares were accounted for as a liability because the triggering events that determine the number of shares to be earned included events that were not indexed to Allurion
Common
Stock, with the change in fair value recognized in Change in the fair value of
earn-out
liabilities in the consolidated statement of operations. The estimated fair value of the
earn-out
shares was determined using a Monte Carlo Simulation Method using the following assumptions at the valuation date:
 
    
December 31,
2023
  
Stock Price
      3.74  
Risk-free interest rate
      3.9 % 
Expected term (in years)
      4.6  
Expected volatility
      87.0 % 
Term Loan Derivative Liability
The Term Loan Derivative Liability associated with the Fortress Term Loan was recorded at fair value as of December 31, 2023 using a DCF model that includes default interest payments expected to be made based on future revenue projections and cash flow assumptions and a discount rate of 24.4%.
The changes in the fair values of the Success Fee derivative liability, 2023 Convertible Notes, PubCo Additional Shares liability, Base PubCo Shares and Backstop Shares liability, Revenue Interest Financing, PIPE Conversion Option,
Earn-out
liability, and Term Loan Derivative Liability categorized with Level 3 inputs for the years ended December 31, 2023 and 2022 were as follows:
 
   
Success
Fee
Derivative
Liability
    
2023
Convertible
Notes
    
PubCo
Share
Liability
    
Base
PubCo &
Backstop
Share
Liability
    
Revenue
Interest
Financing
    
PIPE
Conversion
Derivative
    
Earn-Out

Liability
    
Term
Loan
Derivative
Liability
    
Total
  
Balance – January 1, 2022
   $ 159     $ —      $ —      $ —      $ —      $ —      $ —      $ —      $ 159  
Fair value upon issuance
     —        —        —        —        —        —        —        —        —   
Change in fair value
     19       —        —        —        —        —        —        —        19  
Exercise of warrants
     —        —        —        —        —        —        —        —        —   
 
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Balance – December 31, 2022
   $ 178     $ —      $ —      $ —      $ —      $ —      $ —      $ —      $ 178  
Fair value upon issuance
     —      $ 28,700       3,370       3,264       40,000       3,340       53,040       1,895       133,609  
Change in fair value
     (164 )      3,751       (642 )      10,106       (3,408 )      2,260       (29,050 )      —        (17,147 ) 
Change in fair value – OCI
     —        —        —        —        700       —        —        —        700  
Payments
     —        (10,750 )      —        —        (1,092 )      —        —        —        (11,842 ) 
Derecognition of liability to equity
     —        (21,701 )      (2,728 )      (13,370 )      —        —        —        —        (37,799 ) 
 
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Balance – December 31, 2023
   $ 14     $ —      $ —      $ —      $ 36,200     $ 5,600     $ 23,990     $ 1,895     $ 67,699  
 
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
The change in fair value of the Success Fee derivative liability, 2023 Convertible Notes, PubCo
Additional
Shares liability, Base PubCo Shares and Backstop Shares liability, Revenue Interest Financing, PIPE Conversion Option,
Earn-Out
liability, and Term Loan Derivative Liability at each period is recorded as a component of Other (expense) income in the consolidated statements of operations, with the exception of the change in fair value associated with the change in credit risk related to the Revenue Interest Financing which is recorded as a component of other comprehensive loss.
 
Assets and Liabilities Not Carried at Fair Value
The Company’s Fortress term loan is carried at amortized cost. The fair value of the Fortress term loan was estimated to be $43.2 million on December 31, 2023. The fair value was determined using a discounted cash flow approach. We classified the fair value disclosures for the Fortress Term Loan within level 3 of the fair value hierarchy because the fair value is derived using a significant unobservable input, which includes a discount rate.