Note 13 - Fair Value Measurements

12 Months Ended

Dec. 31, 2024

Notes to Financial Statements

Fair Value Disclosures [Text Block]

13. Fair Value Measurements

The fair value accounting guidance requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:

• Level 1 — Quoted prices in active markets for identical assets or liabilities.

• Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

• Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies, and similar techniques that use significant unobservable inputs.

Level 1 assets being measured at fair value on a recurring basis as of December 31, 2024, included the Company’s short-term marketable securities, which consist of a U.S. government money market fund and a short-duration bond fund.

The Company uses Level 2 fair value measurements for its Convertible Notes, which are carried at the face value less unamortized debt discount and issuance costs on the consolidated balance sheets. The fair value of the Convertible Notes is presented at each reporting period for disclosure purposes only (see Note 6).

Several of the Company’s acquisition-related assets and liabilities have been measured using Level 3 techniques. During 2020 the Company recorded a contingent liability associated with its acquisition of the bovine carotid graft business from Artegraft. The agreement required the Company to make potential additional payments to Artegraft of up to $17.5 million, depending on the achievement of certain unit sales milestones during the first three calendar years following the acquisition through December 31, 2023. The Company recorded this liability at a fair value of $0.4 million in 2020 to reflect management’s estimate of the likelihood of achieving these targets at the time of the closing, as well as the time value of money until payment. The Company was remeasuring this amount each quarter during the earn-out period, with any adjustments recorded in income from operations. As of December 31, 2023, there were no unit sales milestones achieved during the earn-out period, and therefore the Company reduced the remaining liability to zero.

During 2019, the Company recorded contingent liabilities associated with its acquisition of the Anteris biologic patch business. The agreement includes the potential for the Company to pay up to $7.8 million of additional consideration beyond payments made to date, with $0.3 million contingent upon the delivery of audited financial statements of the acquired business to the Company; $2.0 million (the “CE Mark Contingency”) contingent on the Company’s success in obtaining CE marks under the European Medical Device Regulation (2017/745) (“MDR”) on the acquired products; $0.5 million contingent upon Anteris’ success in extending the shelf life of the acquired products as specified in the agreement; and another $5.0 million contingent on the achievement of specified levels of revenues in the first 12 and 24 months following the acquisition date. The Company initially valued this additional contingent consideration in total at $2.3 million. The Company is remeasuring this valuation each quarter until the payment requirement ends, with any adjustments reported in income from operations. The Company paid the contingent payment related to the delivery of audited financial statements of the business in November 2019 upon satisfaction of the deliverable. The contingent payments related to Anteris’ extending the shelf life of the acquired products and achieving the revenue targets during the first 12- and 24- month periods following the acquisition were not met, and the Company adjusted the portion of the liabilities related to these items through income from operations. The agreement was amended in August 2021 such that the CE Mark Contingency amount may be reduced for certain costs incurred by the Company in achieving the CE marks.

In September 2023, the Company and Anteris amended the agreement in order to (i) place a cap on the total amount of costs incurred by the Company in achieving the CE marks under MDR regulations that could be used as a deduction toward the $2.0 million holdback, and (ii) require a prorata payment to Anteris of the CE Mark Contingency, less costs described above, by January 2025 if the CE marks are not obtained by that date.

In January 2025, the Company received the MDR CE mark approval of CardioCel and VascuCel which allows the Company to distribute their Burlington manufactured products to EU markets. As of December 31, 2024, the fair value of the CE Mark Contingency reflects the total holdback due to Anteris of $1.4 million. The payment to Anteris will be made in the first quarter of 2025.

The following table provides a roll-forward of the fair value of these liabilities, as determined by Level 3 unobservable inputs including management’s forecast of future revenues for the acquired businesses, as well as, management’s estimates of the likelihood of achieving the other specified criteria:

	Year ended December 31,
	2024		2023			2022
	(in thousands)
Beginning balance	$	1,224	$	1,339		$	1,492
Additions		-		-			-
Payments		-		-			-
Change in fair value included in earnings		134		(115	)		(153	)
Ending balance	$	1,358	$	1,224		$	1,339