Convertible Notes

6 Months Ended

Jun. 30, 2025

Debt Disclosure [Abstract]

Convertible Notes

Term Loan

Initial Term Loan

On January 19, 2021, the Company entered into a Credit Agreement with Hayfin Services, LLP (“Hayfin”)

for total borrowings of up to $70.0 million (the “Initial Term Loan”). The Company received net cash

proceeds of $68.1 million, after deducting $1.3 million of lender fees as a discount to the debt, and

$629,000 of debt issuance costs. The Company also issued a warrant to the lender to purchase a total of

108,154 shares of its common stock. The fair value of the warrant was $4.3 million as of the issuance

date, which was accounted for as a debt discount. Refer to Note 12 for additional information.

New Money Term Loan

On March 17, 2022, the Company entered into Amendment No. 1 to the Credit Agreement with Hayfin for

an additional $50.0 million term loan (the “New Money Term Loan”), collectively with the Initial Term Loan,

(the “Term Loan”). Additionally, certain terms of the Initial Term Loan were amended. The Company

received net cash proceeds of $49.2 million, after deducting $820,000 of lender fees as a discount to the

debt. The Company also issued an additional warrant to the lender to purchase a total of 77,253 shares of

common stock. The fair value of the warrant was $3.5 million as of the issuance date, which was

accounted for as a debt discount. Refer to Note 12 for additional information.

Other Amendments

The Company entered into Amendments No. 2 and No. 3 to the Credit Agreement in September 2022 and

December 2022, respectively, which enabled the Company to issue Subordinated Convertible Promissory

Notes and to increase the aggregate principal of the Subordinated Convertible Promissory Notes that can

be issued to $42.0 million (see Note 9).

In the first quarter of 2023, the Company entered into three amendments to the Credit Agreement with

Hayfin. In March 2023, the Company entered into Amendment No. 4 and Waiver to Credit Agreement with

Hayfin to temporarily waive various covenant requirements that had not been met through the waiver date

and to enable the Company to amend certain terms of the Credit Agreement. Under Amendment No. 4, as

part of the Series F redeemable convertible preferred stock financing closing (see Note 10), the Company

issued to Hayfin 1,462,260 warrants for shares of common stock for no consideration and committed to

sell 921,018 and 1,201,423 shares of Series F-1 and Series F redeemable convertible preferred stock,

respectively. These shares were issued to Hayfin Heartflow UK Limited upon Convertible Note conversion

and upon the initial closing of Series F redeemable convertible preferred stock with the same terms as all

other investors. In March 2023, the Company entered into Amendment No. 5 to the Credit Agreement with

Hayfin, which required the Company’s securities at JPMorgan Chase Bank to become a “Controlled

Account”, as defined by the Credit Agreement. Also in March 2023, the Company entered into

Amendment No. 6 to the Credit Agreement with Hayfin, which permitted the reacquisition of 102,739

shares of common stock from an employee/founder of the Company. In connection with these

amendments, the Company paid $94,000 in lender fees, which were recorded as a debt discount.

Amendments No. 4 through No. 6 were accounted for as debt modifications for accounting purposes.

2024 Credit Agreement

On June 14, 2024, the Company entered into a Credit Agreement and Guaranty (the “2024 Credit

Agreement”) with Hayfin for a $138.1 million term loan (the “2024 Term Loan”) to refinance its outstanding

loan obligations under the 2021 Credit Agreement, as amended (the “2021 Credit Agreement”). In

addition, in connection with the 2024 Term Loan, the Company entered into several other adjoining

agreements with Hayfin. The 2024 Term Loan extended the maturity date from January 19, 2026 to

June 14, 2028. The 2024 Credit Agreement was accounted for as a debt modification for accounting

purposes.

On January 24, 2025, in connection with the issuance of the 2025 Convertible Notes, the Company

entered into Amendment No.1 to the 2024 Credit Agreement, in which Hayfin converted $23.0 million of

principal under the 2024 Term Loan to 2025 Convertible Notes under the same terms as the other

purchasers of the 2025 Convertible Notes. The principal balance outstanding under the 2024 Term Loan,

as amended, is $115.1 million as of June 30, 2025. The amendment was accounted for as a debt

modification for accounting purposes.

Prepayment Terms and Other Fees

Any prepayment or repayment of the principal balance of the 2024 Term Loan is subject to an exit fee.

The Company is accreting the exit fee over the loan term using the effective interest method. Under the

2024 Term Loan, the Company has the option to prepay the 2024 Term Loan subject to a prepayment fee

of 1.5% for prepayments after the second anniversary but on or prior to the third anniversary of the 2024

Term Loan and a prepayment fee of 3% for prepayments thereafter. The 2024 Credit Agreement requires

the Company to repay the loan in full immediately upon the occurrence of a change in control. In addition,

immediately upon the consummation of an IPO or SPAC transaction, as defined in the terms of the 2024

Credit Agreement, the Company shall repay the 2024 Term Loan in an amount equal to the lesser of (i)

the net cash proceeds of such IPO or SPAC transaction in excess of $150.0 million and (ii) $35.0 million.

In connection with Amendment No.1 to the 2024 Term Loan in January 2025, the amount immediately

payable upon the consummation of an IPO or SPAC transaction, as defined in the terms of the 2024

Credit Agreement, was amended where repayment of the 2024 Term Loan was required to be at an

amount equal to the lesser of (i) the net cash proceeds of such IPO or SPAC transaction in excess of

$150.0 million and (ii) $50.0 million (or $55.0 million if the underwriters exercise any portion of their option

to purchase additional shares).

On June 14, 2024, concurrently with entering the 2024 Credit Agreement, the Company signed a fee

letter agreement with Hayfin under which the Company agreed to pay $9.2 million in fees to Hayfin, which

consisted of a 3% exit fee and 3% early prepayment fee due under the 2021 Credit Agreement in the

amount of $8.3 million payable in sixteen equal quarterly installments of approximately $518,000 through

March 31, 2028, agent fees of $150,000, due in annual installments of $30,000 through March 31, 2028

and an upfront fee of $721,000. The Company paid the $721,000 upfront fee and $30,000 agent fee upon

the closing of the 2024 Term Loan. The exit fee and early prepayment fee was required to be repaid in full

immediately upon the occurrence of a financing event, including, but not limited to, any IPO, SPAC

transaction, or issuance of convertible notes or equity. The exit fee and early prepayment fee remaining

under the original terms of the 2024 Term Loan, which were immediately due and payable upon issuance

of the 2025 Convertible Notes, was amended in January 2025 to be immediately due and payable upon

the next occurrence of a financing event as described above.

See Note 18 for information about the $55.0 million repayment of principal under the 2024 Term Loan and

related exit and early prepayment fees paid in connection with the IPO.

Interest

During its term, the 2024 Term Loan bears interest at a floating per annum rate in an amount equal to the

sum of (i) 7.0% (or 6.0% if the alternative base rate (“ABR”) is in effect) plus (ii) the greater of (x) the

forward-looking term rate based on the Secured Overnight Financing Rate (“SOFR”) for a respective

tenor (or the alternative base rate, if applicable), and (y) 2.0%. The ABR equals the sum of (i) 6.0% plus

(ii) the greater of (1) the Wall Street Journal Prime Rate, plus 0.5%, (2) the Federal Reserve Bank of New

York rate plus 0.5% or (3) CBA Term SOFR for one month tenor plus 1.0%. The Company had the option

to pay interest in-kind at the rate equal to the cash interest rate plus 1.0%.

Debt Issuance Costs and Debt Discount

Debt issuance costs include third-party costs incurred in connection with the original Credit Agreement.

Debt discount includes fees paid to the lender, warrants issued to the lender and the embedded derivative

liability as described below.

Prior to the refinancing of the 2021 Credit Agreement with the 2024 Term Loan (the “2024 Term Loan

Refinancing”), certain prepayment features of the Term Loan, default put option and default interest

adjustment features were determined to be embedded derivatives requiring bifurcation and separate

accounting for at fair value as a single compound derivative. The fair value of the derivative liability was

$2.1 million, as of the issuance date in January 2021, and is remeasured to fair value at each reporting

period. In connection with the 2024 Term Loan Refinancing, the associated current fair value of the

derivative liability of $1.1 million was remeasured at the date of refinancing and was derecognized and

recorded as a debt discount to the 2024 Term Loan. Refer to Note 13 for additional information.

In connection with the conversion of $23.0 million of principal under the 2024 Term Loan to 2025

Convertible Notes under Amendment No.1 to the 2024 Credit Agreement in January 2025, $239,000 of

pro-rata debt discount under the 2024 Term Loan was reclassified as a debt discount under the 2025

Convertible Notes.

The debt issuance costs and debt discount are classified as an offset to the Term Loan on the condensed

consolidated balance sheets, and is accreted over the loan term using the effective interest method.

As of June 30, 2025 and December 31, 2024, the effective interest rate of the 2024 Term Loan was 15.2%

and 16.0%, respectively.

Collateral and Covenants

During its term, the 2024 Term Loan is collateralized by substantially all of the Company’s assets. The

2024 Credit Agreement contains certain customary representations and warranties, covenants, events of

default, termination provisions and affirmative and negative covenants, including, among others,

covenants that limit or restrict the Company’s (and its subsidiaries) ability to incur additional

indebtedness, grant liens, merge or consolidate, make acquisitions, pay dividends or other distributions or

repurchase equity, make investments, dispose of assets and enter into certain transactions with affiliates,

in each case subject to certain exceptions. Events of default include, among others, non-payment of

principal, interest or fees, violation of covenants, inaccuracy of representations and warranties,

bankruptcy and insolvency events, material judgments, cross-defaults to material contracts and events

constituting a change of control. Upon the occurrence of an event of default, the interest rate applicable to

the 2024 Term Loan shall increase by 3.0% per annum and the outstanding principal balance, along with

any accrued interest, shall become immediately due and payable. During its term, the Company is subject

to financial covenants which requires the Company to maintain a $25.0 million minimum liquidity balance

in cash and cash equivalents at all times and minimum net sales for twelve consecutive month periods

ending on the last day of a fiscal quarter, which is not tested as long as the Company maintains minimum

liquidity of at least $60.0 million and there has been no decline in net sales for two-consecutive fiscal

quarters at the end of such fiscal quarter. Under the terms of the 2024 Credit Agreement, the minimum

twelve months trailing net sales covenant increases each quarter and is $70.0 million for the quarter

ended June 30, 2024 up to a minimum net sales amount of $110.0 million for the quarter ended June 30,

2025 and each quarter thereafter. In connection with Amendment No.1 to the 2024 Term Loan in January

2025, the minimum liquidity cash balance covenant under the 2024 Term Loan was reduced to $15.0

million from the previous $25.0 million. Other non-financial covenants are outlined in the 2024 Credit

Agreement.

As of June 30, 2025 and December 31, 2024, the Company was in compliance with the 2024 Term Loan

covenants.

Debt Components

The components of the Term Loan are as follows (in thousands):

	June 30,	December 31,
	2025	2024
Principal value of Term Loan ................................................................	$115,137	$138,137
Accreted exit fee .....................................................................................	993	567
Debt discount ..........................................................................................	(1,892)	(2,095)
Debt issuance costs ...............................................................................	(151)	(178)
Total Term Loan .....................................................................................	$114,087	$136,431

The 2024 Term Loan was classified as long-term on the condensed consolidated balance sheets as of

June 30, 2025 and December 31, 2024.

See Note 18 for information about repayment of the 2024 Term Loan and termination of the 2024 Credit

Agreement.

Convertible Notes

2025 Convertible Notes

In January and March 2025, the Company issued convertible promissory notes to Requisite Holders in

the aggregate amount of $98.3 million, which was comprised of $74.0 million in aggregate principal

amount of notes issued for cash consideration, $1.3 million in aggregate principal amount of notes issued

in lieu of cash compensation to certain employees and $23.0 million in aggregate principal amount of

notes issued from the conversion of principal under the 2024 Term Loan. Net cash proceeds was $72.7

million after deducting $1.2 million of debt issuance costs, of which $83,000 was unpaid as of June 30,

2025.

The 2025 Convertible Notes are due and payable in full 48 months from the issue date. Upon completion

of an IPO transaction, the 2025 Convertible Notes shall automatically convert into shares of the

Company’s common stock at the IPO price per share at the lower of a 20% discount and a valuation cap

of $2.0 billion on a pre-money basis. In the event the Company completes a sale of shares of preferred

stock, the Requisite Holders may elect to convert the outstanding 2025 Convertible Notes into shares of

such series of preferred stock at the same terms. Further, upon a change of control transaction, the

Requisite Holders may elect to convert the outstanding 2025 Convertible Notes into shares of the

Company’s common stock at the lower of a 20% discount to the implied price per share of common stock

in the change of control transaction and a valuation cap of $2.0 billion on a pre-money basis, or receive

payment of all principal and any accrued but unpaid PIK interest.

The 2025 Convertible Notes do not accrue interest for one year following the date of issuance. Following

the one-year anniversary of the issue date and for the remainder of the term, the 2025 Convertible Notes

interest will accrue on an annual basis at the rate of 7.0% per annum (PIK Interest). All PIK Interest

accrued and payable will be paid by capitalizing such interest on an annual basis and adding it to the

outstanding principal amount of the 2025 Convertible Notes.

The 2025 Convertible Notes contain embedded derivative features, including conversion upon a change

in control and automatic conversion upon completion of a qualified IPO, that were required to be

bifurcated and accounted for separately as a single derivative instrument. The issuance date estimated

fair values of the derivative liability was $11.1 million and $20.8 million in January and March 2025,

respectively, which was accounted for as a debt discount. See Note 13 for additional information. The

debt issuance costs and debt discount are classified as an offset to the 2025 Convertible Notes on the

condensed consolidated balance sheets, and are accreted over the loan term using the effective interest

method.

As of June 30, 2025, the aggregate principal balance due under the 2025 Convertible Notes was $98.3

million and was classified as long-term on the condensed consolidated balance sheets. See Note 18 for

additional information.

The components of the 2025 Convertible Notes are as follows (in thousands):

	June 30,
	2025
Principal value of Convertible Notes ............................................................................................	$98,315
Debt discount ..................................................................................................................................	(28,830)
Debt issuance costs .......................................................................................................................	(1,149)
Total Convertible Notes ..................................................................................................................	$68,336