Derivative Liability

9 Months Ended

Sep. 30, 2025

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Liability

Derivative Liability

Term Loan

Prior to the 2024 Term Loan Refinancing in June 2024, the Term Loan contained certain prepayment

features, default put option and default interest adjustment features that were determined to be

embedded derivatives requiring bifurcation and separate accounting as a single compound derivative, as

discussed in Note 8. The fair value of the derivative liability was recorded at the issuance date as debt

discounts and reductions to the carrying value of long-term debt on the condensed consolidated balance

sheets. The derivative liability is remeasured to fair value at each reporting period, and the related

changes in fair value are recorded on the condensed consolidated statements of operations and

comprehensive loss. Through the time of the 2024 Term Loan Refinancing in June 2024, the Company

continued to adjust the derivative liability for changes in fair value of the Term Loan.

Estimating fair values of the derivative liability requires the development of significant and subjective

estimates that may, and are likely to, change over the duration of the instrument with related changes in

internal and external market factors. Since the derivative financial instrument is initially and subsequently

carried at fair value, the Company’s income will reflect the volatility in these estimate and assumption

changes.

The derivative liability was remeasured to fair value as of June 14, 2024, resulting in a loss of $222,000

within the condensed consolidated statements of operations and comprehensive loss. In connection with

the 2024 Term Loan Refinancing on June 14, 2024, the associated current fair value of the derivative

liability of $1.1 million as remeasured at the date of refinancing was derecognized and recorded as a debt

discount to the 2024 Term Loan.

The fair value of the derivative liability was estimated using a scenario-based analysis comparing the

probability-weighted present value of the Term Loan payoff at maturity with and without the bifurcated

features. The Company used both the Black-Scholes-Merton and option pricing method to estimate the

fair value of the derivative liability because it believes these techniques are reflective of all significant

assumption types and ranges of assumption inputs that market participants would likely consider in

transactions involving compound embedded derivatives. The option pricing method was employed as part

of a back-solve analysis to the Company’s Series F Preferred round of financing. The Company’s

assumptions used in determining the fair value of the derivative liability is as follows:

	June 14,
	2024
Debt yield .....................................................................................................................................	18.5%
Probability of business combination or IPO (with feature) ...................................................	80.0%
Event date of business combination or IPO (with feature) ...................................................	6/30/2025
Probability of Default ..................................................................................................................	5.0%
Event date of Default .................................................................................................................	9/30/2025
Probability to incur new debt ....................................................................................................	0.0%
Event date to incur new debt ....................................................................................................	n/a
Probability of change of control ................................................................................................	10.0%
Event date of change of control ...............................................................................................	6/30/2025
Event date (without feature) ......................................................................................................	1/19/2026

Debt yield — Discount rate that reconciles the total fair value of the Warrants and 2021 Credit Agreement

with the transaction value. Debt yield reflects a change in the credit benchmark for a “CCC” rated

obligation.

2025 Convertible Notes

The 2025 Convertible Notes were determined to contain certain settlement features and conversion put

options which require bifurcation and separate accounting as a single compound embedded derivative, as

discussed in Note 9. The fair value of the derivative liability was recorded at the issuance dates as a debt

discount and reduction to the carrying value of the 2025 Convertible Notes on the condensed

consolidated balance sheets. The derivative liability is remeasured to fair value at each reporting period

and the related changes in fair value are recorded on the condensed consolidated statements of

operations and comprehensive loss.

The fair value of the derivative liability was estimated using a scenario-based analysis comparing the

probability-weighted present value of the 2025 Convertible Notes with and without the bifurcated features.

The Company used the Monte Carlo Simulation method to estimate the fair value of the derivative liability

because it believes this technique is reflective of all significant assumption types and ranges of

assumption inputs that market participants would likely consider in transactions involving compound

embedded derivatives. The option pricing method was employed as part of a back-solve analysis for

scenarios in which the Company was expected to raise another financing round. The Company also

employed a waterfall analysis that allocated certain exit proceeds to its outstanding share classes for

scenarios in which the Company was assumed to exit via change of control or IPO. The Company’s

assumptions used in determining the issuance date fair value of the derivative liability is as follows:

	January 31,	March 26,
	2025	2025
Debt yield .................................................................................................................	7.0%	7.0%
Probability of IPO ....................................................................................................	60.0%	75.0%
Event date of IPO ....................................................................................................	5/5/2025	5/9/2025
Probability of change of control ............................................................................	20.0%	10.0%
Event date of change of control ............................................................................	1/31/2026	3/26/2026
Discount rate ............................................................................................................	31.3%	63.7%

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 were recorded as debt discounts. The derivative liability was

remeasured to fair value at the end of each reporting period and through the date of its conversion to

common stock upon the Company’s IPO, resulting in a gain of $4.8 million and $7.3 million for the three

and nine months ended September 30, 2025, respectively, within the condensed consolidated statements

of operations and comprehensive loss. The aggregate estimated fair value of the derivative liability at the

time of conversion was $24.6 million, based on the 20% discount from the IPO price, which was

reclassified to additional paid-in capital.