Fair Value Measurements

12 Months Ended

Dec. 31, 2024

Fair value is defined as the exchange price that would be received for an asset or an exit price paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

The fair value hierarchy defines a three-level valuation hierarchy for disclosure of fair value measurements as follows:

•Level 1 — Observable inputs, such as quoted prices in active markets for identical assets or liabilities.

•Level 2 — Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

•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.

Cash Equivalents and Short Term Investments

The Company’s cash equivalents include investments in money market funds which are unrestricted as to withdrawal or use and are classified as Level 1 of the fair value hierarchy. To value its money market funds, the Company values the funds at $1 stable net asset value, which is the quoted price in active markets for identical assets that the Company has the ability to access. At December 31, 2024 and 2023, the Company’s cash equivalents were held in institutions in the United States. The Company’s cash equivalents and short-term investments also includes agency bonds, commercial paper, corporate notes and treasury bonds, which have been classified within Level 1 or Level 2 of the fair value hierarchy because of the sufficient observable inputs for revaluation. The Company’s Level 2 investments are valued using third-party pricing sources. The pricing services utilize industry standard valuation models, including both income and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include reported trades of any broker/dealer quotes on the same or similar investments, issuer credit spreads, benchmark investments, prepayment/default projections based on historical data and other observable inputs. The following table sets forth the Company’s financial instruments that were measured at fair value on a recurring basis, by level, within the fair value hierarchy (in thousands):


Balance as of December 31, 2024	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents and short-term investments
Money market funds (i)	$	58,046	$	—	$	—	$	58,046
Agency bonds (ii)	$	—	$	18,862	$	—	$	18,862
Commercial paper (ii)	$	—	$	17,293	$	—	$	17,293
Corporate notes (ii)	$	—	$	8,003	$	—	$	8,003
Treasury bonds (ii)	$	153,837	$	—	$	—	$	153,837
Total assets	$	211,883	$	44,158	$	—	$	256,041

Liabilities:
Warrant liability	$	—	$	—	$	853	$	853
Contingent consideration	$	—	$	—	$	5,414	$	5,414
Total liabilities	$	—	$	—	$	6,267	$	6,267


Balance as of December 31, 2023	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents and short-term investments
Money market funds (i)	$	82,886	$	—	$	—	$	82,886
Agency bonds (ii)	—		99,054		—		99,054
Commercial paper (ii)	—		22,374		—		22,374
Corporate notes (ii)	—		3,490		—		3,490
Treasury bonds (ii)	93,588		—		—		93,588
Total assets	$	176,474	$	124,918	$	—	$	301,392

Liabilities:
Warrant liability	$	—	$	—	$	28,739	$	28,739
Contingent consideration	—		—		22,093		22,093
Total liabilities	$	—	$	—	$	50,832	$	50,832

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(i)Included in cash and cash equivalents on the consolidated balance sheets.

(ii)Included in short-term investments on the consolidated balance sheets.

Convertible Senior Notes

As of December 31, 2024 and 2023, the fair value of the 2.75% convertible senior notes due 2025 (the 2025 Notes) was $37.0 million and $35.6 million, respectively. The fair value was determined on the basis of market prices observable for similar instruments and is considered Level 2 in the fair value hierarchy. See Note 8 for additional information regarding the 2025 Notes.

Warrant Liability

In November 2023, the Company entered into a Credit Agreement and Guaranty (the Braidwell Credit Agreement) with Braidwell LP (together with its affiliates, Braidwell). In connection with the Braidwell Credit Agreement, the Company issued warrants (the Braidwell Warrants) to Braidwell to purchase an aggregate of approximately 2.58 million shares of the Company's common stock.

The Braidwell Warrants are valued using the Black Scholes valuation model and are considered Level 3 in the fair value hierarchy. As of December 31, 2024 and 2023, the fair value of the Braidwell Warrants was $0.9 million and $28.7 million, respectively. The significant inputs, including the Company's common stock, expected term, dividend yield and unobservable assumptions for the fair value of the warrant liability consist of the following:


	December 31, 2024	December 31, 2023
Common stock price	$3.72	$21.52
Expected term (in years)	5	6
Expected volatility	53%	53%
Risk-free interest rate	4.04%	3.50%
Dividend Yield	0%	0%

A significant change in one or more of these inputs used in the calculation of the fair value may cause a significant change to the fair value of the Company’s warrant liabilities, which could also result in material non-cash gains or losses being reported in the Company’s consolidated statement of operations.

Contingent Consideration

In connection with the Company's acquisition of Interventional Pain Technologies, Inc. (Vyrsa) in the fourth quarter of 2023, the Company is subject to certain contingent consideration. Changes in the fair value of the contingent consideration liability for the year ended December 31, 2024 were as follows (in thousands):


Balance as of December 31, 2022	$	—
Addition of contingent consideration	22,093
Balance as of December 31, 2023	$	22,093
Change in fair value of contingent consideration	(6,679)
Contingent consideration payments	(10,000)
Balance as of December 31, 2024	$	5,414

The regulatory approval milestone and product development milestone consideration are valued using the probability-weighted average discount cash flow model, and the revenue milestone consideration is valued using the Monte Carlo simulation model. As of December 31, 2024, the fair value of the contingent consideration related to the product development and revenue milestones were $1.8 million and $3.6 million, respectively. As of December 31, 2023, the fair value of the contingent consideration related to the regulatory approval, product development and revenue milestone was $5.0 million, $1.7 million and $15.5 million, respectively. The contingent consideration is considered Level 3 in the fair value hierarchy.

Significant unobservable inputs for the contingent consideration are as follows:

Contingent Liability

Fair Value at
December 31, 2024

Valuation Technique

Unobservable Input

Range

Product Development

$1,781

Probability-Weighted

Probability of Payment

75%

Milestone

Average Discount

Risk-Free Rate

4.3%

Cash Flow

Credit Spread

6.8%

Projected Year of Payment

2025

Revenue Milestone

$3,633

Monte Carlo Simulation

Discount Rate

11.0% — 11.1%

Revenue Volatility

13.0%

Projected Year of Payment

2026 — 2027

Contingent Liability

Fair Value at
December 31, 2023

Valuation Technique

Unobservable Input

Range

Regulatory Approval

$4,964

Probability-Weighted

Probability of Payment

80%

Milestone

Average Discount

Risk-Free Rate

5.2% — 5.3%

Cash Flow

Credit Spread

4.3%

Projected Year of Payment

2024

Product Development

$1,677

Probability-Weighted

Probability of Payment

50%

Milestone

Average Discount

Risk-Free Rate

4.9% — 5.1%

Cash Flow

Credit Spread

4.3%

Projected Year of Payment

2024 — 2025

Revenue Milestone

$15,452

Monte Carlo Simulation

Discount Rate

8.7% — 9.3%

Revenue Volatility

17.0%

Projected Year of Payment

2025 — 2027

Investment in Privately-Held Company

In July 2023, the Company entered into an agreement with a privately-held company to provide financing and issued an initial $1.0 million convertible note. In September 2023, the Company issued a second convertible note of $0.9 million. The Company elected the fair value option to account for the second $0.9 million convertible note and is considered to be Level 3. As of December 31, 2024, the fair value of the secured convertible notes is $1.4 million and is reported in Other assets on the consolidated balance sheet and the adjustment to the fair value of $0.3 million was reported in Research and development expense on the consolidated statements of operations. See Note 7 for additional information regarding the Investment in Privately-Held Company.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References

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+ Details

NEVRO CORP 10-K