FAIR VALUE MEASUREMENTS

6 Months Ended

Jun. 30, 2024

NOTE 6. FAIR VALUE MEASUREMENTS

Assets and liabilities measured at fair value on a recurring basis included the following:



(In thousands)	Balance at ‎June 30, ‎2024		Level 1		Level 2		Level 3
Assets:
Cash equivalents	$	243,685	$	243,685	$	—	$	—
Municipal bonds		13,841		—		13,841		—
Corporate debt securities		52,748		—		52,748		—
Asset-backed securities		12,676		—		12,676		—
Government, federal agency, and other sovereign obligations		31,039		—		31,039		—
2025 Hedge		471		—		471		—
Liabilities:
Senior Convertible Notes due 2025		432,159		432,159		—		—
Bifurcated Conversion Option of the Senior Convertible Notes due 2025		471		—		471		—
Business acquisition liabilities		121,332		—		—		121,332



(In thousands)	Balance at ‎December 31, ‎2023		Level 1		Level 2		Level 3
Assets:
Cash equivalents	$	203,689	$	203,689	$	—	$	—
Municipal bonds		18,057		—		18,057		—
Corporate debt securities		58,838		—		58,838		—
Asset-backed securities		17,161		—		17,161		—
Government, federal agency, and other sovereign obligations		31,869		2,928		28,941		—
2025 Hedge		687		—		687		—

Liabilities:
Senior Convertible Notes due 2025		417,363		417,363		—		—
Bifurcated Conversion Option of the Senior Convertible Notes due 2025		687		—		687		—
Business acquisition liabilities		139,358		—		—		139,358

Our marketable securities and certain cash equivalents are classified as Level 2 within the fair value hierarchy, as we measure their fair value using market prices for similar instruments and inputs such as actual trade data, benchmark yields, broker/dealer quotes and other similar data obtained from quoted market prices or independent pricing vendors.

The bifurcated conversion option and 2025 Hedge are classified as Level 2 within the fair value hierarchy, based on implied equity volatility. The estimated fair value of the 2025 Notes, inclusive of the embedded conversion option, at June 30, 2024 was $432.6 million. The fair value was determined based on the quoted price of the 2025 Notes in an active market on the last trading day of the reporting period and has been classified as Level 1 within the fair value hierarchy.

Fair value of the revenue-based business acquisition liabilities was determined using a discounted cash flow model, probability model, and an option pricing methodology. The significant inputs of such models are not observable in the market, such as certain financial metric growth rates, volatility and discount rates, market price risk adjustment, projections associated with the applicable milestone, the interest rate, and the related probabilities and payment structure in the contingent consideration arrangement.

The following are the significant unobservable inputs used in the two valuation techniques:


Unobservable input	Range			Weighted Average*
Revenue risk premium	1.9%	-	5.7%	3.1%
Revenue volatility	14.0%	-	20.0%	15.0%
Discount rate	6.1%	-	8.5%	6.5%
Projected year of payment	2024	-	2032

* The weighted average rates were calculated based on the relative fair value of each business acquisition liability.

The change in the carrying value of the business acquisition liabilities during the three and six months ended June 30, 2024 and 2023, respectively included the following:



	Three Months Ended				Six Months Ended
	June 30,				June 30,
(In thousands)	2024		2023		2024		2023
Beginning balance	$	111,310	$	64,882	$	139,358	$	68,258
Purchase price contingent consideration		1,923		—		21,066		—
Changes resulting from foreign currency fluctuations		3		—		246		—
Contingent cash payments		(4,296)		(2,832)		(50,886)		(5,524)
Contingent RSU grants		(181)		(340)		(517)		(559)
Changes in fair value of business acquisition liabilities		12,898		3,726		12,739		3,280
Contractual payable reclassification		(325)		(84)		(674)		(103)
Ending balance	$	121,332	$	65,352	$	121,332	$	65,352

Purchase price contingent consideration includes obligations acquired in the NuVasive Merger. Changes in the fair value of business acquisition liabilities are driven by changes in market conditions and the achievement of certain performance conditions.

- 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.

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