Fair Value Measurements
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The Company measures and reports certain financial instruments as assets and liabilities at fair value on a recurring basis. The fair value of these instruments was as follows:
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| As of December 31, 2025 |
| Fair Value | | Level 1 | | Level 2 | | Level 3 |
| | | | | | | |
| | | | | | | |
| Liabilities | | | | | | | |
| Contingent royalty obligation payable to Evolus Founders | $ | 32,182 | | | $ | — | | | $ | — | | | $ | 32,182 | |
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| As of December 31, 2024 |
| Fair Value | | Level 1 | | Level 2 | | Level 3 |
| Liabilities | | | | | | | |
| Contingent royalty obligation payable to Evolus Founders | $ | 44,765 | | | $ | — | | | $ | — | | | $ | 44,765 | |
There were no transfers between Level 1, Level 2, and Level 3 of the fair value hierarchy for assets or liabilities measured at fair value on a recurring basis during the year ended December 31, 2025 or 2024.
The Company determines the fair value of the contingent royalty obligation payable to Evolus Founders based on Level 3 inputs using a discounted cash flows method in which cash flows anticipated over the term of the contract are discounted to their present value using an expected discount rate. The significant unobservable input assumptions that can significantly change the fair value include (i) projected amount and timing of Jeuveau® net revenues during the payment period, which terminate at the end of the second quarter of 2029, (ii) the discount rate, and (iii) the timing of payments. As of December 31, 2025 and 2024, the Company utilized a discount rate of 13% and 14%, respectively, reflecting changes in the Company’s market risk premium. Net revenue projections are also updated to reflect changes in the timing of expected sales. Generally, increases (decreases) to the projected net revenues are accompanied by a directionally similar change to the estimated fair value of the contingent royalty obligation, while significant increases (decreases) in the discount rate would result in a significantly lower (higher) fair value measurement, which could materially impact the fair value reported in the consolidated financial statements.
The following table provides a reconciliation of the beginning and ending fair value measurement of the contingent royalty obligation payable, which used significant unobservable inputs (Level 3):
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| Year Ended December 31, |
| 2025 | | 2024 | | 2023 |
| Fair value, beginning of period | $ | 44,765 | | | $ | 45,030 | | | $ | 46,310 | |
| Payments | (6,202) | | | (7,441) | | | (5,537) | |
| Change in fair value recorded in operating expenses | (6,381) | | | 7,176 | | | 4,257 | |
| Fair value, end of period | $ | 32,182 | | | $ | 44,765 | | | $ | 45,030 | |
Other Financial Assets and Liabilities
The Company’s financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, lease liabilities, and long-term debt. The carrying amount of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximates their fair value because of the short-term maturity of such instruments.
The Company estimates the fair value of long-term debt and operating lease liabilities using the discounted cash flow analysis based on the interest rates of similar rated debt securities (Level 2). As of December 31, 2025 and 2024, the fair value of long-term debt was $148,828 and $132,078, respectively. The fair value of operating lease liabilities as of December 31, 2025 and 2024 approximated its carrying value.