ESTABLISHMENT LABS HOLDINGS INC.ESTA
ESTABLISHMENT LABS HOLDINGS INC. Fair Value Disclosure
Fair Value Measurements
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 I Unadjusted quoted prices in active markets for identical assets or liabilities;
•Level II Inputs other than quoted prices included within Level I that are observable, unadjusted 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 related assets or liabilities; and
•Level III Unobservable inputs that are supported by little or no market activity for the related assets or liabilities.
The categorization of a financial instrument within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
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 at December 31, 2025 and 2024:
Fair Value Measurements at December 31, 2025 | |||||||||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Liabilities | |||||||||||||||||||||||
| Acquisition-related contingent consideration | $ | 4,474 | — | — | $ | 4,474 | |||||||||||||||||
Fair Value Measurements at December 31, 2024 | |||||||||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Liabilities | |||||||||||||||||||||||
| Acquisition-related contingent consideration | $ | 973 | — | — | $ | 973 | |||||||||||||||||
The fair value measurement of contingent consideration related to the business acquisition completed in fiscal 2024 represents the contingent consideration arrangement from the Company’s acquisition of Motiva Benelux BV, a distribution company in Belgium, and Motiva NL B.V., a distribution company in the Netherlands, on October 1, 2024. Under this contingent consideration arrangement, the Company is required to pay the former owners an amount equal to the total revenue for fiscal year 2024 and 2025 multiplied by a multiple based on the relevant revenue growth rate realized in that particular fiscal year versus the prior year (ratio ranges from 0.5 to 0.9). The potential undiscounted amount of all future contingent payments that the Company could be required to make is not capped.
The fair value of the contingent consideration arrangement of $4.5 million as of December 31, 2025 was calculated using these inputs: (a) 2025 actual revenue of approximately $9.5 million; (b) growth ratio of 0.9 based on average revenue growth over the last two years; and (c) the fact that operating expense targets were met. The Company retains the option to settle the outstanding liability either in cash or in the Company’s common shares.
The fair value of the contingent consideration arrangement of $1.0 million as of December 31, 2024 was estimated by applying the income approach which used significant inputs that are not observable in the market and thus represents a Level 3 measurement. Key assumptions included (a) a discount rate of 12.5 percent; (b) 2024 revenue of approximately $6.0 million (actual, assumed to be reliably forecasted as of the date of valuation); (c) 2025 revenue forecasted using a normal distribution with approximately $6.4 million as the base case and a range determined based on volatility of 10%; and (d) an assumption that operating expense targets will be met. The Company settled the outstanding liability in early fiscal 2025. See Note 11 for additional information on the business acquisition.
The estimates are based, in part, on subjective assumptions and could differ materially in the future. During the periods presented, the Company has not changed the manner in which it values liabilities that are measured at fair value using Level 3 inputs. The Company recognizes transfers between levels of the fair value hierarchy as of the end of the reporting period. There were no transfers within the hierarchy during the years ended December 31, 2025 and 2024.
The following table sets forth a summary of the changes in the fair value of the Company’s Level 3 financial instruments as follows:
Acquisition-related Contingent Consideration | ||||||||
(in thousands) | ||||||||
Balance at December 31, 2024 | $ | 973 | ||||||
| Settlement | (787) | |||||||
Additional liability | 4,277 | |||||||
Change in fair value | 11 | |||||||
Balance at December 31, 2025 | $ | 4,474 | ||||||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 27, 2026 | Showing above |
| 2024 | Feb 28, 2025 | |
| 2022 | Mar 1, 2023 | |
| 2021 | Mar 1, 2022 | |
| 2020 | Mar 15, 2021 | |
| 2019 | Mar 16, 2020 | |
| 2018 | Mar 20, 2019 | |
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.