Heartflow, Inc. Fair Value Disclosure
The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands):
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| December 31, 2025 | ||||||||||
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
Assets |
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Money market funds, included in cash equivalents | $ | 27,806 |
| $ | — |
| $ | — |
| $ | 27,806 |
Money market funds, included in restricted cash, non-current |
| 4,709 |
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| — |
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| — |
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| 4,709 |
U.S. government securities |
| — |
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| 81,479 |
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| — |
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| 81,479 |
U.S. treasury bills |
| — |
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| 39,593 |
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| 39,593 |
Corporate bonds/notes |
| — |
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| 57,571 |
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| — |
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| 57,571 |
Agency bonds/notes |
| — |
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| 25,151 |
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| — |
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| 25,151 |
Asset-backed securities |
| — |
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| 21,711 |
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| — |
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| 21,711 |
Commercial paper |
| — |
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| 9,870 |
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| — |
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| 9,870 |
Total | $ | 32,515 |
| $ | 235,375 |
| $ | — |
| $ | 267,890 |
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| December 31, 2024 | ||||||||||
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
Assets |
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Money market funds, included in cash equivalents | $ | 36,882 |
| $ | — |
| $ | — |
| $ | 36,882 |
Total | $ | 36,882 |
| $ | — |
| $ | — |
| $ | 36,882 |
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Liabilities |
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Common stock warrant liability | $ | — |
| $ | — |
| $ | 20,835 |
| $ | 20,835 |
Total | $ | — |
| $ | — |
| $ | 20,835 |
| $ | 20,835 |
The following tables present a reconciliation of the Company’s financial liabilities measured at fair value as of December 31, 2025, 2024 and 2023 using significant unobservable inputs (Level 3) and the change in fair value (in thousands):
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| 2022 Convertible Notes | |
Fair value as of January 1, 2023 | $ | 56,066 |
Change in fair value |
| 5,120 |
Derecognition of convertible notes upon conversion into redeemable convertible preferred stock |
| (61,186) |
Fair value as of December 31, 2023 | $ |
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The 2022 Convertible Notes, which are not regularly traded, are classified as Level 3, since their values cannot be determined by using readily observable inputs or measures, such as market prices (see Note 9). The fair value of the 2022 Convertible Notes was estimated as the sum of its components (conversion features and the debt component) as of the issuance dates and as of the subsequent balance sheet dates. To value each of the conversion features, a “with and without” methodology was employed. The debt component was valued using a discounted cash flow method that measured the net present value of the principal and interest payments to be received by the holders of the 2022 Convertible Notes (excluding the conversion features) through the estimated maturity date.
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| Common Stock Warrant Liability | |
Fair value as of January 1, 2023 | $ | 2,120 |
Change in fair value |
| 2,320 |
Fair value as of December 31, 2023 |
| 4,440 |
Change in fair value |
| 16,395 |
Fair value as of December 31, 2024 |
| 20,835 |
Change in fair value |
| 43,894 |
Reclassification to common stock upon net exercise |
| (64,729) |
Fair value as of December 31, 2025 | $ |
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In determining the fair value of the common stock warrant liability, the Company used the Black-Scholes option pricing model to estimate the fair value using unobservable inputs including the expected term, expected volatility, risk-free interest rate and dividend yield (see Note 12).
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| Term Loan Derivative Liability | |
Fair value as of January 1, 2023 | $ | 5,061 |
Change in fair value |
| (4,158) |
Fair value as of December 31, 2023 | $ | 903 |
Change in fair value |
| 222 |
Derecognition in connection with debt refinancing |
| (1,125) |
Fair value as of December 31, 2024 | $ |
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In determining the fair value of the term loan derivative liability, a two-step valuation approach was employed, which included a probability-weighted scenario valuation method, the Black-Scholes-Merton method, and the option pricing method, using unobservable inputs (see Note 13), which are classified as Level 3 within the fair value hierarchy, and then comparing the instrument’s value with and without the derivative features to estimate their combined fair value. The debt instrument is carried at amortized cost, which approximates its fair value.
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| Convertible Notes Derivative Liability | |
Fair value as of January 1, 2025 | $ |
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Recognition of derivative liability related to Convertible Notes |
| 31,900 |
Change in fair value |
| (7,311) |
Derecognition upon conversion into common stock upon IPO |
| (24,589) |
Fair value as of December 31, 2025 | $ |
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In determining the fair value of the convertible notes derivative liability, a two-step valuation approach was employed, which included a probability-weighted scenario valuation method, the Monte Carlo Simulation method, and the option pricing method, using unobservable inputs (see Note 13), which are classified as Level 3 within the
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.