Fair Value of Financial Instruments |
3. | Fair Value of Financial Instruments |
The fair values of the Company’s financial instruments are recorded using a hierarchical disclosure framework based upon the level of subjectivity of the inputs used in measuring assets and liabilities. The three levels are described below: Level 1 - Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. Level 2 - Inputs other than Level 1 that are directly or indirectly observable, such as quoted prices for similar assets or liabilities and quoted prices in less active markets. Level 3 - Inputs are unobservable for the asset or liability and are developed based on the best information available in the circumstances, which might include the Company’s own data. 3. | Fair Value of Financial Instruments (Continued) |
The following summarizes the valuation of the Company’s financial instruments (in thousands). The tables do not include either cash on hand or assets and liabilities that are measured at historical cost or any basis other than fair value. | | | | | | | | | | | | Fair Value Measurements | | | | | | at September 30, 2023 Using | | | | | | Quoted Prices in | | Significant Other | | | | | | Active Markets for | | Observable | | | | | | Identical Assets | | Inputs | | | | Description | | (Level 1) | | (Level 2) | | Total | Cash equivalents: | | | | | | | | | | Money market funds | | $ | 57,144 | | $ | — | | $ | 57,144 | Total cash equivalents | | $ | 57,144 | | $ | — | | $ | 57,144 | | | | | | | | | | | Short-term investments: | | | | | | | | | | Corporate debt securities | | $ | — | | $ | 166,868 | | $ | 166,868 | Government debt securities | | | — | | | 90,289 | | | 90,289 | Total short-term investments | | $ | — | | $ | 257,157 | | $ | 257,157 | | | | | | | | | | | Total | | $ | 57,144 | | $ | 257,157 | | $ | 314,301 |
| | | | | | | | | | | | Fair Value Measurements | | | | | | at December 31, 2022 Using | | | | | | Quoted Prices in | | Significant Other | | | | | | Active Markets for | | Observable | | | | | | Identical Assets | | Inputs | | | | Description | | (Level 1) | | (Level 2) | | Total | Cash equivalents: | | | | | | | | | | Money market funds | | $ | 310,969 | | $ | — | | $ | 310,969 | Corporate debt securities | | | — | | | 3,249 | | | 3,249 | Total cash equivalents | | $ | 310,969 | | $ | 3,249 | | $ | 314,218 | | | | | | | | | | | Short-term investments: | | | | | | | | | | Corporate debt securities | | $ | — | | $ | 501,014 | | $ | 501,014 | Government debt securities | | | — | | | 191,010 | | | 191,010 | Total short-term investments | | $ | — | | $ | 692,024 | | $ | 692,024 | | | | | | | | | | | Total | | $ | 310,969 | | $ | 695,273 | | $ | 1,006,242 |
Valuation methodology The Company’s cash equivalents and short-term investments that are classified as Level 2 are valued using non-binding market consensus prices that are corroborated with observable market data; quoted market prices for similar instruments in active markets; quoted prices in less active markets; or pricing models, such as a discounted cash flow model, with all significant inputs derived from or corroborated with observable market data. The Company’s foreign currency derivative instruments are valued using discounted cash flow models. The assumptions used in preparing the valuation models include foreign exchange rates, forward and spot prices for currencies and market observable data of similar instruments. 3. | Fair Value of Financial Instruments (Continued) |
Contractual maturities of investments The Company’s available-for-sale investments are reported at fair value, with unrealized gains and losses, net of tax, recorded as a component of accumulated other comprehensive loss in the Condensed Consolidated Balance Sheet. The following summarizes the contractual underlying maturities of the Company’s available-for-sale investments at September 30, 2023 (in thousands): | | | | | | | | | | | | Fair | | | Cost | | Value | Due in one year or less | | $ | 195,410 | | $ | 193,040 | Due after one year through five years | | | 64,803 | | | 64,117 | | | $ | 260,213 | | $ | 257,157 |
Unrealized Gains and Losses The available-for-sale investments that were in a continuous unrealized loss position, aggregated by length of time that individual securities have been in a continuous loss position, were as follows (in thousands): | | | | | | | | | | | | | | | | | | | | | Less Than 12 Months | | 12 Months or Greater | | Total | | | | | Gross | | | | Gross | | | | Gross | | | Fair | | Unrealized | | Fair | | Unrealized | | Fair | | Unrealized | As of September 30, 2023 | | Value | | Losses | | Value | | Losses | | Value | | Losses | Corporate debt securities | | $ | 13,876 | | $ | (13) | | $ | 132,920 | | $ | (1,865) | | $ | 146,796 | | $ | (1,878) | Government debt securities | | | 49,597 | | | (341) | | | 37,762 | | | (908) | | | 87,359 | | | (1,249) | | | $ | 63,473 | | $ | (354) | | $ | 170,682 | | $ | (2,773) | | $ | 234,155 | | $ | (3,127) |
| | | | | | | | | | | | | | | | | | | | | Less Than 12 Months | | 12 Months or Greater | | Total | | | | | Gross | | | | Gross | | | | Gross | | | Fair | | Unrealized | | Fair | | Unrealized | | Fair | | Unrealized | As of December 31, 2022 | | Value | | Losses | | Value | | Losses | | Value | | Losses | Corporate debt securities | | $ | 307,085 | | $ | (5,297) | | $ | 185,467 | | $ | (4,090) | | $ | 492,552 | | $ | (9,387) | Government debt securities | | | 76,651 | | | (626) | | | 100,209 | | | (3,541) | | | 176,860 | | | (4,167) | | | $ | 383,736 | | $ | (5,923) | | $ | 285,676 | | $ | (7,631) | | $ | 669,412 | | $ | (13,554) |
The gross unrealized losses as of September 30, 2023 and December 31, 2022 were due primarily to changes in market interest rates. At September 30, 2023 and December 31, 2022, there were no material unrealized gains associated with the Company’s available-for-sale investments. The Company records an allowance for credit loss when a decline in investment market value is due to credit-related factors. When evaluating an investment for impairment, the Company reviews factors such as the severity of the impairment, changes in underlying credit ratings, forecasted recovery, the Company’s intent to sell or the likelihood that it would be required to sell the investment before its anticipated recovery in market value and the probability that the scheduled cash payments will continue to be made. As of September 30, 2023, there were no material declines in the market value of available-for-sale investments due to credit-related factors. 3. | Fair Value of Financial Instruments (Continued) |
Fair values of other financial instruments Prior to its conversion or redemption in June 2023, the Company’s debt was recorded at cost, but measured at fair value for disclosure purposes. The fair value of the Company’s 2025 Notes was determined using observable market prices. The notes were traded in less active markets and were therefore classified as a Level 2 fair value measurement. As of December 31, 2022, the fair value of the 2025 Notes was $671.9 million. No notes were outstanding as of September 30, 2023. The Company’s other financial instruments, including cash, accounts receivable and accounts payable, are recorded at amounts that approximate their fair values due to their short maturities.
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