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Fair Value of Financial Instruments

12 Months Ended

Dec. 31, 2023

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. For certain of the Company’s financial instruments, including certain cash equivalents, accounts receivable, accounts payable and accrued liabilities, the carrying amounts approximate their fair values due to the relatively short maturity of these balances.

The Company measures and reports certain cash equivalents, marketable securities, derivative foreign currency forward contracts at fair value in accordance with the provisions of the authoritative accounting guidance that addresses fair value measurements. This guidance establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. The hierarchy is broken down into three levels based on the reliability of inputs as follows:

Level 1 - Valuations based on quoted prices in active markets for identical assets or liabilities.

Level 2 - Valuations based on other than quoted prices in active markets for identical assets and liabilities, including quoted prices for identical assets or liabilities in less active or inactive markets, quoted prices for similar assets or liabilities in active markets, or inputs other than quoted prices that are observable for substantially the full term of the assets or liabilities.

Level 3 - Valuations based on inputs that are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability.

The Company's financial instruments consist of assets and liabilities measured using Level 1 and 2 inputs. Level 1 assets include a highly liquid money market fund, which is valued using unadjusted quoted prices that are available in an active market for an identical asset. Level 2 assets include fixed-income U.S. Treasury and government agency securities, commercial paper, corporate bonds, asset-backed securities, foreign government securities and derivative financial instruments consisting of foreign currency forward contracts. The securities, bonds and commercial paper are valued using prices from independent pricing services based on quoted prices of identical instruments in less active or inactive markets, quoted prices of similar instruments in active markets, or industry models using data inputs such as interest rates and prices that can be directly observed or corroborated in active markets. The foreign currency forward contracts are valued using observable inputs, such as quotations on forward foreign exchange points and foreign interest rates.

The following table sets forth by level within the fair value hierarchy the fair value of the Company's financial assets and liabilities measured at fair value on a recurring basis:


	December 31, 2023
	Level 1		Level 2		Fair Value

	(in thousands)
Money market funds	$	87	$	—	$	87
Commercial paper	—		54,279		54,279
U.S. Treasury and government agencies	—		208,536		208,536

Corporate bonds	—		56,465		56,465
Asset-backed securities	—		13,881		13,881
Foreign currency forward contracts	—		111		111
Total assets	$	87	$	333,272	$	333,359
Foreign currency forward contracts	$	—	$	1,986	$	1,986
Total liabilities	$	—	$	1,986	$	1,986


	December 31, 2022
	Level 1		Level 2		Fair Value

	(in thousands)
Money market funds	$	82,701	$	—	$	82,701

U.S. Treasury and government agencies	—		156,662		156,662
Foreign government	—		1,006		1,006
Corporate bonds	—		63,910		63,910
Asset-backed securities	—		15,027		15,027
Foreign currency forward contracts	—		1,493		1,493
Total assets	$	82,701	$	238,098	$	320,799
Foreign currency forward contracts	$	—	$	4,679	$	4,679
Total liabilities	$	—	$	4,679	$	4,679

There were no transfers between Level 1, Level 2 and Level 3 categories during the years ended December 31, 2023 and 2022.

Cash equivalent and investments

The Company's cash equivalents and marketable securities consist of the following:


	December 31, 2023
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value

	(in thousands)
Cash equivalents: (1)
Money market funds	$	87	$	—	$	—	$	87

U.S. Treasury and government agencies	54,620		4		—		54,624
Total	54,707		4		—		54,711
Short-term marketable securities:
Commercial paper	54,254		32		(7)		54,279
Corporate bonds	23,013		1		(149)		22,865

U.S. Treasury and government agencies	144,901		52		(204)		144,749

Total	222,168		85		(360)		221,893
Long-term marketable securities:
Corporate bonds	33,337		285		(22)		33,600
Asset-backed securities	13,785		102		(6)		13,881
U.S. Treasury and government agencies	9,116		49		(2)		9,163
Total	56,238		436		(30)		56,644
Total	$	333,113	$	525	$	(390)	$	333,248

(1)Excludes cash of $149.0 million.


	December 31, 2022
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value

	(in thousands)
Cash equivalents: (1)
Money market funds	$	82,701	$	—	$	—	$	82,701
U.S. Treasury and government agencies	29,787		4		—		29,791
Total	112,488		4		—		112,492
Short-term marketable securities:

Corporate bonds	36,908		3		(337)		36,574
Asset-backed securities	726		—		(2)		724
U.S. Treasury and government agencies	110,225		—		(921)		109,304
Foreign government	1,008		—		(2)		1,006
Total	148,867		3		(1,262)		147,608
Long-term marketable securities:
Corporate bonds	28,146		—		(810)		27,336
Asset-backed securities	14,435		—		(132)		14,303
U.S. Treasury and government agencies	18,076		—		(509)		17,567

Total	60,657		—		(1,451)		59,206
Total	$	322,012	$	7	$	(2,713)	$	319,306

(1)Excludes cash of $61.2 million.

The following table summarizes the gross unrealized losses and fair value of the Company's marketable securities that were in an unrealized loss position aggregated by length of time:


	December 31, 2023
	Less than 12 months				12 months or longer				Total
	Fair value		Gross unrealized losses		Fair value		Gross unrealized losses		Fair value		Gross unrealized losses
	(in thousands)
Commercial paper	$	24,838	$	(7)	$	—	$	—	$	24,838	$	(7)

Asset-backed securities	—		—		1,485		(6)		1,485		(6)
Corporate bonds	—		—		20,717		(171)		20,717		(171)
U.S. Treasury and government agencies	43,373		(18)		18,172		(188)		61,545		(206)
Total	$	68,211	$	(25)	$	40,374	$	(365)	$	108,585	$	(390)


	December 31, 2022
	Less than 12 months				12 months or longer				Total
	Fair value		Gross unrealized losses		Fair value		Gross unrealized losses		Fair value		Gross unrealized losses
	(in thousands)
Foreign government agencies	$	998	$	(2)	$	—	$	—	$	998	$	(2)
Asset-backed securities	13,365		(124)		1,652		(10)		15,017		(134)
Corporate bonds	33,800		(389)		26,326		(758)		60,126		(1,147)
U.S. Treasury and government agencies	89,802		(1,175)		36,833		(255)		126,635		(1,430)
Total	$	137,965	$	(1,690)	$	64,811	$	(1,023)	$	202,776	$	(2,713)

The Company considered the extent to which any unrealized losses on its marketable securities were driven by credit risk and other factors, including market risk, and if it is more-likely-than-not that the Company would have to sell the security before the recovery of the amortized cost basis. At December 31, 2023 and 2022, the unrealized losses related to its marketable securities were due to rising market interest rates compared to when the investments were initiated. The Company does not believe the unrealized losses represent credit risk, and the Company does not intend to sell any of the securities in an unrealized loss position and it is not likely that the Company would be required to sell these securities before recovery of their amortized cost basis, which may be at maturity. Thus, no credit loss was recognized for the Company's marketable securities for the years ended December 31, 2023 and 2022.

The following summarizes the fair value of marketable securities by contractual maturity:


	December 31, 2023
	Amortized Cost		Fair Value

	(in thousands)
Due within One Year	$	276,875	$	276,604
Due after One Year through Two Years	27,814		27,982
Mature over Two Years	14,639		14,781
Asset-backed securities	13,785		13,881
Total	$	333,113	$	333,248

Derivative Financial Instruments

Designated cash flow hedges

The Company enters into foreign currency forward contracts to reduce the risk of variability in future cash flow due to foreign currency exchange rate fluctuation from certain forecasted subscription revenue orders billed in GBP and EUR and operation expenses incurred in INR, which are designated as cash flow hedges. Hedge effectiveness is assessed at inception and at each reporting period utilizing regression analysis. Unrealized foreign exchange gains or losses related to those designated cash flow hedge contracts are recorded in accumulated other comprehensive income ("AOCI") and will be reclassified into revenues or operating expenses, respectively, in the same periods when the hedged transactions are recognized in earnings.

As of December 31, 2023, the Company had designated cash flow hedge forward contracts with notional amounts of €48.5 million, £14.6 million and Rs.4,042.0 million. As of December 31, 2022, the Company had designated cash flow hedge forward contracts with notional amounts of €37.4 million, £10.4 million and Rs.3,411.0 million.

As of December 31, 2023, a net amount of unrealized loss of $1.5 million before tax on the foreign currency forward contracts for GBP and EUR reported in AOCI is expected to be reclassified into revenue within the next 12 months. As of December 31, 2023, an immaterial amount of unrealized loss before tax on the foreign currency forward contracts for INR reported in AOCI is expected to be reclassified into operating expenses within the next 12 months.

Non-designated forward contracts

The Company also uses foreign currency forward contracts to hedge certain foreign currency denominated assets or liabilities, which are not designated as cash flow hedges. Unrealized foreign exchange gain or losses related to the non-designated forward contracts are recorded in other income (expenses), net and offset the foreign exchange gain or loss on the underlying net monetary assets or liabilities.

As of December 31, 2023, the Company had non-designated forward contracts with notional amounts of €19.2 million, £6.0 million, Rs.440.0 million, and C$1.0 million. As of December 31, 2022, the Company had non-designated forward contracts with notional amounts of €40.2 million, £16.2 million, Rs.484.0 million, and C$3.8 million.

The following summarizes the fair value of derivative financial instruments as of December 31, 2023 and 2022:


	December 31,
	2023		2022

	(in thousands)
Assets
Foreign currency forward contracts designated as cash flow hedge	$	63	$	1,041
Foreign currency forward contracts not designated as hedging instruments	48		452
Total	$	111	$	1,493
Liabilities
Foreign currency forward contracts designated as cash flow hedge	$	1,502	$	2,634
Foreign currency forward contracts not designated as hedging instruments	484		2,045
Total	$	1,986	$	4,679

The Company presents its derivative assets and derivative liabilities at gross fair values in the consolidated balance sheets. However, under the master netting agreements with the respective counterparties of the foreign exchange contracts, subject to applicable requirements, the Company is allowed to net settle transactions of the same currency with a single net amount payable by one party to the other. The potential offset to both assets and liabilities under the right of set-off associated with the Company's foreign currency exchange contracts are immaterial as of December 31, 2023 and 2022. The derivatives held by the Company are not subject to any credit contingent features negotiated with its counterparties. The Company is not required to pledge nor is entitled to receive cash collateral related to the above contracts. The counterparties to these derivatives are large, global financial institutions that the Company believes are creditworthy, and therefore, it does not consider the risk of counterparty nonperformance to be material.

The following summarizes the gains (losses) recognized from forward contracts and other foreign currency transactions in other income (expense), net in the consolidated statements of operations:


	Year Ended December 31,
	2023		2022		2021

	(in thousands)
Net (losses) gains from non-designated forward contracts	$	(198)	$	5,093	$	2,452
Other foreign currency transactions losses	(499)		(6,864)		(2,749)
Total foreign exchange losses, net	$	(697)	$	(1,771)	$	(297)

- 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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