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Note 2 - Fair Value of Financial Instruments

9 Months Ended

Sep. 30, 2022

Notes to Financial Statements

Fair Value Disclosures [Text Block]

NOTE 2.

Fair Value of Financial Instruments

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

		*September 30, 2022*
						*Unrealized*				*Unrealized*
		*Amortized Cost*				*Gains*				*Losses*				*Fair Value*
		(in thousands)
Cash and cash equivalents:
Cash		$	46,591			$	—			$	—			$	46,591
Money market funds			147,311				—				—				147,311
Total			193,902				—				—				193,902
Short-term marketable securities:
Corporate bonds			33,249				4				(352	)			32,901
U.S. Treasury and government agencies			159,056				—				(1,576	)			157,480
Foreign government			1,003				—				(6	)			997
Total			193,308				4				(1,934	)			191,378
Long-term marketable securities:
Corporate bonds			35,440				—				(1,122	)			34,318
Asset-backed securities			19,389				—				(188	)			19,201
U.S. Treasury and government agencies			17,977				—				(499	)			17,478
Total			72,806				—				(1,809	)			70,997
Total		$	460,016			$	4			$	(3,743	)		$	456,277

		*December 31, 2021*
						*Unrealized*				*Unrealized*
		*Amortized Cost*				*Gains*				*Losses*				*Fair Value*
		(in thousands)
Cash and cash equivalents:
Cash		$	61,220			$	—			$	—			$	61,220
Money market funds			75,258				—				—				75,258
Commercial paper			850				—				—				850
Total			137,328				—				—				137,328
Short-term marketable securities:(1)
Commercial paper			18,046				—				—				18,046
Corporate bonds			28,869				101				(7	)			28,963
Asset-backed securities			3,952				—				—				3,952
U.S. Treasury and government agencies			217,160				2				(163	)			216,999
Total			268,027				103				(170	)			267,960
Long-term marketable securities:
Corporate bonds			57,762				160				(182	)			57,740
Asset-backed securities			14,941				6				(36	)			14,911
U.S. Treasury and government agencies			37,664				—				(136	)			37,528
Foreign government			1,007				12				—				1,019
Total			111,374				178				(354	)			111,198
Total		$	516,729			$	281			$	(524	)		$	516,486

(1) Revised for correction of classification of amounts and security types disclosed in Note 2 to the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

As of September 30, 2022 the total unrealized loss from marketable securities that had been in a continuous unrealized loss position for 12 months or longer was $573 thousand. The Company had the ability and intent to hold all marketable securities that were in an unrealized loss position until recovery of the amortized cost basis. The Company considered the extent to which fair value was less than amortized cost basis and conditions related to security’s industry and geography and changes to the ratings, if any, and concluded the decline in fair value compared to carrying value was not related to credit loss. As of December 31, 2021, there were no marketable securities that had been in a continuous unrealized loss position for 12 months or longer.

The following table sets forth by level within the fair value hierarchy the fair value of the Company's cash equivalents and marketable securities measured on a recurring basis:

		*September 30, 2022*
		*Level 1*				*Level 2*				*Fair Value*
		(in thousands)
Money market funds		$	147,311			$	—			$	147,311
Corporate bonds			—				67,219				67,219
Asset-backed securities			—				19,201				19,201
U.S. Treasury and government agencies			—				174,958				174,958
Foreign government			—				997				997
Total		$	147,311			$	262,375			$	409,686

		*December 31, 2021*
		*Level 1*				*Level 2*				*Fair Value*
		(in thousands)
Money market funds		$	75,258			$	—			$	75,258
Commercial paper			—				18,896				18,896
Corporate bonds			—				86,703				86,703
Asset-backed securities			—				18,863				18,863
U.S. Treasury and government agencies			—				254,527				254,527
Foreign government			—				1,019				1,019
Total		$	75,258			$	380,008			$	455,266

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

		*September 30, 2022*
		*Mature within*				*Mature after One Year*				*Mature over*
		*One Year*				*through Two Years*				*Two Years*				*Fair Value*
		(in thousands)
Corporate bonds		$	32,901			$	31,706			$	2,612			$	67,219
Asset-backed securities			—				9,799				9,402				19,201
U.S. Treasury and government agencies			157,480				17,478				—				174,958
Foreign government			997				—				—				997
Total		$	191,378			$	58,983			$	12,014			$	262,375

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 fluctuations from certain forecasted subscription revenue orders billed in British Pound ("GBP") and Euro and operating expenses incurred in Indian Rupee ("INR"), which are designated as cash flow hedges. 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 September 30, 2022, the Company had designated cash flow hedge forward contracts with notional amounts of €31.0 million, £9.6 million and Rs.3,289.0 million. As of December 31, 2021, the Company had designated cash flow hedge forward contracts with notional amounts of €29.8 million, £9.4 million and Rs.2,955.3 million. As of September 30, 2022, a net amount of unrealized gain of $5.3 million before tax on the foreign currency forward contracts for GBP and Euro reported in AOCI is expected to be reclassified into revenue within the next 12 months. As of September 30, 2022, the net amount of unrealized loss on the foreign currency forward contracts for INR reported in AOCI of $1.9 million is expected to be reclassified into operating expense 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.

As of September 30, 2022, the Company had non-designated forward contracts with notional amounts of €26.0 million, £13.1 million and Rs.205.0 million. As of December 31, 2021, the Company had non-designated forward contracts with notional amounts of €34.5 million, £11.6 million, Rs.74.9 million, C$2.5 million and CHF1.0 million.

The following summarizes derivative financial instruments as of September 30, 2022 and December 31, 2021:

		*September 30,*				*December 31,*
		*2022*				*2021*
Assets		*(in thousands)*
Foreign currency forward contracts designated as cash flow hedge		$	4,898			$	1,737
Foreign currency forward contracts not designated as hedging instruments			8,276				1,599
Total		$	13,174			$	3,336
Liabilities
Foreign currency forward contracts designated as cash flow hedge		$	(1,942	)		$	(181	)
Foreign currency forward contracts not designated as hedging instruments			(1,067	)			(207	)
Total		$	(3,009	)		$	(388	)

All foreign currency forward contracts were valued at fair value using Level 2 inputs.

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

		*Three Months Ended*								*Nine Months Ended*
		*September 30,*								*September 30,*
		*2022*				*2021*				*2022*				*2021*
		(in thousands)								(in thousands)
Net gains from non-designated forward contracts		$	3,608			$	748			$	8,573			$	1,792
Other foreign currency transaction gains (losses)			(4,518	)			(1,132	)			(11,856	)			(2,360	)
Total foreign exchange losses, net			(910	)			(384	)			(3,283	)			(568	)
Other expenses			(166	)			(67	)			(213	)			(207	)
Other expense, net		$	(1,076	)		$	(451	)		$	(3,496	)		$	(775	)

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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