Fair Value of Financial Instruments

12 Months Ended

Dec. 31, 2019

Investment [Line Items]

Fair Value of Financial Instruments

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 other current 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 and commitments associated with prior business combinations 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, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data 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. government agency securities, commercial paper, corporate bonds, asset-backed 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 in active markets for similar instruments or on 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 fair value of commitments from prior acquisitions was determined based on management’s estimate of fair value using a Monte Carlo simulation model, which uses Level 3 inputs for fair value measurements. As of December 31, 2019, management estimated the fair value of such commitments to be zero. During the fiscal year ended December 31, 2019 and 2018, the Company made investments of $0.6 million and $2.5 million in a convertible security and preferred stock issued by a privately-held company. The estimated fair value of the investments was determined based on Level 3 inputs. As of December 31, 2019, management estimated that the fair value of the investments equaled its carrying value.

The Company's cash and cash equivalents, short-term marketable securities, and long-term marketable securities consist of the following:

	December 31, 2019
	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
	(in thousands)
Cash and cash equivalents:
Cash	$	84,102	$	—	$	—		$	84,102
Money market funds	58		—		—			58
Commercial paper	3,399		—		—			3,399
Total	87,559		—		—			87,559
Short-term marketable securities:
Commercial paper	2,239		—		—			2,239
Corporate bonds	33,048		51		(1		)	33,098
Asset-backed securities	2,438		11		—			2,449
U.S. government agencies	173,364		184		(3		)	173,545
Total	211,089		246		(4		)	211,331
Long-term marketable securities:
Asset-backed securities	40,001		193		(1		)	40,193
U.S. government agencies	46,447		370		—			46,817
Corporate bonds	32,236		262		—			32,498
Total	118,684		825		(1		)	119,508
Total	$	417,332	$	1,071	$	(5	)	$	418,398

	December 31, 2018
	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
	(in thousands)
Cash and cash equivalents:
Cash	$	40,913	$	—	$	—		$	40,913
Money market funds	113		—		—			113
Total	41,026		—		—			41,026
Short-term marketable securities:
Commercial paper	3,237		—		—			3,237
Corporate bonds	30,906		—		(84		)	30,822
Asset-backed securities	10,447		—		(15		)	10,432
U.S. government agencies	203,734		9		(94		)	203,649
Total	248,324		9		(193		)	248,140
Long-term marketable securities:
Asset-backed securities	22,945		10		(28		)	22,927
U.S. government agencies	18,804		—		(53		)	18,751
Corporate bonds	35,322		3		(293		)	35,032
Total	77,071		13		(374		)	76,710
Total	$	366,421	$	22	$	(567	)	$	365,876

As of December 31, 2019 and 2018, the Company had no investments utilizing level 3 inputs, other than the aforementioned investments in the privately-held company.

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:

	December 31, 2019
	Level 1		Level 2		Fair Value
	(in thousands)
Money market funds	$	58	$	—	$	58
Commercial paper	—		5,638		5,638
U.S. government agencies	—		220,362		220,362
Corporate bonds	—		65,596		65,596
Asset-backed securities	—		42,642		42,642
Total	$	58	$	334,238	$	334,296

	December 31, 2018
	Level 1		Level 2		Fair Value
	(in thousands)
Money market funds	$	113	$	—	$	113
Commercial paper	—		3,237		3,237
U.S. government agencies	—		222,400		222,400
Corporate bonds	—		65,854		65,854
Asset-backed securities	—		33,359		33,359
Total	$	113	$	324,850	$	324,963

The following summarizes the fair value of marketable securities classified as available-for-sale debt securities by contractual maturity:

	December 31, 2019
	Mature within One Year		After One Year through Two Years		Over Two Years		Fair Value
	(in thousands)
Commercial paper	$	5,638	$	—	$	—	$	5,638
U.S. government agencies	173,546		46,816				220,362
Corporate bonds	33,098		23,251		9,247		65,596
Asset-backed securities	2,449		15,550		24,643		42,642
Total	$	214,731	$	85,617	$	33,890	$	334,238

Derivative Financial Instruments

The Company uses a hedging strategy to reduce its exposure to foreign currency exchange rate fluctuations for forecasted subscription renewals and new orders in both GBP and Euro. The Company uses forward currency contracts accounted for as cash flow hedges against a designated portion of forecasted subscription renewals and new orders. Upon executing a hedging contract and periodically thereafter, the Company assesses hedge effectiveness using regression analysis. The Company includes time value in its effectiveness testing and the changes in the value of hedge contracts is recorded as unrealized gains or losses in AOCI within stockholders’ equity on the Company's consolidated balance sheet as of December 31, 2019. The unrealized gains or losses in AOCI will be reclassified into revenue when the respective hedged transactions affect earnings. As of December 31, 2019, the net amount of unrealized gains and losses related to the hedged forecasted transactions reported in AOCI that is expected to be reclassified into revenue within the next 12 months was $0.7 million gains, net of losses (before taxes).

At December 31, 2019, the Company had 26 open designated cash flow hedge forward contracts with notional amounts of €24.2 million and £9.7 million. During the fiscal year ended December 31, 2019, the Company recorded $0.7 million of unrealized foreign exchange gains, net of losses (before taxes) related to the designated cash flow hedge contracts in AOCI. During the fiscal year ended December 31, 2019, $0.2 million of gains, net of losses (before tax) were realized and reclassified into revenue.

At December 31, 2018, the Company had 12 open cash flow hedge contracts with notional amount of €12.9 million and £4.1 million. The unrealized foreign exchange losses on these contracts recorded in AOCI were insignificant.

At December 31, 2019, the Company had 15 outstanding non-designated forward contracts with notional amounts of €20.0 million, £5.6 million and ₨756.0 million which will mature at various dates through January 2021. At December 31, 2018, the Company had two non-designated outstanding forward contracts with notional amounts of €16.0 million and £6.3 million.

The following summarizes derivative financial instruments as of December 31, 2019 and 2018:

	December 31,
	2019			2018
Assets:	(in thousands)
Foreign currency forward contracts designated as cash flow hedge	$	427		$	32
Foreign currency forward contracts not designated as hedging instruments	515			—
Total	$	942		$	32
Liabilities:
Foreign currency forward contracts designated as cash flow hedge	$	(524	)	$	(72	)
Foreign currency forward contracts not designated as hedging instruments	(550		)	(44		)
Total	$	(1,074	)	$	(116	)

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

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

	Year Ended December 31,
	2019			2018			2017
Net gains (losses) from forward contracts	$	438		$	543		$	(1,665	)
Other foreign currency transaction (losses) gains	(792		)	(1,120		)	1,310
Total foreign exchange loss, net	(354		)	(577		)	(355		)
Other expenses	(253		)	(224		)	(181		)
Other income (expense), net	$	(607	)	$	(801	)	$	(536	)