Fair Value Measurements

9 Months Ended

Sep. 30, 2023

Fair Value Disclosures [Abstract]

Fair Value Measurements

Note 2. Fair Value Measurements

Accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. The standards also establish a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value:

•Level 1 — Quoted prices in active markets for identical assets or liabilities.

•Level 2 — Assets and liabilities valued based on observable market data for similar instruments, such as quoted prices for similar assets or liabilities.

•Level 3 — Unobservable inputs that are supported by little or no market activity; instruments valued based on the best available data, some of which is internally developed, and considers risk premiums that a market participant would require.

We applied the following methods and assumptions in estimating our fair value measurements:

Cash Equivalents — Cash equivalents comprise highly liquid investments, including money market funds with original maturities of less than three months at the acquisition date. We record the fair value measurement of these assets based on quoted market prices in active markets.

Investments — Our investments comprise fixed income securities, which include U.S. government agency securities, corporate notes and bonds, commercial paper, treasury bills and asset-backed securities. The fair value measurement of these assets is based on observable market-based inputs or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Long-term Debt — See Note 7 for the carrying amount and estimated fair value of the Notes.

Contingent Consideration — The contingent consideration liability is related to the acquisition of Voyantic Oy (see Note 4: Goodwill and Intangible Assets), and the related payments are expected to occur in 2024. As of September 30, 2023, we could be required to pay up to 10 million euros or $10.9 million contingent upon revenue and gross margin performance over a one-year period from the acquisition date. We recorded the contingent consideration at its fair value using unobservable inputs and used the Monte Carlo simulation option pricing framework, incorporating contractual terms and assumptions regarding financial forecasts, discount rates, and volatility of forecasted revenue and gross margins. A decrease in estimated revenues and gross margins or an increase in the discount rate would decrease the fair value of the contingent consideration liability. The estimated revenues and gross margins are not interrelated inputs. The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations is management's responsibility with the assistance of a third-party valuation specialist. As of September 30, 2023, we recorded approximately $4.6 million in "Accrued expenses and other current liabilities" on the consolidated balance sheet.

The following table presents the balances of assets and liabilities measured at fair value on a recurring basis, by level within the fair value hierarchy, as of the dates presented (in thousands):

	September 30, 2023								December 31, 2022
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Total
Cash equivalents:
Money market funds	$	60,628	$	—	$	—	$	60,628	$	14,620	$	—	$	14,620
Total cash equivalents		60,628		—		—		60,628		14,620		—		14,620
Short-term investments:
U.S. government agency securities		—		22,707		—		22,707		—		78,621		78,621
Corporate notes and bonds		—		2,500		—		2,500		—		26,953		26,953
Commercial paper		—		—		—		—		—		24,073		24,073
Treasury bill		—				—		—		—		11,359		11,359
Yankee bonds		—		1,920		—		1,920		—		1,939		1,939
Agency bonds		—		5,957		—		5,957		—		2,882		2,882
Asset-backed securities		—		2,045		—		2,045		—		8,321		8,321
Total short-term investments		—		35,129		—		35,129		—		154,148		154,148
Long-term investments:
U.S. government agency securities		—		—		—		—		—		13,462		13,462
Yankee bonds		—		—		—		—		—		1,869		1,869
Agency bonds		—		—		—		—		—		2,983		2,983
Asset-backed securities		—		—		—		—		—		886		886
Total long-term investments		—		—		—		—		—		19,200		19,200
Total assets at fair value		60,628		35,129		—		95,757		14,620		173,348		187,968
Acquisition-related contingent consideration liability		—		—		4,602		4,602		—		—		—
Total liabilities at fair value		—		—		4,602		4,602		—		—		—

A reconciliation of Level 3 items measured at fair value on a recurring basis is as follows (in thousands):

	Three Months Ended September 30, 2023
Contingent consideration liability:
Balance at beginning of period	$	4,602
Remeasurement of fair value of contingent consideration liability		—
Balance at end of period	$	4,602

We did not have any Level 3 assets nor did we measure any liabilities at fair value as of December 31, 2022. There were no transfers into or out of Level 3 of the fair value hierarchy as of September 30, 2023 or as of December 31, 2022. We expect short-term investments to mature within 1 year of the reporting date. We expect long-term investments to mature between 1 and 2 years from the reporting date. See Note 7 for the carrying amount and estimated fair value of our convertible senior notes due 2027.

Investments

The following tables present the cost or amortized cost, gross unrealized gains, gross unrealized losses and total estimated fair value of our financial assets as of the dates presented (in thousands):

	September 30, 2023
	Cost or		Gross		Gross			Total Estimated
	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
Description:
Money market funds	$	60,628	$	—	$	—		$	60,628
U.S. government agency securities		22,854		—		(147	)		22,707
Corporate notes and bonds		2,500		—		—			2,500
Yankee bonds		1,935		—		(15	)		1,920
Commercial paper		—		—		—			-
Treasury bill		—		—		—			—
Agency bond		5,973		—		(16	)		5,957
Asset-backed securities		2,056		—		(11	)		2,045
Total	$	95,946	$	—	$	(189	)	$	95,757

	December 31, 2022
	Cost or		Gross		Gross			Total Estimated
	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
Description:
Money market funds	$	14,620	$	—	$	—		$	14,620
U.S. government agency securities		93,065		—		(982	)		92,083
Corporate notes and bonds		27,133		6		(186	)		26,953
Yankee bonds		3,815		—		(7	)		3,808
Commercial paper		24,073		—		—			24,073
Treasury bill		11,361		2		(4	)		11,359
Agency bond		5,863		4		(2	)		5,865
Asset-backed securities		9,287		2		(82	)		9,207
Total	$	189,217	$	14	$	(1,263	)	$	187,968

Marketable securities in a continuous loss position for less than 12 months had an estimated fair value of $13.3 million and $125.6 million and unrealized losses of $100,000 and $1.2 million as of September 30, 2023 and December 31, 2022, respectively. Marketable securities in a continuous loss position for greater than 12 months had an estimated fair value of $19.3 million and $13.9 million and unrealized losses of $100,000 and $100,000 as of September 30, 2023 and December 31, 2022, respectively.

Unrealized losses from our fixed-income securities are primarily attributable to changes in interest rates and not to lower credit ratings of the issuers. In determining whether an unrealized loss is other-than-temporary, for the periods presented, we determined we do not have plans to sell the securities nor is it more likely than not that we would be required to sell the securities before their anticipated recovery. We used the specific identification method to determine cost of securities sold.