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Investments and Fair Value of Financial Instruments

9 Months Ended

Sep. 30, 2022

Investments and Fair Value of Financial Instruments

3. Investments and Fair Value of Financial Instruments

Marketable Investments

The Company’s marketable investments have been classified and accounted for as available-for-sale. The following table presents the Company’s marketable investments as of September 30, 2022 and December 31, 2021 (in thousands):


	September 30, 2022
			Securities with net gains or losses in accumulated other comprehensive income (loss)
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Loss		Fair Value

U.S. treasury	$	14,477	$	—	$	(569)	$	—	$	13,908
U.S. agency and government sponsored securities	7,001		—		(223)		—		6,778
U.S. states and municipalities	28,130		—		(679)		—		27,451
Corporate bonds	84,280		—		(2,834)		—		81,446

Total	$	133,888	$	—	$	(4,305)	$	—	$	129,583


	December 31, 2021
			Securities with net gains or losses in accumulated other comprehensive income (loss)
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Loss		Fair Value
Commercial paper	$	20,286	$	—	$	(10)	$	—	$	20,276
U.S. treasury	14,464		—		(77)		—		14,387
U.S. agency and government sponsored securities	11,553		1		(19)		—		11,535
U.S. states and municipalities	39,436		39		(89)		—		39,386
Corporate bonds	110,354		49		(491)		—		109,912

Total	$	196,093	$	89	$	(686)	$	—	$	195,496

As of September 30, 2022, the total amortized cost basis of the Company’s impaired available-for-sale securities exceeded its fair value by $4.3 million, which was primarily attributable to widening credit spreads and rising interest rates since purchase. The Company reviewed its impaired available-for-sale securities and concluded that the decline in fair value was not related to credit losses and that it is more likely than not that the entire amortized cost of each impaired security will be recoverable before the Company is required to sell them or when the security matures. Accordingly, during the three and nine months ended September 30, 2022, no allowance for credit losses was recorded and instead the unrealized losses are reported as a component of accumulated other comprehensive (loss) income.

The following tables present the gross unrealized losses and the fair value for those marketable investments that were in an unrealized loss position for less than twelve months or for twelve months or more as of September 30, 2022 and December 31, 2021 (in thousands):


	September 30, 2022
	Less than 12 months				12 months or more				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses

U.S. treasury	$	13,908	$	(569)	$	—	$	—	$	13,908	$	(569)
U.S. agency and government sponsored securities	2,866		(129)		3,912		(94)		6,778		(223)
U.S. states and municipalities	20,778		(467)		5,803		(212)		26,581		(679)
Corporate bonds	65,326		(1,895)		16,120		(939)		81,446		(2,834)

Total	$	102,878	$	(3,060)	$	25,835	$	(1,245)	$	128,713	$	(4,305)


	December 31, 2021
	Less than 12 months				12 months or more				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Commercial paper	$	16,977	$	(10)	$	—	$	—	$	16,977	$	(10)
U.S. treasury	14,387		(77)		—		—		14,387		(77)
U.S. agency and government sponsored securities	6,985		(19)		—		—		6,985		(19)
U.S. states and municipalities	21,924		(89)		—		—		21,924		(89)
Corporate bonds	85,513		(491)		—		—		85,513		(491)

Total	$	145,786	$	(686)	$	—	$	—	$	145,786	$	(686)

The following table presents the contractual maturities of the Company’s marketable investments as of September 30, 2022 (in thousands):


	September 30, 2022
	Amortized Cost		Fair Value
Due in less than one year	$	48,276	$	47,495
Due in one to five years	85,612		82,088
Total	$	133,888	$	129,583

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 (an exit price) in an orderly transaction between market participants at the measurement date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

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

Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in markets that are not active; 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 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The categorization of a financial instrument within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement.

The Company classifies its cash equivalents and marketable investments within Level 1 and Level 2, as it uses quoted market prices or alternative pricing sources and models utilizing market observable inputs.

The Company determined the fair value of its Level 1 financial instruments, which are traded in active markets, using quoted market prices for identical instruments.

Marketable investments classified within Level 2 of the fair value hierarchy are valued based on other observable inputs, including broker or dealer quotations or alternative pricing sources. When quoted prices in active markets for identical assets or liabilities are not available, the Company relies on non-binding quotes from its investment managers, which are based on proprietary valuation models of independent pricing services. These models generally use inputs such as observable market data, quoted market prices for similar instruments, historical pricing trends of a security as relative to its peers. To validate the fair value determination provided by its investment managers, the Company reviews the pricing movement in the context of overall market trends and trading information from its investment managers. In addition, the Company assesses the inputs and methods used in determining the fair value in order to determine the classification of securities in the fair value hierarchy.

The Company did not hold any Level 3 marketable investments as of September 30, 2022 or December 31, 2021. During the nine months ended September 30, 2022 and 2021, the Company did not have any transfers between Level 1, Level 2 or Level 3 of the fair value hierarchy. Additionally, the Company did not have any financial assets and liabilities measured at fair value on a non-recurring basis as of September 30, 2022 or December 31, 2021.

The following tables set forth the Company’s financial assets measured at fair value by level within the fair value hierarchy as of September 30, 2022 and December 31, 2021 (in thousands):


	As of September 30, 2022
	Level 1		Level 2		Level 3		Fair Value
Financial Assets
Cash equivalents:


Money market funds	$	8,797	$	—	$	—	$	8,797



Marketable investments:

U.S. treasury	13,908		—		—		13,908
U.S. agency and government sponsored securities	—		6,778		—		6,778
U.S. states and municipalities	—		27,451		—		27,451
Corporate bonds	—		81,446		—		81,446

Total	$	22,705	$	115,675	$	—	$	138,380


	As of December 31, 2021
	Level 1		Level 2		Level 3		Fair Value
Financial Assets
Cash equivalents:

Money market funds	$	10,509	$	—	$	—	$	10,509
Marketable investments:
Commercial paper	—		20,276		—		20,276
U.S. treasury	14,387		—		—		14,387
U.S. agency and government sponsored securities	—		11,535		—		11,535
U.S. states and municipalities	—		39,386		—		39,386
Corporate bonds	—		109,912		—		109,912


Total	$	24,896	$	181,109	$	—	$	206,005

- 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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