Fair Value Measurement

3 Months Ended

Mar. 31, 2019

We have established a fair value hierarchy used to determine the fair value of our financial instruments as follows:

Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2—Inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the assets or liabilities, either directly or indirectly through market corroboration, for substantially the full term of the financial instruments.

Level 3—Inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value; the inputs require significant management judgment or estimation.

A financial instrument’s classification within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

Financial instruments measured and recorded at fair value on a recurring basis as of March 31, 2019 and December 31, 2018 are classified based on the valuation technique level in the tables below (in thousands):



	March 31, 2019
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
Assets:
Cash equivalents:
Money market funds	$	613,210	$	613,210	$	—
Commercial paper	21,362		—		21,362
Short-term investments:
Commercial paper	28,357		—		28,357
Corporate securities	26,232		—		26,232
U.S. treasury securities	15,491		15,491		—
Long-term investments:
Corporate securities	10,898		—		10,898
U.S. treasury securities	1,635		1,635		—
Total assets measured and recorded at fair value	$	717,185	$	630,336	$	86,849



	December 31, 2018
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
Assets:
Cash equivalents:
Money market funds	$	5,052	$	5,052	$	—
Commercial paper	18,267		—		18,267
Short-term investments:	—
Commercial paper	40,488		—		40,488
Corporate securities	38,529		—		38,529
U.S. treasury securities	14,328		14,328		—
Long-term investments:
Corporate securities	14,424		—		14,424
U.S. treasury securities	1,628		1,628		—
Total assets measured and recorded at fair value	$	132,716	$	21,008	$	111,708

We value our marketable securities based on quoted prices in active markets for identical assets (Level 1 inputs) or inputs other than quoted prices that are observable either directly or indirectly (Level 2 inputs) in determining fair value. Other than our money market funds and U.S. treasury securities, we classify our fixed income available-for-sale securities as having Level 2 inputs. The valuation techniques used to measure the fair value of our financial instruments having Level 2 inputs were derived from non-binding market consensus prices that are corroborated by observable market data, quoted market prices for similar instruments, or pricing models such as discounted cash flow techniques. We do not hold any marketable securities valued with a Level 3 input.

The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while we believe our valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

Financial Instruments Not Recorded at Fair Value on a Recurring Basis

We report our financial instruments at fair value with the exception of the 2023 notes and 2025 notes. Collectively, the 2025 notes and 2023 notes are referred to as the “notes.” The estimated fair value of the notes was determined based on the trading price of the notes as of the last day of trading for the period. We consider the fair value of the notes to be a Level 2 measurement due to the limited trading activity. For further information on the notes see Note 7.

The carrying amounts and estimated fair values of the notes as of March 31, 2019 and December 31, 2018 are as follows (in thousands):



	March 31, 2019				December 31, 2018
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
2025 notes	$	502,252	$	693,945	$	—	$	—
2023 notes	$	287,128	$	520,108	$	283,668	$	416,156
Convertible senior notes, net	$	789,380	$	1,214,053	$	283,668	$	416,156

The carrying amount of the 2025 notes and 2023 notes as of March 31, 2019 was net of unamortized debt discount of $185.0 million and $51.7 million, respectively, and unamortized issuance costs of $12.8 million and $6.1 million, respectively. The carrying amount of the 2023 notes as of December 31, 2018 was net of unamortized debt discount of $54.8 million and unamortized issuance costs of $6.5 million.

- 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.

+ References + Details