Fair Value Measurements |
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Fair Value Measurements | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measurements | 2. Fair Value Measurements Financial assets and liabilities are recorded at fair value. The carrying amounts of certain of the Company’s financial instruments, including cash, cash equivalents, restricted cash, investments in marketable securities, accounts receivable, accounts payable and other current liabilities approximate their fair values due to their short maturities. Fair value is 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. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The accounting guidance describes a fair value hierarchy based on three levels of inputs that may be used to measure fair value, of which the first two are considered observable and the last is considered unobservable. These levels of inputs are the following: 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 for similar assets or liabilities, 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. A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The Company’s financial instruments consist of Level 1 and Level 2 assets, and Level 3 liabilities. Where quoted prices are available in an active market, securities are classified as Level 1. Level 1 assets consist of highly liquid money market funds that are included in cash and cash equivalents, and restricted cash. The unrealized gains and losses in the Company’s investments in these money market funds were immaterial. When quoted market prices are not available for the specific security, then the Company estimates the fair value by using quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs obtained from various third-party data providers, including but not limited to, benchmark yields, interest rate curves, reported trades, broker/dealer quotes and market reference data. Level 2 assets consist of corporate notes and commercial paper. Level 2 inputs for the valuations are limited to quoted prices for similar assets or liabilities in active markets and inputs other than quoted prices that are observable for the asset. In certain cases where there is limited activity or less transparency around inputs to valuation, securities are classified as Level 3. Level 3 liabilities consist of contingent consideration. There were no transfers between Level 1, Level 2 and Level 3 during the periods presented. Financial assets and liabilities subject to fair value measurements on a recurring basis and the level of inputs used in such measurements were as follows (in thousands):
Cash equivalents, marketable securities and restricted cash, consisted of the following (in thousands):
As of September 30, 2021, the remaining contractual maturities of available-for-sale securities were less than one year, and the average maturity of investments upon acquisition was approximately 11 months. The realized gains or losses on marketable securities for the periods presented were immaterial. None of the Company’s investments in marketable securities has been in an unrealized loss position for more than one year. The Company determined that it has the ability and intent to hold all marketable securities that have been in a continuous loss position until maturity or recovery and there is no indication of default on interest or principal payments for any of its debt securities, thus no credit losses have been recognized in the three and nine months ended September 30, 2021 and 2020. 1.5% Convertible Notes due 2026 The estimated fair values of the 1.5% Convertible Notes due 2026 issued by the Company in April 2020 (see Note 7) for the periods presented were determined by prices observed in markets that were not active and thus considered to be Level 2 inputs. Among other factors, these market prices are influenced by interest rates, the Company’s stock price and price volatility. The estimated fair value of the Convertible Notes due 2026 was approximately $255.2 million and $269.1 million (par value $230.0 million) as of September 30, 2021 and December 31, 2020, respectively. 8.2% Convertible Notes due 2022 The estimated fair values of the 8.2% Convertible Senior Notes due 2022 issued by the Company in February 2016 (see Note 7) for the periods presented were determined using an income approach that incorporates a single factor binomial lattice model and is therefore considered to be Level 3 inputs. This lattice model incorporates the terms and conditions of the convertible notes and market-based risk measurements that are indirectly observable, such as credit risk. The estimated fair value is based on changes in the price of the underlying common shares over successive periods of time. An estimated yield based on market data is used to discount straight-debt cash flows. The estimated fair value of the 8.2% Convertible Senior Notes due 2022 was approximately $108.6 million and $113.7 million (par value $100.0 million) as of September 30, 2021 and December 31, 2020, respectively. Term Loan The principal amount outstanding under the Company’s Term Loan (see Note 7) of $75 million as of September 30, 2021 is subject to variable interest rate, which is based on a fixed percentage plus three month LIBOR (“LIBOR”)(or any successor rate pursuant to the Term Loan), and as such, the Company believes the carrying amount of this obligation approximates fair value. |