Fair value of financial instruments

9 Months Ended

Sep. 30, 2022

Fair value of financial instruments

Fair value of financial instruments

4. Fair value of financial instruments

The Company determines the fair value of its financial instruments based upon the fair value hierarchy, which prioritizes valuation inputs based on the observable nature of those inputs. The fair value hierarchy applies only to the valuation inputs used in determining the reported fair value of the investments and is not a measure of the investment credit quality. The hierarchy defines three levels of valuation inputs:

Level 1 inputs	Quoted prices in active markets for identical assets or liabilities that the Company can access at the measurement date.
Level 2 inputs	Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3 inputs	Unobservable inputs that reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability.

Items Measured at Fair Value on a Recurring Basis

The following table presents information about the Company’s financial instruments that are measured at fair value on a recurring basis (in thousands):

	September 30, 2022
Description	Total		Level 1		Level 2		Level 3
Financial assets
Cash equivalents	$	77,187	$	54,314	$	22,873	$	—
Short-term investments		25,810		—		25,810		—
Total financial assets	$	102,997	$	54,314	$	48,683	$	—

	December 31, 2021
Description	Total		Level 1		Level 2		Level 3
Financial assets
Cash equivalents	$	19,302	$	19,302	$	—	$	—
Short-term investments		79,004		—		79,004		—
Total financial assets	$	98,306	$	19,302	$	79,004	$	—

The Company’s cash equivalents and short-term investments consist of U.S. Government money market funds, corporate bonds, agency bonds and commercial paper of publicly traded companies. The investments and cash equivalents have been initially valued at the transaction price and subsequently valued, at the end of each reporting period, utilizing third party pricing services or other market observable data. The pricing services utilize industry standard valuation models, including both income and market-based approaches and observable market inputs to determine value. These observable market inputs include reportable trades, benchmark yields, credit spreads, broker/dealer quotes, bids, offers, current spot rates and other industry and economic events. The Company validates the prices provided by third party pricing services by reviewing their pricing methods and matrices, obtaining market values from other pricing sources, analyzing pricing data in certain instances and confirming that the relevant markets are active. After completing its validation procedures, the Company did not adjust or override any fair value measurements provided by the pricing services as of September 30, 2022 and December 31, 2021.

Fair Value of Financial Instruments

The fair value of the Company’s 2018 issued 5.00% Convertible Senior Notes due 2048 (the “2018 Notes”) was approximately $0.3 million as of September 30, 2022, which equals the carrying value of the 2018 Notes as of September 30, 2022. The fair value of the 2018 Notes was approximately $0.3 million as of December 31, 2021, which differed from the carrying value of the 2018 Notes of $0.2 million as of December 31, 2021. The fair value of the 2018 Notes is influenced by the Company’s stock price, stock price volatility, and current market yields and was determined using Level 3 inputs.

The fair value of the Company’s long-term debt is determined using a discounted cash flow analysis with current applicable rates for similar instruments as of the condensed consolidated balance sheet date. The carrying value of the Company’s long-term debt as of September 30, 2022, was approximately $24.4 million. The Company estimates that the fair value of its long-term debt was approximately $25.6 million as of September 30, 2022. There was no long-term debt outstanding as of December 31, 2021. The fair value of the Company’s long-term debt was determined using Level 3 inputs.