Investments and fair value measurements

9 Months Ended

Sep. 30, 2023

4. Investments and fair value measurements

The Company’s assets and liabilities that are measured at fair value on a recurring or nonrecurring basis within the fair value hierarchy are as follows (in thousands):


As of September 30, 2023	Level 1		Level 2		Level 3
Cash equivalents:
Money market funds	$	267,036	$	—	$	—
U.S. government securities	—		14,881		—
Total cash equivalents	267,036		14,881		—

Marketable securities:
U.S. government securities	$	—	$	151,466	$	—

Non-current assets:
Strategic investments	$	—	$	—	$	10,311

Non-current liabilities:
Cash settled stock appreciation rights	$	—	$	—	$	26


As of December 31, 2022	Level 1		Level 2		Level 3
Cash equivalents:
Money market funds	$	130,377	$	—	$	—
U.S. government securities	—		48,900		—
Total cash equivalents	$	130,377	$	48,900	$	—

Marketable securities:
U.S. government securities	$	—	$	151,687	$	—

Non-current assets:
Strategic investments	$	—	$	—	$	12,104

Non-current liabilities:
Cash settled stock appreciation rights	$	—	$	—	$	462

The Company’s money market funds are classified within Level 1 of the fair value hierarchy because they are valued using quoted prices in active markets. The Company’s investments in U.S. government securities are classified within Level 2 of the fair value hierarchy because they have been valued using inputs other than quoted prices in active markets that are directly or indirectly observable. The Company’s strategic investment and stock appreciation rights (“SARs”) are classified within Level 3 of the fair value hierarchy because they have been valued using significant unobservable inputs for which the Company has been required to develop its own assumptions.

A summary of the changes in the fair value of Level 3 financial instruments, of which remeasurement of SARs and impairment of strategic investments are recognized in the condensed consolidated statements of operations, is as follows (in thousands):


	Stock Appreciation Rights		Strategic Investments
Balance— June 30, 2023	$	30	$	10,311
Vesting and remeasurement of SARs	(4)		—
Balance— September 30, 2023	$	26	$	10,311

Balance— June 30, 2022	$	419	$	15,000
Vesting and remeasurement of SARs, net of exercises	165		—
Amount reclassified from liability to equity upon exchange	(62)		—
Unrealized loss on strategic investments	—		(2,896)
Balance— September 30, 2022	$	522	$	12,104

Balance— December 31, 2022	$	462	$	12,104
Vesting and remeasurement of SARs	(183)		—
Exercises of SARs	(253)		—
Unrealized loss on strategic investments	—		(1,793)
Balance— September 30, 2023	$	26	$	10,311

Balance— December 31, 2021	$	818	$	10,000
Vesting and remeasurement of SARs, net of exercises	(234)		—
Purchases of strategic investments	—		5,000
Amount reclassified from liability to equity upon exchange	(62)		—
Unrealized loss on strategic investments	—		(2,896)
Balance— September 30, 2022	$	522	$	12,104

The Company evaluates its strategic investment for impairment at each reporting period. This evaluation consists of several potential qualitative and quantitative impairment indicators including, but not limited to, the investee's financial metrics, whether there were any significant adverse changes in the economic environment or general market conditions of the geographies and industries in which the investee operates, and any other publicly available information that may affect the value of the investment. No impairment indicators were identified as part of the assessment performed as of September 30, 2023.

The difference between the strategic investment’s cost basis of $15.0 million and the carrying value of $10.3 million is due to cumulative impairment charges of $4.7 million, of which $1.8 million was recorded during the second quarter of 2023, and $2.9 million was recorded during the third quarter of 2022.

- 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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