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Fair Value Measurements

3 Months Ended

Dec. 31, 2021

8. Fair Value Measurements

Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, we consider the principal or most advantageous market in which we would transact and consider assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. GAAP prescribes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. There are three levels of inputs that may be used to measure fair value:

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Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;

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Level 2: inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities 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; or

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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 level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

Time deposits and corporate notes/bonds are classified within Level 1 of the fair value hierarchy because they are valued based on quoted market prices in active markets.

The principal market in which we execute our foreign currency derivatives is the institutional market in an over-the-counter environment with a relatively high level of price transparency. The market participants usually are large financial institutions. Our foreign currency derivatives’ valuation inputs are based on quoted prices and quoted pricing intervals from public data sources and do not involve management judgment. These contracts are typically classified within Level 2 of the fair value hierarchy.

Our significant financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2021 and September 30, 2021 were as follows:

(in thousands)	December 31, 2021
	Level 1		Level 2		Level 3		Total
Financial assets:
Cash equivalents ⁽¹⁾	$	107,320	$	—	$	—	$	107,320
Convertible note		—		—		2,000		2,000
Equity securities		—		—		87,306		87,306
Forward contracts		—		1,486		—		1,486
Options		—		2,021		—		2,021
	$	107,320	$	3,507	$	89,306	$	200,133
Financial liabilities:
Stock buyback pending settlement		5,260		—		—		5,260
Forward contracts		—		3,732		—		3,732
	$	5,260	$	3,732	$	—	$	8,992

(in thousands)	September 30, 2021
	Level 1		Level 2		Level 3		Total
Financial assets:
Cash equivalents ⁽¹⁾	$	114,375	$	—	$	—	$	114,375
Convertible note		—		—		2,000		2,000
Equity securities		—		—		77,500		77,500
Forward contracts		—		5,363		—		5,363
	$	114,375	$	5,363	$	79,500		199,238
Financial liabilities:
Forward contracts		—		3,318		—		3,318
	$	—	$	3,318	$	—	$	3,318

(1) Money market funds and time deposits.

Level 3 Investments

Convertible Note

In the fourth quarter of 2021, we invested $2.0 million into a non-marketable convertible note. This debt security is classified as available-for-sale and is included in other assets on the Consolidated Balance Sheet.

Non-Marketable Equity Investments

The carrying value of our non-marketable equity investments is recorded in other assets on the Consolidated Balance Sheets and totaled $2.2 million for the periods ended December 31, 2021 and September 30, 2021.

Equity Securities

As of December 31, 2021, we owned 4,316,301 common shares of Matterport, Inc., which are restricted from being able to be sold until January 2022 (six months after Matterport, Inc. became a public company). As a result of the limitations on the ability to sell, the equity securities are classified as a Level 3 financial instrument with fair value determined using the closing price of Matterport’s common stock on the Nasdaq stock market as of December 31, 2021, less a temporary discount for lack of marketability that will expire in January 2022. The discount for lack of marketability is calculated using a put-option model which includes observable and unobservable inputs. As of December 31, 2021, the investment is recorded at a fair value of $87.3 million in other current assets on the Consolidated Balance Sheets. For the three months ended December 31, 2021, we recognized a gain of $9.8 million related to the shares in other income, net on the Consolidated Statements of Operations.

The following table provides a summary of changes in the fair value of our Level 3 investment in the Matterport, Inc. shares:

(in thousands)	December 31, 2021
	Fair Values
Balance, October 1, 2021	$	77,540
Unrealized gains		7,467
Reduction in discount due to lack of marketability⁽¹⁾		2,299
Balance, December 31, 2021	$	87,306

(1) The restriction on our ability to sell our shares lapsed in January 2022. Refer to Note 16. Subsequent Events for discussion regarding the expirations on the restriction and our subsequent sale of the Equity Securities in January 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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