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Available-for-sale Securities and Fair Value on Financial Instruments

9 Months Ended

Sep. 30, 2021

Available-for-sale Securities and Fair Value on Financial Instruments

Note 2. Available-for-sale Securities and Fair Value on Financial Instruments

Available-for-sale Securities

The following is a summary of available-for-sale securities at September 30, 2021 (in thousands):

	September 30, 2021
	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss			Allowance for Credit Loss		Fair Value
Money market funds	$	46,570	$	—	$	—		$	—	$	46,570
United States government agency securities		7,023		2		—			—		7,025
Corporate debt securities		34,297		183		(4	)		—		34,476
Total available-for-sale securities	$	87,890	$	185	$	(4	)	$	—	$	88,071

The following is a summary of available-for-sale securities at December 31, 2020 (in thousands):

	December 31, 2020
	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss			Allowance for Credit Loss		Fair Value
Money market funds	$	6,203	$	—	$	—		$	—	$	6,203
United States government agency securities		29,570		66		—			—		29,636
Corporate debt securities		66,756		611		(3	)		—		67,364
Total available-for-sale securities	$	102,529	$	677	$	(3	)	$	—	$	103,203

Available-for-sale securities at September 30, 2021 and December 31, 2020, consisted of the following by contractual maturity (in thousands):

	September 30, 2021				December 31, 2020
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
One year or less	$	77,745	$	77,869	$	64,857	$	65,117
Greater than one year and less than five years		10,145		10,202		37,672		38,086
Total available-for-sale securities	$	87,890	$	88,071	$	102,529	$	103,203

The following table shows all available-for-sale marketable securities in an unrealized loss position for which an allowance for credit losses has not been recognized and the related gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position (in thousands):


	September 30, 2021
	Less than 12 Months					12 Months or Greater				Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Corporate debt securities	$	5,092	$	(4	)	$	—	$	—	$	5,092	$	(4	)


	December 31, 2020
	Less than 12 Months					12 Months or Greater				Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Corporate debt securities	$	5,105	$	(3	)	$	—	$	—	$	5,105	$	(3	)

The Company typically invests in highly-rated securities, and its investment policy limits the amount of credit exposure to any one issuer. The policy generally requires investments to be investment grade, with the primary objective of minimizing the potential risk of principal loss. Fair values were determined for each individual security in the investment portfolio. When evaluating an investment for expected credit losses, the Company reviews factors such as the length of time and extent to which fair value has been below its cost basis, the financial condition of the issuer and any changes thereto, changes in market interest rates, and the Company’s intent to sell, or whether it is more likely than not it will be required to sell, the investment before recovery of the investment’s cost basis. The Company also regularly reviews its investments in an unrealized loss position and evaluates the current expected credit loss by considering factors such as historical experience, market data, issuer-specific factors, and current economic conditions. During the three and nine months ended September 30, 2021 and 2020, the Company did not recognize any expected credit losses. The Company has no current requirement or intent to sell the securities in an unrealized loss position. The Company expects to recover up to (or beyond) the initial cost of investment for securities held. The Company recorded zero and less than $0.1 million of gross realized gains from the sale or maturity of available-for-sale investments during the nine months ended September 30, 2021 and 2020, respectively. The Company recorded zero and $0.3 million of gross realized losses from the sale or maturity of available-for-sale investments during the nine months ended September 30, 2021 and 2020, respectively.

Fair Value Disclosures

The Company uses certain assumptions that market participants would use to determine the fair value of an asset or liability in pricing the asset or liability in an orderly transaction between market participants at the measurement date. The identification of market participant assumptions provides a basis for determining what inputs are to be used for pricing each asset or liability. A fair value hierarchy has been established which gives precedence to fair value measurements calculated using observable inputs over those using unobservable inputs. This hierarchy prioritized the inputs into three broad levels as follows:

•	Level 1: Quoted prices in active markets for identical instruments

•	Level 2: Other significant observable inputs (including quoted prices in active markets for similar instruments)

•	Level 3: Significant unobservable inputs (including assumptions in determining the fair value of certain investments)

Money market funds are highly liquid investments and are actively traded. The pricing information on these investment instruments are readily available and can be independently validated as of the measurement date. This approach results in the classification of these securities as Level 1 of the fair value hierarchy.

To estimate the fair value of Level 2 debt securities as of September 30, 2021, the Company’s primary pricing service relies on inputs from multiple industry-recognized pricing sources to determine the price for each investment. Corporate debt and U.S. government agency securities are systematically priced by this service as of the close of business each business day. If the primary pricing service does not price a specific asset a secondary pricing service is utilized.

To estimate the fair value of the Company’s Level 3 warrant investments as of September 30, 2021, the Company uses a standard Black-Scholes option pricing model, using a class volatility consistent with the seniority and preference rights of the underlying preferred stock. Key assumptions used in the valuation include the privately held company’s preferred stock price, warrant exercise price, equity volatility, expected term of warrant, risk-free interest rates, and details specific to the warrant. The Company recognizes the changes in the fair value of this warrant in “Other income, net” on the Company’s condensed consolidated statements of operations.

The fair values of the Company’s financial assets and liabilities were determined using the following inputs at September 30, 2021 (in thousands):

	Balance sheet			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	classification	Total		(Level 1)		(Level 2)		(Level 3)
Money market funds	Cash and cash equivalents	$	46,570	$	46,570	$	—	$	—
United States government agency securities	Short-term investments		7,025		—		7,025		—
Corporate debt securities	Short-term investments		34,476		—		34,476		—
Total short-term investments			88,071		46,570		41,501		—
Warrants	Other assets		907		—		—		907
Total financial assets		$	88,978	$	46,570	$	41,501	$	907

The fair values of the Company’s financial assets and liabilities were determined using the following inputs at December 31, 2020 (in thousands):

	Balance sheet			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	classification	Total		(Level 1)		(Level 2)		(Level 3)
Money market funds	Cash and cash equivalents	$	6,203	$	6,203	$	—	$	—
United States government agency securities	Short-term investments		30,683		—		30,683		—
Corporate debt securities	Short-term investments		66,317		—		66,317		—
Total financial assets			103,203		6,203		97,000		—
Warrants	Other assets		422		—		—		422
Total financial assets		$	103,625	$	6,203	$	97,000	$	422

The Company did not have any transfers among fair value measurement levels during the three and nine months ended September 30, 2021 and 2020.

The following table provides a summary of the total gain recognized in the Company’s condensed consolidated statements of operations due to changes in the fair value of the warrant (in thousands):

	Three Months Ended				Nine Months Ended
	September 30, 2021		September 30, 2020		September 30, 2021		September 30, 2020
Gain from changes in the fair value of level 3 investments	$	83	$	—	$	485	$	—

- 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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