Fair Value of Financial Instruments

9 Months Ended

Sep. 30, 2019

Fair value is defined as 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. For certain of the Company’s financial instruments, including certain cash equivalents, accounts receivable, accounts payable, and other current liabilities, the carrying amounts approximate their fair values due to the relatively short maturity of these balances.

The Company measures and reports certain cash equivalents, marketable securities, derivative foreign currency forward contracts and commitments associated with prior business combinations at fair value in accordance with the provisions of the authoritative accounting guidance that addresses fair value measurements. This guidance establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. The hierarchy is broken down into three levels based on the reliability of inputs as follows:

Level 1—Valuations based on quoted prices in active markets for identical assets or liabilities.

Level 2—Valuations based on other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, 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—Valuations based on inputs that are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability.

The Company's financial instruments consist of assets and liabilities measured using Level 1 and 2 inputs. Level 1 assets include a highly liquid money market fund, which is valued using unadjusted quoted prices that are available in an active market for an identical asset. Level 2 assets include fixed-income U.S. government agency securities, commercial paper, corporate bonds, asset-backed securities and derivative financial instruments consisting of foreign currency forward contracts. The securities, bonds and commercial paper are valued using prices from independent pricing services based on quoted prices in active markets for similar instruments or on industry models using data inputs such as interest rates and prices that can be directly observed or corroborated in active markets. The foreign currency forward contracts are valued using observable inputs, such as quotations on forward foreign exchange points and foreign interest rates. The estimated fair value of commitments from prior acquisitions are determined based on management’s estimate of fair value using a Monte Carlo simulation model, which uses Level 3 inputs for fair value measurements. As of September 30, 2019, management estimated the fair value of such commitments to be zero. During the three months ended September 30, 2019, the Company made an investment of $0.6 million in a convertible security issued by its cost method investee. The estimated fair value of the investment was determined based on Level 3 inputs. As of September 30, 2019, management estimated that the fair value of the investment equaled its carrying value.

The Company's cash and cash equivalents, and marketable securities consist of the following:



	September 30, 2019
	Amortized Cost		Unrealized Gains		Unrealized (Losses)			Fair Value
	(in thousands)
Cash and cash equivalents:
Cash	$	66,453	$	—	$	—		$	66,453
Money market funds	249		—		—			249
Commercial paper	8,913		—		—			8,913
Total	75,615		—		—			75,615
Short-term marketable securities:
Commercial paper	3,386		—		—			3,386
Corporate bonds	30,038		70		(9		)	30,099
Asset-backed securities	1,051		1		—			1,052
U.S. government agencies	187,654		235		(5		)	187,884
Total	222,129		306		(14		)	222,421
Long-term marketable securities:
Asset-backed securities	39,831		252		—			40,083
U.S. government agencies	27,874		382		—			28,256
Corporate bonds	32,376		242		(6		)	32,612
Total	100,081		876		(6		)	100,951
Total	$	397,825	$	1,182	$	(20	)	$	398,987



	December 31, 2018
	Amortized Cost		Unrealized Gains		Unrealized (Losses)			Fair Value
	(in thousands)
Cash and cash equivalents:
Cash	$	40,913	$	—	$	—		$	40,913
Money market funds	113		—		—			113
Total	41,026		—		—			41,026
Short-term marketable securities:
Commercial paper	3,237		—		—			3,237
Corporate bonds	30,906		—		(84		)	30,822
Asset-backed securities	10,447		—		(15		)	10,432
U.S. government agencies	203,734		9		(94		)	203,649
Total	248,324		9		(193		)	248,140
Long-term marketable securities:
Asset-backed securities	22,945		10		(28		)	22,927
U.S. government agencies	18,804		—		(53		)	18,751
Corporate bonds	35,322		3		(293		)	35,032
Total	77,071		13		(374		)	76,710
Total	$	366,421	$	22	$	(567	)	$	365,876

The following table shows the changes to AOCI related to available-for-sale marketable securities for the nine months ended September 30, 2019 (in thousands):



	Unrealized Gain (Loss), net
AOCI for available-for sale marketable securities balance at December 31, 2018	$	(545	)
Change in net unrealized gain, net of tax	1,419
Amounts reclassified for net realized gain included in net income	25
Total change in unrealized gain (loss), net of tax	1,444
AOCI for available-for sale marketable securities balance at September 30, 2019	$	899

The following table sets forth by level within the fair value hierarchy, the fair value of the Company's available-for-sale marketable securities measured on a recurring basis, excluding cash and money market funds:



	September 30, 2019
	Level 1		Level 2		Level 3		Fair Value
	(in thousands)
Commercial paper	$	—	$	12,299	$	—	$	12,299
U.S. government agencies	—		216,140		—		216,140
Corporate bonds	—		62,711		—		62,711
Asset-backed securities	—		41,135		—		41,135
Total	$	—	$	332,285	$	—	$	332,285



	December 31, 2018
	Level 1		Level 2		Level 3		Fair Value
	(in thousands)
Commercial paper	$	—	$	3,237	$	—	$	3,237
U.S. government agencies	—		222,400		—		222,400
Corporate bonds	—		65,854		—		65,854
Asset-backed securities	—		33,359		—		33,359
Total	$	—	$	324,850	$	—	$	324,850

There were no transfers between Level 1, Level 2 or Level 3 of the fair value hierarchy, as determined at the end of each reporting period.

The following summarizes the fair value of marketable securities classified as available-for-sale by contractual, or effective, maturity:



	September 30, 2019
	Mature within One Year		Mature after One Year through Two Years		Mature over Two Years		Fair Value
	(in thousands)
Commercial paper	$	12,299	$	—	$	—	$	12,299
U.S. government agencies	187,883		13,527		14,730		216,140
Corporate bonds	30,100		21,330		11,281		62,711
Asset-backed securities	1,052		14,824		25,259		41,135
Total	$	231,334	$	49,681	$	51,270	$	332,285

Derivative Financial Instruments

Non-designated forward contracts

At September 30, 2019, the Company had four outstanding forward contracts with notional amounts of €9.0 million and £4.0 million. At December 31, 2018, the Company had two outstanding forward contracts with notional amounts of €16.0 million and £6.3 million.

Designated cash flow hedges

At September 30, 2019, the Company had 26 open designated cash flow hedge contracts with notional amounts of €19.9 million and £9.8 million. During the three and nine months ended September 30, 2019, the Company recorded unrealized FX gains related to these contracts in AOCI of $1.0 million and $1.4 million, respectively, net of tax. The Company did not have any unrealized FX gains or losses during the three and nine months ended September 30, 2018, respectively.

At December 31, 2018, the Company had two open designated cash flow hedge contracts with notional amounts of €12.9 million and £4.1 million. The unrealized foreign currency losses on these contracts were recorded in AOCI and were insignificant.

The following summarizes the gains (losses) recognized in other income (expense), net on the condensed consolidated statement of operations, from forward contracts and other foreign currency transactions:



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
	(in thousands)
Net gain (loss) from non-designated forward contracts	$	642		$	(61	)	$	720		$	253
Other foreign currency transactions gain (loss)	(906		)	(378		)	(851		)	(927		)
Total foreign exchange gain (loss), net	$	(264	)	$	(439	)	$	(131	)	$	(674	)

- 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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