Fair Value Measurements

3 Months Ended

Mar. 31, 2020

Fair Value Disclosures [Abstract]

Fair Value Measurements

3. Fair Value Measurements

The 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. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

Level 1—Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2—Observable inputs 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—Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The Company’s fair value hierarchy for its financial assets and liabilities that are measured at fair value on a recurring basis are as follows (in thousands):

	March 31, 2020
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	104,790		—		—	$	104,790
U.S. Treasury Bills		15,185		—		—		15,185
Total	$	119,975	$	—	$	—	$	119,975
Liabilities:
Contingent consideration related to acquisitions		—		—		9,680		9,680
Total	$	—	$	—	$	9,680	$	9,680
	December 31, 2019
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	124,303		—		—	$	124,303
U.S. Treasury Bills		15,120		—		—		15,120
Total	$	139,423	$	—	$	—	$	139,423
Liabilities:
Contingent consideration related to acquisitions		—		—		36,220		36,220
Total	$	—	$	—	$	36,220	$	36,220

The valuation technique used to measure the fair value of money market funds and U.S. Treasury Bills includes using quoted prices in active markets. The money market funds have a fixed net asset value (NAV) of $1.0.

The contingent consideration relates to the acquisitions of MLW Squared Inc. (“Ahalogy”), Elevaate Ltd. (“Elevaate”) and Ubimo Ltd. (“Ubimo”). The fair values of contingent consideration are based on the expected achievement of certain revenue targets as defined under the acquisition agreements and were estimated using an option pricing method with significant inputs that are not observable in the market, thus classified as a Level 3 instrument. The inputs included the expected achievement of certain financial metrics over the contingent consideration period, volatility and discount rate. The fair-value of the contingent consideration is classified as a liability and is re-measured each reporting period. Refer to Note 6 for further details related to the acquisitions.

The following table represents the change in the contingent consideration (in thousands):

	Three Months Ended March 31, 2020
	Ubimo		Elevaate		Ahalogy
	Level 3		Level 3		Level 3
Balance at the beginning of period	$	5,686	$	3,534	$	27,000
Change in fair value during the period		293		167		—
Payments made during the period		—		—		(27,000	)
Total	$	5,979	$	3,701	$	—

	Three Months Ended March 31, 2019
	Elevaate		Ahalogy
	Level 3		Level 3
Balance at the beginning of period	$	6,121	$	22,842
Change in fair value during the period		1,012		2,051
Total	$	7,133	$	24,893

The Company recorded a charge of $0.5 million and $3.1 million during the three months ended March 31, 2020 and 2019, respectively, for the re-measurement of the fair values of contingent consideration related to acquisitions, as a component of operating expenses in the accompanying condensed consolidated statements of operations.

During the three months ended March 31, 2020, the Company paid $27.0 million related to Ahalogy’s achievement of financial metrics subject to contingent consideration during the measurement period ending December 31, 2019, and as a result, no liability exists as of March 31, 2020. Out of the total consideration paid, $14.6 million was originally measured and recorded on the acquisition date and $12.4 million was recorded subsequent to the acquisition date through changes in fair value of contingent consideration within the condensed consolidated statements of operations.

Fair Value Measurements of Other Financial Instruments

As of March 31, 2020 and December 31, 2019, the fair value of the Company’s 1.75% convertible senior notes due 2022 was $187.1 million and $195.4 million, respectively. The fair value was determined based on a quoted price of the convertible senior notes in an over-the-counter market on the last trading day of the reporting period. Accordingly, these convertible senior notes are classified within Level 2 in the fair value hierarchy. Refer to Note 8 for additional information related to the Company’s convertible debt.