Fair Value Measurements

3 Months Ended

Mar. 31, 2020

5. Fair Value Measurements

The carrying amounts of the Company’s receivables and payables approximate their fair value due to their short maturities.

Accounting principles provide guidance for using fair value to measure assets and liabilities. The guidance includes a three-level hierarchy of valuation techniques used to measure fair value, defined as follows:

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Unadjusted Quoted Prices — The fair value of an asset or liability is based on unadjusted quoted prices in active markets for identical assets or liabilities (Level 1).

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Pricing Models with Significant Observable Inputs — The fair value of an asset or liability is based on information derived from either an active market quoted price, which may require further adjustment based on the attributes of the financial asset or liability being measured, or an inactive market transaction (Level 2).

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Pricing Models with Significant Unobservable Inputs — The fair value of an asset or liability is primarily based on internally derived assumptions surrounding the timing and amount of expected cash flows for the financial instrument. Therefore, these assumptions are unobservable in either an active or inactive market (Level 3).

The Company considers an active market as one in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. Conversely, the Company views an inactive

market as one in which there are few transactions for the asset or liability, the prices are not current, or price quotations vary substantially either over time or among market makers. Where appropriate, non-performance risk, or that of a counterparty, is considered in determining the fair values of liabilities and assets, respectively.

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. Investment debt securities are classified as Level 2 instruments based on market pricing and other observable inputs.

Financial assets carried at fair value are classified in the tables below in one of the three categories described above:


			Fair Value Measurements Using
	Total		Level 1		Level 2		Level 3
	(in thousands)
March 31, 2020
Assets
Cash and cash equivalents:
Money market funds	$	24,773	$	24,773	$	—	$	—
Available-for-sale investment debt securities:
Commercial paper		18,488		—		18,488		—
Corporate debt securities		485,098		—		485,098		—
U.S. treasuries		4,042		—		4,042		—
Total financial assets	$	532,401	$	24,773	$	507,628	$	—

December 31, 2019
Assets
Cash and cash equivalents:
Money market funds	$	19,376	$	19,376	$	—	$	—
Commercial paper		7,498		—		7,498		—
Available-for-sale investment debt securities:
Commercial paper		42,848		—		42,848		—
Corporate debt securities		539,719		—		539,719		—
Total financial assets	$	609,441	$	19,376	$	590,065	$	—

The aggregate fair value of all available-for-sale investment debt securities (commercial paper, corporate debt securities and U.S. treasuries), by contractual maturity, are as follows:


	Fair Value as of
	March 31, 2020		December 31, 2019
	(in thousands)
Due in one year or less	$	433,013	$	473,602
Due after one year through two years		74,615		116,463
Total investment debt securities	$	507,628	$	590,065

Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations without call or prepayment penalties.

- 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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