Fair Value of Financial Instruments

12 Months Ended

Dec. 31, 2020

The fair value of an asset or liability represents the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between unrelated market participants.

The Company reports the fair value of assets and liabilities using a three level measurement hierarchy that prioritizes the inputs used to measure fair value. The three levels of inputs used to measure fair value are as follows:

•Level 1—Inputs are unadjusted quoted prices in active markets for identical assets. The Company has the ability to access these prices as of the measurement date. Level 1 assets include: cash held at banks; certificates of deposit; money market funds; investment grade corporate debt securities; and U.S. government agency and municipal debt securities.

•Level 2—Level 2 securities are valued using third-party pricing sources that apply relevant inputs and data in their models to estimate fair value. Inputs are quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; inputs other than quoted prices, but that are observable for the asset or liability (e.g., interest rates; yield curves); and inputs that are derived principally from or corroborated by observable market data by correlation or by other means (i.e., market corroborated inputs). Level 2 assets include: investment grade corporate debt securities; U.S. government agency and municipal debt securities; other fixed income securities; and SERP (Supplemental Executive Retirement Plan) assets. The fair value of the restricted marketable securities is recorded in Other assets on the consolidated balance sheets.

•Level 3—Unobservable inputs that reflect the Company’s own assumptions. These are based on the best information available, including the Company’s own data.

There were no level 3 assets as of December 31, 2020, or December 31, 2019.

Financial Assets Recorded at Fair Value

The Company’s financial assets that are required to be measured at fair value on a recurring basis are as follows (dollars in thousands):


			Fair Value Measurements as of December 31, 2020
	Total Fair value at December 31, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
Assets:
Cash and cash equivalents
Cash	$	218,550	$	218,550	$	—
Money market funds	70,090		70,090		—
Marketable securities
Corporate debt securities	133,893		—		133,893
Long term marketable securities
Corporate debt securities	350,359		256		350,103
Other noncurrent assets
Marketable securities - restricted (SERP)	547		3		544
Total assets at fair value	$	773,439	$	288,899	$	484,540


			Fair Value Measurements as of December 31, 2019
	Total Fair Value at December 31, 2019		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
Assets:
Cash and cash equivalents
Cash	$	78,912	$	78,912	$	—
Money market funds	102,469		102,469		—
Marketable securities
Corporate debt securities	165,527		—		165,527
Municipal debt securities	165		—		165
Long term marketable securities
Corporate debt securities	571,828		254		571,574
U.S. government agency and municipal debt securities	19,945		—		19,945
Other noncurrent assets
Marketable securities - restricted (SERP)	418		3		415
Total assets at fair value	$	939,264	$	181,638	$	757,626

The carrying amounts of other financial instruments, including accounts receivable, accounts payable, and accrued expenses, approximate fair value due to their short-term maturities.

Unrestricted available-for-sale marketable securities held by the Company are as follows (dollars in thousands):


	December 31, 2020		December 31, 2019
Corporate and U.S. government agency and municipal debt securities
Amortized cost	$	472,306	$	747,598
Gross unrealized gains	11,987		10,031
Gross unrealized losses	(41)		(164)
Total fair value	$	484,252	$	757,465

The contractual maturities of the unrestricted available-for-sale marketable securities held by the Company are as follows (dollars in thousands):


	December 31, 2020
Less than 1 year	$	133,893
1 year to 2 years	132,480
2 years to 3 years	129,743
3 years to 4 years	88,136
Greater than 4 years	—
Total	$	484,252

There was no impairment on any available-for-sale marketable securities as of December 31, 2020, and December 31, 2019.

Financial Liabilities Recorded at Fair Value

Contingent Consideration

During the measurement period, changes in fair value due to measurement period adjustments are recorded against goodwill. In each reporting period after the acquisition, the Company remeasures the fair value of the contingent consideration liabilities from the USWM Acquisition and records in its consolidated statements of earnings the increases or decreases in the fair value of the liabilities. The contingent consideration liabilities are measured at fair value on a recurring basis, using the same methodology as of the acquisition date. The Company classifies the contingent consideration liabilities under Level 3 because the inputs and assumptions used in estimating fair value may not be observable in the market. These reflect the assumptions the Company believes would be made by a market participant. Refer to Note 3, USWM Acquisition, for further discussion of significant inputs and assumptions used for the valuation of the contingent consideration as of the acquisition date. Changes in any of those inputs together or in isolation may result in significantly lower or higher fair value measurement.

The following table provides the reconciliation of contingent consideration liabilities balance as of December 31, 2020 (dollars in thousands):


Balance at December 31, 2019	$	—
Initial estimate of contingent consideration at Closing Date	115,700
Measurement period adjustment	(40,900)
Change in fair value recognized in earnings	1,900
Balance at December 31, 2020	$	76,700

Refer to Note 3 for further discussion on measurement period adjustments on the fair value at the Closing Date of the contingent consideration liability related to the USWM Acquisition.

During the year ended December 31, 2020, the Company recorded an increase to the contingent consideration liabilities of $1.9 million. Correspondingly, the change in fair value is reported in Contingent consideration expense in the consolidated

statement of earnings for the year ended December 31, 2020. The increase in the fair value remeasurement of contingent consideration liabilities was primarily due to the changes made in the assumptions on the expected timing of the achievement of milestones and changes to the estimate of projected revenues that did not qualify as measurement period adjustments.

Financial Liabilities Recorded at Carrying Value

The following table sets forth the carrying value and fair value of the Company’s financial liabilities that are not carried at fair value (dollars in thousands):


	December 31, 2020				December 31, 2019
	Carrying Value		Fair Value (Level 2)		Carrying Value		Fair Value (Level 2)
Convertible notes, net	$	361,751	$	383,381	$	345,170	$	366,023

The fair value has been estimated based on actual trading information, and quoted prices, both provided by bond traders.

- 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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