FAIR VALUE OF FINANCIAL INSTRUMENTS

6 Months Ended

Jun. 30, 2020

Fair value represents the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal, or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Observable inputs are based on market data obtained from independent sources. The fair value hierarchy is based on the following three levels of inputs, of which the first two are considered observable and the last one is considered unobservable:

•Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities that management has the ability to access at the measurement date.

•Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

•Level 3 – Unobservable inputs

Assets and liabilities measured at fair value on a recurring basis included the following (in thousands):


	June 30, 2020														December 31, 2019
	Fair Value		Level 1		Level 2		Level 3		Fair Value		Level 1		Level 2		Level 3
Cash equivalents	$	—	$	—	$	—	$	—	$	148,089	$	148,089	$	—	$	—
Corporate bonds	—		—		—		—		122,648		—		122,648		—
Agency bonds	—		—		—		—		3,968		—		3,968		—
US treasury securities	—		—		—		—		70,089		—		70,089		—
Commercial paper	—		—		—		—		23,828		—		23,828		—
Certificate of deposit	—		—		—		—		3,937		3,937		—		—
Asset-backed securities	—		—		—		—		27,551		—		27,551		—
Foreign currency forward contracts	256		—		256		—		—		—		—		—
Total	$	256	$	—	$	256	$	—	$	400,110	$	152,026	$	248,084	$	—

At June 30, 2020, the Company had no cash equivalents measured at fair value on a recurring basis. At December 31, 2019, cash equivalents of $148.1 million consisted of money market funds with original maturity dates of three months or less backed by US Treasury bills, as well as corporate bonds, agency bonds, commercial paper, certificates of deposit, and US treasury securities.

At June 30, 2020, foreign currency forward contracts were classified within Level 2 of the fair value hierarchy and were valued based on quoted foreign exchange rates. The aggregate notional value of these contracts outstanding at June 30, 2020 was $11.0 million. The forward contracts are to exchange US dollars for Canadian dollars, have a maturity of less than one year, and are not used for speculative purposes. These contracts are used to manage the Company's exposure to foreign exchange rate risk related to operating expenses incurred in Canadian dollars. The contracts are re-measured to fair value at the end of each reporting period and are not designated as hedging instruments under applicable accounting guidance; therefore, changes in fair value of these contracts are recorded in other, net in the condensed consolidated statements of operations.

At December 31, 2019, agency bonds, asset-backed securities, corporate bonds, US treasury securities, and commercial paper were classified within Level 2 of the fair value hierarchy. The instruments were valued using information obtained from pricing services, which obtained quoted market prices from a variety of industry data providers, security master files from large financial institutions, and other third-party sources. The Company performed supplemental analysis to validate information obtained from its pricing services. As of December 31, 2019, no adjustments were made to such pricing information.

Convertible Notes

The Company’s Convertible Notes, as described in Note 3 – Debt, are presented in the accompanying condensed consolidated balance sheets at their original issuance value, net of unaccreted debt discount and unamortized debt issuance costs, and are not remeasured to fair value each period. The approximate fair value of the Company’s Convertible Notes as of June 30, 2020 was $365.9 million. The fair value of the Convertible Notes, which are classified as Level 2 financial instruments, was estimated on the basis of the current equity value implicit in the instrument.

- 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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