Investments and Fair Value Measurements

6 Months Ended

Jun. 30, 2022

The Company holds investment securities that consist of highly liquid, investment grade debt securities. The Company determines the fair value of its investment securities based upon one or more valuations reported by its investment accounting and reporting service provider. The investment service provider values the securities using a hierarchical security pricing model that relies primarily on valuations provided by an industry-recognized valuation service. Such valuations may be based on trade prices in active markets for identical assets or liabilities (Level 1 inputs) or valuation models using inputs that are observable either directly or indirectly (Level 2 inputs), such as quoted prices for similar assets or liabilities, yield curves, volatility factors, credit spreads, default rates, loss severity, current market and contractual prices for the underlying instruments or debt, and broker and dealer quotes, as well as other relevant economic measures.

The following table presents the Company’s financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2022 and December 31, 2021:


	June 30, 2022
	Total Fair Value and Carrying Value on Balance Sheet		Fair Value Measurement Category
			Level 1		Level 2		Level 3
Assets:
Commercial Paper	$	56,809,000	$	—	$	56,809,000	$	—
Corporate Notes/Bonds	100,384,000		—		100,384,000		—
Securities of Government Sponsored Entities	2,985,000		$	—	2,985,000		$	—
Total Investments:	$	160,178,000	$	—	$	160,178,000	$	—
Money Market Funds	$	15,923,000	$	15,923,000	$	—	$	—
Liabilities:
Contingent consideration	$	9,224,000	$	—	$	—	$	9,224,000


	December 31, 2021
	Total Fair Value and Carrying Value on Balance Sheet		Fair Value Measurement Category
			Level 1		Level 2		Level 3
Assets:
Commercial Paper	$	100,860,000	$	—	$	100,860,000	$	—
Corporate Notes/Bonds	125,181,000		—		125,181,000		—
Total Investments:	$	226,041,000	$	—	$	226,041,000	$	—
Money Market Funds	$	11,126,000	$	11,126,000	$	—	$	—
Liabilities:
Contingent consideration	$	9,066,000					$	9,066,000

Money Market Funds are classified as cash equivalents on the balance sheet. As of June 30, 2022 and December 31, 2021, the Company held 47 and 57 securities in an unrealized loss position, respectively.

As of June 30, 2022 and December 31, 2021, the Company does not intend to sell these investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis. The Company does not believe the unrealized losses incurred during the period are due to credit-related factors. The credit ratings of the securities held remain of high quality, and the Company continues to receive payments of interest and principal as they become due, and our expectation is that those payments will continue to be received timely. As such, the Company has not recognized any impairment in its financial statements related to its available for sale investment securities.

The fair value of the contingent consideration liability is reassessed on a quarterly basis using the income approach. Assumptions used to estimate the acquisition date fair value of the contingent consideration include the probability of achieving certain milestones and a discount rate of 3%. The fair value measurement of the contingent consideration is based on significant inputs not observed in the market (Level 3 inputs). The Company determined the fair value of the milestone consideration using a scenario-based technique, as the trigger for payment is event driven. The outcome of the milestone consideration is binary, meaning the milestone is either achieved or not achieved, and the only other variable factor is the timing of when the milestone is achieved. The Company determined it is highly likely that the milestone will be achieved and therefore used a 95% probability factor which is applied to the $10.0 million milestone consideration. The change in fair value of the contingent consideration during the three and six month period ended June 30, 2022 was due to the passage of time. During the three months ended June 30, 2022, the milestone consideration liability was reclassified from non-current liabilities to current liabilities.

Changes in estimated fair value of contingent consideration liability in the six months ended June 30, 2022 is as follows:


	Contingent Consideration Liability (Level 3 Measurement)
Balance as of January 1, 2021	$	9,066,000
Liability recorded as a result of current period acquisition	—
Change in estimated fair value, recorded in selling, general and administrative expenses	158,000
Cash payments	—
Balance as of June 30, 2022	$	9,224,000

As of June 30, 2022, the following table summarizes the amortized cost and the unrealized gains (losses) of the available for sale securities:


	Commercial Paper				Corporate Notes/Bonds				Securities of Government Sponsored Entities
	Amortized Cost		Unrealized gains (losses)		Amortized Cost		Unrealized gains (losses)		Amortized Cost		Unrealized gains (losses)
Less than 1 year	$	57,070,000	$	(261,000)	$	65,045,000	$	(909,000)	$	2,986,000	$	(1,000)
Due after one year through five years	—		—		36,997,000		(749,000)		—		—
Total	$	57,070,000	$	(261,000)	$	102,042,000	$	(1,658,000)	$	2,986,000	$	(1,000)

As of December 31, 2021, the following table summarizes the amortized cost and the unrealized gains (losses) of the available for sale securities:


	Commercial Paper				Corporate Notes/Bonds				Securities of Government Sponsored Entities
	Amortized Cost		Unrealized loss		Amortized Cost		Unrealized loss		Amortized Cost		Unrealized gains (losses)
Less than 1 year	$	100,929,000	$	(69,000)	$	41,173,000	$	(61,000)	$	—	$	—
Due after one year through five years	—		—		84,478,000		(409,000)		—		—
Total	$	100,929,000	$	(69,000)	$	125,651,000	$	(470,000)	$	—	$	—

Included in interest income for the three-month period ended June 30, 2022 was interest income related to the Company’s available for sale securities of $0.2 million. Included in interest income for the six-month period ended June 30, 2022 was interest income related to the Company’s available for sale securities of $0.3 million. All available for sale securities are classified as current assets, even if the maturity when acquired by the Company is greater than one year due to the ability to liquidate within the next 12 months.

- 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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