Fair Value Measurements

9 Months Ended

Sep. 30, 2021

Fair Value Disclosures [Abstract]

Fair Value Measurements

4. Fair Value Measurements

The composition of our financial assets and liabilities among the three levels of the fair value hierarchy are as follows (in millions):

	September 30, 2021
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	384.2	$	—	$	—	$	384.2
Foreign certificates of deposit and time deposits		—		189.4		—		189.4
Short-term investments:
Corporate debt securities		—		195.4		—		195.4
Foreign certificates of deposit and time deposits		—		9.8		—		9.8
Mutual funds		—		47.4		—		47.4
Derivative assets:
Designated hedging derivatives - foreign exchange    contracts		—		2.8		—		2.8
Non-designated hedging derivatives - foreign    exchange contracts		—		0.3		—		0.3
Total financial assets	$	384.2	$	445.1	$	—	$	829.3
Liabilities:
Contingent consideration	$	—	$	—	$	213.9	$	213.9
Total financial liabilities	$	—	$	—	$	213.9	$	213.9

	December 31, 2020
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	611.1	$	—	$	—	$	611.1
Corporate debt securities		—		313.0		—		313.0
Foreign certificates of deposit and time deposits		—		85.6		—		85.6
Short-term investments:
Corporate debt securities		—		152.8		—		152.8
Foreign certificates of deposit and time deposits		—		6.5		—		6.5
Mutual funds		—		49.1		—		49.1
Long-term investments:
Corporate debt securities		—		2.0		—		2.0
Total financial assets	$	611.1	$	609.0	$	—	$	1,220.1
Liabilities:
Contingent consideration	$	—	$	—	$	463.1	$	463.1
Total financial liabilities	$	—	$	—	$	463.1	$	463.1

The following table presents the activity for the nine months ended September 30, 2021 related to our Level 3 liabilities (in millions):

Level 3 Liabilities:	Contingent Consideration
Balance as of December 31, 2020	$	463.1
Additions		—
Fair value adjustments		50.0
Payments		(239.6	)
Rollic contingency resolution		(59.6	)
Balance as of September 30, 2021	$	213.9

In July 2021, the Company settled the final contingent consideration obligation for $75.0 million related to its acquisition of Gram Games in the second quarter of 2018. For the three and nine months ended September 30, 2021, we recognized $0.1 million and $0.9 million of expense, respectively, within research and development expenses in our consolidated statement of operations related to the Gram Games contingent consideration.

As of September 30, 2021, our contingent consideration obligations relate to the additional consideration payable in connection with our acquisitions of Small Giant in the first quarter of 2019 and Rollic in the fourth quarter of 2020.

Under the original terms of the Small Giant acquisition, contingent consideration may be payable based on the achievement of certain future profitability metrics during each annual period following the acquisition date for a total of three years, with no maximum limit as to the contingent consideration achievable. Under the original terms of the Rollic acquisition, contingent consideration may be payable based on the achievement of certain future bookings and profitability metrics during each annual period following the respective acquisition date for a total of three years, with no maximum limit as to the contingent consideration achievable. For these acquisitions, we estimated the acquisition date fair value of the contingent consideration obligations using a Monte Carlo simulation. The significant unobservable inputs used in estimating these acquisition date fair value measurements were each entity’s projected performance, a risk-adjusted discount rate and performance volatility similar to industry peers.

With respect to the remaining Rollic contingent consideration obligation, the Company executed an amendment to the Share Purchase Agreement with the former owners of Rollic in the second quarter of 2021 to accelerate the Company’s acquisition of the remaining 20% ownership in Rollic and to set the total contingent consideration payment at $60.0 million (the “Rollic Amendment”). In July 2021, the Company acquired the remaining 20% ownership and paid $20.0 million, with the remaining $40.0 million to be paid in first quarter of 2022. At the date of the Rollic Amendment, the Company measured the remaining final obligation by calculating the present value of the final payments using a discount rate of 1.3%, commensurate with the remaining term. The Company accretes the obligation up to its final amount using the effective interest method.

The estimated value of the Rollic contingent consideration obligation decreased from $53.8 million as of December 31, 2020 to $39.8 million as of September 30, 2021. For the three and nine months ended September 30, 2021, we recognized $0.1 million and $6.0 million of expense, respectively, within research and development expenses in our consolidated statement of operations related to the Rollic contingent consideration.

With the respect to the remaining Small Giant contingent consideration obligation, we estimate the fair value at each subsequent reporting period using a Monte Carlo simulation. The table below outlines the significant unobservable inputs used in estimating the fair value of the last remaining Small Giant contingent consideration liability as of September 30, 2021:

	Unobservable Inputs
Annual bookings growth (decline) rate	(7.7%)
Bookings volatility	30.0%
Asset volatility	40.0%
Net cash flow margin	53.7%
Discount rate	9.5%

Changes in the projected performance of the acquired businesses could result in a higher or lower contingent consideration obligation in the future.

In April 2021, the Company executed an amendment to the Share Purchase Agreement with the former owners of Small Giant to exclude the direct profitability (which includes marketing expenses) of Puzzle Combat, which launched globally in April 2021, from the remaining performance period.

The estimated fair value of the Small Giant contingent consideration obligation decreased from $409.3 million as of December 31, 2020 to $213.9 million as of September 30, 2021. The decrease was driven by a $239.6 million payment in the first quarter of 2021 to the former owners of Small Giant for its performance during the second contingent consideration period, partially offset by the increased probability of achievement and stronger than expected performance during the remaining performance period. For the three and nine months ended September 30, 2021, we recognized $21.3 million and $44.2 million of expense, respectively, within research and development expenses in our consolidated statements of operations.