Fair Value Measurements

3 Months Ended

Mar. 31, 2022

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):

	March 31, 2022
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	20.0	$	—	$	—	$	20.0
Foreign certificates of deposit and time deposits		—		245.3		—		245.3
Short-term investments:
Foreign certificates of deposit and time deposits		—		10.5		—		10.5
Derivative assets:
Designated hedging derivatives - foreign exchange contracts⁽¹⁾		—		14.8		—		14.8
Total financial assets	$	20.0	$	270.6	$	—	$	290.6

Liabilities:
Derivative liabilities:
Non-designated hedging derivatives - foreign exchange contracts⁽¹⁾	$	—	$	3.8	$	—	$	3.8
Contingent consideration		—		—		7.3		7.3
Total financial liabilities	$	—	$	3.8	$	7.3	$	11.1

⁽¹⁾Designated hedging derivatives are presented net of the non-designated hedging derivatives within other current assets in the Company’s consolidated balance sheet.

	December 31, 2021
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	117.7	$	—	$	—	$	117.7
Foreign certificates of deposit and time deposits		—		216.4		—		216.4
Short-term investments:
Corporate debt securities		—		112.0		—		112.0
Foreign certificates of deposit and time deposits		—		11.3		—		11.3
Mutual funds		—		45.7		—		45.7
Derivative assets:
Designated hedging derivatives - foreign exchange contracts⁽¹⁾		—		9.3		—		9.3
Total financial assets	$	117.7	$	394.7	$	—	$	512.4

Liabilities:
Derivative liabilities:
Non-designated hedging derivatives - foreign exchange contracts⁽¹⁾	$	—	$	2.3	$	—	$	2.3
Contingent consideration		—		—		257.6		257.6
Total financial liabilities	$	—	$	2.3	$	257.6	$	259.9

⁽¹⁾ Designated hedging derivatives are presented net of the non-designated hedging derivatives within other current assets in the Company’s consolidated balance sheet.

The following table presents the activity for the three months ended March 31, 2022 related to our Level 3 contingent consideration liabilities (in millions):

Level 3 Liabilities:	Contingent Consideration
Balance as of December 31, 2021	$	257.6
Additions		—
Fair value adjustments		(25.7	)
Payments		(224.6	)
Balance as of March 31, 2022	$	7.3

In February and March 2022, the Company settled the final contingent consideration obligations related to its Rollic and Small Giant acquisitions in the amounts of $40.0 million and $224.6 million, respectively. For the three months ended March 31, 2022, we recognized expense of $0.1 million and a benefit of $17.7 million within research and development expenses in our consolidated statement of operations related to the Rollic and Small Giant contingent consideration, respectively.

As of March 31, 2022, our contingent consideration obligations relate to the consideration payable in connection Rollic’s acquisitions of Creasaur, Zero Sum and Forgerhero (collectively, the “Rollic studio acquisitions”), in October 2021 (Creasaur and Zero Sum) and November 2021 (Forgerhero).

Under the terms of the Rollic studio acquisitions, contingent consideration may be payable based on the achievement of certain future bookings metrics during each annual period following each individual acquisition’s 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 discounted cash flow model. The significant unobservable inputs used in estimating these acquisition date fair value measurements were each entity’s projected performance and a risk-adjusted discount rate.

We estimate the fair value of the Rollic studio acquisitions contingent consideration liabilities at each subsequent reporting period using a discounted cash flow model. The table below outlines the significant unobservable inputs used in estimating their fair values as of March 31, 2022, weighted by the relative fair value of each annual period’s obligation to the total obligation (in millions, except percentages):

	March 31, 2022
	Range	Weighted Average
Annual bookings	$6.9 - $34.8	$25.8
Discount rates	14.0% - 14.0%	14.0%

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

The estimated fair value of the Rollic studio acquisitions contingent consideration obligations decreased from $15.3 million as of December 31, 2021 to $7.3 million as of March 31, 2022, driven by continued refinement of forecasted financial results. For the three months ended March 31, 2022, we recognized a benefit of $8.0 million within research and development expenses in our consolidated statements of operations related to the Rollic studio acquisitions.

- 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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