Fair Value Measurements

9 Months Ended

Sep. 30, 2019

Fair value is defined as the exchange price that would be received from sale of an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

Assets and liabilities measured at fair value are classified into the following categories:

•Level I: Observable inputs are unadjusted quoted prices in active markets for identical assets or liabilities;

•Level II: Observable inputs are quoted prices for similar assets and liabilities in active markets or inputs other than quoted prices that are observable for the assets or liabilities, either directly or indirectly through market corroboration, for substantially the full term of the financial instruments; and

•Level III: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. These inputs are based on the Company’s own assumptions used to measure assets and liabilities at fair value and require significant management judgment or estimation.

The Company's cash equivalents are comprised of highly liquid money market funds and commercial paper. The Company classifies money market funds within Level I of the fair value hierarchy because they are valued based on quoted market prices in active markets. The Company classifies its investments, which are comprised of U.S. treasury securities, U.S. government agency securities, commercial paper, and corporate bonds, within Level II of the fair value hierarchy because the fair value of these securities is priced by using inputs based on non-binding market consensus prices that are primarily corroborated by observable market data or quoted market prices for similar instruments. The Company recognizes transfers between levels within the fair value hierarchy, if any, at the end of each period. There were no transfers between levels during the periods presented.

The following table summarizes the Company’s cash and available-for-sale securities’ amortized cost, unrealized gains (losses), and fair value by significant investment category reported as cash and cash equivalents, restricted cash, marketable securities, or long-term investments as of September 30, 2019 and December 31, 2018.


(in thousands)									Reported as:
September 30, 2019	Amortized Cost		Unrealized Gain		Unrealized (Loss)		Fair Value		Cash & Cash Equivalents		Marketable Securities		Long-term Investments		Long- term Restricted Cash
Cash	$	2,202	$	—	$	—	$	2,202	$	2,202	$	—	$	—	$	—
Level I:
Money market funds	506,164		—		—		506,164		499,504		—		—		6,660
Level II:
Corporate bonds	15,030		23		—		15,053		—		8,988		6,066		—
U.S. treasury securities	115,550		80		—		115,630		—		105,526		10,103		—
U.S. government agency securities	1,100		—		—		1,100		—		1,100		—		—
Commercial paper	27,785		—		—		27,785		—		27,785		—		—
Subtotal	159,465		103		—		159,568		—		143,399		16,169		—
Total assets measured at fair value on a recurring basis	$	667,831	$	103	$	—	$	667,934	$	501,706	$	143,399	$	16,169	$	6,660


(in thousands)									Reported as:
December 31, 2018	Amortized Cost		Unrealized Gain		Unrealized (Loss)		Fair Value		Cash & Cash Equivalents		Marketable Securities		Long-term Investments		Long-term Restricted Cash
Cash	$	4,151	$	—	$	—	$	4,151	$	4,151	$	—	$	—	$	—
Level I:
Money market funds	23,278		—		—		23,278		16,907		—		—		6,371
Level II:
Corporate bonds	17,291		1		(16)		17,276		—		17,276		—		—
U.S. treasury securities	102,360		8		(20)		102,348		—		102,348		—		—
U.S. government agency securities	1,099		—		—		1,099		—		1,099		—		—
Commercial paper	18,876		—		—		18,876		3,997		14,879		—		—
Subtotal	139,626		9		(36)		139,599		3,997		135,602		—		—
Total assets measured at fair value on a recurring basis	$	167,055	$	9	$	(36)	$	167,028	$	25,055	$	135,602	$	—	$	6,371

The aggregate fair value of the Company’s money market funds approximated amortized cost and, as such, there were no unrealized gains or losses on money market funds as of September 30, 2019 and December 31, 2018. Realized gains and losses, net of tax, were not material for any of the periods presented.

The amortized cost of available-for-sale investments with maturities less than one year was $143.4 million and $135.6 million as of September 30, 2019 and December 31, 2018, respectively. The amortized cost of available-for-sale investments with maturities greater than one year was $16.2 million and zero as of September 30, 2019 and December 31, 2018, respectively.

As of September 30, 2019, net unrealized gains on investments were $0.07 million net of tax and were included in accumulated other comprehensive income on the condensed consolidated balance sheet. As of December 31, 2018, net unrealized losses on investments were $0.06 million net of tax and were included in accumulated other comprehensive loss on the condensed consolidated balance sheet. The unrealized gains and losses on available-for-sale investments are related to U.S. treasury securities, U.S. government agency securities, and corporate bonds. The Company determined these unrealized losses to be temporary. Factors considered in determining whether a loss is temporary include the length of time and extent to which the investment’s fair value has been less than the cost basis, the financial condition and near-term prospects of the investee, the extent of the loss related to the credit of the issuer, the expected cash flows from the security, the Company’s intent to sell the security, and whether or not the Company will be required to sell the security before the recovery of its amortized cost.

The Company classifies financial instruments in Level III of the fair value hierarchy when there is reliance on at least one significant unobservable input to the valuation model. In addition to these unobservable inputs, the valuation models for Level III financial instruments typically also rely on a number of inputs that are readily observable, either directly or indirectly. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or liability. The gains and losses presented below include changes in the fair value related to both observable and unobservable inputs. Prior to the IPO, the Company's only Level III financial instruments were its redeemable convertible preferred stock warrants. Upon the completion of the IPO, the warrant to purchase shares of Series B redeemable convertible preferred stock was converted into a warrant to purchase shares of Class B common stock. As a result, the warrant liability was remeasured and reclassified to additional paid-in capital within stockholders' equity (deficit).

The following tables summarize the Company’s redeemable convertible preferred stock warrant liability measured and recorded at fair value as of September 30, 2019 and December 31, 2018:


	September 30, 2019
	Fair Value		Reported as Long-Term Liability
	(in thousands)
Fair value using Level III inputs
Redeemable convertible preferred stock warrant liability	$	3,135	$	3,135
Reclassification to stockholders' equity (deficit)	(3,135)		(3,135)
Balance as of September 30, 2019	$	—	$	—


	December 31, 2018
	Fair Value		Reported as Long-Term Liability
	(in thousands)
Fair value using Level III inputs
Redeemable convertible preferred stock warrant liability	$	1,618	$	1,618
Balance as of December 31, 2018	$	1,618	$	1,618


	Redeemable Convertible Preferred Stock Warrant Liability
	(in thousands)
Balance as of December 31, 2018	$	1,618
Addition	—
Change in fair value	1,517
Conversion of redeemable convertible preferred stock warrants into Class B common stock warrants	(3,135)
Balance as of September 30, 2019	$	—

Refer to Note 8 to these condensed consolidated financial statements for further information on the redeemable convertible preferred stock warrants, including the assumptions used to determine their fair value and further information on the exercise of such warrants in the three and nine months ended September 30, 2019.

- 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.

+ References + Details