Fair Value of Financial Instruments

3 Months Ended

Oct. 31, 2020

Available-for-sale investments within cash equivalents and investments consist of the following (in thousands):


	October 31, 2020
	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
U.S. Government agency securities	$	209,058	$	132	$	(74)	$	209,116
Commercial paper	225,521		—		—		225,521
Corporate bonds	446,845		2,297		(12)		449,130
U.S. Government bonds	154,795		339		(8)		155,126
Asset-backed securities	47,369		149		—		47,518
Foreign government bonds	7,474		1		(3)		7,472
Certificates of deposit	73,148		—		—		73,148
Money market funds	173,069		—		—		173,069
Total	$	1,337,279	$	2,918	$	(97)	$	1,340,100


	July 31, 2020
	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
U.S. Government agency securities	$	242,153	$	202	$	(81)	$	242,274
Commercial paper	222,578		—		—		222,578
Corporate bonds	474,646		3,448		(38)		478,056
U.S. Government bonds	68,332		476		—		68,808

Asset-backed securities	58,564		306		—		58,870
Certificates of deposit	56,296		—		—		56,296
Money market funds	231,063		—		—		231,063
Total	$	1,353,632	$	4,432	$	(119)	$	1,357,945

The Company does not consider any portion of the unrealized losses at October 31, 2020 to be credit losses. The Company has recorded the securities at fair value in its condensed consolidated balance sheets, with unrealized gains and losses reported as a component of accumulated other comprehensive income (loss). The amount of realized gains and losses reclassified into earnings are based on the specific identification of the securities sold. The realized gains and losses from sales of securities in the periods presented were not material.

The following table summarizes the contractual maturities of the Company’s available-for-sale investments measured at fair value (in thousands):


	October 31, 2020
	Less Than 12 Months		12 Months or Greater		Total
U.S. Government agency securities	$	143,491	$	65,625	$	209,116
Commercial paper	225,521		—		225,521
Corporate bonds	339,403		109,727		449,130
U.S. Government bonds	134,771		20,355		155,126
Asset-backed securities	2,494		45,024		47,518
Foreign government bonds	—		7,472		7,472
Certificates of deposit	67,398		5,750		73,148
Money market funds	173,069		—		173,069
Total	$	1,086,147	$	253,953	$	1,340,100

Fair Value Measurement

Fair value is defined as the exchange price that would be received for an asset or an exit price 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. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

The Company applies the three-level valuation hierarchy when measuring the fair value of certain assets and liabilities:

Level 1—Unadjusted quoted prices in active markets for identical assets or liabilities;

Level 2—Inputs other than quoted prices included within Level 1 that are observable, unadjusted quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data; and

Level 3—Unobservable inputs that are supported by little or no market activity, which require the Company to develop its own assumptions.

Available-for-sale investments

The following tables summarize the Company’s available-for-sale investments measured at fair value, by level within the fair value hierarchy (in thousands):


	October 31, 2020
	Level 1		Level 2		Level 3		Total
Cash equivalents:
Commercial paper	$	—	$	41,688	$	—	$	41,688

U.S. Government bonds	—		15,013		—		15,013
Money market funds	173,069		—		—		173,069

Total cash equivalents	173,069		56,701		—		229,770
Short-term investments:
U.S. Government agency securities	—		143,491		—		143,491
Commercial paper	—		183,833		—		183,833
Corporate bonds	—		339,403		—		339,403
U.S. Government bonds	—		119,758		—		119,758
Asset-backed securities	—		2,494		—		2,494

Certificates of deposit	—		67,398		—		67,398
Total short-term investments	—		856,377		—		856,377
Long-term investments:
U.S. Government agency securities	—		65,625		—		65,625

Corporate bonds	—		109,727		—		109,727
U.S. Government bonds	—		20,355		—		20,355
Asset-backed securities	—		45,024		—		45,024
Foreign government bonds	—		7,472		—		7,472
Certificates of deposit	—		5,750		—		5,750
Total long-term investments	—		253,953		—		253,953
Total	$	173,069	$	1,167,031	$	—	$	1,340,100


	July 31, 2020
	Level 1		Level 2		Level 3		Total
Cash equivalents:
Commercial paper	$	—	$	60,584	$	—	$	60,584


Money market funds	231,063		—		—		231,063

Total cash equivalents	231,063		60,584		—		291,647
Short-term investments:
U.S. Government agency securities	—		110,089		—		110,089
Commercial paper	—		161,994		—		161,994
Corporate bonds	—		358,175		—		358,175
U.S. Government bonds	—		63,773		—		63,773
Asset-backed securities	—		25,448		—		25,448

Certificates of deposit	—		47,048		—		47,048
Total short-term investments	—		766,527		—		766,527
Long-term investments:
U.S. Government agency securities	—		132,185		—		132,185

Corporate bonds	—		119,881		—		119,881
U.S. Government bonds	—		5,035		—		5,035
Asset-backed securities	—		33,422		—		33,422

Certificates of deposit	—		9,248		—		9,248
Total long-term investment	—		299,771		—		299,771
Total	$	231,063	$	1,126,882	$	—	$	1,357,945

Strategic Convertible Debt Investment

Long-term investments on the condensed consolidated balance sheet also includes a strategic convertible debt investment made in May 2020. The Company invested $1.0 million in a technology company by participating in its convertible debt financing round. The Company estimates the fair value of this strategic investment was $1.0 million at both October 31, 2020 and July 31, 2020 based on assumptions of the expected return on the investment (Level 3).

Convertible Senior Notes

The fair value of the Convertible Senior Notes was $436.3 million at October 31, 2020 and $480.0 million at July 31, 2020. The Company estimates the fair value of the Convertible Senior Notes using commonly accepted valuation methodologies and market-based risk measurements that are directly observable, such as unadjusted quoted prices (Level 2). The Company carries the Convertible Senior Notes at initial fair value less unamortized debt discount and issuance costs on its condensed consolidated balance sheets. For further information on the Convertible Senior Notes, see Note 6.

- 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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