Fair Value Measurements

9 Months Ended

Sep. 30, 2021

The Company measures its financial assets at fair value in each reporting period using a fair value hierarchy that prioritizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:

Level 1—Inputs are observable and reflect quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level 2—Inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly.

Level 3—Inputs that are unobservable.

Cash equivalents and marketable equity securities are classified within Level 1 because they are valued using quoted market prices or alternative pricing sources and models utilizing market observable inputs. Available-for-sale debt securities and derivative assets are classified within Level 2 if the investments are valued using model driven valuations which use observable inputs such as quoted market prices, benchmark yields, reported trades, broker/dealer quotes or alternative pricing sources with reasonable levels of price transparency. Available-for-sale debt securities are held by custodians who obtain investment prices from a third-party pricing provider that incorporates standard inputs in various asset price models.

In connection with the acquisition of Natero, Inc., the Company recognized a liability on the acquisition date for the estimated fair value of the contingent consideration based on the probability of achieving certain milestones pursuant to the acquisition agreement. The fair value measurement of the contingent consideration is based on significant unobservable inputs and management judgment; therefore, it is categorized under Level 3.

The Company does not have any assets or liabilities subject to fair value remeasurement on a nonrecurring basis as of September 30, 2021 and December 31, 2020.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table represents the fair value hierarchy for the Company’s financial assets and financial liabilities measured at fair value on a recurring basis as of September 30, 2021 and December 31, 2020 (in thousands):


	September 30, 2021
	Fair Value Measured Using
	Level 1		Level 2		Level 3		Total
Financial assets:
Cash equivalents:
Money market funds	$	1,140,671	$	—	$	—	$	1,140,671
Corporate debt securities	—		3,000		—		3,000
Marketable securities:
U.S. treasury securities	97,595		—		—		97,595
Corporate debt securities	—		45,375		—		45,375
Term bond mutual funds	—		3,622		—		3,622
Total financial assets	$	1,238,266	$	51,997	$	—	$	1,290,263
Financial liabilities:
Acquisition-related contingent consideration	$	—	$	—	$	800	$	800


	December 31, 2020
	Fair Value Measured Using
	Level 1		Level 2		Level 3		Total
Financial assets:
Cash equivalents:
Money market funds	$	56,474	$	—	$	—	$	56,474
Marketable securities:
U.S. treasury securities	50,223		—		—		50,223
Corporate debt securities	—		85,673		—		85,673
Asset-backed securities	—		3,262		—		3,262
Term bond mutual funds	—		3,575		—		3,575
Total financial assets	$	106,697	$	92,510	$	—	$	199,207
Financial liabilities:
Acquisition-related contingent consideration	$	—	$	—	$	775	$	775

The following table represents a reconciliation of the contingent consideration liability measured at fair value on a recurring basis, using Level 3 significant unobservable inputs (amounts in thousands):


	September 30, 2021		December 31, 2020
Beginning balance	$	775	$	1,950
Additions during the period	—		—
Payments during the period	—		(1,200)
Change in estimated fair value	25		25
Ending balance	$	800	$	775

- 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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