Fair Value Measurements. Cash Equivalents and Marketable Securities

12 Months Ended

Dec. 31, 2023

Fair Value Measurements. Cash Equivalents and Marketable Securities

Fair Value Measurements, Cash Equivalents and Marketable Securities

Financial instruments consist of cash equivalents, marketable securities, accounts receivable, net, prepaid expenses and other current assets, net, and accounts payable and accrued liabilities. Cash equivalents and marketable securities are stated at fair value. Prepaid expenses and other current assets, net, and accounts payable and accrued liabilities are stated at their carrying value, which approximates fair value due to the short time to the expected receipt or payment date.

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. The identification of market participant assumptions provides a basis for determining what inputs are to be used for pricing each asset or liability. A financial instrument’s classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

A fair value hierarchy has been established which gives precedence to fair value measurements calculated using observable inputs over those using unobservable inputs. This hierarchy prioritized the inputs into three broad levels as follows:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company’s financial assets and liabilities subject to fair value measurements on a recurring basis and the level of inputs used in such measurements were as follows:


	December 31, 2023
	Fair Value		Level 1		Level 2		Level 3

	(in thousands)
Financial Assets:
Money market funds	$	1,032,500	$	1,032,500	$	—	$	—

Total cash equivalents	$	1,032,500	$	1,032,500	$	—	$	—



U.S. government debt securities	$	35,097	$	—	$	35,097	$	—

Total short-term marketable debt securities	$	35,097	$	—	$	35,097	$	—





Long-term marketable equity securities	$	98,002	$	98,002	$	—	$	—
Total	$	1,165,599	$	1,130,502	$	35,097	$	—

Financial Liabilities:
Contingent consideration	$	6,540	$	—	$	—	$	6,540
Total	$	6,540	$	—	$	—	$	6,540


	December 31, 2022
	Fair Value		Level 1		Level 2		Level 3

	(in thousands)
Financial Assets:
Money market funds	$	3,104	$	3,104	$	—	$	—
U.S. government debt securities	14,987		—		14,987		—
Total cash equivalents	$	18,091	$	3,104	$	14,987	$	—


U.S. government debt securities	$	869,584	$	—	$	869,584	$	—

Total short-term marketable debt securities	$	869,584	$	—	$	869,584	$	—


Long-term marketable equity securities	$	18,291	$	18,291	$	—	$	—

Total	$	905,966	$	21,395	$	884,571	$	—

Financial Liabilities:
Contingent consideration	$	6,430	$	—	$	—	$	6,430
Total	$	6,430	$	—	$	—	$	6,430

The Company measures the fair value of money market funds based on quoted prices in active markets for identical securities. U.S. government debt securities are valued taking into consideration valuations obtained from third-party pricing services. The pricing services utilize industry standard valuation models, including both income and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include reported trades of and broker/dealer quotes on the same or similar securities, issuer credit spreads; benchmark securities; prepayment/default projections based on historical data; and other observable inputs.

In July 2022, one of the Company's equity investees, Lunit Inc., or Lunit, completed its initial public offering, or IPO, subsequent to which, the Company started to account for the investment in Lunit at fair value on a recurring basis, and classified the investment as marketable equity securities within Level 1 of the fair value hierarchy as the investment is valued using the quoted market price. The Company is subject to a 2-year lock-up period from Lunit's IPO date, during which the Company shall not transfer Lunit's shares between accounts, establish or cancel pledges, sell, or withdraw such shares, without approval from the Korea Exchange. In November 2023, Lunit issued bonus shares to its existing shareholders by allocating one new share for each existing share, and the Company is subject to the same lock-up period with the same restrictions for these bonus shares. As of December 31, 2023 and 2022, the balance of the investment in Lunit was $98.0 million and $18.3 million, respectively, included in other assets, net, on the accompanying consolidated balance sheets. In addition, the Company recorded $79.7 million unrealized gains and $7.8 million unrealized losses on the investment in Lunit for the years ended December 31, 2023 and 2022, respectively, included in other income (expense), net on the accompanying consolidated statements of operations. The Company did not record any unrealized gains or losses on the investment in Lunit for the year ended December 31, 2021.

There were no transfers between Level 1, Level 2 and Level 3 during the periods presented.

Acquisition-related contingent consideration is measured at fair value on a quarterly basis and changes in estimated contingent consideration to be paid are included in general and administrative expense in the consolidated statements of operations. The fair value of acquisition-related contingent consideration is estimated using a multiple-outcome discounted cash flow valuation technique. Contingent consideration is classified within Level 3 of the fair value hierarchy, as it is based on a probability that includes significant unobservable inputs. The significant unobservable inputs include a probability-weighted estimate of achievement of certain commercialization milestones, and discount rate to present value the expected payments. A significant change in any of these input factors in isolation could have a material impact to fair value measurement. As of December 31, 2023 and 2022, the Company's acquisition-related contingent consideration liability was $6.5 million and $6.4 million, respectively, of which $5.0 million and $4.9 million was considered long-term and recorded within other long-term liabilities on the accompanying consolidated balance sheets.

Prior to the completion of the Joint Venture Acquisition in June 2022, the fair value of the noncontrolling interest liability was considered to be a Level 3 measurement and was determined based on an annual internal rate of return of 20% on the initial amount of $41.0 million invested by SoftBank in May 2018, to the date of Company's exercising the call right in November 2021. The noncontrolling interest liability was fully paid by June 30, 2022 (see Note 3, Joint Venture).

The following tables summarize the activities for the Level 3 financial instruments for the years ended December 31, 2023, 2022 and 2021:


	Contingent Consideration
	Year Ended December 31,
	2023		2022		2021

	(in thousands)
Fair value — beginning of period	$	6,430	$	3,625	$	1,245

Increase in fair value	110		4,305		2,380
Settlement	—		(1,500)		—
Fair value — end of period	$	6,540	$	6,430	$	3,625


	Noncontrolling Interest Liability				Redeemable Noncontrolling Interest
	Year Ended December 31,				Year Ended December 31,
	2022		2021		2021

	(in thousands)
Fair value — beginning of period	$	78,000	$	—	$	57,100
Increase in fair value	99,785		—		27,244
Net loss for the period	—		—		(6,344)
Settlement	(177,785)		—		—
Reclassification of redeemable noncontrolling interest to noncontrolling interest liability	—		78,000		(78,000)
Fair value — end of period	$	—	$	78,000	$	—

The Company considers the fair value of the Convertible Notes as of December 31, 2023 to be a Level 2 measurement. The fair value of the Convertible Notes is primarily affected by the trading price of the Company's common stock and market interest rates. As such, the carrying value of the Convertible Notes does not reflect the market rate. See Note 7, Debt, for additional information related to the fair value of the Convertible Notes.

The following tables summarize the Company’s cash equivalents and marketable debt securities’ amortized costs, gross unrealized gains, gross unrealized losses and estimated fair values by significant investment category:


	December 31, 2023
	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Estimated Fair Value

	(in thousands)
Money market fund	$	1,032,500	$	—	$	—	$	1,032,500

U.S. government debt securities	35,108		—		(11)		35,097

Total	$	1,067,608	$	—	$	(11)	$	1,067,597


	December 31, 2022
	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Estimated Fair Value

	(in thousands)
Money market fund	$	3,104	$	—	$	—	$	3,104

U.S. government debt securities	901,342		8		(16,779)		884,571

Total	$	904,446	$	8	$	(16,779)	$	887,675

None of the Company’s marketable debt securities had been in an unrealized loss position for more than one year as of December 31, 2023. The following table presents the estimated fair values and gross unrealized losses of the Company's marketable debt securities that had been in an unrealized loss position as of December 31, 2022.


	December 31, 2022
	Less Than 12 Months				12 Months or Greater				Total
	Estimated Fair Value		Gross Unrealized Loss		Estimated Fair Value		Gross Unrealized Loss		Estimated Fair Value		Gross Unrealized Loss

	(in thousands)



U.S. government debt securities	$	170,975	$	(2,958)	$	685,754	$	(13,821)	$	856,729	$	(16,779)

Total	$	170,975	$	(2,958)	$	685,754	$	(13,821)	$	856,729	$	(16,779)

There have been no material realized gains or losses on marketable debt securities for the periods presented. The Company determined that it did have the ability and intent to hold all marketable debt securities that had been in a continuous loss position until maturity or recovery and the loss position was temporary due to market volatility, thus there has been no recognition of credit losses for the years ended December 31, 2023, 2022 and 2021, respectively.

- 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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