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Fair Value Measurements, Cash Equivalents and Marketable Securities

6 Months Ended

Jun. 30, 2020

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, accounts payable and accrued expenses. Cash equivalents and marketable securities are stated at fair value. Prepaid expenses and other current assets, accounts payable and accrued expenses 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:


	June 30, 2020
	Fair Value		Level 1		Level 2		Level 3

	(unaudited)
	(in thousands)
Financial Assets:
Money market funds	$	20,237	$	20,237	$	—	$	—
Total cash equivalents	$	20,237	$	20,237	$	—	$	—


U.S. government debt securities	$	773,160	$	—	$	773,160	$	—
Total short-term marketable securities	$	773,160	$	—	$	773,160	$	—

U.S. government debt securities	$	146,118	$	—	$	146,118	$	—
Total long-term marketable securities	$	146,118	$	—	$	146,118	$	—
Total	$	939,515	$	20,237	$	919,278	$	—

Financial Liabilities:
Contingent consideration	$	1,175	$	—	$	—	$	1,175
Total	$	1,175	$	—	$	—	$	1,175


	December 31, 2019
	Fair Value		Level 1		Level 2		Level 3

	(in thousands)
Financial Assets:
Money market funds	$	10,734	$	10,734	$	—	$	—
Total cash equivalents	$	10,734	$	10,734	$	—	$	—

Corporate bonds	$	16,690	$	—	$	16,690	$	—
U.S. government debt securities	362,884		—		362,884		—
Total short-term marketable securities	$	379,574	$	—	$	379,574	$	—

U.S. government debt securities	$	268,783	$	—	$	268,783	$	—
Total long-term marketable securities	$	268,783	$	—	$	268,783	$	—
Total	$	659,091	$	10,734	$	648,357	$	—

Financial Liabilities:
Contingent consideration	$	1,365	$	—	$	—	$	1,365
Total	$	1,365	$	—	$	—	$	1,365

The Company measures the fair value of money market funds based on quoted prices in active markets for identical securities. Corporate bonds, U.S. government debt securities and U.S. government agency bonds 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.

The following table summarizes the activities for the Level 3 financial instruments for the three and six months ended June 30, 2020 and 2019:


	Redeemable Noncontrolling Interest														Contingent Consideration
	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019		2020		2019		2020		2019

	(unaudited)
	(in thousands)
Fair value — beginning of period	$	45,500	$	46,500	$	49,600	$	41,800	$	1,175	$	—	$	1,365	$	—
Initial valuation on the date of acquisition	—		—		—		—		—		1,065		—		1,065
Increase (decrease) in fair value	6,186		922		3,159		5,944		—		—		(190)		—
Net loss for the period	(1,286)		(622)		(2,359)		(944)		—		—		—		—
Fair value — end of period	$	50,400	$	46,800	$	50,400	$	46,800	$	1,175	$	1,065	$	1,175	$	1,065

As of June 30, 2020 and December 31, 2019, contingent consideration liability of $1.2 million and $1.4 million, respectively, was recorded within other long-term liabilities on the condensed consolidated balance sheets.

Cash Equivalents and Marketable Securities

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


	June 30, 2020
	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Estimated Fair Value

	(unaudited)
	(in thousands)
Money market fund	$	20,237	$	—	$	—	$	20,237

U.S. government debt securities	913,655		5,623		—		919,278
Total	$	933,892	$	5,623	$	—	$	939,515


	December 31, 2019
	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Estimated Fair Value

	(in thousands)
Money market fund	$	10,734	$	—	$	—	$	10,734
Corporate bond	16,679		11		—		16,690
U.S. government debt securities	630,283		1,423		(39)		631,667
Total	$	657,696	$	1,434	$	(39)	$	659,091

There have been no material realized gains or losses on marketable securities for the periods presented. None of the Company’s investments in marketable securities has been in an unrealized loss position for more than one year. The Company determined that it did have the ability and intent to hold all marketable securities that have been in a continuous loss position until maturity or recovery, thus there has been no recognition of credit losses in the three and six months ended June 30, 2020 and 2019, respectively. The maturities of the Company’s long-term marketable securities range from 1.0 year to 1.4 years as of June 30, 2020.

- 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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