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Fair value measurement

3 Months Ended

Dec. 31, 2022

The Company assesses the fair value of financial instruments based on the provisions of ASC 820, Fair Value Measurements. ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

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

Level 2—Observable inputs other than Level 1 prices 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. The Company's short-term investments primarily utilize broker quotes in a non-active market for valuation of its investments.

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.

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value.

The following table sets forth the cash and cash equivalents, and short-term investments as of December 31, 2022:


(in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value
Cash and cash equivalents	$	316,681	$	—	$	—	$	316,681
Short-term investments:
Corporate bonds	22,647		—		—		22,647
U.S. government treasury bills	100,108		—		(726)		99,382
Total	$	439,436	$	—	$	(726)	$	438,710

The following table sets forth the cash and cash equivalents, and short-term investments as of September 30, 2022:


(in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value
Cash and cash equivalents	$	378,687	$	—	$	—	$	378,687
Short-term investments:
Commercial paper	14,997		—		—		14,997
U.S. government treasury bills	112,878		—		(1,594)		111,284
Total	$	506,562	$	—	$	(1,594)	$	504,968

As of December 31, 2022, financial assets and liabilities measured and recognized at fair value are as follows:


(in thousands)	Level 1		Level 2		Level 3		Fair value
Assets
Money market funds	$	254,196	$	—	$	—	$	254,196
Corporate bonds	—		22,647		—		22,647

U.S. government treasury bills	99,382		—		—		99,382
Total financial assets	$	353,578	$	22,647	$	—	$	376,225

Liabilities
Holdback	$	—	$	7,557	$	—	$	7,557
Total financial liabilities	$	—	$	7,557	$	—	$	7,557

As of September 30, 2022, financial assets and liabilities measured and recognized at fair value are as follows:


(in thousands)	Level 1		Level 2		Level 3		Fair value
Assets
Money market funds	$	316,805	$	—	$	—	$	316,805
Commercial paper	—		14,997		—		14,997
U.S. government treasury bills	111,284		—		—		111,284
Total financial assets	$	428,089	$	14,997	$	—	$	443,086

Liabilities
Contingent consideration and indemnity holdback	$	—	$	9,592	$	2,100	$	11,692
Total financial liabilities	$	—	$	9,592	$	2,100	$	11,692

Contractual maturities of all the investments, as of December 31, 2022, were less than 12 months. The Company does not intend to sell the money market funds and short term investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis. The unrealized loss on short-term investments have been in a continuous unrealized loss position for less than 12 months.

As of December 31, 2022, there were no financial assets or financial liabilities categorized as level 3 within the fair value hierarchy.

As of September 30, 2022, the Company’s contingent consideration related to its Abveris acquisition was categorized as Level 3 within the fair value hierarchy. Contingent consideration was classified as a liability and remeasured to an estimated fair value at each reporting date until the contingency was resolved. Contingent consideration was recorded at

its fair values using unobservable inputs and have included using the Monte Carlo simulation option pricing framework, incorporating contractual terms and assumptions regarding financial forecasts, discount rates, and volatility of forecasted revenue. The key assumptions were forecasted calendar year 2022 revenue and the Company's share price. The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s management with the assistance of a third-party valuation specialist.

At September 30, 2022, management determined that the revenue target for the calendar year 2022 was probable of being achieved and a contingent consideration liability of $2.1 million was recognized. At December 31, 2022, management determined that the revenue target for the calendar year 2022 was not achieved, and therefore a change in fair value of contingent consideration of $2.1 million was recognized, resulting in the extinguishment of the contingent consideration liability of $2.1 million.

The key inputs into the Monte Carlo simulation as of September 30, 2022 were as follows:


Contingent consideration	September 30, 2022
Stock Price	$	35.42
Equity volatility	93.7		%
Risk-free interest rate	3.9		%
Revenue volatility	30.2		%

The following table provides a reconciliation of beginning and ending balances of the Level 3 financial liabilities during the three months ended December 31, 2022:


(in thousands)	Total
Balance as of September 30, 2022	$	2,100

Change in fair value	(2,100)
Balance as of December 31, 2022	$	—

- 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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