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Fair value measurement

9 Months Ended

Jun. 30, 2023

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 and long-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, short-term and equity investments as of June 30, 2023:


(in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value
Cash and cash equivalents	$	307,459	$	—	$	—	$	307,459
Short-term investments:
Corporate bonds	26,133		5		(68)		26,070
U.S. government treasury bills	23,721		1		(106)		23,616
Equity investments	$	3,711	$	—	$	—	$	3,711
Total	$	361,024	$	6	$	(174)	$	360,856

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 June 30, 2023, 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	$	242,107	$	—	$	—	$	242,107
Corporate bonds	—		26,070		—		26,070

U.S. government treasury bills	23,616		—		—		23,616
Equity investments	—		—		3,711		3,711
Total financial assets	$	265,723	$	26,070	$	3,711	$	295,504

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 June 30, 2023, were less than 12 months. The unrealized loss on short-term investments have been in a continuous unrealized loss position for less than 12 months. We believe that the decline in value of these investments is temporary and is primarily related to the change in market interest rates since purchase. We believe it is more likely than not that we will be able to hold these investments to maturity.

During 2021 and as amended in 2022, the Company entered into convertible promissory note agreements with a privately held company (“Borrower”) pursuant to which the Company agreed to loan to the Borrower $3.5 million, at a simple interest of 4% per annum, in a series of loan installments, evidenced by a convertible promissory note having a maturity date of May 1, 2023 (“Convertible Note”). In April 2023, the Company exercised the option and the Borrower issued to the Company common shares which represent a 15% equity interest. As of June 30, 2023, the Company’s equity investments were categorized as Level 3 within the fair value hierarchy.

Equity investments held by the Company lack readily determinable fair values and therefore the securities are measured at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar equity securities of the same issuer. The Company reviews the carrying value of its equity investments for impairment whenever events or changes in business circumstances indicate the carrying amount of such asset may not be fully recoverable. Impairments, if any, are based on the excess of the carrying amount over the recoverable amount of the asset. There were no such impairments during the three months ended June 30, 2023.

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	$	35.24
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 nine months ended June 30, 2023:


(in thousands)	Total
Balance as of September 30, 2022	$	2,100
Change in fair value	(2,100)
Addition during the period	$	3,711
Balance as of June 30, 2023	$	3,711

- 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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