Fair Value Measurements and Fair Value of Financial Instruments

3 Months Ended

Mar. 31, 2024

Fair Value Measurements and Fair Value of Financial Instruments

Assets and liabilities recorded at fair value on a recurring basis in the condensed consolidated balance sheets, as well as assets and liabilities measured at fair value on a non-recurring basis or disclosed at fair value, are categorized based upon the level of judgment associated with inputs used to measure their fair values. The accounting guidance for fair value provides a framework for measuring fair value and requires certain disclosures about how fair value is determined. Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance also establishes a three-level valuation hierarchy that prioritizes the inputs to valuation techniques used to measure fair value based upon whether such inputs are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions made by the reporting entity. The three-level hierarchy for the inputs to valuation techniques is briefly summarized as follows:

Level 1—Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;

Level 2—Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities 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 related assets or liabilities; and

Level 3—Unobservable inputs based on our own data or other assumptions that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data.

Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or liability. Changes in the ability to observe valuation inputs may result in a reclassification of levels of certain securities within the fair value hierarchy. We recognize transfers into and out of levels within the fair value hierarchy in the period in which the actual event or change in circumstances that caused the transfer occurs.

Level 1 securities consist of highly liquid money market funds for which the carrying amounts approximate their fair values due to their short maturities. U.S. Treasury securities are valued using Level 1 inputs based on unadjusted, quoted prices in active markets that are observable at the measurement date for identical assets or liabilities. Level 2 securities, consisting of corporate debt, commercial paper, U.S. government agency securities and asset-backed securities, are measured based on other observable inputs, including broker or dealer quotations or alternative pricing sources. When quoted prices in active markets for identical assets or liabilities are not available, we rely on non-binding quotes from our investment managers, which are based on proprietary valuation models of independent pricing services. These models generally use inputs such as observable market data, quoted market prices for similar instruments or historical pricing trends of securities relative to our peers. To validate the fair value determinations provided by our investment managers, we review the pricing movement in the context of overall market trends and trading information from our investment managers. In addition, we assess the inputs and methods used in determining the fair value in order to determine the classification of securities in the fair value hierarchy. We had no Level 3 securities as of March 31, 2024 or December 31, 2023.

There were no transfers within the hierarchies during the three months ended March 31, 2024 or the year ended December 31, 2023.

The following tables set forth our financial instruments measured at fair value on a recurring basis by level within the fair value hierarchy at March 31, 2024 and December 31, 2023:


		March 31, 2024
	Fair Value Hierarchy Level	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value

Assets		(in thousands)
Cash and cash equivalents:
Cash	Level 1	$	20,288	$	—	$	—	$	20,288
Money market funds	Level 1	107,073		—		—		107,073
U.S. Treasury securities	Level 1	44,734		—		(1)		44,733
Commercial paper	Level 2	437,660		—		(237)		437,423
Corporate debt	Level 2	1,994		1		—		1,995
Total cash and cash equivalents		611,749		1		(238)		611,512
Investments:
U.S. Treasury securities	Level 1	734,969		—		(708)		734,261
Commercial paper	Level 2	132,929		—		(72)		132,857
Corporate debt	Level 2	272,753		26		(508)		272,271
Asset-backed securities	Level 2	43,548		—		(25)		43,523
U.S. government agency securities	Level 2	105,638		—		(297)		105,341
Total investments		1,289,837		26		(1,610)		1,288,253

Total assets measured at fair value		$	1,901,586	$	27	$	(1,848)	$	1,899,765

		December 31, 2023
	Fair Value Hierarchy Level	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value

Assets		(in thousands)
Cash and cash equivalents:
Cash	Level 1	$	50,003	$	—	$	—	$	50,003
Money market funds	Level 1	47,357		—		—		47,357
Commercial paper	Level 2	300,256		—		(165)		300,091

Total cash and cash equivalents		397,616		—		(165)		397,451
Investments:
U.S. Treasury securities	Level 1	481,704		422		(44)		482,082
Commercial paper	Level 2	102,435		7		(35)		102,407
Corporate debt	Level 2	133,523		168		(42)		133,649
Asset-backed securities	Level 2	23,963		18		—		23,981
U.S. government agency securities	Level 2	103,484		—		(152)		103,332
Total investments		845,109		615		(273)		845,451

Total assets measured at fair value		$	1,242,725	$	615	$	(438)	$	1,242,902

The following table presents the contractual maturities of our investments as of March 31, 2024 (in thousands):


	March 31, 2024
	Fair Value
Due in less than one year	$	875,006
Due in one to five years	413,247
Total	$	1,288,253

- 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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