Financial Instruments and Fair Value Measurements

6 Months Ended

Jun. 30, 2023

Financial Instruments and Fair Value Measurements

The following table sets forth the Company’s financial instruments that are measured at fair value on a recurring basis based on the three-tier fair value hierarchy (in thousands):


				As of June 30, 2023
	Balance Sheet Location	Total		Level 1		Level 2		Level 3
Financial Assets:
Money market funds(1)	Cash and cash equivalents	$	533,219	$	533,219	$	—	$	—
Interest rate swap	Prepaid expenses and other current assets	$	5,725	$	—	$	5,725	$	—
Total financial assets		$	538,944	$	533,219	$	5,725	$	—


				As of December 31, 2022
	Balance Sheet Location	Total		Level 1		Level 2		Level 3
Financial Assets:
Money market funds(1)	Cash and cash equivalents	$	604,399	$	604,399	$	—	$	—
Interest rate swaps	Prepaid expenses and other current assets	$	7,319	$	—	$	7,319	$	—
Total financial assets		$	611,718	$	604,399	$	7,319	$	—

(1) Includes balances in money market deposit accounts of $453.3 million and $524.2 million as of June 30, 2023 and December 31, 2022, respectively.

Derivatives Not Designated as Hedging Instruments

In October 2022 and March 2023, the Company entered into multiple pay-fixed receive-variable interest rate swaps as part of its interest rate risk management strategy in connection with the term loans under a certain credit agreement, which was originally entered in August 2018 and has been subsequently amended multiple times. The Company elected to not designate the interest rate swaps as hedging instruments for accounting purposes and recorded both realized and unrealized gains and losses associated with the interest rate swaps immediately through earnings in interest expense in the Company's condensed consolidated statement of operations. The fair value of the interest rate swaps are determined using widely accepted valuation techniques including discounted cash flow analysis based on the expected cash flows of the interest rate swaps. The Company has determined that the significant inputs, such as interest yield curve and discount rate, used to value its interest rate swaps fall within Level 2 of the fair value hierarchy. In June 2023, the Company settled the March 2023 interest rate swaps with the counterparties and received $12.2 million in cash. The net cash proceeds received from the settlement of the interest rate swaps and net interest paid or received are presented in net cash provided by operating activities and the supplemental disclosure of cash paid for interest, net in the Company's condensed consolidated statement of cash flows.

As of June 30, 2023, the remaining interest rate swap had a notional amount of $1.8 billion and matures on October 31, 2023. In relation to these interest rate swaps, the Company recorded a net gain of $21.4 million and $15.7 million during the three and six months ended June 30, 2023, respectively.

Non-Marketable Equity Securities Measured at Net Asset Value

The Company held equity interests in certain private equity funds of $52.1 million and $32.3 million as of June 30, 2023 and December 31, 2022, respectively, which are measured using the net asset value practical expedient. Under the net asset value practical expedient, the Company records investments based on the proportionate share of the underlying funds’ net asset value as of the Company's reporting date. These investments are included in other assets in the Company’s condensed consolidated balance sheets.

These funds vary in investment strategies and generally have an initial term of 7 to 10 years, which may be extended for 2 to 3 additional years with the applicable approval. These investments are subject to certain restrictions regarding transfers and withdrawals and generally cannot be redeemed with the funds. Distributions from the funds will be received as the underlying investments are liquidated. The Company’s maximum exposure to loss is limited to the carrying value of these investments of $52.1 million and the unfunded commitments of $33.4 million as of June 30, 2023.

During the three months ended March 31, 2023, the Company made total capital contributions of $16.8 million related to these investments. No additional capital contribution was made during the three months ended June 30, 2023. The unrealized gains related to these investments were $3.6 million and $5.0 million, for the three and six months ended June 30, 2023, respectively. The unrealized gains and losses were not material for the three and six months ended June 30, 2022.

Non-Marketable Equity Securities Measured at Fair Value on a Non-Recurring Basis

In the second quarter of 2022, the Company purchased certain non-marketable equity securities for total proceeds of $38.0 million. Non-marketable equity securities are investments in privately held companies without readily determinable fair values. The Company elected the measurement alternative to account for these investments. Under the measurement alternative, the carrying value of the non-marketable equity securities are adjusted based on price changes from observable transactions of identical or similar securities of the same issuer or for impairment. Any changes in carrying value are recorded within interest income and other, net in the Company's condensed consolidated statement of operations. During the first quarter of 2023, the Company recorded an impairment charge of $5.0 million related to one of these investments. As of June 30, 2023, the carrying amount of these investments was $33.0 million, which was included in other assets in the Company’s condensed consolidated balance sheets.

- 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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