Fair Value Measurements

9 Months Ended

Sep. 30, 2020

The authoritative guidance defines fair value as an exit price, representing the amount that would either be received to sell an asset or be paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

•Level 1. Observable inputs such as quoted prices in active markets for identical assets or liabilities;

•Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

•Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

Available-for-sale securities included in Level 2 are valued utilizing inputs obtained from an independent pricing service (the “Service”) which uses quoted market prices for identical or comparable instruments rather than direct observations of quoted prices in active markets. The Service applies a four level hierarchical pricing methodology to all of the Company’s fixed income securities based on the circumstances. The hierarchy starts with the highest priority pricing source, then subsequently uses inputs obtained from other third-party sources and large custodial institutions. The Service’s providers utilize a variety of inputs to determine their quoted prices. These inputs may include interest rates, known historical trades, yield curve information, benchmark data, prepayment speeds, credit quality and broker/dealer quotes. Substantially all of the Company’s available-for-sale investments are valued utilizing inputs obtained from the Service and accordingly are categorized as Level 2 in the table below. The Company periodically independently assesses the pricing obtained from the Service and historically has not adjusted the Service's pricing as a result of this assessment. Available-for-sale securities are included in Level 3 when relevant observable inputs for a security are not available.

The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the classification of assets and liabilities within the fair value hierarchy. In certain instances, the inputs used to measure fair value may meet the definition of more than one level of the fair value hierarchy. The input with the lowest level priority is used to determine the applicable level in the fair value hierarchy.

Assets and Liabilities Measured at Fair Value on a Recurring Basis


	As of September 30, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)
Assets:
Cash and cash equivalents:

Cash	$	548,220	$	548,220	$	—	$	—

Money market funds	8,264		8,264		—		—
Corporate securities	2,342		—		2,342		—
Government securities	9,998		—		9,998		—
Available-for-sale securities:
Agency securities	39,995		—		39,995		—
Corporate securities	197,084		—		196,584		500

Government securities	132,469		—		132,469		—
Prepaid expenses and other current assets:
Foreign currency derivatives	2,165		—		2,165		—
Total assets	$	940,537	$	556,484	$	383,553	$	500
Accrued expenses and other current liabilities:
Foreign currency derivatives	6,069		—		6,069		—
Total liabilities	$	6,069	$	—	$	6,069	$	—


	As of December 31, 2019		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)
Assets:
Cash and cash equivalents:
Cash	$	474,756	$	474,756	$	—	$	—
Money market funds	42,019		42,019		—		—
Agency securities	19,993		—		19,993		—
Corporate securities	8,993		—		8,993		—

Available-for-sale securities:
Agency securities	1,682		—		1,682		—
Corporate securities	48,884		—		47,884		1,000

Government securities	9,129		—		9,129		—
Prepaid expenses and other current assets:
Foreign currency derivatives	1,889		—		1,889		—
Total assets	$	607,345	$	516,775	$	89,570	$	1,000
Accrued expenses and other current liabilities:
Foreign currency derivatives	1,390		—		1,390		—
Total liabilities	$	1,390	$	—	$	1,390	$	—

The Company’s fixed income available-for-sale security portfolio generally consists of investment grade securities from diverse issuers with a minimum credit rating of A-/A3 and a weighted-average credit rating of AA-/Aa3. The Company values these securities based on pricing from the Service, whose sources may use quoted prices in active markets for identical assets (Level 1 inputs) or inputs other than quoted prices that are observable either directly or indirectly (Level 2 inputs) in determining fair value, and accordingly, the Company classifies the majority of its fixed income available-for-sale securities as Level 2.

The Company measures its cash flow hedges, which are classified as Prepaid expenses and other current assets and Accrued expenses and other current liabilities, at fair value based on indicative prices in active markets (Level 2 inputs).

Assets Measured at Fair Value on a Non-recurring Basis Using Significant Unobservable Inputs (Level 3)

During the three months ended September 30, 2020, certain direct investments in privately-held companies with a carrying value of $5.0 million were determined to be impaired and written down to a fair value of $4.6 million, resulting in an impairment charge of $0.4 million. During the nine months ended September 30, 2020, certain direct investments in privately-held companies with a carrying value of $6.3 million were determined to be impaired and written down to a fair value of $4.6 million, resulting in an impairment charge of $1.7 million. The impairment charges were included in Other income, net in the accompanying condensed consolidated statements of income.

During the three months ended September 30, 2019, certain direct investments in privately-held companies with a carrying value of $0.5 million were determined to be impaired and written down to their fair value of $0.1 million, resulting in impairment charges of $0.4 million. During the nine months ended September 30, 2019, certain direct investments in privately-held companies with a carrying value of $2.4 million were determined to be impaired and written down to their fair value of $0.4 million, resulting in impairment charges of $2.0 million. The impairment charges were included in Other income, net in the accompanying condensed consolidated statements of income.

In determining the fair value of the investments, the Company considers many factors, including, but not limited to, operating performance of the investee, the amount of cash that the investee has on-hand, the ability to obtain additional financing and the overall market conditions in which the investee operates.

During the three months ended September 30, 2020, the Company determined that there were no material adjustments resulting from observable price changes to the Company's investments in privately-held companies without a readily determinable fair value. During the nine months ended September 30, 2020, the Company determined there was an upward adjustment of $1.8 million to one of the Company's investments in a privately-held company without a readily determinable fair value based on an observable input, specifically its ability to obtain additional financing at a favorable valuation. During the three and nine months ended September 30, 2019, the Company determined that there were no material adjustments resulting from observable price changes to the Company's investments in privately-held companies without a readily determinable fair value.

Additional Disclosures Regarding Fair Value Measurements

The carrying value of accounts receivable, accounts payable and accrued expenses approximate their fair value due to the short maturity of these items.

As of September 30, 2020, the fair value of the $750.0 million unsecured senior notes due March 1, 2030 (the "2030 Notes") and $750.0 million unsecured senior notes due December 1, 2027 (the “2027 Notes") was determined based on inputs that are observable in the market (Level 2). Based on the closing trading price per $100 as of the last day of trading for the quarter ended September 30, 2020, the carrying value was as follows (in thousands):


	Fair Value		Carrying Value
2030 Notes	$	798,443	$	738,811
2027 Notes	$	862,103	$	743,593

See Note 11 for more information on the 2030 Notes and 2027 Notes.

- 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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