Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

v3.21.1
Fair Value Measurements
3 Months Ended
Mar. 31, 2021
Fair Value Disclosures [Abstract]  
Fair Value Measurements

3. Fair value measurements

Accounting Standards Codification (ASC) 820 — Fair Value Measurements and Disclosures creates a single definition of fair value, establishes a framework for measuring fair value in U.S. GAAP and expands disclosures about fair value measurements. ASC 820 emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and states that a fair value measurement is to estimate the price at which an orderly transaction to sell an asset or to transfer the liability would take place between market participants at the measurement date under current market conditions. Assets and liabilities adjusted to fair value in the balance sheet are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Level inputs, as defined by ASC 820, are as follows:

 

Level input

  

Input definition

Level 1

  

Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date.

 

 

 

Level 2

  

Inputs, other than quoted prices included in Level 1, that are observable for the asset or liability through corroboration with market data at the measurement date.

 

 

 

Level 3

  

Unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date.

 

The Company’s financial instruments consist of cash and cash equivalents, marketable securities, accounts receivable, accounts payable and accrued expenses. The carrying values of its financial instruments approximate fair value based on their short-term nature.

Cash, cash equivalents and marketable securities

The Company obtained the fair value of its available-for-sale investments, which are not in active markets, from a third-party professional pricing service using quoted market prices for identical or comparable instruments, rather than direct observations of quoted prices in active markets. The Company's professional pricing service gathers observable inputs for all of its fixed income securities from a variety of industry data providers (e.g., large custodial institutions) and other third-party sources. Once the observable inputs are gathered, all data points are considered, and the fair value is determined. The Company validates the quoted market prices provided by its primary pricing service by comparing their assessment of the fair values against the fair values provided by its investment managers. The Company's investment managers use similar techniques to its professional pricing service to derive pricing as described above. As all significant inputs were observable, derived from observable information in the marketplace or supported by observable levels at which transactions are executed in the marketplace, the Company has classified its marketable securities within Level 2 of the fair value hierarchy.

The following table summarizes fair value measurements by level for the assets measured at fair value on a recurring basis for cash, cash equivalents and marketable securities:

 

 

 

As of March 31, 2021

 

 

 

 

 

 

 

Gross

 

 

 

 

 

 

Cash

 

 

 

 

 

 

 

Adjusted

 

 

unrealized

 

 

 

 

 

 

and cash

 

 

Marketable

 

 

 

cost

 

 

gains (losses)

 

 

Fair value

 

 

equivalents

 

 

securities

 

Cash

 

$

48,706

 

 

$

 

 

$

48,706

 

 

$

48,706

 

 

$

 

Level 1:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market accounts

 

 

171,308

 

 

 

 

 

 

171,308

 

 

 

171,308

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Level 2:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

 

 

5,477

 

 

 

(1

)

 

 

5,476

 

 

 

 

 

 

5,476

 

U.S. Treasury securities

 

 

4,053

 

 

 

1

 

 

 

4,054

 

 

 

 

 

 

4,054

 

Agency mortgage-backed securities

 

 

3,603

 

 

 

3

 

 

 

3,606

 

 

 

 

 

 

3,606

 

Total

 

$

233,147

 

 

$

3

 

 

$

233,150

 

 

$

220,014

 

 

$

13,136

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2020

 

 

 

 

 

 

 

Gross

 

 

 

 

 

 

Cash

 

 

 

 

 

 

 

Adjusted

 

 

unrealized

 

 

 

 

 

 

and cash

 

 

Marketable

 

 

 

cost

 

 

gains (losses)

 

 

Fair value

 

 

equivalents

 

 

securities

 

Cash

 

$

52,812

 

 

$

 

 

$

52,812

 

 

$

52,812

 

 

$

 

Level 1:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market accounts

 

 

159,150

 

 

 

 

 

 

159,150

 

 

 

159,150

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Level 2:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

 

 

11,549

 

 

 

(1

)

 

 

11,548

 

 

 

 

 

 

11,548

 

U.S. Treasury securities

 

 

4,107

 

 

 

 

 

 

4,107

 

 

 

 

 

 

4,107

 

Agency mortgage-backed securities

 

 

3,601

 

 

 

1

 

 

 

3,602

 

 

 

 

 

 

3,602

 

Total

 

$

231,219

 

 

$

 

 

$

231,219

 

 

$

211,962

 

 

$

19,257

 

 

Derivative instruments and hedging activities

The Company transacts business in foreign currencies and has international sales and expenses denominated in foreign currencies, subjecting the Company to foreign currency risk. The Company has entered into foreign currency forward contracts, generally with maturities of twelve months or less, to reduce the volatility of cash flows primarily related to forecasted revenue denominated in certain foreign currencies. These contracts allow the Company to sell Euros in exchange for U.S. dollars at specified contract rates. Forward contracts are used to hedge forecasted sales over specific months. Changes in the fair value of these forward contracts designed as cash flow hedges are recorded as a component of accumulated other comprehensive income within stockholders’ equity and are recognized in the consolidated statements of comprehensive loss during the period which approximates the time the corresponding sales occur. The Company may also enter into foreign exchange contracts that are not designated as hedging instruments for financial accounting purposes. These contracts are generally entered into to offset the gains and losses on certain asset and liability balances until the expected time of repayment. Accordingly, any gains or losses resulting from changes in the fair value of the non-designated contracts are reported in other expense, net in the consolidated statements of comprehensive loss. The gains and losses on these contracts generally offset the gains and losses associated with the underlying foreign currency-denominated balances, which are also reported in other income (expense), net.

The Company records the assets or liabilities associated with derivative instruments and hedging activities at fair value based on Level 2 inputs in other current assets or other current liabilities, respectively, in the consolidated balance sheet. The Company had a related receivable of $246 and payable of $863 as of March 31, 2021 and December 31, 2020, respectively.

The Company documents the hedging relationship and its risk management objective and strategy for undertaking the hedge, the hedging instrument, the hedged transaction, the nature of the risk being hedged, how the hedging instrument’s effectiveness in offsetting the hedged risk will be assessed prospectively and retrospectively, and a description of the method used to measure

ineffectiveness. The Company assesses hedge effectiveness and ineffectiveness at a minimum quarterly but may assess it monthly. For derivative instruments that are designed and qualify as part of a cash flow hedging relationship, the effective portion of the gain or loss on the derivative is reported in other comprehensive income and reclassified into earnings in the same periods during which the hedged transaction affects earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current period earnings.

The Company will discontinue hedge accounting prospectively when it determines that the derivative is no longer effective in offsetting cash flows attributable to the hedge risk. The cash flow hedge is de-designated because a forecasted transaction is not probable of occurring, or management determines to remove the designation of the cash flow hedge. In all situations in which hedge accounting is discontinued and the derivative remains outstanding, the Company continues to carry the derivative at its fair value on the balance sheet and recognizes any subsequent changes in the fair value in earnings. When it is probable that a forecasted transaction will not occur, the Company will discontinue hedge accounting and recognize immediately in earnings gains and losses that were accumulated in other comprehensive income related to the hedging relationship.

Accumulated other comprehensive income

The components of accumulated other comprehensive income were as follows:

 

 

 

Foreign

 

 

Unrealized

 

 

Unrealized

 

 

Accumulated

 

 

 

currency

 

 

gains

 

 

gains (losses)

 

 

other

 

 

 

translation

 

 

on marketable

 

 

on cash

 

 

comprehensive

 

 

 

adjustments

 

 

securities

 

 

flow hedges

 

 

income

 

Balance as of December 31, 2020

 

$

1,128

 

 

$

 

 

$

(653

)

 

$

475

 

Other comprehensive income (loss)

 

 

(457

)

 

 

4

 

 

 

903

 

 

 

450

 

Balance as of March 31, 2021

 

$

671

 

 

$

4

 

 

$

250

 

 

$

925

 

 

Comprehensive income is the total net earnings and all other non-owner changes in equity. Except for net loss and unrealized gains and losses on cash flow hedges, the Company does not have any transactions or other economic events that qualify as other comprehensive income (loss).

Earnout liability

The Company has obligations to pay up to $31,400 in earnout payments in cash if certain future financial results are met. The earnout liability was valued using Level 3 inputs. The fair value of the earnout was determined by employing a Monte Carlo simulation in a risk-neutral framework. The underlying simulated variable includes recognized revenue. The recognized revenue volatility estimate was based on a study of historical asset volatility for a set of comparable public companies. The model includes other assumptions including the market price of risk, which was calculated as the weighted average cost of capital (WACC) less the long-term risk free rate. The earnout period for recognized revenue is each calendar year beginning with calendar year 2019 and ending on the calendar year in which the earnout consideration equals the earnout cap.

The following table provides quantitative information about Level 3 inputs for fair value measurement of the earnout liability as of March 31, 2021 and December 31, 2020. Significant increases or decreases in these inputs in isolation could result in a significant impact on our fair value measurement:

 

 

 

As of

 

 

As of

 

Simulation input

 

March 31, 2021

 

 

December 31, 2020

 

Revenue volatility

 

 

35.00

%

 

 

35.00

%

WACC

 

 

12.50

%

 

 

12.00

%

20-year risk free rate

 

 

2.31

%

 

 

1.45

%

Market price of risk

 

 

9.00

%

 

 

8.00

%

 

 

The reconciliation of the earnout liability measured and carried at fair value on a recurring basis is as follows:

 

 

 

Three months ended

 

 

 

March 31,

 

 

 

2021

 

Balance at beginning of period

 

$

27,612

 

Change in fair value

 

 

265

 

Balance at end of period

 

$

27,877