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FAIR VALUE MEASUREMENTS
 3 Months Ended
Oct. 31, 2020
Fair Value Disclosures [Abstract]  
FAIR VALUE MEASUREMENTS FAIR VALUE MEASUREMENTS
The fair value of our financial assets and liabilities measured on a recurring basis is as follows:
As of July 31, 2020
Level I
Level II
Level III
Total 
(in thousands)
Financial Assets:
Cash equivalents:
Money market funds$142,936 $— $— $142,936 
Commercial paper— 8,999 — 8,999 
Short-term investments:
Corporate bonds— 345,265 — 345,265 
Commercial paper— 29,702 — 29,702 
U.S. government securities— 26,074 — 26,074 
Total measured at fair value$142,936 $410,040 $— $552,976 
Cash166,802 
Total cash, cash equivalents and short-term investments$719,778 
As of October 31, 2020
Level ILevel IILevel III Total 
(in thousands)
Financial Assets:
Cash equivalents:
Money market funds$260,398 $— $— $260,398 
Commercial paper— 42,494 — 42,494 
Short-term investments:
Corporate bonds— 532,904 — 532,904 
Commercial paper— 151,267 — 151,267 
U.S. government securities— 129,432 — 129,432 
Total measured at fair value$260,398 $856,097 $— $1,116,495 
Cash201,590 
Total cash, cash equivalents and short-term investments$1,318,085 
Financial Instruments Not Recorded at Fair Value on a Recurring Basis
We report our financial instruments at fair value, with the exception of the 0% convertible senior notes, due in January 2023, (the "2023 Notes") and the 2.5% convertible senior notes, due in 2026, (the "2026 Notes") (collectively, the "Notes"). Financial instruments that are not recorded at fair value on a recurring basis are measured at fair value on a quarterly basis for disclosure purposes. The carrying values and estimated fair values of financial instruments not recorded at fair value are as follows:
As of July 31, 2020As of October 31, 2020
Carrying ValueEstimated Fair ValueCarrying ValueEstimated Fair Value
(in thousands)
2023 Notes$490,222 $529,385 $498,378 $558,894 
2026 Notes— — 496,259 840,900 
Total
$490,222 $529,385 $994,637 $1,399,794 
The carrying value of the 2023 Notes as of July 31, 2020 and October 31, 2020 was net of the unamortized debt discount of $80.3 million and $72.6 million, respectively, and unamortized debt issuance costs of $4.5 million and $4.0 million, respectively.
The carrying value of the 2026 Notes as of October 31, 2020 was net of the unamortized debt discount of $227.7 million and unamortized debt issuance costs of $26.0 million.
The total estimated fair value of the 2023 Notes was determined based on the closing trading price per $100 of the 2023 Notes as of the last day of trading for the period. We consider the fair value of the 2023 Notes to be a Level 2 valuation due to the limited trading activity.
The total estimated fair value of the 2026 Notes is based on a Binomial model. We consider the fair value of the 2026 Notes to be a Level 3 valuation, as the 2026 Notes are not publicly traded. The Level 3 inputs used are the same as those used to determine the estimated fair value of the associated derivative liability, as detailed below.
Derivative Liability
The conversion feature of the 2026 Notes represents an embedded derivative. The 2026 Notes are not considered to be conventional debt and we determined that the embedded conversion feature was required to be bifurcated from the host debt and accounted for as a derivative liability, as the 2026 Notes are convertible into a variable number of shares until the conversion price becomes fixed in September 2021, based on the level of achievement of the associated financial performance metric. As such, the initial fair value of the derivative instrument was recorded as a liability in the condensed consolidated balance sheet with the corresponding amount recorded as a discount to the 2026 Notes upon issuance. The derivative liability is considered a Level 3 valuation and is recorded at its estimated fair value at the end of each reporting period, with the change in fair value recognized within other expense, net in the condensed consolidated statements of operations.
The following table shows the estimated fair value of the derivative liability as of the issuance of the 2026 Notes and the change in fair value from issuance through October 31, 2020:
Three Months Ended October 31, 2020
(in thousands)
Derivative liability at issuance of the 2026 Notes$230,910 
Change in fair value64,740 
Derivative liability, end of period$295,650 
We estimated the fair value of the derivative liability using a Binomial model, with the following valuation inputs:
 As of
 September 24, 2020October 31, 2020
Conversion ratio (1)
Conversion price of $26.63 with a 37.552 conversion rate per $1,000Conversion price of $26.63 with a 37.552 conversion rate per $1,000
Risk-free rate0.4%0.5%
Discount rate (2)
9.00%8.25%
Volatility42.7%42.7%
Stock price$21.26$24.34
(1)The conversion ratio was estimated based on the latest forecast of the associated financial performance metric.
(2)The discount rate was estimated based on the implied rate for the 2023 Notes as well as a credit analysis.