Fair Value of Financial Instruments

12 Months Ended

Dec. 31, 2022

The following table presents the financial instruments and liabilities that are carried at fair value and summarizes their valuation by the respective pricing levels detailed in Note 2, “Summary of Significant Accounting Policies,” as of December 31, 2022 and 2021:


	As of December 31, 2022
(In thousands)	Total		Quoted Market Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets carried at fair value
Money market funds	$	15,763	$	15,763	$	—	$	—
U.S. Government bonds and notes	96,371		—		96,371		—
Corporate notes, bonds and commercial paper	106,355		—		106,355		—
Total assets carried at fair value	$	218,489	$	15,763	$	202,726	$	—
Liabilities carried at fair value
Earn-out consideration related to PLDA acquisition	$	14,800	$	—	$	—	$	14,800
Total liabilities carried at fair value	$	14,800	$	—	$	—	$	14,800


	As of December 31, 2021
(In thousands)	Total		Quoted Market Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets carried at fair value
Money market funds	$	7,402	$	7,402	$	—	$	—
U.S. Government bonds and notes	102,812		—		102,812		—
Corporate notes, bonds and commercial paper	287,905		—		287,905		—
Total assets carried at fair value	$	398,119	$	7,402	$	390,717	$	—
Liabilities carried at fair value
Earn-out consideration related to PLDA acquisition	$	16,900	$	—	$	—	$	16,900
Total liabilities carried at fair value	$	16,900	$	—	$	—	$	16,900

The Company’s liabilities related to earn-out consideration are classified within Level 3 of the fair value hierarchy because the fair value is determined using significant unobservable inputs. The following table presents additional information about liabilities measured at fair value for which the Company utilizes Level 3 inputs to determine fair value, as of December 31, 2022 and 2021:


	Years Ended December 31,
(In thousands)	2022		2021		2020
Balance as of January 1	$	16,900	$	—	$	1,800
Addition of earn-out liability due to acquisition	—		11,600		—
Change in fair value of earn-out liability due to remeasurement	3,111		5,300		(1,800)
Change in fair value of earn-out liability due to achievement of revenue target	(5,211)		—		—

Balance as of December 31	$	14,800	$	16,900	$	—

For the years ended December 31, 2022 and 2021, the change in the fair value of the earn-out liability related to the 2021 acquisition of PLDA, which is subject to certain revenue targets of the acquired business for a period of three years from the date of acquisition. During the year ended December 31, 2022, the first-year earn-out target was achieved, and the fair value relating to the remaining two years of the earn-out period were remeasured. As a result of these adjustments, the Company recorded a net loss of $2.1 million on the Company’s consolidated statements of operations. During the year ended December 31, 2021, the Company remeasured the fair value of the earn-out liability, which resulted in an additional expense of $5.3 million on the Company’s consolidated statements of operations. During the year ended December 31, 2020, the Company recorded a full reduction in the fair value of the earn-out liability related to the 2019 asset purchase agreement to acquire the Secure Silicon IP and Protocols business from Verimatrix, formerly Inside Secure, since the specified performance milestones were not met for the year ended December 31, 2020, which resulted in a gain on the Company’s consolidated statements of operations.

The Company monitors its investments for other-than-temporary impairment and records appropriate reductions in carrying value when necessary. The Company monitors its investments for other-than-temporary losses by considering current factors, including the economic environment, market conditions, operational performance and other specific factors relating to the business underlying the investment, reductions in carrying values when necessary and the Company’s ability and intent to hold the investment for a period of time which may be sufficient for anticipated recovery in the market. Any other-than-temporary loss is reported under “Interest and other income (expense), net” on the consolidated statement of operations. During the years ended December 31, 2022 and 2021, the Company recorded no other-than-temporary impairment charges on its investments.

During the second half of 2018, the Company made an investment in a non-marketable equity security of a private company. This equity investment is accounted for under the equity method of accounting, and the Company accounts for its equity method share of the income (loss) on a quarterly basis. As of December 31, 2022 and December 31, 2021, the carrying value of the Company’s 25.0% ownership percentage was $0.5 million and $1.8 million, respectively, which were included in other assets on the accompanying consolidated balance sheets. The Company recorded immaterial amounts on its consolidated statements of operations representing its share of the investee’s loss for the years ended December 31, 2022, 2021 and 2020.

During the year ended December 31, 2022, the Company recorded a gain on fair value of approximately $3.5 million related to the sale of an equity security with an immaterial carrying value on its consolidated statement of operations.

During the years ended December 31, 2022 and 2021, there were no transfers of financial instruments between different categories of fair value.

The following table presents the financial instruments that are not carried at fair value but which require fair value disclosure as of December 31, 2022 and 2021:


	As of December 31, 2022						As of December 31, 2021
(In thousands)	Face Value		Carrying Value		Fair Value		Face Value		Carrying Value		Fair Value
1.375% Convertible Senior Notes due 2023 (the “2023 Notes”)	$	10,381	$	10,378	$	19,625	$	172,500	$	163,687	$	254,103

The fair value of the convertible notes at each balance sheet date is determined based on recent quoted market prices for these notes which is a level 2 measurement. As discussed in Note 12, “Convertible Notes,” as of December 31, 2022, the

convertible notes were carried at their face value of $10.4 million, less any unamortized debt discount and unamortized debt issuance costs. The carrying value of other financial instruments, including accounts receivable, accounts payable and other liabilities, approximated fair value due to their short maturities.

Information regarding the Company’s goodwill and long-lived assets balances are disclosed in Note 6, “Intangible Assets and Goodwill.”

- 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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