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Note 2 - Fair Value of Financial Instruments

12 Months Ended

Dec. 31, 2021

Notes to Financial Statements

Fair Value Disclosures [Text Block]

NOTE 2.

Fair Value of Financial Instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. For certain of the Company’s financial instruments, including certain cash equivalents, accounts receivable, accounts payable and accrued liabilities, the carrying amounts approximate their fair values due to the relatively short maturity of these balances.

The Company measures and reports certain cash equivalents, marketable securities, derivative foreign currency forward contracts at fair value in accordance with the provisions of the authoritative accounting guidance that addresses fair value measurements. This guidance establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. The hierarchy is broken down into three levels based on the reliability of inputs as follows:

Level 1-Valuations based on quoted prices in active markets for identical assets or liabilities.

Level 2-Valuations based on other than quoted prices in active markets for identical assets and liabilities, including quoted prices for identical assets or liabilities in less active or inactive markets, quoted prices for similar assets or liabilities in active markets, or inputs other than quoted prices that are observable for substantially the full term of the assets or liabilities.

Level 3-Valuations based on inputs that are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability.

The Company's financial instruments consist of assets and liabilities measured using Level 1 and 2 inputs. Level 1 assets include a highly liquid money market fund, which is valued using unadjusted quoted prices that are available in an active market for an identical asset. Level 2 assets include fixed-income U.S. Treasury and government agency securities, commercial paper, corporate bonds, asset-backed securities, foreign government securities and derivative financial instruments consisting of foreign currency forward contracts. The securities, bonds and commercial paper are valued using prices from independent pricing services based on quoted prices of identical instruments in less active or inactive markets, quoted prices of similar instruments in active markets, or industry models using data inputs such as interest rates and prices that can be directly observed or corroborated in active markets. The foreign currency forward contracts are valued using observable inputs, such as quotations on forward foreign exchange points and foreign interest rates.

The Company's cash and cash equivalents and marketable securities consist of the following:

		*December 31, 2021*
		*Amortized Cost*				*Unrealized Gains*				*Unrealized Losses*				*Fair Value*
		(in thousands)
Cash and cash equivalents:
Cash		$	61,220			$	—			$	—			$	61,220
Money market funds			75,258				—				—				75,258
Commercial paper			850				—				—				850
Total			137,328				—				—				137,328
Short-term marketable securities:
Commercial paper			28,869				101				(7	)			28,963
Corporate bonds			3,952				—				—				3,952
Asset-backed securities			217,160				2				(163	)			216,999
U.S. Treasury and government agencies			18,046				—				—				18,046
Total			268,027				103				(170	)			267,960
Long-term marketable securities:
Asset-backed securities			14,941				6				(36	)			14,911
U.S. Treasury and government agencies			37,664				—				(136	)			37,528
Foreign government			1,007				12				—				1,019
Corporate bonds			57,762				160				(182	)			57,740
Total			111,374				178				(354	)			111,198
Total		$	516,729			$	281			$	(524	)		$	516,486

		*December 31, 2020*
		*Amortized Cost*				*Unrealized Gains*				*Unrealized Losses*				*Fair Value*
		(in thousands)
Cash and cash equivalents:
Cash		$	33,105			$	—			$	—			$	33,105
Money market funds			38,028				—				—				38,028
Commercial paper			2,999				—				—				2,999
Total			74,132				—				—				74,132
Short-term marketable securities:
Commercial paper			6,147				—				—				6,147
Corporate bonds			24,368				170				—				24,538
Asset-backed securities			6,263				18				—				6,281
U.S. Treasury and government agencies			244,568				369				(11	)			244,926
Total			281,346				557				(11	)			281,892
Long-term marketable securities:
Asset-backed securities			38,456				160				(3	)			38,613
U.S. Treasury and government agencies			6,884				17				—				6,901
Foreign government			1,006				31				—				1,037
Corporate bonds			51,068				839				—				51,907
Total			97,414				1,047				(3	)			98,458
Total		$	452,892			$	1,604			$	(14	)		$	454,482

As of December 31, 2021 and 2020, there were no marketable securities that had been in a continuous unrealized loss position for 12 months or longer. The Company had the ability and intent to hold all marketable securities that were in an unrealized loss position until recovery of the amortized cost basis. The Company considered the extent to which fair value was less than amortized cost basis and conditions related to security’s industry and geography and changes to the ratings, if any, and concluded the decline in fair value compared to carrying value was not related to credit loss.

The following table sets forth by level within the fair value hierarchy the fair value of the Company's cash equivalents and marketable securities measured on a recurring basis:

		*December 31, 2021*
		*Level 1*				*Level 2*				*Fair Value*
		(in thousands)
Money market funds		$	75,258			$	—			$	75,258
Commercial paper			—				18,896				18,896
U.S. Treasury and government agencies			—				254,527				254,527
Foreign government			—				1,019				1,019
Corporate bonds			—				86,703				86,703
Asset-backed securities			—				18,863				18,863
Total		$	75,258			$	380,008			$	455,266

		*December 31, 2020*
		*Level 1*				*Level 2*				*Fair Value*
		(in thousands)
Money market funds		$	38,028			$	—			$	38,028
Commercial paper			—				9,146				9,146
U.S. Treasury and government agencies			—				251,827				251,827
Foreign government			—				1,037				1,037
Corporate bonds			—				76,445				76,445
Asset-backed securities			—				44,894				44,894
Total		$	38,028			$	383,349			$	421,377

The following summarizes the fair value of marketable securities by contractual maturity:

		*December 31, 2021*
		*Mature within One Year*				*Mature after One Year through Two Years*				*Mature over Two Years*				*Fair Value*
		(in thousands)
Commercial paper		$	18,896			$	—			$	—			$	18,896
U.S. Treasury and government agencies			216,999				37,528				—				254,527
Foreign government			—				1,019				—				1,019
Corporate bonds			28,964				38,407				19,332				86,703
Asset-backed securities			3,951				7,959				6,953				18,863
Total		$	268,810			$	84,913			$	26,285			$	380,008

Derivative Financial Instruments

Designated cash flow hedges

The Company enters into foreign currency forward contracts to reduce the risk of variability in future cash flow due to foreign currency exchange rate fluctuation from certain forecasted subscription revenue orders billed in GBP and Euro and operation expenses incurred in INR, which are designated as cash flow hedges. Unrealized foreign exchange gains or losses related to those designated cash flow hedge contracts are recorded in Accumulated other comprehensive income ("AOCI") and will be reclassified into revenues or operating expenses, respectively, in the same periods when the hedged transactions hit earnings.

As of December 31, 2021, the Company had designated cash flow hedge forward contracts with notional amounts of €29.8 million, £9.4 million and Rs.2,955.3 million. As of December 31, 2020, the Company had designated cash flow hedge forward contracts with notional amounts of €25.9 million, £8.7 million and Rs.1,933.5 million. As of December 31, 2021, a net amount of unrealized gains of $1.0 million before tax on the foreign currency forward contracts for GBP and Euro reported in AOCI is expected to be reclassified into revenue within the next 12 months. As of December 31, 2021, a net amount of unrealized gains of $0.3 million before tax on the foreign currency forward contracts for INR reported in AOCI is expected to be reclassified into operating expenses within the next 12 months.

Non-designated forward contracts

The Company also uses foreign currency forward contracts to hedge certain foreign currency denominated assets or liabilities, which are not designated as cashflow hedges.

As of December 31, 2021, the Company had non-designated forward contracts with notional amounts of €34.5 million, £11.6 million, Rs.74.9 million, C$2.5 million and CHF1.0 million. As of December 31, 2020, the Company had non-designated forward contracts with notional amounts of €17.7 million, £6.5 million and Rs.32.8 million.

The following summarizes derivative financial instruments as of December 31, 2021 and 2020:

		*December 31,*
		*2021*				*2020*
		(in thousands)
Assets
Foreign currency forward contracts designated as cash flow hedge		$	1,737			$	511
Foreign currency forward contracts not designated as hedging instruments			1,599				27
Total		$	3,336			$	538
Liabilities
Foreign currency forward contracts designated as cash flow hedge		$	(181	)		$	(2,200	)
Foreign currency forward contracts not designated as hedging instruments			(207	)			(1,677	)
Total		$	(388	)		$	(3,877	)

All foreign currency forward contracts were valued at fair value using Level 2 inputs.

The following summarizes the gains (losses) recognized from forward contracts and other foreign currency transactions in other income (expense), net in the consolidated statements of operations:

		*Year Ended December 31,*
		*2021*				*2020*				*2019*
		(in thousands)
Net gains (losses) from non-designated forward contracts		$	2,452			$	(1,634	)		$	438
Other foreign currency transactions gains (losses)			(2,749	)			1,894				(792	)
Total foreign exchange gains (losses), net			(297	)			260				(354	)
Other expenses			(276	)			(253	)			(253	)
Other income (expense), net		$	(573	)		$	7			$	(607	)

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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