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FAIR VALUE MEASUREMENTS | 6 Months Ended
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Jun. 30, 2022
Fair Value Disclosures [Abstract] |
FAIR VALUE MEASUREMENTS | FAIR VALUE MEASUREMENTS The accounting guidance defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. An asset’s or liability’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Three levels of inputs may be used to measure fair value: •Level 1 - Valuations based on quoted prices in active markets for identical assets or liabilities that the Company is able to access. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of such assets or liabilities do not entail a significant degree of judgment. •Level 2 - Valuations based on one or more quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly. •Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement. The following table presents assets and liabilities measured at fair value on a recurring basis using the above input categories:
| June 30, 2022 |  | December 31, 2021
| (In thousands)
| Level 1 |  | Level 2 |  | Level 3 |  | Level 1 |  | Level 2 |  | Level 3
Assets: |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents: |  |  |  |  |  |  |  |  |  |  |
Money market funds | $ | 432,946 |  |  | $ | — |  |  | $ | — |  |  | $ | 35,789 |  |  | $ | — |  |  | $ | — |
Certificates of deposit | — |  |  | — |  |  | — |  |  | — |  |  | 6,000 |  |  | — |
Commercial paper | — |  |  | — |  |  | — |  |  | — |  |  | 26,997 |  |  | — |
Corporate notes and bonds | — |  |  | — |  |  | — |  |  | — |  |  | 760 |  |  | — |
Marketable securities: |  |  |  |  |  |  |  |  |  |  |
Certificates of deposit | — |  |  | 3,102 |  |  | — |  |  | — |  |  | 9,999 |  |  | — |
Commercial paper | — |  |  | 121,070 |  |  | — |  |  | — |  |  | 188,853 |  |  | — |
Corporate notes and bonds | — |  |  | 141,250 |  |  | — |  |  | — |  |  | 197,612 |  |  | — |
U.S. Government agencies | — |  |  | 447,362 |  |  | — |  |  | — |  |  | 485,873 |  |  | — |
U.S. Treasuries | — |  |  | 39,544 |  |  | — |  |  | — |  |  | 14,998 |  |  | — |
Other assets |  |  |  |  |  |  |  |  |  |  |
Investments in debt securities | — |  |  | — |  |  | 40,913 |  |  | — |  |  | — |  |  | 41,042 |
Total assets measured at fair value | $ | 432,946 |  |  | $ | 752,328 |  |  | $ | 40,913 |  |  | $ | 35,789 |  |  | $ | 931,092 |  |  | $ | 41,042 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |
Accrued liabilities |  |  |  |  |  |  |  |  |  |  |
Contingent consideration | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 3,710 |
Warranty obligations |  |  |  |  |  |  |  |  |  |  |
Current | — |  |  | — |  |  | 24,772 |  |  | — |  |  | — |  |  | 14,612 |
Non-current | — |  |  | — |  |  | 49,151 |  |  | — |  |  | — |  |  | 36,395 |
Total warranty obligations measured at fair value | — |  |  | — |  |  | 73,923 |  |  | — |  |  | — |  |  | 51,007 |
Total liabilities measured at fair value | $ | — |  |  | $ | — |  |  | $ | 73,923 |  |  | $ | — |  |  | $ | — |  |  | $ | 54,717 |
Notes due 2028, Notes due 2026 and Notes due 2025 The Company carries the Notes due 2028 and Notes due 2026 at face value less issuance costs on its condensed consolidated balance sheets, and Notes due 2025 at face value less unamortized discount and issuance costs on its condensed consolidated balance sheets. As of June 30, 2022, the fair value of the Notes due 2028, Notes due 2026 and Notes due 2025 was $568.2 million, $611.9 million and $256.5 million, respectively. The fair value as of June 30, 2022 was determined based on the closing trading price per $100 principal amount as of the last day of trading for the period. The Company considers the fair value of the Notes due 2028, Notes due 2026 and Notes due 2025 to be a Level 2 measurement as they are not actively traded. Investments in debt securities In January 2021, the Company invested approximately $25.0 million in a privately-held company. The Company concluded the investment qualifies as an investment in a debt security, as it accrues interest and principal plus accrued interest becomes payable back to the Company at certain dates unless it is converted to equity at a pre-determined price. As the investment includes a conversion option, the Company has elected to account for this investment under the fair value option and any change in fair value of the investment is recognized in “Other income (expense), net” in the Company’s condensed consolidated statement of operations for that period. Further, the Company has concluded that the Company’s investment in a debt security is considered to be a Level 3 measurement due to the use of significant unobservable inputs in the valuation model. The fair value was determined using discounted cash flow methodology and assumptions include implied yield and change in estimated term of investment being held-to-maturity. In September 2021, the Company invested approximately $13.0 million in secured convertible promissory notes issued by the stockholders of a privately-held company. The investment qualifies as an investment in a debt security and will accrete interest and principal plus accrued interest that becomes payable at certain dates unless it is converted to equity at a pre-determined price. As the investment includes a conversion option, the Company has elected to account for this investment under the fair value option and any change in fair value of the investment is recognized in “Other income (expense), net” in the Company’s condensed consolidated statement of operations for that period. Further, the Company has concluded that the Company’s investment in a debt security is considered a Level 3 measurement due to the use of significant unobservable inputs in the valuation model. Principal plus accrued interest receivable of the investment approximates the fair value. Investment in debt securities are recorded in “Other assets” on the accompanying condensed consolidated balance sheet as of June 30, 2022. The changes in the balance in investments in debt securities during the period are as follows:
| Three Months Ended June 30, |  | Six Months Ended June 30, |  |
| 2022 |  | 2021 |  | 2022 |  | 2021 |  |
| (In thousands)
Balance at beginning of period | $ | 39,926 |  |  | $ | 26,437 |  |  | $ | 41,042 |  |  | $ | — |  |  |
Investment | — |  |  | 20,000 |  |  | — |  |  | 45,000 |  |  |
Fair value adjustments included in other (expense) income, net | 987 |  |  | 932 |  |  | (129) |  |  | 2,369 |  |  |
Balance at end of period | $ | 40,913 |  |  | $ | 47,369 |  |  | $ | 40,913 |  |  | $ | 47,369 |  |  |
Contingent consideration The estimated fair value of the contingent consideration incurred in connection with the Company’s acquisition of Sofdesk Inc. is considered a Level 3 measurement due to the use of significant unobservable inputs. These unobservable inputs include probability assessment of expected future customer count over the period in which the obligation is expected to be settled. The value was determined using a discounted risk-neutral expected (probability-weighted) cash flow methodology. The resulting expected contingent consideration payment is discounted back to present value using the Company’s cost of debt. The fair value of contingent consideration arrangement is reassessed quarterly based on assumptions used in the Company’s latest projections and input provided by management. Any change in the fair value estimate, which could include accretion of interest expense due to passage of time as well as any changes in the inputs to the model, is recorded in the Company’s condensed consolidated statement of operations for that period. The following table reflects the activity for the Company’s contingent consideration liabilities measured at fair value using Level 3 inputs for the six months ended June 30, 2022:
| Three Months Ended June 30, |  | Six Months Ended June 30,
| 2022 |  | 2021 |  | 2022 |  | 2021 |  |
| (In thousands)
Balance at beginning of period | $ | — |  |  | $ | 3,540 |  |  | $ | 3,710 |  |  | $ | — |  |  |
Addition | — |  |  | — |  |  | — |  |  | 3,500 |  |  |
Fair value adjustments included in other income (expense), net | — |  |  | 56 |  |  | 15 |  |  | 96 |  |  |
Paid | — |  |  | — |  |  | (3,725) |  |  | — |  |  |
Balance at end of period | $ | — |  |  | $ | 3,596 |  |  | $ | — |  |  | $ | 3,596 |  |  |
Warranty obligations. Fair Value Option for Warranty Obligations Related to Products Sold Since January 1, 2014 The Company estimates the fair value of warranty obligations by calculating the warranty obligations in the same manner as for sales prior to January 1, 2014 and applying an expected present value technique to that result. The expected present value technique, an income approach, converts future amounts into a single current discounted amount. In addition to the key estimates of failure rates, claim rates and replacement costs, the Company used certain Level 3 inputs which are unobservable and significant to the overall fair value measurement. Such additional assumptions included a discount rate based on the Company’s credit-adjusted risk-free rate and compensation comprised of a profit element and risk premium required of a market participant to assume the obligation. The following table provides information regarding changes in nonfinancial liabilities related to the Company’s warranty obligations measured at fair value on a recurring basis using significant unobservable inputs designated as Level 3 for the periods indicated:
| Three Months Ended June 30, |  | Six Months Ended June 30,
| 2022 |  | 2021 |  | 2022 |  | 2021 |  |
| (In thousands)
Balance at beginning of period | $ | 61,586 |  |  | $ | 33,319 |  |  | $ | 51,007 |  |  | $ | 28,736 |  |  |
Accruals for warranties issued during period | 11,120 |  |  | 3,319 |  |  | 19,890 |  |  | 7,213 |  |  |
Changes in estimates | 14,692 |  |  | 2,755 |  |  | 18,591 |  |  | 5,338 |  |  |
Settlements | (4,668) |  |  | (1,910) |  |  | (8,724) |  |  | (3,825) |  |  |
Increase due to accretion expense | 1,828 |  |  | 1,104 |  |  | 3,343 |  |  | 2,047 |  |  |
Other | (10,636) |  |  | (550) |  |  | (10,185) |  |  | (1,472) |  |  |
Balance at end of period | $ | 73,923 |  |  | $ | 38,037 |  |  | $ | 73,923 |  |  | $ | 38,037 |  |  |
Quantitative and Qualitative Information about Level 3 Fair Value Measurements As of June 30, 2022 and December 31, 2021, the significant unobservable inputs used in the fair value measurement of the Company’s liabilities designated as Level 3 are as follows, of which the monetary impact for change in discount rate is captured in “Other” in the table above:
|  |  |  |  |  | Percent Used (Weighted Average)
Item Measured at Fair Value |  | Valuation Technique |  | Description of Significant Unobservable Input |  | June 30, 2022 |  | December 31, 2021
Warranty obligations for products sold since January 1, 2014 |  | Discounted cash flows |  | Profit element and risk premium |  | 16% |  | 15%
|  | Credit-adjusted risk-free rate |  | 16% |  | 12%
Sensitivity of Level 3 Inputs - Warranty Obligations Each of the significant unobservable inputs is independent of the other. The profit element and risk premium are estimated based on requirements of a third-party participant willing to assume the Company’s warranty obligations. The credit‑adjusted risk‑free rate (“discount rate”) is determined by reference to the Company’s own credit standing at the fair value measurement date. Increasing the profit element and risk premium input by 100 basis points would result in a $0.6 million increase to the liability. Decreasing the profit element and risk premium by 100 basis points would result in a $0.6 million reduction of the liability. Increasing the discount rate by 100 basis points would result in a $2.5 million reduction of the liability. Decreasing the discount rate by 100 basis points would result in a $2.8 million increase to the liability.

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- References No definition available. + Details
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- 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. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI https://asc.fasb.org/extlink&oid=126976982&loc=d3e19207-110258 + Details
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