10-Q 1 wk-20220930.htm 10-Q wk-20220930
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________
FORM 10-Q
___________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For transition period from               to
Commission File Number 001-36773
___________________________________
WORKIVA INC.
(Exact name of registrant as specified in its charter)
___________________________________
Delaware
(State or other jurisdiction of incorporation or organization)
47-2509828
(I.R.S. Employer Identification Number)
2900 University Blvd
Ames, IA 50010
(888) 275-3125
(Address of principal executive offices and zip code)
(888) 275-3125
(Registrant's telephone number, including area code)
___________________________________

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Class A common stock, par value $.001WKNew York Stock Exchange
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ý No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer    ý
Accelerated filer o
Non-accelerated filer    o
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes  No ý
As of October 28, 2022, there were approximately 48,657,063 shares of the registrant's Class A common stock and 3,890,583 shares of the registrant's Class B common stock outstanding.



WORKIVA INC.
TABLE OF CONTENTS
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Quarterly Report on Form 10-Q are “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor created thereby. All statements contained in this Quarterly Report on Form 10-Q other than statements of historical facts, including statements regarding our future results of operations and financial position, our business strategy and plans and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect” and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2021, in “Item 1A. Risk Factors” in Part II of this Quarterly Report on Form 10-Q and in any subsequent filing we make with the SEC, as well as in any documents incorporated by reference that describe risks and factors that could cause results to differ materially from those projected in these forward-looking statements.
Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, achievements or events and circumstances reflected in the forward-looking statements will occur. We are under no duty to update any of these forward-looking statements after completion of this Quarterly Report on Form 10-Q to conform these statements to actual results or revised expectations.
ii

Part I. Financial Information
Item 1.     Financial Statements
    
WORKIVA INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
As of September 30, 2022As of December 31, 2021
(unaudited)
ASSETS
Current assets
Cash and cash equivalents$229,497 $300,386 
Marketable securities203,511 230,060 
Accounts receivable, net of allowance for doubtful accounts of $664 and $591 at September 30, 2022 and December 31, 2021, respectively
82,278 76,848 
Deferred costs35,043 31,152 
Other receivables3,449 3,538 
Prepaid expenses and other14,098 15,108 
Total current assets567,876 657,092 
Property and equipment, net27,133 28,821 
Operating lease right-of-use assets14,414 17,760 
Deferred costs, non-current30,258 33,091 
Goodwill103,091 34,556 
Intangible assets, net27,828 10,434 
Other assets6,037 5,005 
Total assets$776,637 $786,759 
1

WORKIVA INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
(in thousands, except share and per share amounts)
As of September 30, 2022As of December 31, 2021
(unaudited)
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
Current liabilities
Accounts payable
$9,674 $4,114 
Accrued expenses and other current liabilities
84,890 84,126 
Deferred revenue
280,594 258,023 
Convertible senior notes, current 298,661 
Finance lease obligations609 1,575 
Total current liabilities375,767 646,499 
Convertible senior notes, non-current339,932  
Deferred revenue, non-current
37,498 34,181 
Other long-term liabilities
1,353 1,605 
Operating lease liabilities, non-current12,866 16,408 
Finance lease obligations, non-current14,711 15,087 
Total liabilities782,127 713,780 
Stockholders’ (deficit) equity
Class A common stock, $0.001 par value per share, 1,000,000,000 shares authorized, 48,604,656 and 47,293,775 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively
49 47 
Class B common stock, $0.001 par value per share, 500,000,000 shares authorized, 3,890,583 and 4,150,583 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively
4 4 
Preferred stock, $0.001 par value per share, 100,000,000 shares authorized, no shares issued and outstanding
  
Additional paid-in-capital
522,336 525,646 
Accumulated deficit
(511,214)(452,430)
Accumulated other comprehensive loss(16,665)(288)
Total stockholders’ (deficit) equity(5,490)72,979 
Total liabilities and stockholders’ (deficit) equity$776,637 $786,759 
See accompanying notes.
2

WORKIVA INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
(unaudited)
Three months ended September 30,Nine months ended September 30,
2022202120222021
Revenue
Subscription and support$118,591 $98,912 $339,064 $275,053 
Professional services14,258 13,781 55,008 47,449 
Total revenue132,849 112,693 394,072 322,502 
Cost of revenue
Subscription and support19,235 15,606 56,683 42,906 
Professional services13,184 10,799 38,846 31,766 
Total cost of revenue32,419 26,405 95,529 74,672 
Gross profit100,430 86,288 298,543 247,830 
Operating expenses
Research and development38,583 29,841 113,644 84,305 
Sales and marketing64,560 46,026 184,879 128,586 
General and administrative27,405 18,390 75,507 52,795 
Total operating expenses130,548 94,257 374,030 265,686 
Loss from operations(30,118)(7,969)(75,487)(17,856)
Interest income1,440 219 2,325 834 
Interest expense(1,510)(3,508)(4,540)(10,495)
Other income, net964 3,805 1,467 3,265 
Loss before provision (benefit) for income taxes(29,224)(7,453)(76,235)(24,252)
Provision (benefit) for income taxes467 (885)810 (846)
Net loss$(29,691)$(6,568)$(77,045)$(23,406)
Net loss per common share:
Basic and diluted$(0.56)$(0.13)$(1.46)$(0.46)
Weighted-average common shares outstanding - basic and diluted53,081,564 51,441,688 52,844,532 50,921,612 

See accompanying notes.

3

WORKIVA INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
(unaudited)
Three months ended September 30,Nine months ended September 30,
2022202120222021
Net loss$(29,691)$(6,568)$(77,045)$(23,406)
Other comprehensive (loss) income
Foreign currency translation adjustment(7,256)22 (13,344)226 
Unrealized loss on available-for-sale securities(619)(18)(3,033)(248)
Other comprehensive (loss) income(7,875)4 (16,377)(22)
Comprehensive loss$(37,566)$(6,564)$(93,422)$(23,428)

See accompanying notes.

4

WORKIVA INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands)
(unaudited)
Nine Months Ended September 30, 2022
Common Stock (Class A and B)
SharesAmountAdditional Paid-in-CapitalAccumulated Other Comprehensive LossAccumulated DeficitTotal Stockholders' Equity (Deficit)
Balances at December 31, 202151,444 $51 $525,646 $(288)$(452,430)$72,979 
Stock-based compensation expense— — 15,309 — — 15,309 
Issuance of common stock upon exercise of stock options62 1 824 — — 825 
Issuance of common stock under employee stock purchase plan53 — 5,218 — — 5,218 
Issuance of restricted stock units545 — — — — — 
Tax withholding related to net share settlements of stock-based compensation awards(73)— (8,570)— — (8,570)
Adoption of ASU 2020-06— — (58,560)— 18,261 (40,299)
Net loss— — — — (18,493)(18,493)
Other comprehensive loss— — — (1,776)— (1,776)
Balances at March 31, 202252,031 $52 $479,867 $(2,064)$(452,662)$25,193 
Stock-based compensation expense— — 18,447 — — 18,447 
Issuance of common stock upon exercise of stock options76 — 1,145 — — 1,145 
Issuance of restricted stock units144 — — — — — 
Tax withholding related to net share settlements of stock-based compensation awards(12)— (1,344)— — (1,344)
Net loss— — — — (28,861)(28,861)
Other comprehensive loss— — — (6,726)— (6,726)
Balances at June 30, 202252,239 $52 $498,115 $(8,790)$(481,523)$7,854 
Stock-based compensation expense20,29720,297 
Issuance of common stock upon exercise of stock options43625625 
Issuance of common stock under employee stock purchase plan7914,0374,038 
Issuance of restricted stock units145— 
Tax withholding related to net share settlements of stock-based compensation awards(11)(738)(738)
Net loss(29,691)(29,691)
Other comprehensive loss(7,875)(7,875)
Balances at September 30, 202252,495$53 $522,336 $(16,665)$(511,214)$(5,490)
5

WORKIVA INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) (continued)
(in thousands)
(unaudited)
Nine Months Ended September 30, 2021
Common Stock (Class A and B)
SharesAmountAdditional Paid-in-CapitalAccumulated Other Comprehensive Income (Loss)Accumulated DeficitTotal Stockholders' Equity (Deficit)
Balances at December 31, 202048,789 $49 $478,698 $230 $(414,700)$64,277 
Stock-based compensation expense— — 11,623 — — 11,623 
Issuance of common stock upon exercise of stock options312 1 4,137 — — 4,138 
Issuance of common stock under employee stock purchase plan93 — 4,237 — — 4,237 
Issuance of restricted stock units803 — — — — — 
Tax withholding related to net share settlements of stock-based compensation awards(70)— (7,146)— — (7,146)
Net loss— — — — (7,324)(7,324)
Other comprehensive loss— — — (49)— (49)
Balances at March 31, 202149,927 $50 $491,549 $181 $(422,024)$69,756 
Stock-based compensation expense— — 11,052 — — 11,052 
Issuance of common stock upon exercise of stock options117 — 1,480 — — 1,480 
Issuance of restricted stock units318 — — — — — 
Tax withholding related to net share settlements of stock-based compensation awards(8)— (731)— — (731)
Net loss— — — — (9,514)(9,514)
Other comprehensive income— — — 23 — 23 
Balances at June 30, 202150,354 $50 $503,350 $204 $(431,538)$72,066 
Stock-based compensation expense— — 12,687 — — 12,687 
Issuance of common stock upon exercise of stock options200 1 3,173 — — 3,174 
Issuance of common stock under employee stock purchase plan56 — 4,624 — — 4,624 
Issuance of restricted stock units305 — — — — — 
Tax withholding related to net share settlements of stock-based compensation awards(111)— (15,809)— — (15,809)
Net loss— — — — (6,568)(6,568)
Other comprehensive income— — — 4 — 4 
Balances at September 30, 202150,804 $51 $508,025 $208 $(438,106)$70,178 

See accompanying notes.
6

WORKIVA INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three months ended September 30,Nine months ended September 30,
2022202120222021
Cash flows from operating activities
Net loss$(29,691)$(6,568)$(77,045)$(23,406)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization2,681 1,429 7,365 3,580 
Stock-based compensation expense20,297 12,687 54,053 35,362 
Provision for (recovery of) doubtful accounts91 (61)82 (162)
Amortization of premiums and discounts on marketable securities, net129 811 1,242 2,199 
Gain on settlement of equity securities (3,698) (3,698)
Amortization of issuance costs and debt discount325 2,301 973 6,851 
Deferred income tax57 (930)(91)(914)
Changes in assets and liabilities:
Accounts receivable(7,927)2,074 (6,190)5,233 
Deferred costs(1,372)(2,027)(2,662)(12,104)
Operating lease right-of-use asset1,269 985 3,877 2,906 
Other receivables(527)(628)38 (204)
Prepaid expenses and other3,593 (1,024)870 (4,049)
Other assets(1,140)(514)(1,105)(1,197)
Accounts payable3,931 478 5,995 1,214 
Deferred revenue14,775 9,949 28,573 22,028 
Operating lease liability(1,113)(1,112)(3,757)(3,390)
Accrued expenses and other liabilities(523)2,161 384 10,327 
Net cash provided by operating activities4,855 16,313 12,602 40,576 
Cash flows from investing activities
Purchase of property and equipment(1,023)(771)(2,226)(2,431)
Purchase of marketable securities(41,618)(48,213)(99,564)(143,085)
Sale of marketable securities  14,981 250 
Maturities of marketable securities40,071 45,579 106,857 116,371 
Acquisitions, net of cash acquired (35,067)(99,186)(35,067)
Purchase of intangible assets(62)(64)(108)(187)
Other investments   (750)
Net cash used in investing activities(2,632)(38,536)(79,246)(64,899)
7

WORKIVA INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(in thousands)
(unaudited)
Three months ended September 30,Nine months ended September 30,
2022202120222021
Cash flows from financing activities
Proceeds from option exercises625 3,174 2,595 8,792 
Taxes paid related to net share settlements of stock-based compensation awards(738)(15,809)(10,652)(23,686)
Proceeds from shares issued in connection with employee stock purchase plan4,038 4,624 9,256 8,861 
Principal payments on finance lease obligations(454)(430)(1,342)(1,271)
Net cash provided by (used in) financing activities3,471 (8,441)(143)(7,304)
Effect of foreign exchange rates on cash(2,450)(405)(4,102)(79)
Net increase (decrease) in cash and cash equivalents3,244 (31,069)(70,889)(31,706)
Cash and cash equivalents at beginning of period226,253 322,194 300,386 322,831 
Cash and cash equivalents at end of period$229,497 $291,125 $229,497 $291,125 
Supplemental cash flow disclosure
Cash paid for interest$2,152 $2,177 $4,535 $4,607 
Cash paid for income taxes, net of refunds$225 $36 $852 $(30)

See accompanying notes.

8

WORKIVA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Significant Accounting Policies
Organization
Workiva Inc., a Delaware corporation, and its wholly-owned subsidiaries (the “Company” or “we” or “us”) simplifies complex work for thousands of organizations worldwide. We are a leading provider of cloud-based compliance and regulatory reporting solutions that are designed to solve business challenges at the intersection of data, process and people. Our operational headquarters are located in Ames, Iowa, with additional offices located in the United States, Europe, the Asia-Pacific region and Canada.
Basis of Presentation and Principles of Consolidation
The financial information presented in the accompanying unaudited condensed consolidated financial statements has been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and in accordance with rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. The condensed consolidated balance sheet data as of December 31, 2021 was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting primarily of normal recurring accruals, necessary for a fair presentation of our financial position and results of operations. The operating results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results expected for the full year ending December 31, 2022.
Seasonality has affected our revenue, expenses and cash flows from operations. Revenue from professional services has been higher in the first quarter as many of our customers file their Form 10-K in the first calendar quarter. Our sales and marketing expense also has some degree of seasonality. With the exception of September 2020 and September 2021 when we transitioned to a virtual event, sales and marketing expense has historically been higher in the third quarter due to our annual user conference in September, which was held as a hybrid in-person/virtual event in 2022. In addition, the timing of the payments of cash bonuses to employees during the first and fourth calendar quarters may result in some seasonality in operating cash flow. The condensed consolidated financial information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in this report and the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the SEC on February 22, 2022.
The unaudited condensed consolidated financial statements include the accounts of Workiva Inc. and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
9

Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience and various other assumptions believed to be reasonable. These estimates include, but are not limited to, the allowance for doubtful accounts, the determination of the relative selling prices of our services, the measurement of material rights, health insurance claims incurred but not yet reported, valuation of available-for-sale marketable securities, useful lives of deferred contract costs, intangible assets and property and equipment, goodwill, income taxes, discount rates used in the valuation of right-of-use assets and lease liabilities, and certain assumptions used in the valuation of equity awards. While these estimates are based on our best knowledge of current events and actions that may affect us in the future, actual results may differ materially from these estimates.
Recently Adopted Accounting Pronouncements
In October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which amends the accounting related to contract assets and liabilities acquired in business combinations. This ASU requires that entities recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 606, Revenue from Contracts with Customers. This update is effective for fiscal years beginning after December 15, 2022 with early adoption permitted. We adopted this standard on January 1, 2022. The adoption of this standard did not have a material impact on our consolidated financial statements.
In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity. Under ASU 2020-06, embedded conversion features are no longer separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives, or that do not result in substantial premiums accounted for as paid-in capital. The convertible debt instruments will now be accounted for as a single liability measured at amortized cost. This results in the interest expense recognized for convertible debt instruments to be closer to the coupon interest rate. The new guidance also requires the if-converted method to be applied for all convertible instruments when calculating earnings per share. The new standard is effective for interim and annual periods beginning after December 15, 2021 and can be adopted on either a modified retrospective or full retrospective basis.
We adopted this standard on January 1, 2022 using the modified retrospective method under which financial results reported in prior periods were not adjusted. Adoption of the new standard resulted in a decrease to accumulated deficit of $18.3 million, a decrease to additional paid-in capital of $58.6 million, and an increase to convertible senior notes, non-current of $40.3 million on the consolidated balance sheet. See Note 5 to the condensed consolidated financial statements for more information.
New Accounting Pronouncements Not Yet Adopted
None.
10

2. Supplemental Consolidated Balance Sheet Information
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following (in thousands):
As of September 30, 2022As of December 31, 2021
Accrued vacation$13,453 $11,221 
Accrued commissions7,306 11,122 
Accrued bonuses16,981 8,292 
Accrued payroll3,648 4,494 
Estimated health insurance claims1,967 1,814 
Accrued interest485 1,455 
ESPP employee contributions3,176 5,349 
Customer deposits25,503 26,517 
Operating lease liabilities5,638 6,008 
Accrued other liabilities6,733 7,854 
$84,890 $84,126 

3. Cash Equivalents and Marketable Securities
At September 30, 2022, cash equivalents and marketable securities consisted of the following (in thousands):
Amortized Cost
Unrealized Gains
Unrealized Losses
Aggregate Fair Value
Money market funds$158,865 $— $— $158,865 
Commercial paper5,499   5,499 
U.S. treasury debt securities85,956 3 (1,190)84,769 
Corporate debt securities118,133  (2,359)115,774 
Foreign government debt securities992  (23)969 
$369,445 $3 $(3,572)$365,876 
Included in cash and cash equivalents$162,365 $— $— $162,365 
Included in marketable securities$207,080 $3 $(3,572)$203,511 
At December 31, 2021, cash equivalents and marketable securities consisted of the following (in thousands):
Amortized Cost
Unrealized Gains
Unrealized Losses
Aggregate Fair Value
Money market funds$259,754 $— $— $259,754 
Commercial paper10,479   10,479 
U.S. treasury debt securities54,809 2 (206)54,605 
Corporate debt securities161,792 3 (334)161,461 
Foreign government debt securities5,014 1  5,015 
$491,848 $6 $(540)$491,314 
Included in cash and cash equivalents$261,254 $— $— $261,254 
Included in marketable securities$230,594 $6 $(540)$230,060 

11

The contractual maturities of the investments classified as marketable securities are as follows (in thousands):
As of September 30, 2022
Due within one year$144,644 
Due in one to two years57,883 
Due in three to five years984 
$203,511 
The following table presents gross unrealized losses and fair values for those cash equivalents and marketable securities that were in an unrealized loss position as of September 30, 2022, aggregated by investment category and the length of time that individual securities have been in a continuous loss position (in thousands):
As of September 30, 2022
Less than 12 months
12 months or greater
Fair Value
Unrealized Loss
Fair Value
Unrealized Loss
U.S. treasury debt securities$44,933 $(370)$33,082 $(820)
Corporate debt securities94,854 (1,870)20,920 (489)
Foreign government debt securities969 (23)  
Total$140,756 $(2,263)$54,002 $(1,309)
We do not believe the unrealized losses represent credit losses based on our evaluation of available evidence as of September 30, 2022, which includes an assessment of whether it is more likely than not we will be required to sell the investment before recovery of the investment's amortized cost basis.
4. Fair Value Measurements
We determine the fair values of our financial instruments based on the fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. 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. The fair value assumes that the transaction to sell the asset or transfer the liability occurs in the principal or most advantageous market for the asset or liability and establishes that the fair value of an asset or liability shall be determined based on the assumptions that market participants would use in pricing the asset or liability. The classification of a financial asset or liability within the hierarchy is based upon the lowest level input that is significant to the fair value measurement. The fair value hierarchy prioritizes the inputs into three levels that may be used to measure fair value:
Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 - Inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.
Level 3 - Inputs are unobservable inputs based on our assumptions.
12

Financial Assets
Cash equivalents primarily consist of AAA-rated money market funds with overnight liquidity and no stated maturities. We classified cash equivalents as Level 1 due to the short-term nature of these instruments and measured the fair value based on quoted prices in active markets for identical assets.
When available, our marketable securities are valued using quoted prices for identical instruments in active markets. If we are unable to value our marketable securities using quoted prices for identical instruments in active markets, we value our investments using broker reports that utilize quoted market prices for comparable instruments. We validate, on a sample basis, the derived prices provided by the brokers by comparing their assessment of the fair values of our investments against the fair values of the portfolio balances of another third-party professional pricing service. As of September 30, 2022, all of our marketable securities were valued using quoted prices for comparable instruments in active markets and are classified as Level 2.
Based on our valuation of our money market funds and marketable securities, we concluded that they are classified in either Level 1 or Level 2, and we have no financial assets measured using Level 3 inputs on a recurring basis. The following table presents information about our assets that are measured at fair value on a recurring basis using the above input categories (in thousands):
Fair Value Measurements as of September 30, 2022Fair Value Measurements as of December 31, 2021
Description
Total
Level 1
Level 2
Total
Level 1
Level 2
Money market funds$158,865 $158,865 $ $259,754 $259,754 $ 
Commercial paper5,499  5,499