FAIR VALUE MEASUREMENTS

The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value. Level 1 refers to fair values determined based on quoted prices in active markets for identical assets. Level 2 refers to fair values estimated using significant other observable inputs, and Level 3 includes fair values estimated using significant non-observable inputs. The following tables present the Company's financial assets and liabilities measured on a recurring basis using the fair value hierarchy at December 31, 2018 and March 31, 2018 (in thousands):



	Fair Value Measurements at
	December 31, 2018
	Level 1		Level 2			Level 3		Total
ASSETS:
Cash and cash equivalents	$	369,054	$	—		$	—	$	369,054
U.S. government and municipal obligations	35,668		18,297			—		53,965
Commercial paper	—		50,783			—		50,783
Corporate bonds	2,007		—			—		2,007
Derivative financial instruments	—		21			—		21
Contingent consideration	—		—			2,321		2,321
	$	406,729	$	69,101		$	2,321	$	478,151
LIABILITIES:
Derivative financial instruments	—		(224		)	—		(224		)
	$	—	$	(224	)	$	—	$	(224	)



	Fair Value Measurements at
	March 31, 2018
	Level 1		Level 2			Level 3			Total
ASSETS:
Cash and cash equivalents	$	369,821	$	—		$	—		$	369,821
U.S. government and municipal obligations	14,513		27,673			—			42,186
Commercial paper	—		33,003			—			33,003
Corporate bonds	2,752		—			—			2,752
Derivative financial instruments	—		122			—			122
	$	387,086	$	60,798		$	—		$	447,884
LIABILITIES:
Contingent purchase consideration	$	—	$	—		$	(5,464	)	$	(5,464	)
Derivative financial instruments	—		(40		)	—			(40		)
	$	—	$	(40	)	$	(5,464	)	$	(5,504	)

This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. On a recurring basis, the Company measures certain financial assets and liabilities at fair value, including marketable securities and derivative financial instruments.

The Company's Level 1 investments are classified as such because they are valued using quoted market prices or alternative pricing sources with reasonable levels of price transparency.

The Company's Level 2 investments are classified as such because fair value is calculated using market observable data for similar but not identical instruments, or a discounted cash flow model using the contractual interest rate as compared with the underlying interest yield curve. The Company classifies municipal obligations as Level 2 because the fair values are determined using quoted prices from markets the Company considers to be inactive. Commercial paper is classified as Level 2 because the Company uses market information from similar but not identical instruments and discounted cash flow models based on interest rate yield curves to determine fair value. The Company's derivative financial instruments consist of forward foreign exchange contracts and are classified as Level 2 because the fair values of these derivatives are determined using models based on market observable inputs, including spot prices for foreign currencies and credit derivatives, as well as an interest rate factor.

The Company's Level 3 assets consist of contingent consideration related to the divestiture of the Company's handheld network test (HNT) tools business in September 2018. The contingent consideration of $2.3 million represents potential future earnout payments to the Company of up to $4.0 million over two years that are contingent on the HNT tools business achieving certain milestones. The fair value of the contingent consideration was recognized on the acquisition date and was measured using unobservable (Level 3) inputs. The $2.3 million of contingent consideration is included in other assets within the Company’s consolidated balance sheet at December 31, 2018.

The Company's Level 3 liabilities consist of contingent purchase consideration.

The fair value of contingent purchase consideration at March 31, 2018 included $4.9 million related to the acquisition of Simena LLC (Simena) in November 2011 for future consideration to be paid to the seller. The contingent purchase consideration was included as a contingent liability within accrued other in the Company's consolidated balance sheet at March 31, 2018. The contingent purchase consideration was paid to the seller in November 2018.

The Company's contingent purchase consideration at March 31, 2018 included $523 thousand related to the acquisition of certain assets and liabilities of Efflux Systems, Inc. (Efflux) in the second quarter of fiscal year 2018. The contingent purchase consideration was released from escrow to the sellers in July 2018.

The following table sets forth a reconciliation of changes in the fair value of the Company's Level 3 financial assets and liabilities for the nine months ended December 31, 2018 (in thousands):



	Contingent Purchase Consideration			Contingent Consideration
Balance at March 31, 2018	$	(5,464	)	$	—
Contingent consideration pursuant to divestiture of HNT tools business	—			2,257
Change in fair value of contingent consideration	(102		)	64
Payments of contingent consideration	5,566			—
Balance at December 31, 2018	$	—		$	2,321

Deal-related compensation expense and accretion charges related to the contingent purchase consideration for the nine months ended December 31, 2018 was $102 thousand and was included within research and development expense. Accretion income related to the contingent consideration for the nine months ended December 31, 2018 was $64 thousand and was included within interest income.