NOTE C – Financial Instruments

We invest primarily in money market funds, highly liquid debt instruments of the U.S. government, and U.S. corporate debt securities. All highly liquid investments with original maturities of 90 days or less are classified as cash equivalents. All investments with original maturities greater than 90 days and remaining maturities less than one year from the balance sheet date are classified as short-term marketable securities. Investments with remaining maturities of more than one year from the balance sheet date are classified as marketable securities, non-current. Short-term marketable securities and marketable securities, non-current, are also classified as available-for-sale. We intend to hold marketable securities until maturity; however, we may sell these securities at any time for use in current operations or for other purposes. Consequently, we may or may not keep securities with stated holding periods to maturity.

Our fixed income investments are carried at fair value and unrealized gains and losses on these investments are included in other comprehensive income (loss) in the condensed consolidated statements of comprehensive income (loss). Realized gains or losses are included in other income (expense) in the condensed consolidated statements of comprehensive income (loss). When a determination has been made that an other-than-temporary decline in fair value has occurred, the amount of the decline that is related to a credit loss is realized and is included in other income (expense), net in the condensed consolidated statements of comprehensive income (loss).

Cash equivalents and marketable securities, consisted of the following (in thousands):


	March 31, 2016
	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
Cash equivalents:
Money market funds	$	65,300	$	—	$	—		$	65,300

Marketable securities:
Corporate bonds		10,043		26		(23	)		10,046
Commercial paper		2,494		1		—			2,495
U.S. treasury securities		7,489		6		—			7,495
U.S. agency obligations		2,497		6		—			2,503

	$	87,823	$	39	$	(23	)	$	87,839

Due within one year								$	75,310
Due within two years									12,529

Total								$	87,839


	December 31, 2015
	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
Cash equivalents:
Money market funds	$	79,717	$	—	$	—		$	79,717

Marketable securities:
Corporate bonds		10,042		—		(34	)		10,008
Commercial paper		2,499		1		—			2,500
U.S. treasury securities		7,489		—		(27	)		7,462
U.S. agency obligations		2,497		1		—			2,498

	$	102,244	$	2	$	(61	)	$	102,185

Due within one year								$	87,235
Due within two years									14,950

Total								$	102,185

We do not believe any of the unrealized losses represent an other-than-temporary impairment based on our valuation of available evidence as of March 31, 2016. We expect to receive the full principal and interest on all of these cash equivalents and marketable securities.

Fair Value Measurements

We measure certain financial assets at fair value on a recurring basis based on a fair value hierarchy that requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels of inputs that may be used to measure fair value are:

•

Level 1 – quoted prices in active markets for identical assets or liabilities

•

Level 2 – observable inputs other than Level 1 prices, such as (a) quoted prices for similar assets or liabilities, (b) quoted prices in markets with insufficient volume or infrequent transactions (less active markets), or (c) model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.

•

Level 3 – unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.

Level 1 Measurements

Our cash equivalents held in money market funds are measured at fair value using level 1 inputs.

Level 2 Measurements

Our available-for-sale U.S. treasury securities, U.S. agency obligations, commercial paper and corporate debt securities are measured at fair value using level 2 inputs. We obtain the fair values of our level 2 available-for-sale securities from a professional pricing service.

Level 3 Measurements

Our valuation technique used to measure the fair value of our share-based earn-out liability was based on the present value of probability-weighted future cash flows related to the contingent earn-out criteria and the fair value of our common stock on each reporting date. While the fair value of our common stock is an observable input, the probability-weighted future cash flows related to the outcome of the earn-out represent a significant unobservable input to the valuation methodology. Accordingly, we have classified the earn-out liability as a Level 3 measurement.

The following table presents information about our financial assets that are measured at fair value on a recurring basis and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value (in thousands):


	Level 1		Level 2		Level 3		Total
Assets at March 31, 2016:
Cash and cash equivalents:
Money market funds	$	65,300	$	—	$	—	$	65,300
Marketable securities:
Corporate bonds		—		10,046		—		10,046
Commerical paper		—		2,495		—		2,495
U.S. treasury securities		—		7,495		—		7,495
U.S. agency obligations		—		2,503		—		2,503

Total Assets	$	65,300	$	22,539	$	—	$	87,839

Liabilities at March 31, 2016:
Share-based earn-out liability	$	—	$	—	$	666	$	666

Total liabilities	$	—	$	—	$	666	$	666

Assets at December 31, 2015:
Cash and cash equivalents:
Money market funds	$	79,717	$	—	$	—	$	79,717
Marketable securities:
Corporate bonds		—		10,008		—		10,008
Commerical paper		—		2,500		—		2,500
U.S. treasury securities		—		7,462		—		7,462
U.S. agency obligations		—		2,498		—		2,498

	$	79,717	$	22,468	$	—	$	102,185

We classify our cash and cash equivalents and marketable securities within Level 1 or Level 2 because we use quoted market prices or alternative pricing sources and models utilizing market observable inputs to determine their fair value.

As described above, we classify our share-based earn-out liability in connection with our acquisition of Toolbox Solutions within Level 3 as factors used to develop the estimated fair value are unobservable. Our fair value estimate of this liability was $1.0 million at the date of acquisition and subsequent changes in the fair value of the share-based earn-out liability, whether due to changes in our probability assessment or the fair value of our common stock, are recognized in earnings in the period when the change in the estimated fair value occurs. During the quarter ended March 31, 2016, we recognized a $365,000 change in the fair value of our share-based earn-out liability in other income (expense), net in our condensed consolidated statements of comprehensive income primarily due to the change in the fair value of our common stock.