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 other current 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, investments and 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, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data 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 highly liquid money market funds, which are valued using unadjusted quoted prices that are available in an active market for an identical asset. Level 2 assets include fixed-income U.S. government agency securities, commercial paper, corporate bonds, asset-backed 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 in active markets for similar instruments or on 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, short-term investments, and long-term investments consist of the following:



	September 30, 2015
	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
	(in thousands)
Cash and cash equivalents:
Cash	$	48,907	$	—	$	—		$	48,907
Money market funds	3,612		—		—			3,612
U.S. government agencies	2,400		—		—			2,400
Commercial paper	39,841		3		—			39,844
Total	94,760		3		—			94,763
Short-term investments:
Commercial paper	24,579		9		—			24,588
Corporate bonds	12,561		2		(3		)	12,560
Asset-backed securities	537		—		—			537
U.S. government agencies	41,675		22		—			41,697
Total	79,352		33		(3		)	79,382
Long-term investments:
Asset-backed securities	6,405		—		(1		)	6,404
U.S. government agencies	12,461		9		(2		)	12,468
Corporate bonds	6,862		1		(3		)	6,860
Total	25,728		10		(6		)	25,732
Total	$	199,840	$	46	$	(9	)	$	199,877



	December 31, 2014
	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
	(in thousands)
Cash and cash equivalents:
Cash	$	36,024	$	—	$	—		$	36,024
Money market funds	39,180		—		—			39,180
U.S. government agencies	300		—		—			300
Commercial paper	1,000		—		—			1,000
Total	76,504		—		—			76,504
Short-term investments:
Commercial paper	4,998		1		—			4,999
Corporate bonds	12,438		6		(6		)	12,438
U.S. government agencies	33,280		3		(6		)	33,277
Total	50,716		10		(12		)	50,714
Long-term investments:
Asset-backed securities	16,092		5		(3		)	16,094
U.S. government agencies	20,243		22		(10		)	20,255
Corporate bonds	3,101		—		(2		)	3,099
Total	39,436		27		(15		)	39,448
Total	$	166,656	$	37	$	(27	)	$	166,666

The following table sets forth by level within the fair value hierarchy the fair value of the Company's available-for-sale securities measured on a recurring basis, excluding cash and money market funds:



	September 30, 2015
	Level 1		Level 2		Level 3		Fair Value
	(in thousands)
Commercial paper	$	—	$	64,432	$	—	$	64,432
U.S. government agencies	—		56,565		—		56,565
Corporate bonds	—		19,420		—		19,420
Asset-backed securities	—		6,941		—		6,941
Total	$	—	$	147,358	$	—	$	147,358



	December 31, 2014
	Level 1		Level 2		Level 3		Fair Value
	(in thousands)
Commercial paper	$	—	$	5,999	$	—	$	5,999
U.S. government agencies	—		53,832		—		53,832
Corporate bonds	—		15,537		—		15,537
Asset-backed securities	—		16,094		—		16,094
Total	$	—	$	91,462	$	—	$	91,462

There were no transfers between Level 1, Level 2 or Level 3 of the fair value hierarchy, as determined at the end of each reporting period.

The following summarizes the fair value of securities classified as available-for-sale by contractual maturity:



	September 30, 2015
	Mature within One Year		After One Year through Two Years		Over Two Years		Fair Value
	(in thousands)
Commercial paper	$	64,432	$	—	$	—	$	64,432
U.S. government agencies	44,097		12,468		—		56,565
Corporate bonds	12,560		6,860		—		19,420
Asset-backed securities	537		4,203		2,201		6,941
Total	$	121,626	$	23,531	$	2,201	$	147,358



	December 31, 2014
	Mature within One Year		After One Year through Two Years		Over Two Years		Fair Value
	(in thousands)
Commercial paper	$	5,999	$	—	$	—	$	5,999
U.S. government agencies	33,577		20,255		—		53,832
Corporate bonds	12,438		3,099		—		15,537
Asset-backed securities	—		7,327		8,767		16,094
Total	$	52,014	$	30,681	$	8,767	$	91,462

Derivative Financial Instruments

Derivative financial instruments are utilized by the Company to reduce foreign currency exchange risks. The Company uses foreign currency forward contracts to mitigate the impact of foreign currency fluctuations of certain non-U.S. dollar denominated asset positions, primarily cash and accounts receivable. These contracts are recorded within prepaid expenses and other current assets or accrued liabilities in the condensed consolidated balance sheets. Gains and losses resulting from currency exchange rate movements on these forward contracts are recognized in other income (expense) in the accompanying condensed consolidated statements of operations in the period in which the exchange rates change and offset the foreign currency gains and losses on the underlying exposure being hedged. The Company does not enter into derivative financial instruments for trading or speculative purposes.

At September 30, 2015, the Company had two outstanding forward contracts with notional amounts of 4.6 million Euros and 3.2 million British Pounds, which expired on October 31, 2015. At December 31, 2014, the Company had two outstanding forward contracts with notional amounts of 6.0 million Euros and 2.1 million British Pounds, which expired on January 31, 2015. These forward contracts were entered into at the end of each month, and thus the fair value of these contracts was $0 at September 30, 2015 and December 31, 2014. The Company recorded a gain of $0.1 million from these forward contracts, which was offset by other foreign currency transaction losses of $0.4 million for the three months ended September 30, 2015. The Company recorded a net gain of $0.5 million, which was more than offset by other foreign currency transaction losses of $0.9 million during the nine months ended September 30, 2015. For the three months ended September 30, 2014, the Company recorded a gain of $0.5 million from these contracts, which were more than offset by other foreign currency losses of $0.8 million. For the nine months ended September 30, 2014, the Company recorded a gain of $0.4 million from these forward contracts, which were more than offset by losses of $0.7 million in other foreign currency transactions. These derivatives did not meet the criteria to be designated as hedges. These instruments were valued using Level 2 inputs.