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 a highly liquid money market fund, which is 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, 2017
	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
	(in thousands)
Cash and cash equivalents:
Cash	$	90,472	$	—	$	—		$	90,472
Money market funds	45		—		—			45
Total	90,517		—		—			90,517
Short-term investments:
Commercial paper	20,930		4		(1		)	20,933
Corporate bonds	31,786		3		(22		)	31,767
Asset-backed securities	491		—		—			491
U.S. government agencies	159,135		3		(119		)	159,019
Total	212,342		10		(142		)	212,210

Long-term investments:
Asset-backed securities	2,855		1		—			2,856
Corporate bonds	37,490		32		(20		)	37,502
Total	40,345		33		(20		)	40,358

Total	$	343,204	$	43	$	(162	)	$	343,085



	December 31, 2016
	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
	(in thousands)
Cash and cash equivalents:
Cash	$	72,673	$	—	$	—		$	72,673
Money market funds	473		—		—			473
Commercial paper	13,591		—		—			13,591
Total	86,737		—		—			86,737
Short-term investments:
Commercial paper	14,782		5		—			14,787
Corporate bonds	13,490		—		(11		)	13,479
Asset-backed securities	1,235							1,235
U.S. government agencies	127,660				(42		)	127,618
Total	157,167		5		(53		)	157,119
Long-term investments:
Asset-backed securities	5,091		2		—			5,093
U.S. government agencies	29,501		—		(71		)	29,430
Corporate bonds	11,243		—		(41		)	11,202
Total	45,835		2		(112		)	45,725
Total	$	289,739	$	7	$	(165	)	$	289,581

The following table shows the changes to accumulated other comprehensive income (loss) for the nine months ended September 30, 2017 (in thousands):



	Unrealized Gain (Loss), net on Investments
Balance at December 31, 2016	$	(156	)
Change in net realized gain (loss) on investments	32
Amounts reclassified for net realized gain (loss) included in net income	4
Other comprehensive income (loss), net	36
Balance at September 30, 2017	$	(120	)

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, 2017
	Level 1		Level 2		Level 3		Fair Value
	(in thousands)
Commercial paper	$	—	$	20,933	$	—	$	20,933
U.S. government agencies	—		159,019		—		159,019
Corporate bonds	—		69,269		—		69,269
Asset-backed securities	—		3,347		—		3,347
Total	$	—	$	252,568	$	—	$	252,568



	December 31, 2016
	Level 1		Level 2		Level 3		Fair Value
	(in thousands)
Commercial paper	$	—	$	28,378	$	—	$	28,378
U.S. government agencies	—		157,048		—		157,048
Corporate bonds	—		24,681		—		24,681
Asset-backed securities	—		6,328		—		6,328
Total	$	—	$	216,435	$	—	$	216,435

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, or effective, maturity:



	September 30, 2017
	Mature within One Year		After One Year through Two Years		Over Two Years		Fair Value
	(in thousands)
Commercial paper	$	20,933	$	—	$	—	$	20,933
U.S. government agencies	159,019		—		—		159,019
Corporate bonds	32,783		27,037		9,449		69,269
Asset-backed securities	1,781		1,000		566		3,347
Total	$	214,516	$	28,037	$	10,015	$	252,568

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, 2017, the Company had two outstanding forward contracts with notional amounts of 6.7 million Euros and 4.8 million British Pounds, which expire on October 31, 2017. At December 31, 2016, the Company had two outstanding forward contracts with notional amounts of 7.6 million Euros and 4.6 million British Pounds, which expired on February 2, 2017. 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, 2017 and December 31, 2016. These derivatives did not meet the criteria to be designated as hedges. These instruments were valued using Level 2 inputs.

The following summarizes the gains (losses) recognized in Other expense, net on the condensed consolidated statement of operations, from forward contracts and other foreign currency transactions:



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2017			2016			2017			2016
	(in thousands)
Net loss from forward contracts	$	(463	)	$	(82	)	$	(1,585	)	$	(9	)
Other foreign currency transactions gain	431			(2		)	1,424			(276		)
Total foreign exchange gain (loss), net	$	(32	)	$	(84	)	$	(161	)	$	(285	)