Note 7. Fair Value Measurements

The carrying amounts of accounts receivable and other current assets, accounts payable and accrued liabilities approximate their fair value due to their short-term nature.

Financial assets and liabilities recorded at fair value in the condensed consolidated financial statements are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels, which are directly related to the amount of subjectivity associated with the inputs to the valuation of these assets or liabilities are as follows:

Level 1—Observable inputs, such as quoted prices in active markets for identical assets or liabilities.

Level 2—Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, 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—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Financial assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires management to make judgments and considers factors specific to the asset or liability.

The following table presents the fair value hierarchy for financial assets measured at fair value on a recurring basis as of July 31, 2018 (in thousands):

	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents:
Money market funds	$	66,114	$	—	$	—	$	66,114
Commercial paper		—		4,485		—		4,485
Corporate notes and bonds		—		3,034		—		3,034
U.S. agency obligations		—		11,128		—		11,128
U.S. treasury securities		—		29,967		—		29,967
Short-term investments:
Certificates of deposits		—		11,043		—		11,043
Asset-backed securities		—		85,945		—		85,945
Commercial paper		—		13,597		—		13,597
Corporate notes and bonds		—		151,523		—		151,523
Foreign government bonds		—		2,978		—		2,978
Mortgage backed securities		—		13,285		—		13,285
U.S. agency obligations		—		57,634		—		57,634
U.S. treasury securities		—		162,685		—		162,685
Foreign currency derivative contracts		—		59		—		59
Total	$	66,114	$	547,363	$	—	$	613,477
Liabilities
Foreign currency derivative contracts		—		160		—		160
Total	$	—	$	160	$	—	$	160

The following table presents the fair value hierarchy for financial assets measured at fair value on a recurring basis as of January 31, 2018 (in thousands):

	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents:
Money market funds	$	25,820	$	—	$	—	$	25,820
Commercial paper		—		1,999		—		1,999
Corporate notes and bonds		—		2,080		—		2,080
U.S. treasury securities		—		8,000		—		8,000
Short-term investments:
Asset-backed securities		—		67,451		—		67,451
Commercial paper		—		19,914		—		19,914
Corporate notes and bonds		—		159,741		—		159,741
Foreign government bonds		—		1,486		—		1,486
Mortgage backed securities		—		11,480		—		11,480
U.S. agency obligations		—		71,131		—		71,131
U.S. treasury securities		—		110,576		—		110,576
Foreign currency derivative contracts		—		127		—		127
Total	$	25,820	$	453,985	$	—	$	479,805
Liabilities
Foreign currency derivative contracts		—		391		—		391
Total	$	—	$	391	$	—	$	391

We determine the fair value of our security holdings based on pricing from our service providers and market prices from industry-standard independent data providers. The valuation techniques used to measure the fair value of financial instruments having Level 2 inputs were derived from non-binding consensus prices that are corroborated by observable market data or quoted market prices for similar instruments. Such market prices may be quoted prices in active markets for identical assets (Level 1 inputs) or pricing determined using inputs other than quoted prices that are observable either directly or indirectly (Level 2 inputs). We perform procedures to ensure that appropriate fair values are recorded such as comparing prices obtained from other sources.

Balance Sheet Hedges

During the three months ended July 31, 2018, we entered into foreign currency forward contracts (the “Forward Contracts”) in order to hedge our foreign currency exposure. A Forward Contract is a commitment to deliver a certain amount of currency at a certain price on a specific date in the future. By entering into Forward Contracts and holding them to maturity, we are locked into a future currency exchange rate in an amount equal to and for the terms of the Forward Contracts. We account for derivative instruments at fair value with changes in the fair value recorded as a component of other income, net in our condensed consolidated statements of comprehensive income. Cash flows from such forward contracts are classified as operating activities. We recognized realized foreign currency losses of $0.2 million and gains of $0.3 million during the three and six months ended July 31, 2018 on hedging, respectively, and losses of $2.2 million and $2.8 million during the three and six months ended July 31, 2017 on hedging, respectively.

The fair value of our outstanding derivative instruments is summarized below (in thousands):

	July 31,		January 31,
	2018		2018
Notional amount of foreign currency derivative contracts	$	2,946	$	36,266
Fair value of foreign currency derivative contracts		3,047		36,531

Details on outstanding balance sheet hedges are presented below as of the date shown below (in thousands):

		July 31,		January 31,
		2018		2018
Derivative Assets	Balance Sheet Location
Derivatives not designated as hedging instruments:
Foreign currency derivative contracts	Prepaid expenses and other current assets	$	59	$	127
Derivative Liabilities
Derivatives not designated as hedging instruments:
Foreign currency derivative contracts	Accrued expenses	$	160	$	391