Quarterly report pursuant to Section 13 or 15(d)

Financial Instruments

v3.8.0.1
Financial Instruments
9 Months Ended
Sep. 30, 2017
Fair Value Disclosures [Abstract]  
Financial Instruments
Financial Instruments
As of September 30, 2017, the Company did not have any financial instruments that are required to be measured at fair value on a recurring basis. The composition of financial instruments as of December 31, 2016 is as follows:
 
December 31, 2016
Amortized
Cost
 
Gross Unrealized
 
Fair
Value
Gains
 
Losses
 
 
(in thousands)
Assets
 
 
 
 
 
 
 
Money market funds
$
39,181

 
$

 
$

 
$
39,181

Government debt securities
28,025

 

 
(32
)
 
27,993

Corporate debt securities
25,923

 

 
(7
)
 
25,916

 
93,129

 

 
(39
)
 
93,090

Less amounts included in cash and cash equivalents
(39,181
)
 

 

 
(39,181
)
 
$
53,948

 
$

 
$
(39
)
 
$
53,909

 
Fair Value at December 31, 2016
 
(in thousands)
Liabilities
 
Contingent consideration
$
375

Total
$
375


The fair values of the Company’s financial instruments are the amounts that would be received in an asset sale or paid to transfer a liability in an orderly transaction between unaffiliated market participants and are recorded using a hierarchical disclosure framework based upon the level of subjectivity of the inputs used in measuring assets and liabilities. The levels are described below:
Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities.
Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.
Level 3: Unobservable inputs are used when little or no market data is available.
The Company classifies its financial instruments within Level 1 or Level 2 of the fair value hierarchy on the basis of valuations using quoted market prices or alternate pricing sources and models utilizing market observable inputs, respectively. The Company’s money market funds were valued based on quoted prices for the specific securities in an active market and were therefore classified as Level 1. The government and corporate debt securities have been valued on the basis of valuations provided by third-party pricing services, as derived from such services’ pricing models. The pricing services may use a consensus price which is a weighted average price based on multiple sources or mathematical calculations to determine the valuation for a security, and have been classified as Level 2. The Company reviews Level 2 inputs and fair value for reasonableness and the values may be further validated by comparison to independent pricing sources. In addition, the Company reviews third-party pricing provider models, key inputs and assumptions and understands the pricing processes at its third-party providers in determining the overall reasonableness of the fair value of its Level 2 financial instruments. The Company has not made any adjustments to the prices obtained from its third-party pricing providers. The contingent liability is classified as Level 3 as of December 31, 2016 and is valued using an internal rate of return model. The assumptions used in preparing the internal rate of return model include revenues earned related to Physpeed products and services and a discount factor of 1 at December 31, 2016. The contingent liability was settled in the nine months ended September 30, 2017. The assumptions used in preparing the internal rate of return model included estimates for outcome if milestone goals were achieved, the probability of achieving each outcome and discount rates. There were no significant changes in any of the unobservable inputs used in the fair value measurement of contingent consideration, and the resultant fair value.
The following table presents a summary of the Company’s financial instruments that were measured at fair value on a recurring basis as of December 31, 2016:
 
 
 
Fair Value Measurements at December 31, 2016
 
Balance at December 31, 2016
 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
(in thousands)
Assets
 
 
 
 
 
 
 
Money market funds
$
39,181

 
$
39,181

 
$

 
$

Government debt securities
27,993

 

 
27,993

 

Corporate debt securities
25,916

 

 
25,916

 

 
$
93,090

 
$
39,181

 
$
53,909

 
$

Liabilities
 
 
 
 
 
 
 
Contingent consideration
$
375

 
$

 
$

 
$
375

The following summarizes the activity in Level 3 financial instruments:
 
Nine Months Ended September 30,
 
2017
 
2016
 
(in thousands)
Contingent Consideration (1)
 
 
 
Beginning balance
$
375

 
$
395

Physpeed earn-out payment
(375
)
 
(240
)
Loss recognized in net income(2)

 
209

Ending balance
$

 
$
364

Net loss for the period included in net income attributable to contingent consideration held at the end of the period
$

 
$
(209
)
____________________________
(1)
In connection with the acquisition of Physpeed, the Company recorded contingent consideration based upon the expected achievement of 2015 and 2016 revenue milestones. Changes to the fair value of contingent consideration due to changes in assumptions used in preparing the valuation model were recorded in selling, general and administrative expense in the unaudited consolidated statements of operations.
(2)
Changes to the estimated fair value of contingent consideration for the three and nine months ended September 30, 2016 were primarily due to updates to present value discount factors.
There were no transfers between Level 1, Level 2 or Level 3 financial instruments in the three and nine months ended September 30, 2017.
Financial Instruments Not Recorded at Fair Value on a Recurring Basis

Some of the Company’s financial instruments are not measured at fair value on a recurring basis but are recorded at amounts that approximate fair value due to their liquid or short-term nature. Such financial assets and financial liabilities include: cash and cash equivalents, net receivables, certain other assets, accounts payable, accrued expenses, accrued compensation costs, and other current liabilities.

The Company’s long-term debt is not recorded at fair value on a recurring basis, but is measured at fair value for disclosure purposes (Note 8).