Investments and Fair Value Measurements

Marketable Securities

As of September 30, 2018 and December 31, 2017, the estimated fair value of our short-term and long-term marketable securities, classified as available for sale, are as follows (in thousands):

Short-term



September 30, 2018	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Commercial paper	$	24,675	$	—	$	—		$	24,675
Corporate bonds	75,461		1		(94		)	75,368
U.S. government agency bonds	11,665		—		(31		)	11,634
U.S. government treasury bonds	72,622		—		(22		)	72,600
Certificates of deposit	20		—		—			20
Total marketable securities, short-term	$	184,443	$	1	$	(147	)	$	184,297

Long-term



September 30, 2018	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. government agency bonds	$	7,035	$	—	$	(74	)	$	6,961
Corporate bonds	1,127		3		—			1,130
Total marketable securities, long-term	$	8,162	$	3	$	(74	)	$	8,091

Short-term



December 31, 2017	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Commercial paper	$	58,503	$	—	$	(1	)	$	58,502
Corporate bonds	145,728		3		(174		)	145,557
U.S. government agency bonds	3,013		—		(7		)	3,006
U.S. government treasury bonds	60,650		—		(70		)	60,580
Certificates of deposit	4,386		—		—			4,386
Total marketable securities, short-term	$	272,280	$	3	$	(252	)	$	272,031

Long-term



December 31, 2017	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. government agency bonds	$	15,023	$	—	$	(68	)	$	14,955
Corporate bonds	25,067		2		(76		)	24,993
Total marketable securities, long-term	$	40,090	$	2	$	(144	)	$	39,948

Cash equivalents are not included in the table above as the gross unrealized gains and losses are not material. We have no short-term or long-term investments that have been in a continuous material unrealized loss position for greater than twelve months as of September 30, 2018 and December 31, 2017. Amounts reclassified to earnings from accumulated other comprehensive income (loss), net related to unrealized gains or losses were not material for the three and nine months ended September 30, 2018 and 2017. For the three and nine months ended September 30, 2018 and 2017, realized gains or losses were not material.

Our fixed-income securities investment portfolio consists of investments that have a maximum effective maturity of 40 months on any individual security. The securities that we invest in are generally deemed to be low risk based on their credit ratings from the major rating agencies. The longer the duration of these securities, the more susceptible they are to changes in market interest rates and bond yields. As interest rates increase, those securities purchased at a lower yield show a mark-to-market unrealized loss. The unrealized losses are due primarily to changes in credit spreads and interest rates. We expect to realize the full value of all these investments upon maturity or sale. The weighted average remaining duration of these securities was approximately three months and six months as of September 30, 2018 and December 31, 2017, respectively.

As the carrying value approximates the fair value for our short-term and long-term marketable securities shown in the tables above, the following table summarizes the fair value of our short-term and long-term marketable securities classified by contractual maturity as of September 30, 2018 and December 31, 2017 (in thousands):



	September 30, 2018		December 31, 2017
One year or less	$	184,297	$	272,031
Due in greater than one year	8,091		39,948
Total available for sale short-term and long-term marketable securities	$	192,388	$	311,979

Investments in Privately Held Companies

Our investments in privately held companies as of September 30, 2018 and December 31, 2017 are as follows (in thousands):



	September 30, 2018		December 31, 2017
Equity securities under the equity method investment ¹	$	47,996	$	54,606
Equity securities without readily determinable fair values ²	$	9,862	$	—


¹	Refer to Note 4 “Equity Method Investments” of the Notes to Condensed Consolidated Financial Statements for more information

In April 2018, $4.9 million of convertible short term notes receivable (recurring Level 3 investment) was converted into equity securities as a result of qualified financing secured by the private company in accordance with ASC 321, “Investments—Equity Securities.” The equity securities issued upon conversion are reported as a nonrecurring investment within other assets in our Condensed Consolidated Balance Sheet. During the three and nine months ended September 30, 2018, there were no fair value adjustments to equity securities without readily determinable fair values.

Fair Value Measurements

We measure the fair value of financial assets as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We use the GAAP fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. This hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs that may be used to measure fair value:

Level 1 — Quoted (unadjusted) prices in active markets for identical assets or liabilities.

Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities 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 asset or liability. We obtain fair values for our Level 2 investments. Our custody bank and asset managers independently use professional pricing services to gather pricing data which may include quoted market prices for identical or comparable financial instruments, or inputs other than quoted prices that are observable either directly or indirectly, and we are ultimately responsible for these underlying estimates.

Level 3 — Unobservable inputs to the valuation methodology that are supported by little or no market activity and that are significant to the measurement of the fair value of the assets or liabilities. Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques, as well as significant management judgment or estimation.

The following tables summarize our financial assets measured at fair value on a recurring basis as of September 30, 2018 and December 31, 2017 (in thousands):



Description	Balance as of September 30, 2018		Level 1		Level 2
Cash equivalents:
Money market funds	$	256,689	$	256,689	$	—
Commercial paper	6,883		—		6,883
Corporate bonds	2,014		—		2,014
Short-term investments:
Commercial paper	24,675		—		24,675
Corporate bonds	75,368		—		75,368
U.S. government agency bonds	11,634		—		11,634
U.S. government treasury bonds	72,600		72,600		—
Certificates of deposit	20		—		20
Long-term investments:
U.S. government agency bonds	6,961		—		6,961
Corporate bonds	1,130		—		1,130
Prepaid expenses and other current assets:
Israeli funds	3,143		—		3,143
	$	461,117	$	329,289	$	131,828



Description	Balance as of December 31, 2017		Level 1		Level 2		Level 3
Cash equivalents:
Money market funds	$	253,155	$	253,155	$	—	$	—
Commercial paper	7,246		—		7,246		—
Corporate bonds	2,016		—		2,016		—
Short-term investments:
Commercial paper	58,502		—		58,502		—
Corporate bonds	145,557		—		145,557		—
U.S. government agency bonds	3,006		—		3,006		—
U.S. government treasury bonds	60,580		60,580		—		—
Certificates of deposit	4,386		—		4,386		—
Long-term investments:
U.S. government agency bonds	14,955		—		14,955		—
Corporate bonds	24,993		—		24,993		—
Prepaid expenses and other current assets:
Israeli funds	3,075		—		3,075		—
Short-term notes receivable	4,476		—		—		4,476
	$	581,947	$	313,735	$	263,736	$	4,476

Derivative Financial Instruments

In March 2018, we began entering into foreign currency forward contracts to minimize the short-term impact of foreign currency exchange rate fluctuations on certain trade and intercompany receivables and payables. These forward contracts are classified within Level 2 of the fair value hierarchy. The gains from the settlement of foreign currency forward contracts during the three and nine months ended September 30, 2018 were $2.3 million and $7.7 million, respectively. As of September 30, 2018, the fair value of foreign exchange forward contracts outstanding was not material.

The following table presents the gross notional value of all our foreign exchange forward contracts outstanding as of September 30, 2018 (in thousands):



	September 30, 2018
	Local Currency Amount	Notional Contract Amount (USD)
Euro	€61,000	$	70,992
Chinese Yuan	¥330,000	47,882
Canadian Dollar	C$28,000	21,653
British Pound	£13,000	16,966
Japanese Yen	¥1,700,000	14,985
Brazilian Real	R$55,500	13,821
Australian Dollar	A$2,900	2,097
		$	188,396