NOTE 7—FINANCIAL INSTRUMENTS

Fair value measurements

Authoritative accounting guidance for fair value measurements provides a framework for measuring fair value and related disclosure. The guidance applies to all financial assets and financial liabilities that are measured on a recurring basis. The guidance requires fair value measurement to be classified and disclosed in one of the following three categories:

Level 1: Valuations based on quoted prices in active markets for identical assets and liabilities. The fair value of available-for-sale securities included in the Level 1 category is based on quoted prices that are readily and regularly available in an active market. As of March 31, 2020, the Level 1 category included money market funds of $14.1 million, which were included in cash and cash equivalents on the Consolidated Balance Sheets.

Level 2: Valuations based on observable inputs (other than Level 1 prices), such as quoted prices for similar assets at the measurement date; quoted prices in markets that are not active; or other inputs that are observable, either directly or indirectly. The fair value of available-for-sale securities included in the Level 2 category is based on the market values obtained from an independent pricing service that were evaluated using pricing models that vary by asset class and may incorporate available trade, bid and other market information and price quotes from well-established independent pricing vendors and broker-dealers. As of March 31, 2020, the Level 2 category included short-term investments of $15.1 million and long term-investments of $4.1 million, which were primarily comprised of certificates of deposit and agency securities.

Level 3: Valuations based on inputs that are unobservable and involve management judgment and the reporting entity’s own assumptions about market participants and pricing. As of March 31, 2020, the Company’s Level 3 financial instruments measured at fair value on the Consolidated Balance Sheets consisted of the contingent consideration liability related to the MikaMonu acquisition. The fair value of the contingent consideration liability was initially determined as of the acquisition date using unobservable inputs. These inputs include the estimated amount and timing of future cash flows, the probability of success (achievement of the various contingent events) and a risk-adjusted discount rate of approximately 14.8% used to adjust the probability-weighted cash flows to their present value. Subsequent to the acquisition date, at each reporting period, the contingent consideration liability is re-measured to fair value with changes recorded in selling, general and administrative expenses in the Consolidated Statements of Operations. The contingent consideration liability is included in contingent consideration, non-current on the Consolidated Balance Sheet at March 31, 2020 and 2019 in the amount of $3.9 million and $3.7 million, respectively, and is included in accrued expenses and other liabilities at March 31, 2020 and 2019 in the amount of $0 and $492,000, respectively.

Refer to Note 14, “Acquisition” for more information.

The fair value of financial assets measured on a recurring basis is as follows (in thousands):


			Fair Value Measurements at Reporting Date Using
			Quoted Prices
			in Active		Significant
			Markets for		Other		Significant
			Identical Assets		Observable		Unobservable
			and Liabilities		Inputs		Inputs
	March 31, 2020		(Level 1)		(Level 2)		(Level 3)
Assets:
Money market funds	$	14,117	$	14,117	$	—	$	—
Marketable securities		19,178		—		19,178		—
Total	$	33,295	$	14,117	$	19,178	$	—

Liabilities:
Contingent consideration	$	3,898	$	—	$	—	$	3,898


			Fair Value Measurements at Reporting Date Using
			Quoted Prices
			in Active		Significant
			Markets for		Other		Significant
			Identical Assets		Observable		Unobservable
			and Liabilities		Inputs		Inputs
	March 31, 2019		(Level 1)		(Level 2)		(Level 3)
Assets:
Money market funds	$	4,090	$	4,090	$	—	$	—
Marketable securities		28,343		—		28,343		—
Total	$	32,433	$	4,090	$	28,343	$	—

Liabilities:
Contingent consideration	$	4,206	$	—	$	—	$	4,206

The following table sets forth the changes in fair value of contingent consideration for the fiscal years ended March 31, 2020, 2019 and 2018, respectively:


	Year Ended March 31,
	2020		2019		2018
	(In thousands)
Contingent consideration, beginning of period	$	4,206	$	5,514	$	6,200
Change due to accretion		112		147		158
Re-measurement of contingent consideration		80		(326)		(466)
Payment of contingent consideration		(500)		(1,129)		(378)
Contingent consideration, end of period	$	3,898	$	4,206	$	5,514

Short-term and long-term investments

All of the Company’s short-term and long-term investments are classified as available-for-sale. Available-for-sale debt securities with maturities greater than twelve months are classified as long-term investments when they are not intended for use in current operations. Investments in available-for-sale securities are reported at fair value with unrecognized gains (losses), net of tax, as a component of accumulated other comprehensive income (loss) on the Consolidated Balance Sheets. The Company had money market funds of $14.1 million and $4.1 million at March 31, 2020 and March 31, 2019, respectively, included in cash and cash equivalents on the Consolidated Balance Sheets. The Company monitors its investments for impairment periodically and records appropriate reductions in carrying values when the declines are determined to be other-than-temporary.

The following table summarizes the Company’s available-for-sale investments:


	March 31, 2020
			Gross		Gross
			Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
	(In thousands)
Short-term investments:
Certificates of deposit	$	12,000	$	52		(1)	$	12,051
Agency bonds		2,989		21				3,010
Total short-term investments	$	14,989	$	73	$	(1)	$	15,061
Long-term investments:
Certificates of deposit	$	745	$	18	$	—	$	763
Agency bonds		2,029		42		—		2,071
Supranational obligations		1,270		13		—		1,283
Total long-term investments	$	4,044	$	73	$	—	$	4,117


	March 31, 2019
			Gross		Gross
			Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
	(In thousands)
Short-term investments:
Certificates of deposit	$	16,500	$	4	$	(24)	$	16,480
Supranational obligations		2,867		—		(1)		2,866
Total short-term investments	$	19,367	$	4	$	(25)	$	19,346
Long-term investments:
Certificates of deposit	$	6,000	$	23	$	(4)	$	6,019
Agency bonds		2,968		11		(1)		2,978
Total long-term investments	$	8,968	$	34	$	(5)	$	8,997

The following table shows the gross unrealized losses and fair value of the Company’s investments with unrealized losses aggregated by investment category and length of time that individual securities have been in a continuous loss position as of March 31, 2020 and 2019, respectively.


	March 31, 2020
	Less Than 12 Months				12 Months or Greater				Total
		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
		Value		Loss		Value		Loss		Value		Loss
	(In thousands)
Certificates of deposit	$	2,498	$	(2)	$	—	$	—	$	2,498	$	(2)
	$	2,498	$	(2)	$	—	$	—	$	2,498	$	(2)


	March 31, 2019
	Less Than 12 Months				12 Months or Greater				Total
		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
		Value		Loss		Value		Loss		Value		Loss
	(In thousands)
Certificates of deposit	$	2,998	$	(2)	$	7,974	$	(26)	$	10,972	$	(28)
Supranational obligations		2,866		(1)		—		—		2,866		(1)
Agency bonds		1,501		(1)		—		—		1,501		(1)
	$	7,365	$	(4)	$	7,974	$	(26)	$	15,339	$	(30)

The Company’s investment portfolio consists of both corporate and governmental securities that have a maximum maturity of three years. All unrealized gains and losses are due to changes in interest rates and bond yields. Subject to normal credit risks, the Company has the ability to realize the full value of all these investments upon maturity.

At March 31, 2020 and 2019, the deferred tax liability related to unrecognized gains and losses on short-term and long-term investments was ($30,000) and ($2,000), respectively.

As of March 31, 2020, contractual maturities of the Company’s available-for-sale investments were as follows:


			Fair
	Cost		Value
	(In thousands)
Maturing within one year	$	14,989	$	15,061
Maturing in one to three years		4,044		4,117
	$	19,033	$	19,178