Fair Value of Financial Instruments

6 Months Ended

Jun. 30, 2018

4. Fair Value of Financial Instruments

Financial instruments reported at fair value on a recurring basis include cash equivalents and marketable securities. Cash equivalents consist of money market mutual funds and marketable securities consist of fixed income debt securities. The following tables present the fair value of cash equivalents and marketable securities in accordance with the hierarchy discussed in Note 2 (in thousands):

	Quoted		Significant
	prices		other		Significant
	in active		observable		unobservable
	markets		inputs		inputs
	(Level 1)		(Level 2)		(Level 3)		Total
June 30, 2018
Money market mutual funds (cash equivalents)	$	—	$	106,867	$	—	$	106,867
U.S. government and federal agency securities (marketable securities)		—		19,266		—		19,266
Certificates of deposit (marketable securities)		—		735		—		735
Corporate bonds (marketable securities)		—		179,399		—		179,399
	$	—	$	306,267	$	—	$	306,267

	Quoted		Significant
	prices		other		Significant
	in active		observable		unobservable
	markets		inputs		inputs
	(Level 1)		(Level 2)		(Level 3)		Total
December 31, 2017
Money market mutual funds (cash equivalents)	$	—	$	46,646	$	—	$	46,646
Corporate bonds (marketable securities)		—		129,738		—		129,738
	$	—	$	176,384	$	—	$	176,384

There were no transfers of financial instruments between levels of the fair value hierarchy during the six months ended June 30, 2018.

Management estimates that the carrying amounts of its current accounts receivable, accounts payable and accrued expenses and other current liabilities approximate fair value due to the short-term nature of those instruments. Non-current accounts receivable are recorded at their present values using a discount rate that is based on prevailing market rates and the credit profile of the licensee on the date the amounts are initially recorded. Management does not believe there have been any significant changes in market conditions that would cause the discount rates used to be significantly different from those that would be used as of June 30, 2018 to determine the present value of the receivables. Accordingly, management estimates that the carrying value of its non-current accounts receivable approximates the fair value of those instruments.

The Company’s non-marketable equity securities are measured at cost less impairment, adjusted for observable price changes for identical or similar investments of the same issuer. As of June 30, 2018 and December 31, 2017, non-marketable equity securities had carrying values of $0.4 million and are included in other assets on the consolidated balance sheets. Since the acquisition of the securities, the Company has not identified any observable price changes or changes in circumstances that would have an adverse effect on the fair value of its non-marketable equity securities as of June 30, 2018. No impairment losses on non-marketable equity securities were recorded during the three and six months ended June 30, 2018 and 2017.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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