Fair Value Measurements

9 Months Ended

Sep. 30, 2018

6. FAIR VALUE MEASUREMENTS

The Company established a fair value hierarchy which prioritizes and ranks the level of market price observability used in measuring investments at fair value. Financial instruments measured and reported at fair value are classified and disclosed in one of the following categories (from highest to lowest) based on inputs:

Level 1—Quoted prices (unadjusted) are available in active markets for identical instruments that the Company has the ability to access as of the reporting date. The Company, to the extent that it holds such instruments, does not adjust the quoted price for these instruments, even in situations in which the Company holds a large position and a sale could reasonably affect the quoted price.

Level 2—Pricing inputs are observable for the instruments, either directly or indirectly, as of the reporting date, but are not the same as those used in level 1. Fair value is determined through the use of models or other valuation methodologies.

Level 3—Pricing inputs are unobservable for the instruments and include situations in which there is little, if any, market activity for the investments. The inputs into the determination of fair value require significant judgment or estimation by the Company’s management.

The estimated fair values of government securities money markets, U.S. Treasury instruments, and government debt securities as of September 30, 2018 and December 31, 2017 are based on quoted prices for recent trading activity in identical or similar instruments. The Company generally invests in U.S. Treasury instruments with maturities of less than twelve months. See Note 2 for further information on the Company’s fair value hierarchy.

The following table summarizes the levels of the fair value hierarchy into which the Company’s financial assets fall as of September 30, 2018:

	Total		Level 1			Level 2			Level 3
Financial assets:
Included in cash and cash equivalents
Government securities money market	$	34,521	$	—		$		34,521	$	—
Investments
Government debt securities (1)		1,817			—			1,817			—
U.S. treasury instruments		142,877			45,301			97,576		—
Common stock		243			243		—				—
Total financial assets	$	179,458	$		45,544	$		133,914	$		—

(1)	Consists of municipal bonds and agency bonds.

For the three and nine months ended September 30, 2018, unrealized losses of $47 and $20 were recognized in other income and expenses on the condensed consolidated statement of operations related to common stock held at the reporting date, respectively.

The following table summarizes the levels of the fair value hierarchy into which the Company’s financial assets fall as of December 31, 2017:

	Total		Level 1			Level 2			Level 3
Financial assets:
Included in cash and cash equivalents
Government debt securities (1)	$	41,086	$		—	$		41,086	$	—
U.S. treasury instruments		39,978		—				39,978		—
Government securities money market		46,095		—				46,095		—
Investments
Government debt securities (1)		39,910			—			39,910		—
U.S. treasury instruments		55,935			7,943			47,992			—
Common stock		263			263		—			—
Total financial assets	$	223,267	$		8,206	$		215,061	$		—

(1)	Consists of municipal bonds, agency bonds and agency discount notes

For the three and nine months ended September 30, 2017, unrealized losses of $39 and $144 were recognized in unrealized gain loss on investments on the condensed consolidated statement of comprehensive income related to common stock held at the reporting date, respectively.

The Company’s methodology for reclassifications impacting the fair value hierarchy is that transfers in/out of the respective category are reported at fair value as of the beginning of the period in which the reclassification occurred.

At the end of the reporting period, the Company reviews U.S. treasury instruments held to determine whether the securities are of the most recent issuance of that security with the same maturity (referred to as “on-the-run”, which is the most liquid version of the maturity band). If a U.S. treasury instrument held at the end of the reporting period was from the most recent issuance it is classified as level 1, otherwise it is referred to as “off-the-run” and is classified as level 2.

- 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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