3.	Fair Value Measurements

Definition and Hierarchy

The applicable accounting guidance defines fair value as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The guidance establishes a framework for measuring fair value and expands required disclosure about the fair value measurements of assets and liabilities. This guidance requires us to classify and disclose assets and liabilities measured at fair value on a recurring basis, as well as fair value measurements of assets and liabilities measured on a non-recurring basis in periods subsequent to initial measurement, in a fair value hierarchy.

The fair value hierarchy is broken down into three levels based on the reliability of inputs and requires an entity to maximize the use of observable inputs, where available. The following summarizes the three levels of inputs required, as well as the assets and liabilities that we value using those levels of inputs:

 

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Level 1 – Observable inputs that reflect quoted prices for identical assets or liabilities in active markets.

 

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Level 2 – Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not very active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

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Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Valuation Techniques

Inputs to valuation techniques are observable and unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. When developing fair value estimates for certain financial assets and liabilities, we maximize the use of observable inputs and minimize the use of unobservable inputs. When available, we use quoted market prices, market comparables and discounted cash flow projections. Financial assets include money market funds, U.S. treasury notes or bonds, U.S. government agency bonds and corporate bonds.

 

In general, and where applicable, we use quoted prices in active markets for identical assets or liabilities to determine fair value. If quoted prices in active markets for identical assets or liabilities are not available to determine fair value, then we use quoted prices for similar assets and liabilities or inputs that are observable either directly or indirectly. In periods of market inactivity, the observability of prices and inputs may be reduced for certain instruments. This condition could cause an instrument to be reclassified from Level 1 to Level 2 or from Level 2 to Level 3.

Assets and Liabilities that are Measured at Fair Value on a Recurring Basis

The following tables set forth our financial assets and liabilities that were accounted for at fair value on a recurring basis as of October 31, 2018 and January 31, 2018. There were no fair value measurements of our financial assets and liabilities using significant Level 3 inputs for the periods presented:

 

						Fair Value at October 31, 2018 Using
						Quoted
						Prices in				Significant
						Active				Other
						Markets for				Observable
		October 31,				Identical Assets				Inputs
		2018				(Level 1)				(Level 2)
		(Amounts in thousands)
Financial assets:
Money market accounts (1)		$	2,832			$	2,649			$	183
Available-for-sale marketable securities:
Current marketable securities:
U.S. treasury notes and bonds - conventional			745				745				—
Non-current marketable securities:
U.S. treasury notes and bonds - conventional			6,274				6,274				—
U.S. government agency issues			986				—				986
Corporate bonds			2,280				—				2,280
Total		$	13,117			$	9,668			$	3,449
						Fair Value at January 31, 2018 Using
						Quoted
						Prices in				Significant
						Active				Other
						Markets for				Observable
		January 31,				Identical Assets				Inputs
		2018				(Level 1)				(Level 2)
		(Amounts in thousands)
Financial assets:
Money market accounts (1)		$	4,568			$	—			$	4,568
Available-for-sale marketable securities:
Current marketable securities:
U.S. treasury notes and bonds - conventional			1,993				1,993				—
U.S. government agency issues			1,998				—				1,998
Non-current marketable securities:
U.S. treasury notes and bonds - conventional			1,724				1,724				—
U.S. government agency issues			985				—				985
Corporate bonds			1,740				—				1,740
Total		$	13,008			$	3,717			$	9,291

 

(1)	Money market funds and U.S. treasury bills are included in cash and cash equivalents on the accompanying consolidated balance sheets and are valued at quoted market prices for identical instruments in active markets.

Assets and Liabilities that are Measured at Fair Value on a Nonrecurring Basis

Assets and liabilities that are measured at fair value on a nonrecurring basis relate primarily to our tangible property and equipment, goodwill, and other intangible assets, which are re-measured when the derived fair value is below carrying value on our consolidated balance sheets. For these assets and liabilities, we do not periodically adjust carrying value to fair value except in the event of impairment. If we determine that impairment has occurred, the carrying value of the asset is reduced to fair value and the difference is recorded to loss from impairment of long-lived assets in our consolidated statements of operations and comprehensive loss.

 

In the second quarter of fiscal 2019, we determined there to be a triggering event that prompted us to test our goodwill for impairment as of July 31, 2018. The triggering event was a decline in actual revenue for the quarter compared to projected amounts, which was reported in a Current Report on Form 8-K furnished to the SEC on August 21, 2018. The Company performed a quantitative goodwill impairment test, utilizing the single-step approach under ASU 2017-04, “Intangibles-Goodwill and Other (Topic 350): Simplifying the Test of Goodwill Impairment,” comparing the carrying value of the reporting unit to its estimated fair value, which was calculated using the income approach. As a result of the quantitative goodwill impairment test performed as of July 31, 2018, the Company determined that the fair value of the reporting unit exceeded its carrying value. Therefore, no impairment charges on our goodwill or other long-lived assets were recorded in the second quarter of fiscal 2019. See Note 5, “Goodwill and Intangible Assets,” for more information.

Available-For-Sale Securities

We determine the appropriate classification of debt investment securities at the time of purchase and reevaluate such designation as of each balance sheet date. Our investment portfolio consists of money market funds, U.S. treasury notes and bonds, U.S. government agency notes and bonds and corporate bonds as of October 31, 2018 and January 31, 2018. All highly liquid investments with an original maturity of three months or less when purchased are considered to be cash equivalents. All cash equivalents are carried at cost, which approximates fair value. Our marketable securities are classified as available-for-sale and are reported at fair value with unrealized gains and losses, net of tax, reported in stockholders’ equity as a component of accumulated other comprehensive loss. The amortization of premiums and accretion of discounts to maturity are computed under the effective interest method and are included in other (expenses) income, net, in our consolidated statements of operations and comprehensive loss. Interest on securities is recorded as earned and is also included in other (expenses) income, net. Any realized gains or losses would be shown in the accompanying consolidated statements of operations and comprehensive loss in other (expenses) income, net. We provide fair value measurement disclosures of available-for-sale securities in accordance with one of the three levels of fair value measurement mentioned above.

The following is a summary of cash, cash equivalents and available-for-sale securities, including the cost basis, aggregate fair value and gross unrealized gains and losses, for short- and long-term marketable securities portfolio as of October 31, 2018 and January 31, 2018:

 

		Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Estimated Fair Value
		(Amounts in thousands)
October 31, 2018:
Cash		$	18,723			$	—			$	—			$	18,723
Cash equivalents			2,820				11				—				2,831
Cash and cash equivalents			21,543				11				—				21,554
U.S. treasury notes and bonds - short-term			749				—				(3	)			746
U.S. treasury notes and bonds - long-term			6,306				—				(32	)			6,274
U.S. government agency issues - short-term			1,001				—				(15	)			986
Corporate bonds - long-term			2,310				—				(30	)			2,280
Total cash, cash equivalents and marketable securities		$	31,909			$	11			$	(80	)		$	31,840
January 31, 2018:
Cash		$	39,084			$	—			$	—			$	39,084
Cash equivalents			4,568				—				—				4,568
Cash and cash equivalents			43,652				—				—				43,652
U.S. treasury notes and bonds - short-term			2,001				—				(8	)			1,993
U.S. treasury notes and bonds - long-term			1,740				—				(16	)			1,724
U.S. government agency issues - short-term			1,991				9				(2	)			1,998
U.S. government agency issues - long-term			1,002				—				(17	)			985
Corporate bonds - long-term			1,760								(20	)			1,740
Total cash, cash equivalents and marketable securities		$	52,146			$	9			$	(63	)		$	52,092

 

The gross realized gains and losses on sale of available-for-sale securities as of October 31, 2018 and January 31, 2018 were immaterial. For purposes of determining gross realized gains and losses, the cost of securities is based on specific identification.

Contractual maturities of available-for-sale investments as of October 31, 2018 are as follows (amounts in thousands):

 

		Estimated
		Fair Value
Maturity of one year or less		$	1,732
Maturity between one and five years			8,554
Total		$	10,286

Cash, Cash Equivalents and Marketable Securities

Cash and cash equivalents consist primarily of highly liquid investments in money market mutual funds, government sponsored enterprise obligations, treasury bills, commercial paper and other money market securities with remaining maturities at date of purchase of 90 days or less.

The fair value of cash, cash equivalents, restricted cash and marketable securities at October 31, 2018 and January 31, 2018 was $32.4 million and $52.1 million, respectively.

Restricted Cash

At times, we may be required to maintain cash held as collateral for performance obligations with our customers which we classify as restricted cash on our consolidated balance sheets. Restricted cash was $0.5 million as of October 31, 2018 and was not material as of January 31, 2018.