Fair Value of Financial Instruments
The carrying amounts of certain of our financial instruments, including cash equivalents, accounts receivable, prepaid expenses and other current assets, accounts payable and accrued liabilities are shown at cost which approximates fair value due to the short-term nature of these instruments. The fair value of our term and revolving loans approximates the carrying value due to the variable market rate used to calculate interest payments.
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:
•Level 1 Inputs: Observable inputs, such as quoted prices (unadjusted) in active markets for identical assets or liabilities at the measurement date.
•Level 2 Inputs: Observable inputs, other than Level 1 prices, such as quoted prices in active markets for similar assets and liabilities, quoted prices 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 assets or liabilities.
•Level 3 Inputs: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Our financial instruments that are carried at fair value consist of Level 1 assets which include highly liquid investments and bank drafts classified as cash equivalents and marketable securities.
Our fair value hierarchy for our financial instruments was as follows (in thousands):
| | | | | | | | | | | | | | |
| December 31, 2025 |
| Level 1 | Level 2 | Level 3 | Total |
| Cash Equivalents: | | | | |
| Money market securities | $ | 22,761 | | $ | — | | $ | — | | $ | 22,761 | |
| Commercial paper | 2,232 | | — | | — | | 2,232 | |
| 24,993 | | — | | — | | 24,993 | |
| Marketable Securities: | | | | |
| U.S. treasuries | 34,934 | | — | | — | | 34,934 | |
| Total | $ | 59,927 | | $ | — | | $ | — | | $ | 59,927 | |
| | | | | | | | | | | | | | |
| December 31, 2024 |
| Level 1 | Level 2 | Level 3 | Total |
| Cash Equivalents: | | | | |
| Money market securities | $ | 20,488 | | $ | — | | $ | — | | $ | 20,488 | |
| Commercial paper | 1,773 | | — | | — | | 1,773 | |
| 22,261 | | — | | — | | 22,261 | |
| Marketable Securities: | | | | |
| U.S. treasuries | 34,868 | | — | | — | | 34,868 | |
| Total | $ | 57,129 | | $ | — | | $ | — | | $ | 57,129 | |
Cash Equivalents
The fair value of cash equivalents is determined based on quoted market prices for similar or identical securities.
Marketable Securities
Marketable securities consist primarily of highly liquid investments with original maturities of greater than 90 days when purchased. We classify our marketable securities as available-for-sale, as they represent investments that are available to be sold for current operations, and value them utilizing a market approach that uses observable inputs without applying significant judgment.