Fair value of financial instruments

6 Months Ended

Jun. 30, 2012

Fair Value Disclosures [Abstract]

Fair value of financial instruments

Fair value of financial instruments

The carrying values of the Company’s cash and cash equivalents approximate their fair value due to their short-term nature. As a basis for determining the fair value of its assets and liabilities, the Company established a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs other than the quoted prices in active markets that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data which requires the Company to develop its own assumptions. This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value.

The Company's cash and money market funds, which include bank deposits, are classified within Level 1 of the fair value hierarchy because they are valued using bank balances or quoted market prices. The Company’s other cash equivalents and short-term investments are classified within Level 1 of the fair value hierarchy because they are valued using professional pricing sources for identical or comparable instruments, rather than direct observations of quoted prices in active markets.

The Company’s preferred stock warrants were classified within Level 3 of the fair value hierarchy because they were valued based on unobservable inputs and management’s judgment due to the absence of quoted market prices, inherent lack of liquidity and the long-term nature of such financial instruments. These assumptions are inherently subjective and involve significant management judgment.

The Company’s assets and liabilities that are measured at fair value on a recurring basis, by level, within the fair value hierarchy as of June 30, 2012 and December 31, 2011, are summarized as follows (in thousands):

	June 30, 2012								December 31, 2011
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets
Money market funds	$	7,501	$	—	$	—	$	7,501	$	—	$	—	$	—	$	—
Certificates of deposits	995		—		—		995		—		—		—		—
Commercial paper	53,734		—		—		53,734		—		—		—		—
U.S. government and agency securities	9,991		—		—		9,991		—		—		—		—
Total assets measured at fair value	$	72,221	$	—	$	—	$	72,221	$	—	$	—	$	—	$	—
Liabilities
Convertible preferred stock warrants	$	—	$	—	$	—	$	—	$	—	$	—	$	1,853	$	1,853
Total liabilities measured at fair value	$	—	$	—	$	—	$	—	$	—	$	—	$	1,853	$	1,853

The Company performed a fair value assessment of the preferred stock warrant inputs at the end of each reporting period. The fair value of the preferred stock warrant liability was estimated using an option pricing model that takes into account the contract terms as well as multiple inputs such as the Company's stock price, risk-free interest rates and expected volatility that the Company could not corroborate with market data. These warrants to purchase preferred stock were converted into warrants to purchase shares of common stock at the applicable conversion rate for the related common stock upon the closing of the Company's IPO on April 2, 2012. The warrants were revalued and converted upon the closing of the IPO, and as such, as of June 30, 2012 the convertible preferred stock warrant liability is zero.

For the six months ended June 30, 2012, the Company used a stock price of $16.00 - $23.40, risk-free interest rates of 0.07% - 0.66%, and expected volatility of 45% - 50%. For the year ending December 31, 2011 the Company used a stock price of $13.32 - $14.16, risk-free interest rates of 0.10% - 6.0%, and expected volatility of 45% - 50%. Any change in fair value is recognized as a component of other income (expense), net, in the consolidated statements of operations.

The following table presents a reconciliation of the preferred stock warrants measured and recorded at fair value on a recurring basis, using significant unobservable inputs (Level 3) for the three and six months ended June 30, 2012 and 2011, respectively:

	Three months ended June 30,						Six months ended June 30,
(in thousands)	2012			2011			2012			2011
Fair value at beginning of period	$	3,216		$	1,593		$	1,853		$	1,127
Change in fair value	(75		)	735			1,631			1,201
Exercise of preferred stock warrants	—			(255		)	(343		)	(255		)
Conversion of preferred stock warrants to common stock warrants	(3,141		)	—			(3,141		)	—
Fair value at end of period	$	—		$	2,073		$	—		$	2,073

The estimated fair value of our current and long-term borrowings based on a market approach was approximately $8.3 million as of December 31, 2011 and represented a Level 2 valuation. The Company did not have any current or long-term borrowings as of June 30, 2012. When determining the estimated fair value of our debt, we used a commonly accepted valuation methodology and market-based risk measurements, such as credit risk.