Fair Value Hierarchy

9 Months Ended

Sep. 30, 2012

Fair Value Hierarchy [Abstract]

Fair value hierarchy

5. Fair value hierarchy

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. Fair value hierarchy is based on three levels of inputs that may be used to measure fair value, of which the first two are considered observable and the last unobservable:

Level 1 —	Quoted prices in active markets for identical assets or liabilities.
Level 2 —	Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or 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 —	Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2012 were as follows:

	Total		Level 1		Level 2		Level 3
	(in thousands)
Assets
Money market funds(1)	$	57,918	$	57,918	$	—	$	—
U.S. government bonds and notes(2)		22,052		22,052		—		—
Total available-for-sale debt securities	$	79,970	$	79,970	$	—	$	—

(1) Money market funds are included in cash and cash equivalents on the condensed consolidated balance sheet.

(2) U.S. government bonds and notes are included in marketable securities on the condensed consolidated balance sheet .

Financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2011 were as follows:

	Total			Level 1		Level 2		Level 3
	(in thousands)
Assets
Money market funds(1)	$	2,062		$	2,062	$	—	$	—
Liabilities
Convertible preferred stock warrants(2)	$	(1,137	)	$	—	$	—	$	(1,137	)

(1) Money market funds are included in cash and cash equivalents on the condensed consolidated balance sheet.

(2) The convertible preferred stock warrants were subject to revaluation at each balance sheet date and any change in fair value was recognized as a component of other income (expense), net in the consolidated statements of comprehensive income. These warrants were revalued up to the date the convertible preferred stock warrants were exercised or became warrants to purchase common stock upon the closing of our IPO, and the liability related to these warrants were reclassified as stockholders’ equity (deficit).

Prior to the closing of our IPO, the warrants to purchase 110,269 shares of our convertible preferred stock were exercised. As a result we reclassified the aggregate fair value of $1.4 million from the liability to stockholders’ equity (deficit). The remaining warrants to purchase 1,333 shares of our convertible preferred stock converted to warrants to purchase our common stock upon the close of our IPO on May 15, 2012. As a result we reclassified the aggregate fair market value of $23,000 from the liability to stockholders’ equity (deficit), and no longer revalue the warrants. The warrants to purchase 1,333 shares of our common stock were unexercised as of September 30, 2012.

Prior to the closing of our IPO, we used the Black-Scholes option pricing model to determine the fair value of the warrants to purchase convertible preferred stock, including the consideration of underlying ordinary share price, using the following assumptions: the risk-free interest of 0.18% - 1.61%, the expected term of 1.28 - 7.17 years and the expected volatility of 32.6% - 37.5%. Certain inputs used in the model are unobservable. As a result, the valuation of the warrants is categorized as Level 3 in accordance with ASC 820, Fair Value Measurement. The fair values could change significantly based on future market conditions.

The following table sets forth reconciliations for our convertible preferred stock warrants:

	September 30, 2012			December 31, 2011
	(in thousands)
Beginning balance	$	1,137		$	315
Change in fair value of preferred stock warrants		290			822
Exercise of preferred stock warrants		(1,404	)		—
Conversion of preferred stock warrants to common stock warrants		(23	)		—
Ending balance	$	—		$	1,137