Fair Value Measurements

6 Months Ended

Jun. 30, 2013

Fair Value Measurements

Fair Value Measurements

3. Fair Value Measurements

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.  The Company uses a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as well as assets and liabilities measured at fair value on a non-recurring basis, in periods subsequent to their initial measurement.  The hierarchy requires the Company to use observable inputs when available, and to minimize the use of unobservable inputs when determining fair value.  If a financial instrument uses inputs that fall in different levels of the hierarchy, the instrument will be categorized based upon the lowest level of input that is significant to the fair value calculation.  The three-tiers are defined as follows:

·Level 1.  Observable inputs based on unadjusted quoted prices in active markets for identical assets or liabilities;

·Level 2.  Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and

·Level 3.  Unobservable inputs for which there is little or no market data requiring the Company to develop its own assumptions.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The Company evaluates its financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level to classify them for each reporting period.  This determination requires significant judgments to be made.  The following tables summarize the conclusions reached as of December 31, 2012 and June 30, 2013:

	Balance at December 31, 2012		Level 1		Level 2		Level 3
Liabilities
Warrants to purchase preferred stock(1)	$	1,103	$	—	$	—	$	1,103
	$	1,103	$	—	$	—	$	1,103
	Balance at June 30, 2013		Level 1		Level 2		Level 3
	(unaudited)
Liabilities
Warrants to purchase preferred stock(1)	$	926	$	—	$	—	$	926
	$	926	$	—	$	—	$	926

(1) The Company used an option pricing model to determine the fair value of the warrants to purchase preferred stock.  Significant inputs included an estimate of the fair value of the Company’s preferred stock as of December 31, 2012 and actual as of June 30, 2013, the remaining contractual life of the warrant, a risk-free rate of interest, and an estimate of the Company’s stock volatility using the volatilities of guideline peer companies.  In connection with the Company’s IPO, these warrants to purchase preferred stock were adjusted to fair value through July 2, 2013 and were subsequently reclassified to additional paid-in capital (refer to note 2).

Assets Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs (Level 3)

The following tables presents the changes in the Company’s Level 3 instruments measured at fair value on a recurring basis for the three and six months ended June 30, 2012 and 2013:

	Warrants to Purchase Preferred Stock
	2012			2013
	(unaudited)
Beginning balance at April 1,	$	1,121		$	1,098
Mark-to-market income	(8		)	(172		)
Ending balance at June 30,	$	1,113		$	926

	Warrants to Purchase Preferred Stock
	2012			2013
	(unaudited)
Beginning balance at January 1,	$	1,127		$	1,103
Mark-to-market income	(14		)	(177		)
Ending balance at June 30,	$	1,113		$	926

	Contingent Consideration on Acquisition(1)
	2012
	(unaudited)
Beginning balance at January 1,	$	817
Mark-to-market expenses	46
Settlement of contingent consideration	(863		)
Ending balance at June 30,	$	—

(1) On February 11, 2011, the Company acquired all of the outstanding equity of Transpera, Inc. The purchase price included contingent consideration consisting of up to 169,131 shares of the Company’s common stock payable on the one year anniversary of the closing of the acquisition based on certain performance criteria being achieved. In arriving at the value of the contingent consideration, the Company used a valuation model based on future expectations combined with management’s judgment. In the then-absence of a public trading market, the Company exercised judgment and considered numerous objective and subjective factors to determine the fair value of the Company’s common stock.