Fair Value of Financial Instruments:

The Company’s financial instruments consist of cash and cash equivalents, short-term investments, accrued revenue, restricted cash, accounts payable, certain accrued liabilities, interest rate lock commitments, forward sales commitments, and redeemable convertible preferred stock. The fair value of the Company’s financial instruments approximates their recorded values due to their short period to maturity. Fair value is defined as the exchange price that would be received for an asset or an exit price 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. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The current accounting guidance for fair value measurements defines a three-level valuation hierarchy for disclosures as follows:

Level I—Unadjusted quoted prices in active markets for identical assets or liabilities.

Level II—Inputs other than quoted prices included within Level I that are observable, unadjusted quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level III—Unobservable inputs that are supported by little or no market activity, requiring the Company to develop its own assumptions.

The categorization of a financial instrument within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The Company’s financial instruments consist of Level I and Level II assets and liabilities. Level I assets include highly liquid money market funds that are included in cash and cash equivalents and Level II assets include certificates of deposit that are included as short-term investments, IRLCs and forward sales commitments, included in other current assets and other current liabilities. The certificates of deposit are measured by observable market data for substantially the full term of the assets or liabilities. Interest rate lock commitments and forward sales commitments are measured by observable marketplace prices. The Company’s redeemable convertible preferred stock is categorized as Level III. Redeemable convertible preferred stock is valued at each reporting date 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.

The Company’s redeemable convertible preferred stock is measured at fair value using a weighted average of the probability weighted expected return method (“PWERM”), the income approach, and the market approach. Specifically, the income and market approach models are weighted in relation to the probability of a private company scenario, whereas the PWERM method is weighted in relation to the probability of future exit scenarios.

The income approach incorporates the use of the discounted cash flow method, whereas the market approach incorporates the use of the guideline public company method. Application of the discounted cash flow method requires estimating the annual cash flows that the business enterprise is expected to generate in the future with the application of a discount rate and terminal value. In the guideline public company method, valuation multiples, including total invested capital, are calculated based on financial statements and stock price data from selected guideline publicly traded companies. A comparative analysis is then performed for factors including, but not limited to size, profitability and growth to determine fair value.

Under the PWERM, value is determined based upon an analysis of future values for the enterprise under different potential outcomes (e.g., sale, merger, IPO, dissolution). The value determined for the enterprise is then allocated to each class of stock based upon the assumption that each class will look to maximize its value. The values determined for each class of stock under each scenario are weighted by the probability of each scenario and then discounted to a present value.

Any change in the fair value is recognized as accretion expense (income) and included as an adjustment to net loss to arrive at net income (loss) attributable to common stock on the consolidated statements of operations. Summary of changes in fair value are reflected in the consolidated balance sheets, consolidated statements of changes in redeemable convertible preferred stock and stockholders’ deficit, and Note 6. The Company used the value of the common stock at the IPO price of $15.00 per share to determine the accretion amount through conversion of the redeemable convertible preferred stock to common stock.

Significant unobservable inputs used in the determination of fair value of the Company’s redeemable convertible preferred stock for the years ended December 31, 2015 and 2016 included the following:



	Year Ended December 31,
	2015	2016

Valuation Methodology:
Income approach (private company)	12.5%	12.5%-15.0%
Market approach (private company)	12.5%	12.5%-15.0%
PWERM (IPO)	56.3%	52.5%-60.0%
PWERM (M&A)	18.8%	15.0%-17.5%
IPO revenue multiple	4.0x-5.0x	3.0x-4.5x
Forecasted revenue growth rate	30.0%-50.3%	28.0%-41.80%
Discount rate	20.0%-30.0%	20.0%-30.0%

A summary of assets, (liabilities), and (mezzanine equity) at December 31, 2016 and 2017, related to our financial instruments, measured at fair value on a recurring basis, is set forth below:



Financial Instrument	Fair Value Hierarchy	Fair Value
		December 31,
		2016		2017

Money market funds (included in cash and cash equivalents)	Level I	46,357		177,235
Certificates of deposit (included in short-term investments)	Level II	1,749		—
Interest rate lock commitments	Level II	—		29
Forward loan commitments	Level II	—		(4	)
Redeemable convertible preferred stock (mezzanine equity)	Level III	(655,416	)	—