Note 6. Fair Value Measurements

Fair value is 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. Subsequent changes in fair value of these financial assets and liabilities are recognized in earnings or other comprehensive income when they occur. When determining the fair value measurements for assets and liabilities which are required to be recorded at fair value, the Company considers the principal or most advantageous market in which the Company would transact and the market-based risk measurement or assumptions that market participants would use in pricing the assets or liabilities, such as inherent risk, transfer restrictions and credit risk.

The Company applies the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

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Level 1—Quoted prices in active markets for identical assets or liabilities.

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Level 2—Observable inputs other than quoted price in active markets for identical assets or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially full term of assets or liabilities.

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Level 3—Inputs that are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the assets or liabilities.

The following table summarizes the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of January 31, 2017 and 2016 (in thousands):

January 31, 2017	Level 1		Level 2		Level 3		Total
Financial assets:
Money market funds⁽¹⁾	$	178,245	$	—	$	—	$	178,245
January 31, 2016
Financial assets:
Money market funds⁽¹⁾	$	50,044	$	—	$	—	$	50,044
Financial liabilities:
Preferred stock warrant liability⁽²⁾	$	—	$	—	$	247	$	247

(1)

Included in cash and cash equivalents

(2)

Included in accrued expenses and other current liabilities and other liabilities

The preferred stock warrants were valued using a Black-Scholes option pricing model. See Note 10 for further discussion.

The following table represents the change in the fair value of the preferred stock warrant liability (in thousands):

Balance at January 31, 2015	$	332
Exercise of convertible preferred stock warrant		(275	)
Change in fair value		190
Balance at January 31, 2016		247
Change in fair value		627
Exercise of convertible preferred stock warrant		(874	)
Balance at January 31, 2017	$	—