Fair Value Measurements

12 Months Ended

Dec. 31, 2016

Note 2. Fair Value Measurements

The following tables present information about the Company’s financial assets and liabilities that have been measured at fair value as of December 31, 2016 and 2015, and indicates the fair value hierarchy of the valuation inputs utilized to determine such fair value (in thousands):

	December 31, 2016
	Level 1		Level 2		Level 3		Total

Money market funds	$	18,029	$	—	$	—	$	18,029
Corporate notes and obligations		—		33,840		—		33,840
U.S. government treasury securities		41,347		—		—		41,347
	$	59,376	$	33,840	$	—	$	93,216

	December 31, 2015
	Level 1		Level 2		Level 3			Total

Money market funds	$	8,015	$	—	$	—		$	8,015
Corporate notes and obligations		—		2,245		—			2,245
U.S. agency securities		—		3,015		—			3,015
U.S. government treasury securities		1,000		—		—			1,000
Preferred stock warrant liability		—		—		(414	)		(414	)
	$	9,015	$	5,260	$	(414	)	$	13,861

At December 31, 2016 and 2015, the Company utilized the market approach to value its money market mutual funds and U.S. government treasury securities using Level 1 valuation inputs because published net asset values were readily available. The Company’s Level 2 marketable securities are valued using the market approach based on broker or dealer quotations, actual trade data, recent observable transaction information for similar securities, benchmark yields or alternative pricing sources with reasonable levels of price transparency, and include the Company’s investments in U.S. government agency securities and corporate notes and obligations.

The Company’s preferred stock warrants are categorized as Level 3 because they were valued based on unobservable inputs and management’s judgment due to the absence of quoted mark prices, inherent lack of liquidity and the long-term nature of such financial instruments. The Company engaged a third party to perform a fair value assessment of the preferred stock warrant inputs on a quarterly basis using a hybrid allocation methodology. The following allocation methodologies were used: the Black-Scholes option pricing model, the Probability-Weighted Expected Return Method, or PWERM, and secondary transactions. In determining the inputs, the results of the various allocation methodologies are weighted based on multiple factors, including management’s expectations on various exit outcomes and the similarities between the Company and its comparable companies in areas such as overall business model, level of revenue, market share, maturity of business and other metrics. The assumptions used in the hybrid allocation methodology are inherently subjective and involve significant judgment. Any change in fair value is recognized as interest expense and is included in interest (expense) income and other, net in the consolidated statements of operations. Immediately prior to completion of the IPO, the preferred stock warrant to purchase shares of convertible preferred stock was converted to a warrant to purchase Class B common stock. The warrant was exercised on September 26, 2016. See Note 5 for additional information.

The following table presents a reconciliation of the preferred stock warrant liability measured at fair value using significant unobservable inputs (in thousands):

Balance as of December 31, 2014	$	357
Changes in fair value of underlying warrant securities, recorded to interest expense		57
Balance as of December 31, 2015		414
Changes in fair value of underlying warrant securities, recorded to interest expense		202
Conversion of warrant, recorded to additional paid-in capital		(616	)
Balance as of December 31, 2016	$	—

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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