Fair Value Measurements

Fair value represents 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. Observable inputs are based on market data obtained from independent sources. The fair value hierarchy is based on the following three levels of inputs, of which the first two are considered observable and the last one is considered unobservable:


•	Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.


•	Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.


•	Level 3 – Unobservable inputs.

The table below sets forth a summary of financial instruments that are measured at fair value on a recurring basis at December 31, 2015:



	December 31, 2015		Fair Value Measurements at Reporting Date Using
	December 31, 2015		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

	(in thousands)
Money market funds	$	19,257	$	19,257	$	—	$	—
Corporate debt securities	$	12,786	$	12,786	$	—	$	—
U.S. Treasury, government and agency debt securities	$	23,946	$	23,946	$	—	$	—

The table below sets forth a summary of financial instruments that are measured at fair value on a recurring basis at December 31, 2014:



	December 31, 2014		Fair Value Measurements at Reporting Date Using
	December 31, 2014		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

	(in thousands)
Money market funds	$	55,963	$	55,963	$	—	$	—
Contingent consideration liability	$	11,448	$	—	$	—	$	11,448

At December 31, 2015 and 2014, cash equivalents of $19.3 million and $56.0 million consisted of money market funds with original maturities of three months or less. The fair values of the Company's money market funds, U.S. treasury, government and agency debt securities, and corporate debt securities are based on quoted market prices.

The Company classified the contingent consideration liabilities, which were incurred in connection with the acquisitions of iSocket and Chango, within Level 3 as factors used to develop the estimated fair value include unobservable inputs that were not supported by market activity. The Company estimated the fair value of the contingent consideration liability related to the iSocket acquisition by discounting the present value of probability-weighted future payout related to the contingent consideration criteria using an estimate of the Company's incremental borrowing rate. At December 31, 2014, the Company considered it highly likely that the iSocket contingent consideration criteria would be met. On Chango's acquisition date, the Company estimated the fair value of the contingent consideration liability related to the Chango acquisition by using a Monte-Carlo model as the fair value of the contingent consideration was dependent on both the performance milestones being achieved and the post-acquisition prices of the Company's common stock. Subsequent to Chango's acquisition date, the operations of Chango were fully integrated into the operations of the Company. Accordingly, pursuant to the acquisition agreement, because Chango would no longer be operated separate from the Company's other operations in accordance with the agreed-upon business plan, the entire contingent consideration was deemed earned. As a result, the changes in the fair value of the contingent consideration liability were primarily dependent on prices of the Company's common stock for periods subsequent to Chango's acquisition date.

For each of the years ended December 31, 2015 and 2014, the Company recognized an expense of $0.3 million and $0.1 million, respectively, relating to the change in fair value of the contingent consideration liabilities, which was recorded in general and administrative expenses. The contingent consideration liability related to the iSocket acquisition was payable in shares and the number of shares to be issued was based on the average closing price of the Company's common stock for the ten consecutive trading days ending on (and including) the last trading day of 2015. The contingent consideration related to the Chango acquisition was payable in cash or shares, or a combination thereof, and the number of shares issued, excluding the 126,098 shares related to the contingent consideration that were already issued and held in escrow, was based on a price per share of $18.77. On December 31, 2015, the Company converted the contingent consideration to equity and issued 585,170 shares related to iSocket and 971,481 shares related to Chango.

The Company’s pre-IPO preferred stock warrants were recorded at fair value and were determined to be Level 3 fair value items. The changes in the fair value of preferred stock warrants are summarized below:



	Year Ended
	December 31, 2015		December 31, 2014			December 31, 2013

	(in thousands)
Beginning balance	$	—	$	5,451		$	1,330
Change in value of preferred stock warrants recorded in other expense, net	—		732			4,121
Net exercise of preferred stock warrant and conversion of preferred stock warrant to common stock warrant	—		(6,183		)	—
Ending balance	$	—	$	—		$	5,451

The Company determined the fair value of the convertible preferred stock warrants utilizing the Black-Scholes model with the following weighted-average assumptions:



	Series B December 31, 2013			Series C December 31, 2013
Risk-free interest rate	0.18		%	0.13		%
Expected term (in years)	0.69			0.50
Estimated dividend yield	2.00		%	2.00		%
Weighted-average estimated volatility	64		%	63		%
Fair value (in thousands)	$	173		$	5,278

The Company’s contingent consideration liabilities were recorded at fair value and were determined to be Level 3 fair value items. The changes in the fair value of the contingent consideration liabilities are summarized below:



	Year Ended
	December 31, 2015			December 31, 2014		December 31, 2013

	(in thousands)
Beginning balance	$	11,448		$	—	$	—
Increase to contingent consideration liability related to the iSocket acquisition (See Note 7)	—			11,382		—
Increase to contingent consideration liability related to the Chango acquisition (See Note 7)	16,171			—		—
Change in fair value of contingent consideration liabilities recorded in general and administrative expense	306			66		—
Decrease in iSocket contingent consideration liability related to goodwill adjustment (See Note 7)	(2,317		)	—		—
Issuance of shares associated with iSocket and Chango contingent consideration	(25,608		)	—		—
Ending balance	$	—		$	11,448	$	—

In connection with the Company’s IPO in April 2014, the outstanding warrant for 845,867 shares of the Company’s convertible preferred stock was net exercised, resulting in the issuance of 286,055 shares of common stock based on the IPO price of $15.00 per share and taking into account the 1-for-2 reverse stock split. In connection with the IPO, the remaining warrant for 25,174 shares of convertible preferred stock was automatically converted into a warrant exercisable for 12,587 shares of common stock. See Note 12 regarding the exercise of a preferred stock warrant and the conversion of each outstanding share of preferred stock into one half of a share of common stock in connection with the Company's IPO. Following the closing of the Company’s IPO on April 7, 2014, the Company was no longer required to re-measure the converted common stock warrants to fair value and record any changes in the fair value of these liabilities in the Company's consolidated statement of operations. During the years ended December 31, 2015, 2014, and 2013, the Company recognized expense of zero, $0.7 million, and $4.1 million, respectively, from the re-measurement of the warrants to fair value. The warrant exercisable for 12,587 shares of common stock was net exercised in June 2014.

For the years ended December 31, 2015, 2014, and 2013, no impairments were recorded on those assets required to be measured at fair value on a non-recurring basis.