Fair Value Measurements

3 Months Ended

Mar. 31, 2018

Fair Value Measurements

Fair Value Measurements

4. Fair Value Measurements

The Company's financial assets and liabilities carried at fair value are comprised of investment assets that include money market and investments, and a liability for common stock warrants.

The fair value accounting guidance requires that assets and liabilities be carried at fair value and classified in one of the following three categories:

Level I: Quoted prices in active markets for identical assets and liabilities that the Company has the ability to access

Level II: Observable market‑based inputs or unobservable inputs that are corroborated by market data, such as quoted prices, interest rates, and yield curves

Level III: Inputs that are unobservable data points that are not corroborated by market data.

This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value.

Assets and Liabilities That Are Measured at Fair Value on a Recurring Basis

The following table represents the fair value hierarchy for the Company’s financial assets and financial liabilities measured at fair value on a recurring basis:

	March 31, 2018								December 31, 2017
	Level I		Level II		Level III		Total		Level I		Level II		Level III		Total
	(in thousands)
Financial Assets:
Money market deposits	$	21,349	$	—	$	—	$	21,349	$	3,477	$	—	$	—	$	3,477
U.S. Treasury securities		45,920		—		—		45,920		67,026		—		—		67,026
U.S. agency securities		—		22,329		—		22,329		—		27,072		—		27,072
Municipal securities		—		11,774		—		11,774		—		12,149		—		12,149
Total financial assets	$	67,269	$	34,103	$	—	$	101,372	$	70,503	$	39,221	$	—	$	109,724
Current Liabilities:
Warrants	$	—	$	—	$	2,751	$	2,751	$	—	$	—	$	2,644	$	2,644
Total financial liabilities	$	—	$	—	$	2,751	$	2,751	$	—	$	—	$	2,644	$	2,644

During the three months ended March 31,  2018, the Company did not make any transfers between Level I and Level II assets.

The Company's warrants to purchase common stock are valued using Level III inputs; the Company used inputs from a Black-Scholes model with market volatility that is determined for comparable companies in the same business sector. The carrying amounts of cash, accounts receivable, and accounts payable approximate their fair value and are excluded from the table above.

The following table provides a roll forward of the fair value, as determined by Level III inputs, of the warrants for the three months ended March 31, 2018:

	Warrants
	(in thousands)
Balance at December 31, 2017	$	2,644
Change in fair value		107
Balance at March 31, 2018	$	2,751

Warrants

The significant unobservable inputs used in the fair value of warrants are derived from the Company's common stock valuation that is based on inputs from a Black-Scholes option-pricing model, with the expected term of 5.0 years, risk-free interest rate of 2.56%, and market volatility of 40.95% that was determined for comparable companies in the same business sector. The inherent risk in the market volatility is the selection of companies with similar business attributes to the Company.

Determining the fair value of warrants requires the application of judgment on the associated valuation assumptions described above. The assumptions used in calculating the fair value of warrants represent the Company’s estimates, but these estimates involve inherent uncertainties. As a result, if factors change and the Company uses different assumptions, the fair value of warrants could be significantly different in the future.