3. Fair Value Measurements

 

The Company’s financial instruments that are measured at fair value on a recurring basis consist of money market funds and redeemable preferred stock warrants. The following three levels of inputs are used to measure the fair value of financial instruments:

 

Level 1: Quoted prices in active markets for identical assets or liabilities. The Company classifies its money market funds as Level 1 instruments as they are traded in active markets with sufficient volume and frequency of transactions.

 

Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data. The Company did not have any Level 2 instruments during the reported periods.

 

Level 3: Unobservable inputs are used when little or no market data is available. The Company utilized a Black-Scholes option-pricing model in order to determine the fair value of the redeemable preferred stock warrant, with such value determined on an as-converted basis. Certain inputs used in the model are unobservable. The fair values could change significantly based on future market conditions.

 

The fair values of these financial assets and the redeemable preferred stock warrant were determined using the following inputs (in thousands):

 

		Fair value measurements at
		December 31, 2012 using
		Level 1			Level 2			Level 3			Total
Cash equivalents:
Money market funds		$	15,554		$	—		$	—		$	15,554
Other liabilities:
Redeemable preferred stock warrants		—			—			601			601

 

		Fair value measurements at
		September 30, 2013 using
		Level 1			Level 2			Level 3			Total
Cash equivalents:
Money market funds		$	79,004		$	—		$	—		$	79,004
Other liabilities:
Redeemable preferred stock warrants		—			—			—			—

 

Upon the closing of the Company’s initial public offering, the warrants to purchase shares of the Company’s redeemable convertible preferred stock were net exercised.  The then-current aggregate fair value of the warrant liability of $1.3 million was reclassified from long-term liabilities to additional paid-in capital, a component of stockholders’ equity, and the Company ceased to record any further periodic fair value adjustments relating to the warrant liability.