13. Fair Value Measurements

Fair value is an exit price, representing the amount that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. Valuation techniques used to measure fair value are performed in a manner to maximize the use of observable inputs and minimize the use of unobservable inputs. As a basis for considering such assumption the accounting literature establishes a three-tier value hierarchy which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs, such as quoted prices in active markets; (Level 2) inputs other than the quoted prices in active markets that are observable either directly or indirectly; and (Level 3) unobservable inputs for which there is little or no market data, which requires the Company to develop its own assumptions.

A summary of the Company’s assets that are measured or disclosed at fair value on a recurring basis as of December 31, 2015 and 2014 are presented below:

 

Description		At December 31, 2015				(Level 1)				(Level 2)				(Level 3)
Cash equivalents
Money market fund		$	45,557			$	45,557			$	—			$	—
Held-to-maturity investments
U.S. treasury securities			38,504				—				38,504				—
Assets held in restriction
Money market fund			1,116				—				1,116				—
Total		$	85,177			$	45,557			$	39,620			$	—
Description		At December 31, 2014				(Level 1)				(Level 2)				(Level 3)
Cash equivalents
Money market fund		$	20,425			$	20,425			$	—			$	—
Held-to-maturity investments
U.S. treasury securities and government agency bonds			72,532				—				72,532				—
Assets held in restriction
Money market fund and certificate of deposit			1,380				—				1,380				—
Total		$	94,337			$	20,425			$	73,912			$	—

 

The Company’s cash equivalents, primarily money market accounts are classified within Level 1 of the fair value hierarchy because they are valued using quoted prices as of December 31, 2015 and 2014, respectively.

The Company’s assets held in restriction bore interest at the prevailing market rates for instruments with similar characteristics and, accordingly, the carrying value of these instruments also approximated their fair value and the financial instruments were classified within Level 2 of the fair value hierarchy because the inputs to the fair value measurement are valued using observable inputs as of December 31, 2015 and 2014, respectively.

The Company’s held-to-maturity investments bore interest at the prevailing market rates for instruments with similar characteristics. The financial instruments were classified within Level 2 of the fair value hierarchy because the inputs to the fair value measurement are valued using observable inputs as of December 31, 2015 and 2014, respectively.

For the years ended December 31, 2015 and 2014, there were no transfers between Level 1 and Level 2.

The fair value of the preferred stock warrant liability was determined using the Black-Scholes option-pricing model until the IPO conversion date of February 4, 2014. After the closing of the IPO, the remaining preferred stock warrant liability was no longer subject to re-measurement as the warrants to purchase the Company’s preferred stock became warrants to purchase shares of the Company’s common stock. As of the IPO closing date, the fair value of the preferred stock warrants was based significantly on the fair value of the Company’s publicly traded common stock and other observable inputs and was reclassified to Level 2.

The fair value of the preferred stock warrant prior to the closing of the IPO was based significantly on the fair value of the preferred stock, which was developed using unobservable inputs, and was classified within Level 3. The following table provides a roll-forward of the Company’s liabilities measured at fair value on a recurring basis using unobservable inputs (Level 3):

 

BALANCE—January 1, 2013			331
Issuance of preferred stock warrants			324
Change in fair value of warrant liability			(126	)
BALANCE—December 31, 2013			529
Change in fair value of warrant liability			2,559
Transfers to Level 2			(3,088	)
BALANCE—December 31, 2014		$	—

There were no preferred stock warrants outstanding as of December 31, 2015 and 2014, respectively.