Fair Value Measurements

12 Months Ended

Dec. 31, 2016

Note 3. Fair Value Measurements

Fair Value Measurement

Accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. The standards also establish a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value:

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Level 1 — Quoted prices in active markets for identical assets or liabilities.

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Level 2 — Assets and liabilities valued based on observable market data for similar instruments, such as quoted prices for similar assets or liabilities.

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Level 3 — Unobservable inputs that are supported by little or no market activity; instruments valued based on the best available data, some of which is internally developed, and considers risk premiums that a market participant would require.

Our assessment of the significance of a particular input to the fair value measurement requires management to make judgments and consider factors specific to the asset or liability. We applied the following methods and assumptions in estimating our fair value measurements:

Cash Equivalents — Cash equivalents are comprised of highly liquid investments, including money market funds and certificates of deposit, with original maturities of less than three months. The fair value measurement of these assets is based on quoted market prices in active markets and these assets are recorded at fair value.

Investments — Our investments consist of fixed income securities, which include U.S. government agency securities, corporate notes and bonds and commercial paper. The fair value measurement of these assets is based on observable market-based inputs or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Long-term Debt — The fair values of our long-term debt approximates carrying value based on the borrowing rates currently available to us for loans with similar terms using level 2 inputs.

Convertible Preferred Stock Warrants — Our convertible preferred stock contained redemption provisions and therefore our warrants issued to purchase such Series 2 redeemable convertible preferred stock were classified as liabilities and recorded at fair value. These preferred stock warrants were subject to remeasurement at each consolidated balance sheet date and any change in fair value was recognized as a component of other income (expense), net. Upon the effectiveness of the registration statement related to the initial public offering on July 20, 2016, all of our outstanding warrants automatically converted into shares of common stock. At conversion in July 2016, we performed a fair value assessment of the preferred stock warrant liabilities using the Black-Scholes model and the following were the variable input assumptions: Series 2 redeemable convertible preferred stock fair market value of $17.50, Series 2 redeemable convertible preferred stock exercise price of $9.318 per share, remaining contractual lives of the warrants ranging from one to six years, volatility of 50% and risk-free interest rates ranging from 0.5% to 1.3%. Our Series 2 redeemable convertible preferred stock warrant liabilities were categorized as Level 3 because they were valued based on unobservable inputs and our judgment due to the absence of quoted market prices, inherent lack of liquidity and the long-term nature of such financial instruments. At December 31, 2015, we performed a fair value assessment of the preferred stock warrant liabilities using the Black-Scholes model and the following were the variable input assumptions: Series 2 redeemable convertible preferred stock fair market value of $19.20, Series 2 redeemable convertible preferred stock exercise price of $9.318 per share, remaining contractual lives of the warrants ranging from one to seven years, volatility of 50% and risk-free interest rates ranging from 0.6% to 2.1%. The assumptions used in the Black-Scholes model are inherently subjective and involve significant judgment. Any change in fair value is recognized as a component of other income (expense).

The following tables present the balances of assets measured at fair value on a recurring basis, by level within the fair value hierarchy, as of December 31, 2016, all such balances as of December 31, 2015 were $0:

	DECEMBER 31, 2016
	LEVEL 1		LEVEL 2		LEVEL 3
	(in thousands)
Cash equivalents:
Money market funds	$	14,065	$	—	$	—
U.S. government agency securities		—		4,997		—
Corporate notes and bonds		—		959		—
Commercial Paper		—		2,948		—
Short-term investments:
U.S. government agency securities		—		36,531		—
Corporate notes and bonds		—		19,252		—
Commercial Paper		—		11,122		—
Total assets measured at fair value	$	14,065	$	75,809	$	—

The following table presents the balances of liabilities measured at fair value on a recurring basis, by level within the fair value hierarchy, as of December 31, 2015, all such balances as of December 31, 2016 were $0:


	DECEMBER 31, 2015
	LEVEL 1		LEVEL 2		LEVEL 3
	(in thousands)
Convertible preferred stock warrants	$	—	$	—	$	2,865
Total liabilities measured at fair value	$	—	$	—	$	2,865

The following table provides a roll-forward of the fair value of the preferred stock warrant liabilities categorized as Level 3 for the years ended December 31, 2016 and 2015 (in thousands):

Balance at December 31, 2013	$	3,170
Remeasurement of convertible preferred stock warrants		398
Balance at December 31, 2014	$	3,568
Remeasurement of convertible preferred stock warrants		(703	)
Balance at December 31, 2015		2,865
Remeasurement of convertible preferred stock warrants		(559	)
Exercise of preferred stock warrants		(1,801	)
Conversion of preferred stock warrants into common stock warrants at initial public offering		(505	)
Balance at 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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