Fair Value Measurements and Short-term Investments

9 Months Ended

Sep. 30, 2015

4. Fair Value Measurements and Short-Term Investments

The Company records its financial assets and liabilities at fair value. The accounting guidance for fair value provides a framework for measuring fair value, clarifies the definition of fair value, and expands disclosures regarding fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value as follows:

Level I: Inputs which include quoted prices in active markets for identical assets and liabilities.

Level II: Inputs other than Level I that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level III: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The carrying amounts of the Company’s financial instruments, including restricted cash, accounts receivable, accounts payable and accrued liabilities approximate fair value due to their relatively short maturities. Based on the borrowing rates available to the Company for debt with similar terms and consideration of default and credit risk using Level II inputs, the carrying value of the Company’s long-term debt as of December 31, 2014 approximates its fair value. The Company’s financial instruments consist of Level I and II assets and Level III liabilities. Level I assets consist primarily of highly liquid money market funds that are included in restricted cash. The Company’s Level II assets consist of U.S. government bonds that are included in short-term investments. The Company’s Level III liabilities include the convertible preferred stock warrant liability and the convertible preferred stock liability. The determination of the fair value of the convertible preferred stock warrant liability is discussed in Note 10. The determination of the fair value of the convertible preferred stock liability is discussed in Note 12.

The following tables set forth the fair value of the Company’s financial assets and liabilities subject to fair value measurements on a recurring basis and the level of inputs used in such measurements (in thousands):

	December 31, 2014
	Level I		Level II		Level III		Total
Assets
Money market funds	$	100	$	—	$	—	$	100
	$	100	$	—	$	—	$	100
Liabilities
Convertible preferred stock warrant liability	$	—	$	—	$	186	$	186
Convertible preferred stock liability		—		—		395		395
	$	—	$	—	$	581	$	581

	September 30, 2015
	Level I		Level II		Level III		Total

Assets
Money market funds	$	33,267	$	—	$	—	$	33,267
U.S. Government bonds		—		77,495		—		77,495
	$	33,267	$	77,495	$	-	$	110,762
Liabilities
Convertible preferred stock warrant liability	$	—	$	—	$	788	$	788
	$	—	$	—	$	788	$	788

The following table sets forth the changes in the fair value of Level III liabilities (in thousands):

	Convertible Preferred Stock Warrant Liability		Convertible Preferred Stock Liability
Fair value at December 31, 2014	$	186	$	395
Change in fair value		602		1,114
Recognition of fair value upon issuance of redeemable convertible preferred stock		—		(1,509	)
Fair value at September 30, 2015	$	788	$	—

The following is a summary of the gross unrealized gains on the Company’s short-term investments (in thousands):

	September 30, 2015
	Amortized Cost		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses			Aggregate Fair Value

Investment Securities
U.S. Government bonds		77,487		10		(2	)		77,495
Total securities	$	77,487	$	10	$	(2	)	$	77,495

The contractual maturities of securities classified as available-for-sale as of September 30, 2015 were as follows (in thousands):

	September 30, 2015
Due within one year		77,495
Total	$	77,495

- 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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