Fair Value Measurements

12 Months Ended

Dec. 31, 2016

3. Fair Value Measurements

Financial assets and liabilities are recorded 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 1—Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

Level 2—Inputs other than quoted market prices included in Level 1 are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.

Level 3—Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

The following table sets forth the Company’s financial instruments that were measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands):

	Fair Value Measurements at December 31, 2016
	Total		Level 1		Level 2		Level 3
Assets
Money market funds	$	136,481	$	136,481	$	—	$	—
U.S. government agency obligations	$	12,075	$	—	$	12,075	$	—
Corporate securities	$	3,999	$	—	$	3,999	$	—
	$	152,555	$	136,481	$	16,074	$	—

	Fair Value Measurements at December 31, 2015
	Total		Level 1		Level 2		Level 3
Assets
Money market funds	$	111,533	$	111,533	$	—	$	—

The following table is a summary of amortized cost, unrealized gain and loss, and fair value (in thousands) of the Company’s marketable securities by contractual maturities:

	Fair Value Measurements at December 31, 2016
	Amortized Cost		Unrealized Gain		Unrealized Loss		Fair Value
Cash equivalents (due within 90 days)	$	136,481	$	—	$	—	$	136,481
Short-term investments (due within one year)		4,072		—		—		4,072
Long-term investments (due between one and two years)		11,988		14		—		12,002
	$	152,541	$	14	$	—	$	152,555

As of December 31, 2016, and 2015, the balance of the redeemable convertible preferred stock call option liability, net was zero.

The fair value measurement of the redeemable convertible preferred stock call option is based on significant inputs not observed in the market and thus represents a Level 3 measurement. Level 3 instruments are valued based on unobservable inputs that are supported by little or no market activity and reflect the Company’s assumptions in measuring fair value. The Company’s estimated fair value of the redeemable convertible preferred stock call option is calculated using an option pricing model and key assumptions including the estimated fair value of the Company’s redeemable convertible preferred stock, risk-free interest rates and volatility and the probability of the closing of the future financing tranches. The estimates are based, in part, on subjective assumptions and could differ materially in the future.

During the periods presented, the Company has not changed the manner in which it values assets and liabilities that are measured at fair value using Level 3 inputs. The Company recognizes transfers between levels of the fair value hierarchy as of the end of the reporting period. There were no transfers within the hierarchy during the years ended December 31, 2016 and 2015.

The following table sets forth a summary of the changes in the fair value of the Company’s Level 3 financial instruments as follows (in thousands):

	Convertible preferred stock call option liability, net
Balance at December 31, 2014		314
Change in fair value recorded in statement of operations and comprehensive income (loss)		(314	)
Balance at December 31, 2015	$	—
Change in fair value recorded in statement of operations and comprehensive income (loss)	$	—
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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