Fair Value

Financial Assets Measured at Fair Value on a Recurring Basis

The tables below sets forth, by level, the Company’s financial assets that were accounted for at fair value for the respective periods. The table does not include assets and liabilities that are measured at historical cost or any basis other than fair value (in thousands):



	Fair Value Measured at Reporting Date Using
	Level 1		Level 2		Level 3		Total
September 30, 2018
Assets
Cash equivalents
Money market funds	$	360,075	$	—	$	—	$	360,075
Short-term investments	4,494		—		—		4,494
Interest rate swap agreements	—		1,368		—		1,368
	$	364,569	$	1,368	$	—	$	365,937
Liabilities
Derivatives
Natural gas fixed price forward contracts	$	—	$	—	$	11,445	$	11,445
Interest rate swap agreements	—		1,845		—		1,845
	$	—	$	1,845	$	11,445	$	13,290



	Fair Value Measured at Reporting Date Using
	Level 1		Level 2		Level 3		Total
December 31, 2017
Assets
Cash equivalents
Money market funds	$	79,256	$	—	$	—	$	79,256
Short-term investments	26,816		—		—		26,816
Interest rate swap agreements	—		52		—		52
	$	106,072	$	52	$	—	$	106,124
Liabilities
Derivatives
Natural gas fixed price forward contracts	$	—	$	—	$	15,368	$	15,368
Embedded derivative on 6% promissory notes	—		—		140,771		140,771
Interest rate swap agreements	—		5,905		—		5,905
Stock warrants
Preferred stock warrants	—		—		9,825		9,825
	$	—	$	5,905	$	165,964	$	171,869

Money Market Funds - Money market funds are classified as Level 1 financial assets because they are valued using quoted market prices for identical securities.

Short-Term Investments - Short-term investments, which are comprised of U.S. Treasury Bills with maturities of 12 months or less, are classified as Level 1 financial assets because they are valued using quoted market prices for identical securities.

Interest Rate Swap Agreements - The Company enters into interest rate swap agreements to swap variable interest payments for fixed interest payments on certain debt. The interest rate swaps are classified as Level 2 financial assets as quoted prices for similar liabilities are used for valuation. Interest rate swaps are designed as hedging instruments and are recognized at fair value on the Company's consolidated balance sheets. As of September 30, 2018, $0.3 million of the gain on the interest rate swaps accumulated in other comprehensive loss is expected to be reclassified into earnings in the next twelve months.

Natural Gas Fixed Price Forward Contracts - The Company enters into fixed price natural gas forward contracts. The following table provides the fair value of the Company’s natural gas fixed price contracts (dollars in thousands):

September 30, 2018

December 31, 2017

Number of

Contracts

(MMBTU)²

Fair

Value

Number of
Contracts
(MMBTU)²

Fair

Value

Liabilities¹

Natural gas fixed price forward contracts (not under hedging relationships)

3,457

11,445

4,332

15,368

¹ Recorded in current liabilities and derivative liabilities in the consolidated balance sheets.

² One MMBTU is a traditional unit of energy used to describe the heat value (energy content) of fuels.

The natural gas fixed price forward contracts were valued at Level 3 as there were no observable inputs supported by market activity. The Company estimates the fair value of the contracts using a combination of factors including the counterparty's credit rating and estimates of future natural gas prices.

For the three months ended September 30, 2018 and 2017, the Company marked-to-market the fair value of its fixed price natural gas forward contract and recorded a gain of $1.1 million and a loss of $0.3 million, respectively, and recorded gains on the settlement of these contracts of $0.6 million and $1.1 million, respectively, in cost of revenue on the consolidated statement of operations. For the nine months ended September 30, 2018 and 2017, the Company marked-to-market the fair value of its fixed price natural gas forward contract and recorded a gain of $1.1 million and a gain of $2.4 million, respectively, and recorded gains on the settlement of these contracts of $2.9 million and $3.3 million, respectively, in cost of revenue on the consolidated statement of operations.

Embedded Derivative on 6% Convertible Promissory Notes - On December 15, 2015, the Company issued $160.0 million of 6% Convertible Promissory Notes (6% Notes) that mature in December 2020. In addition, on January 29, 2016 and September 20, 2016, the Company issued an additional $25.0 million and $75.0 million, respectively, of 6% Notes. The 6% Notes are convertible at the option of the holders at a conversion price of $11.25 per share. The provisional redemption of notes was classified as an embedded derivative.

The valuation of the provisional redemption feature was classified within Level 3 as it was valued using the binomial lattice method, which utilizes significant inputs that are unobservable in the market. Prior to the IPO, the fair value was determined by estimated event dates with probabilities of likely events under the scenario which is based upon facts existing through the date of the Company's IPO. Upon the expiration of embedded derivative features upon the IPO, the Company reclassified the fair value of the derivative liability into equity. The final valuation of the conversion feature was calculated as of the date of the IPO to be $177.2 million and was reclassified from derivative liability to equity on the balance sheet.

Preferred Stock Warrants - The preferred stock warrants were converted to common stock warrants effective with the IPO. The fair value of the preferred stock warrants were zero and $9.8 million, respectively, as of September 30, 2018 and December 31, 2017. The preferred stock warrants were previously valued at Level 3 as there were no observable inputs supported by market activity. The Company estimated the fair value of the preferred stock warrants using a probability-weighted expected return model which considers various potential liquidity outcomes and assigned probabilities to each to arrive at the weighted equity value. The changes in fair value were recorded in gain (loss) on revaluation of warrant liabilities in the consolidated statements of operations.

There were no transfers between fair value measurement levels during the three and nine months ended September 30, 2018 and 2017. The changes in the Level 3 financial assets were as follows (in thousands):



	Natural Gas Fixed Price Forward Contracts			Preferred Stock Warrants			Derivative Liability			Total

Balances at December 31, 2016	$	18,585		$	12,885		$	115,807		$	147,277
Settlement of natural gas fixed price forward contracts	(4,248		)	—			—			(4,248		)
Embedded derivative on notes	—			—			6,804			6,804
Changes in fair value	1,031			(3,060		)	18,160			16,131
Balances at December 31, 2017	$	15,368		$	9,825		$	140,771		$	165,964
Settlement of natural gas fixed price forward contracts	(2,871		)	—			—			(2,871		)
Embedded derivative on notes	—			—			5,533			5,533
Changes in fair value	(1,052		)	(8,943		)	30,904			20,909
Conversion of preferred stock warrants liability and derivative liability to common shares	—			(882		)	(177,208		)	(178,090		)
Balances at September 30, 2018	$	11,445		$	—		$	—		$	11,445

Significant changes in any assumption input in isolation can result in a significant change in fair value measurement. Generally, an increase in the market price of the Company’s shares of common stock, an increase in the volatility of the Company’s shares of common stock and an increase in the remaining term of the conversion feature would each result in a directionally similar change in the estimated fair value of the Company’s derivative liability. Increases in such assumption values would increase the associated liability while decreases in these assumption values would decrease the associated liability. An increase in the risk-free interest rate or a decrease in the market price of the Company’s shares of common stock would result in a decrease in the estimated fair value measurement and thus a decrease in the associated liability.

Financial Assets Not Measured at Fair Value on a Recurring Basis

Customer Receivables and Debt Instruments - The Company estimated the fair values of its customer financing receivables, senior secured notes, term loans and the value of convertible promissory notes based on rates currently being offered for instruments with similar maturities and terms (Level 3).

The following table presents the estimated fair values and carrying values of customer receivables and debt instruments (in thousands):



	September 30, 2018				December 31, 2017
	Carrying Value		Fair Value		Carrying Value		Fair Value

Customer receivables:
Customer financing receivables	$	74,030	$	52,037	$	77,885	$	55,255
Debt instruments:
5.22% senior secured notes	$	81,400	$	84,314	$	89,564	$	95,114
Term loan due September 2028	36,502		42,927		36,940		46,713
Term loan due October 2020	24,021		26,562		24,364		27,206
6.07% senior secured notes	82,837		88,291		84,032		93,264
Term loan due December 2021	123,834		130,033		125,596		131,817
Term loan due November 2020	3,631		4,265		4,887		5,148
8% convertible promissory notes	—		—		244,717		211,000
5% convertible promissory notes	34,273		40,548		—		—
6% convertible promissory notes	258,862		919,260		236,724		219,094
10% notes	95,451		102,162		94,517		106,124

Long-Lived Assets - The Company’s long-lived assets include property, plant and equipment. The carrying amounts of the Company’s long-lived assets are periodically reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable or that the useful life is shorter than originally estimated. No material impairment of any long-lived assets was identified in the three and nine months ended September 30, 2018 and 2017.