Fair Value

Financial Assets and Liabilities 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
December 31, 2018	Level 1		Level 2		Level 3		Total

Assets
Cash equivalents:
Money market funds	$	143,843	$	—	$	—	$	143,843
Short-term investments	104,350		—		—		104,350
Interest rate swap agreements	—		82		—		82
	$	248,193	$	82	$	—	$	248,275
Liabilities
Accrued other current liabilities	$	1,331	$	—	$	—	$	1,331
Derivatives:
Natural gas fixed price forward contracts	—		—		9,729		9,729
Interest rate swap agreements	—		3,630		—		3,630
	$	1,331	$	3,630	$	9,729	$	14,690



	Fair Value Measured at Reporting Date Using
December 31, 2017	Level 1		Level 2		Level 3		Total

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
Accrued other long term liabilities	—		5,149		—		5,149
	$	—	$	11,054	$	165,964	$	177,018

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

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

Interest Rate Swap Agreements - Interest rate swap agreements are valued using quoted prices for similar contracts and are therefore classified as Level 2 financial assets. Interest rate swaps are designed as hedging instruments and are recognized at fair value on the Company's consolidated balance sheets. As of December 31, 2018, $0.3 million of the gain on the interest rate swaps accumulated in other comprehensive income (loss) is expected to be reclassified into earnings in the next twelve months.

Natural Gas Fixed Price Forward Contracts - Natural gas fixed price forward contracts are valued using a combination of factors including the counterparty's credit rating and estimates of future natural gas prices and therefore, as no observable inputs to support market activity are available, are classified as Level 3 financial assets.

The following table provides the fair value of the Company’s natural gas fixed price contracts (dollars in thousands):



	December 31,
	2018			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)	3,096		$9,729	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.

For the years ended December 31, 2018 and 2017, the Company marked-to-market the fair value of its fixed price natural gas forward contracts and recorded a gain of $2.2 million and a loss of $1.0 million, respectively, and recorded gains on the settlement of these contracts of $3.4 million and $4.2 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 embedded redemption feature of the 6% Notes was therefore classified as an embedded derivative.

The embedded redemption feature of the 6% Notes was valued using the binomial lattice method, which utilizes significant inputs that are unobservable in the market. The fair value was determined by estimated event dates with probabilities of likely events under the scenario based upon facts existing through the date of the Company's IPO. It was therefore classified as a Level 3 financial liability. Upon the expiration of embedded derivative features triggered by the IPO, the Company reclassified the fair value of the derivative liability into additional paid-in capital. 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 additional paid-in capital on the balance sheet.

Preferred Stock Warrants - 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. As there were no observable inputs supported by market activity, the preferred stock warrants were therefore classified as a Level 3 financial liability.

The preferred stock warrants were converted to common stock warrants effective with the IPO and reclassified to additional paid-in capital. The fair value of the preferred stock warrants were zero and $9.8 million, respectively, as of December 31, 2018 and 2017. 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 classifications during the years ended December 31, 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			Embedded 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	(3,412		)	—			—			(3,412		)
Embedded derivative on notes	—			—			5,533			5,533
Changes in fair value	(2,227		)	(8,943		)	30,904			19,734
Reclassification of preferred stock warrants liability to common stock warrants and derivative liability into additional paid-in-capital	—			(882		)	(177,208		)	(178,090		)
Balances at December 31, 2018	$	9,729		$	—		$	—		$	9,729

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 natural gas prices, 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 and Liabilities Not Measured at Fair Value on a Recurring Basis

Customer Receivables and Debt Instruments - The Company estimates fair value for customer financing receivables, senior secured notes, term loans and convertible promissory notes based on rates currently 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):



	December 31, 2018				December 31, 2017
	Net Carrying Value		Fair Value		Net Carrying Value		Fair Value

Customer receivables:
Customer financing receivables	$	72,676	$	51,541	$	77,885	$	55,255
Debt instruments:
Recourse
LIBOR + 4% term loan due November 2020	3,214		3,311		4,887		5,148
5% convertible promissory note due December 2020	34,706		31,546		—		—
8% convertible promissory notes due December 2018	—		—		244,717		211,000
6% convertible promissory notes due December 2020	263,284		353,368		236,724		219,094
10% notes due July 2024	95,555		99,260		94,517		106,124
Non-recourse
5.22% senior secured notes due March 2025	78,566		80,838		89,564		95,114
7.5% term loan due September 2028	36,319		39,892		36,940		46,713
LIBOR + 5.25% term loan due October 2020	23,916		25,441		24,364		27,206
6.07% senior secured notes due March 2030	82,337		85,917		84,032		93,264
LIBOR + 2.5% term loan due December 2021	123,384		123,040		125,596		131,817

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 years ended December 31, 2018 and 2017.