Fair Value Measurements

3 Months Ended

Mar. 31, 2020

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities recorded at fair value in the condensed consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure fair value. The fair value hierarchy distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level I) and the lowest priority to unobservable inputs (Level III). The three levels of the fair value hierarchy are described below:


Level Input:						Input Definition:
Level I						Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date.
Level II						Inputs, other than quoted prices included in Level I, that are observable for the asset or liability through corroboration with market data at the measurement date.
Level III						Unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date.

The following tables summarize fair value measurements by level as of March 31, 2020 and December 31, 2019, respectively, for assets and liabilities measured at fair value on a recurring basis:


	Balance as of March 31, 2020
(in thousands)	Level I		Level II		Level III		Total
Letter of credit (1)	$	408	$	—	$	—	$	408
Total assets	$	408	$	—	$	—	$	408
Warrant liabilities	$	—	$	—	$	627	$	627
Total liabilities	$	—	$	—	$	627	$	627

(1) $408,000 is included in restricted cash, long-term on the condensed consolidated balance sheet as of March 31, 2020.


	Balance as of December 31, 2019
(in thousands)	Level I		Level II		Level III		Total
Letter of credit (2)	$	408	$	—	$	—	$	408
Total assets	$	408	$	—	$	—	$	408
Warrant liabilities	$	—	$	—	$	691	$	691
Total liabilities	$	—	$	—	$	691	$	691

(2) $408,000 is included in restricted cash, long term on the condensed consolidated balance sheet as of December 31st, 2019.

Financial instruments classified as Level III in the fair value hierarchy as of March 31, 2020 represent liabilities measured at market value on a recurring basis which include warrant liabilities. In accordance with current accounting rules, the warrant liabilities are being marked-to-market each quarter-end until they are completely settled or expire. The warrants are valued using the Black-Scholes option-pricing model, using both observable and unobservable inputs and assumptions consistent with those used in the estimate of fair value of employee stock options. See Warrant Liabilities below.

The carrying value of the 2024 Notes is estimated to approximate their fair value as the variable interest rate of the Senior Secured Notes approximates the market rate for debt with similar terms and risk characteristics.

The fair value measurements using significant Level III inputs, and changes therein, for the quarter ended March 31, 2020 are as follows:


(in thousands)	Level III Warrant Liabilities
Balance as of December 31, 2019	$	691
Issuance of new warrant liability	—
Change in fair value of warrant liability	(64)

Balance as of March 31, 2020	$	627

Warrant Liabilities

The assumptions used in the Black-Scholes option-pricing model are determined as follows:


	March 31, 2020		December 31, 2019
Volatility	98.04	%	98.04	%
Risk-free interest rate	0.55	%	1.81	%
Weighted average expected life (in years)	6.1		6.25
Dividend yield	—	%	—	%

For the quarters ended March 31, 2020 and 2019, gain/(loss) related to the revaluation of warrant liabilities were $0.1 million and ($0.1 million) respectively and has been recorded in other income (expense) in the condensed consolidated statement of operations.

- 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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