Fair Value of Financial Instruments

12 Months Ended

Dec. 31, 2019

Fair Value Disclosures [Abstract]

Fair Value of Financial Instruments

Fair Value of Financial Instruments

For assets and liabilities measured at fair value on a recurring and nonrecurring basis, a three-level hierarchy of measurements based upon observable and unobservable inputs is used to arrive at fair value. Observable inputs are developed based on market data obtained from independent sources, while unobservable inputs reflect the Company’s assumptions about valuation based on the best information available in the circumstances. Depending on the inputs, the Company classifies each fair-value measurement as follows:

• Level 1 – based on quoted prices in active markets for identical assets or liabilities;

• Level 2 – based on other significant observable inputs for the assets or liabilities through corroborations with market data at the measurement date; and

• Level 3 – based on significant unobservable inputs that reflect management’s best estimate of what market participants would use to price the assets or liabilities at the measurement date.

Financial Instruments Measured at Carrying Value

Current Assets

Cash and cash equivalents are measured at carrying value, which approximates fair value because of the short-term maturities of these instruments.

Debt

The Company measures the Wells Fargo Credit Agreement and the Unsecured Senior Notes at original carrying value including accrued interest, net of unamortized deferred financing costs and fees. The fair value of the revolving credit facility approximates carrying value, as it consists of short-term variable rate loans.

The fair value measurement of the Unsecured Senior Notes is defined as Level 3 in the three-level fair value hierarchy, as the inputs to their valuation are not all market observable.

(in thousands)	As of December 31, 2019
	Carrying Value		Fair Value
			Level 1		Level 2		Level 3
Wells Fargo Credit Agreement	$	39,527	$	—	$	39,527	$	—
Unsecured Senior Notes	54,765		—		—		54,600

(in thousands)	As of December 31, 2018
	Carrying Value		Fair Value
			Level 1		Level 2		Level 3
Wells Fargo Credit Agreement	$	54,613	$	—	$	54,613	$	—
Unsecured Senior Notes	54,712		—		—		52,700

Other Financial Assets and Liabilities

In addition to the methods and assumptions used for the financial instruments discussed above, accounts receivable, net, income tax receivable, and accounts payable and certain accrued expenses are measured at carrying value, which approximates fair value because of the short-term maturities of these instruments.

Financial Instruments Measured at Fair Value

The Company’s warrant liability was measured at fair value based on unobservable inputs and was, thus, considered a Level 3 financial instrument in the three-level valuation hierarchy.

(in thousands)	As of December 31, 2018
	Carrying Value		Fair Value
			Level 1		Level 2		Level 3
Warrant liability	$	35,100	$	—	$	—	$	35,100

Warrants

The following table summarizes changes in the estimated fair value of the Company’s warrant liability:

(in thousands)	As of December 31,
	2019			2018
Balance at beginning of year	$	35,100		$	24,700
Change in value of warrants *	1,352			10,400
Settlement of warrants	(36,452		)	—
Balance at end of year	$	—		$	35,100

* The change in value of the warrant liability for each year is presented in Loss from change in value and exercise of warrants in the Company’s Consolidated Statements of Operations. The change in value for the year ended December 31, 2019 includes the impact of Weichai exercising the warrant in April 2019.

Weichai Warrant Liability

The Company estimated the fair value of the Weichai Warrant financial instrument using a publicly traded stock pricing approach with a Black-Scholes option pricing model and a Monte Carlo simulation. Given the unobservable nature of the inputs to the pricing models, the Weichai Warrant was classified as a Level 3 instrument.

The inputs of the Black-Scholes option pricing model were as follows:

Assumptions	As of December 31,
	2018
Market value of the Common Stock	$	9.25
Exercise price	varies
Risk-free interest rate	2.6		%
Estimated price volatility	55.0		%
Contractual term	0.5 years

The estimated price volatility represents the upper end of the range of implied volatility of publicly traded call options of benchmark companies.