Fair Value of Financial Instruments

Assets and liabilities are classified in their entirety based on their lowest level of input that is significant to the fair value measurement. As of September 30, 2019, the Company had Level 1 assets measured at fair value. As of December 31, 2018, the Company had Level 1 assets and Level 2 liabilities measured at fair value.

Assets Measured at Fair Value on a Recurring Basis

The following tables set forth the measurement at fair value on a recurring basis of the investments in money market funds, short-term cash instruments and U.S. government securities. The securities are categorized as a Level 1 asset, as their valuation is based on quoted prices for identical assets in active markets. See “Note 3 — Cash and Cash Equivalents”.

Assets Measured at Fair Value on a Recurring Basis as of September 30, 2019



	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance as of September 30, 2019
	(in thousands, unaudited)
Assets
Cash equivalents	$	52,961	$	—	$	—	$	52,961
Total	$	52,961	$	—	$	—	$	52,961

Assets Measured at Fair Value on a Recurring Basis as of December 31, 2018



	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance as of December 31, 2018
	(in thousands)
Assets
Cash equivalents	$	72,193	$	—	$	—	$	72,193
Total	$	72,193	$	—	$	—	$	72,193

Liabilities Measured at Fair Value on a Recurring Basis

In connection with the acquisition in April 2015 of Cogent Partners, LP and its affiliates (“Cogent,” now known as the secondary capital advisory business), the Company agreed to pay to the sellers in the future $18.9 million in cash and 334,048 shares of Greenhill common stock if certain agreed revenue targets are achieved (the “Earnout”). The cash payment and the issuance of common shares related to the Earnout were to be made if secondary capital advisory revenues of $80.0 million or more were earned during either the two year period ending on the second anniversary of the closing or the two year period ending on the fourth anniversary of the closing. The revenue generated by the secondary capital advisory business for the first two year period ended March 31, 2017 was slightly less than required to achieve the Cogent earnout. The Earnout for the second two year period ended March 31, 2019 was achieved, and in accordance with terms of the purchase agreement, the contingent consideration was paid in April 2019. The fair value of the contingent cash consideration was valued on the date of the acquisition at $13.1 million and was remeasured quarterly based on a probability weighted present value discount that the revenue target may be achieved. In April 2019, the liability was paid in full. Due to the remeasurement of the Earnout, for the three month period ended September 30, 2018, the Company recognized an increase in other operating expenses of $0.4 million. For the nine month periods ended September 30, 2019 and September 30, 2018, the Company recognized increases in other operating expenses of $0.6 million and $4.0 million, respectively. See “Note 7 - Equity” and “Note 8 — Earnings per Share”.

The following tables set forth the measurement at fair value on a recurring basis of the contingent cash consideration due to the selling unitholders of Cogent related to the Earnout prior to its settlement in April 2019. The liability arose as a result of the acquisition of Cogent and was categorized as a Level 3 liability. Through March 31, 2019, the liability was remeasured each quarter based on the probability of achieving the target revenue threshold and weighted average discount rate as discussed below. In the third quarter of 2018, the liability was transferred to Level 2 as the only remaining fair value input was the present value discount.

Liabilities Measured at Fair Value on a Recurring Basis as of December 31, 2018



	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance as of December 31, 2018
	(in thousands)
Liabilities
Contingent obligation due selling unitholders of Cogent	$	—	$	18,293	$	—	$	18,293
Total	$	—	$	18,293	$	—	$	18,293

Changes in Level 3 liabilities measured at fair value on a recurring basis for the three and nine month periods ended September 30, 2018 are as follows:



	Opening Balance as of July 1, 2018		Total realized and unrealized gains (losses) included in Net Income			Unrealized gains (losses) included in Other Comprehen-sive Income		Purchases		Issues		Sales		Transfers Out			Closing Balance as of September 30, 2018		Unrealized gains (losses) for Level 3 liabilities outstanding at September 30, 2018
	(in thousands, unaudited)
Liabilities
Contingent obligation due to selling unitholders of Cogent	$	17,354	$	(430	)	$	—	$	—	$	—	$	—	$	(17,784	)	$	—	$	—
Total	$	17,354	$	(430	)	$	—	$	—	$	—	$	—	$	(17,784	)	$	—	$	—



	Opening Balance as of January 1, 2018		Total realized and unrealized gains (losses) included in Net Income			Unrealized gains (losses) included in Other Comprehen-sive Income		Purchases		Issues		Sales		Transfers Out			Closing Balance as of September30, 2018		Unrealized gains (losses) for Level 3 liabilities outstanding at September 30, 2018
	(in thousands, unaudited)
Liabilities
Contingent obligation due to selling unitholders of Cogent	$	13,763	$	(4,021	)	$	—	$	—	$	—	$	—	$	(17,784	)	$	—	$	—
Total	$	13,763	$	(4,021	)	$	—	$	—	$	—	$	—	$	(17,784	)	$	—	$	—

Realized and unrealized gains (losses) are reported as a component of other operating expenses in the condensed consolidated statements of operations.

Valuation Processes - Level 3 Measurements - The Company utilizes a valuation technique based on a present value method applied to the probability of achieving a range of potential revenue outcomes. The valuation was conducted by the Company. The Company updates unobservable inputs each reporting period and has a formal process in place to review changes in fair value.

Sensitivity Analysis - Level 3 Measurements - The significant unobservable inputs used in determining fair value are the discount rate and forecast revenue information. Significant increases (decreases) in the discount rate would have resulted in a lower (higher) fair value measurement, respectively. Significant increases (decreases) in the forecast revenue information would result in a higher (lower) fair value measurement, respectively. For all significant unobservable inputs used in the fair value measurement of the Level 3 liabilities, a change in one of the inputs would not necessarily result in a directionally similar change in the other inputs.