Fair Value Measurement

3 Months Ended

Mar. 31, 2020

The Company estimates the fair value of the ABL Credit Facility and Term Loan Credit Facility, as defined in Note 11, Revolving Credit Facility, and Note 12, Long-Term Debt, respectively, using current market yields. These current market yields are considered Level 2 inputs.

The fair value of the Company’s Initial Warrant liability recorded in the Company’s financial statements is determined using the Black-Scholes-Merton option pricing model. The quoted price of the Company’s common stock in an active market, volatility and expected life is a Level 3 measurement. Volatility is based on the actual market activity of the Company’s stock. The expected life is based on the remaining contractual term of the Initial Warrant, and the risk-free interest rate is based on the implied yield available on U.S. Treasury Securities with a maturity equivalent to the Initial Warrant’s expected life. The fair value of the Company's Initial Warrant liability may significantly fluctuate based on the unobservable inputs described above including the Company's share price, expected volatility and risk-free interest rate.

The table below sets forth the assumptions used within the Black-Scholes-Merton option pricing model to value the Company’s Initial Warrant liability:



Stock price	$	1.17
Exercise price	$	0.01
Time until expiration (years)	4.29
Expected volatility	66.0		%
Risk-free interest rate	0.34		%
Expected dividend yield	—		%

The fair value of the Company’s embedded derivative liabilities recorded in the Company’s financial statements is determined using a probability-weighted discounted cash flow approach utilizing inputs outlined in Note 11, Revolving Credit Facility and Note 12, Long-Term Debt. To derive the fair value of the embedded derivatives, the Company estimates the fair value of the ABL Credit Facility and Term Loan Credit Facility with and without the embedded derivatives. The difference between the “with” and “without” fair values determines the fair value of the embedded derivative liabilities. Key inputs for the ABL Credit Facility and Term Loan Credit Facility valuation are the applicable margin, LIBOR and US Prime yield curves, default rates of comparable securities and the assumed cost of debt. The fair value of the Company's embedded derivative liabilities may significantly fluctuate based on unobservable inputs including assumed cost of debt.

The table below sets forth the total fair value of the ABL Credit Facility, ABL Embedded Derivative, Term Loan Credit Facility, Term Loan Embedded Derivative, and Initial Warrant as of March 31, 2020 (in thousands):



	March 31, 2020
	Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
ABL Credit Facility	$	109,023	$	—	$	109,023
ABL Embedded Derivative	—		267		267
Term Loan Credit Facility	82,822		—		82,822
Initial Warrant	—		1,332		1,332
Term Loan Embedded Derivative	—		202		202
Total	$	191,845	$	1,801	$	193,646

- 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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