Note 7—Fair Value Measurements

The Company follows the authoritative guidance for fair value measurements with respect to assets and liabilities that are measured at fair value on a recurring basis and non-recurring basis. Under the standard, fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, as of the measurement date. The standard also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability developed based upon the best information available in the circumstances. The hierarchy consists of the following three levels: Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) that are observable for the asset or liability, either directly or indirectly; Level 3 inputs are unobservable inputs for the asset or liability. Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The Company’s available-for-sale debt securities and certificate of deposits are classified within Level 2 because they are valued using the most recent quoted prices for identical assets in markets that are not active and quoted prices for similar assets in active markets.

The Company used the income approach to value its outstanding commodity swap contracts and embedded derivatives in its fueling agreements under the Zero Now truck financing program (see Note 6). Under the income approach, the Company used a discounted cash flow (“DCF”) model in which cash flows anticipated over the term of the contracts are discounted to their present value using an expected discount rate. The discount rate used for cash flows reflects the specific risks in spot and forward rates and credit valuation adjustments. This valuation approach is considered a Level 3 fair value measurement. The significant unobservable inputs used in the fair value measurement of the Company’s derivative instruments are Ultra-Low Sulfur Diesel (“ULSD”) forward prices and differentials from ULSD to Petroleum Administration for Defense District (“PADD”) regions. Significant increases (decreases) in any of those inputs in isolation would result in a significantly lower (higher) fair value measurement. Generally, a change in the ULSD forward prices is accompanied by a directionally opposite but less extreme change in the ULSD-PADD differential.

The Company estimated the fair value of its outstanding commodity swap contracts based on the following inputs as of December 31, 2019 and March 31, 2020:


	December 31, 2019			March 31, 2020
Significant Unobservable Inputs	Input Range	Weighted Average		Input Range	Weighted Average
ULSD Gulf Coast Forward Curve	$1.76 - $1.88	$	1.81	$1.25 - $1.42	$	1.37
Historical Differential to PADD 3 Diesel	$0.79 - $1.16	$	0.91	$0.79 - $1.33	$	0.93
Historical Differential to PADD 5 Diesel	$1.32 - $2.30	$	1.78	$1.32 - $2.45	$	1.85

The Company estimated the fair value of embedded derivatives in its fueling agreements under the Zero Now truck financing program based on the following inputs as of December 31, 2019 and March 31, 2020:


	December 31, 2019			March 31, 2020
Significant Unobservable Inputs	Input Range	Weighted Average		Input Range	Weighted Average
ULSD Gulf Coast Forward Curve	$1.76 - $1.88	$	1.81	$1.25 - $1.42	$	1.37
Historical Differential to PADD 3 Diesel	$0.79 - $1.16	$	0.91	$0.79 - $1.33	$	0.93
Historical Differential to PADD 5 Diesel	$1.32 - $2.30	$	1.78	$1.32 - $2.45	$	1.85

The Company’s liability-classified warrants (or "derivative warrants"), which were issued by NG Advantage, are classified within Level 3 because the Company uses the Black-Scholes option pricing model to estimate the fair value based on inputs that are not observable in any market.

There were no transfers of assets or liabilities between Level 1, Level 2, or Level 3 of the fair value hierarchy as of December 31, 2019 or March 31, 2020.

The following tables provide information by level for assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2019 and March 31, 2020:


	December 31, 2019		Level 1		Level 2		Level 3
Assets:
Available-for-sale securities (1):
Municipal bonds and notes	$	2,986	$	—	$	2,986	$	—
Zero coupon bonds		33,919		—		33,919		—
Corporate bonds		19,506		—		19,506		—
Certificates of deposit (1)		518		—		518		—
Commodity swap contracts (2)		3,270		—		—		3,270
Embedded derivatives (3)		723		—		—		723
Liabilities:
Commodity swap contracts (2)	$	164	$	—	$	—	$	164
Embedded derivatives (3)		81		—		—		81
Warrants (4)		40		—		—		40


	March 31, 2020		Level 1		Level 2		Level 3
Assets:
Available-for-sale securities (1):
Zero coupon bonds	$	26,863	$	—	$	26,863	$	—
Corporate bonds		2,449		—		2,449		—
Certificates of deposit (1)		518		—		518		—
Commodity swap contracts (2)		12,545		—		—		12,545
Embedded derivatives (3)		143		—		—		143
Liabilities:
Embedded derivatives (3)	$	3,308	$	—	$	—	$	3,308
Warrants (4)		445		—		—		445

⁽¹⁾

Included in "Short-term investments" in the accompanying condensed consolidated balance sheets. See Note 5 for more information.

⁽²⁾

Included in “Derivative liabilities, related party” and "Long-term portion of derivative assets, related party’ as of December 31, 2019, and "Derivative assets, related party" and "Long-term portion of derivative assets, related party" as of March 31, 2020, in the accompanying condensed consolidated balance sheets. See Note 6 for more information.

⁽³⁾

Included in "Prepaid expenses and other current assets", “Notes receivable and other long-term assets, net", “Accrued liabilities” and “Other long-term liabilities” in the accompanying condensed consolidated balance sheets. See Note 6 for more information.

⁽⁴⁾

Included in "Accrued liabilities" in the accompanying condensed consolidated balance sheets.

The following table provides a reconciliation of the beginning and ending balances of items measured at fair value on a recurring basis as shown in the tables above that used significant unobservable inputs (Level 3), as well as the change in unrealized gains or losses for the periods included in earnings (in thousands):


	Assets:		Assets:		Liabilities:		Liabilities:
	Commodity		Embedded		Commodity		Embedded		Liabilities:
	Swap Contracts		Derivatives		Swap Contracts		Derivatives		Warrants
Balance as of December 31, 2018	$	10,332	$	—	$	—	$	—	$	(1,079)
Total gain (loss)		(4,970)		—		—		—		(1,614)
Balance as of March 31, 2019	$	5,362	$	—	$	—	$	—	$	(2,693)

Balance as of December 31, 2019	$	3,270	$	723	$	(164)	$	(81)	$	(40)
Settlements, net		(24)		—		56		—		—
Total gain (loss)		9,299		(580)		108		(3,227)		(405)
Balance as of March 31, 2020	$	12,545	$	143	$	—	$	(3,308)	$	(445)

Change in unrealized gain (loss) for the three months ended March 31, 2019 included in earnings	$	(4,970)	$	—	$	—	$	—	$	(1,614)
Change in unrealized gain (loss) for the three months ended March 31, 2020 included in earnings	$	9,275	$	(580)	$	164	$	(3,227)	$	(405)

Other Financial Assets and Liabilities

The carrying amounts of the Company’s cash, cash equivalents and restricted cash, receivables and payables approximate fair value due to the short-term nature of those instruments. The carrying amounts of the Company’s debt instruments approximated their respective fair values as of December 31, 2019 and March 31, 2020. The fair values of these debt instruments were estimated using a DCF analysis based on interest rates offered on loans with similar terms to borrowers of similar credit quality, which are Level 3 inputs. See Note 12 for more information about the Company’s debt instruments.