Fair Value Measurements

Fair value is an exit price representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The accounting standard for fair value measurements establishes a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1 — observable inputs such as quoted prices in active markets;

Level 2 — inputs other than the quoted prices in active markets that are observable either directly or indirectly; and

Level 3 — unobservable inputs of which there is little or no market data, which require the Company to develop its own

assumptions.

Assets and Liabilities Measured on a Recurring Basis

A financial instrument's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The financial instruments measured at fair value in the accompanying Condensed Consolidated Balance Sheets on a recurring basis consist of the following:



	As of								As of
	March 31, 2019								December 31, 2018
(In thousands)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Money market funds ⁽¹⁾	$	8,804	$	—	$	—	$	8,804	$	6,037	$	—	$	—	$	6,037
Investment in equity securities⁽²⁾	3,683		—		—		3,683		6,100		—		—		6,100
Total	$	12,487	$	—	$	—	$	12,487	$	12,137	$	—	$	—	$	12,137
Liabilities:
Financing derivatives: no hedging designation
Interest rate reset ⁽³⁾	$	—	$	—	$	18,500	$	18,500	$	—	$	—	$	23,300	$	23,300
Change of control redemption ⁽⁴⁾	—		—		3,500		3,500		—		—		2,800		2,800
Total	$	—	$	—	$	22,000	$	22,000	$	—	$	—	$	26,100	$	26,100

⁽¹⁾ Level 1 cash equivalents are invested in money market funds that are intended to maintain a stable net asset value of $1.00 per share by investing in liquid, high quality U.S. dollar-denominated money market instruments with maturities less than three months.

⁽²⁾ The Company's investment in common stock of an entity, which is included in other non-current assets, is valued using a market approach based on the quoted market price of the security. The Company sold a portion of its investment in an equity security during the three months ended March 31, 2019.

⁽³⁾ The fair value of the Company's interest rate reset derivative liability is determined using a with-and-without approach, using a standard binomial tree convertible bond model. The fair value estimate is determined using an estimate for the Company's credit rating, the premium attributable to the payment-in-kind feature of the Notes, and premium estimates for company-specific risk factors. The valuation is derived from techniques which utilize unobservable Level 3 inputs.

⁽⁴⁾ The fair value of the Company's change of control redemption derivative liability is determined using a probability adjusted binomial lattice model. The fair value estimate is determined using an estimate for the probability of change of control of the Company, risk-free rate, and remaining term of the redemption feature. These estimates represent Level 3 inputs within the fair value hierarchy.

The Company did not have any transfers between fair value levels during the periods presented. There were no changes to the Company's valuation methodologies during the three months ended March 31, 2019 or 2018, respectively.

The following table presents the changes in the Company's Level 3 fair valued instruments for the three months ended March 31, 2019 and March 31, 2018, respectively:



(In thousands)	Financing Derivative Liabilities
Balance as of December 31, 2018	$	26,100
Total (gains) losses included in other income, net ⁽¹⁾	(4,100		)
Balance as of March 31, 2019	$	22,000

⁽¹⁾ Represents $4.8 million gain due to change in fair value of interest rate reset derivative liability, offset by $0.7 million loss due to change in fair value of change of control redemption derivative liability. All gains and losses were recorded in other income, net in the Condensed Consolidated Statements of Operations and Comprehensive Loss.



(In thousands)	Financing Derivative Liabilities
Balance as of December 31, 2017	$	—
Issuances	12,940
Total (gains) losses included in other income, net ⁽¹⁾	2,180
Balance as of March 31, 2018	$	15,120

⁽¹⁾ Represents $0.1 million loss due to change in fair value of interest rate reset derivative liability, $2.0 million loss due to change in fair value of Notes Option liability, and $0.1 million loss due to change in fair value of change of control redemption derivative liability. All gains and losses were recorded in other income, net in the Condensed Consolidated Statements of Operations and Comprehensive Loss.

The following table displays valuation techniques and the significant unobservable inputs for the Company's Level 3 liabilities measured at fair value on a recurring basis:



	Fair value measurements
	Significant valuation technique	Significant unobservable inputs	March 31, 2019	December 31, 2018
Interest rate reset derivative liability	Discounted cash flow	Discount rate	24.0%	25.0%
		Stock price	$20.25	$14.43
		Risk-free rate	2.2%	2.5%
		Volatility	37.1%	43.9%
		Term	2.79 years	3.04 years

Change of control redemption derivative liability	Option pricing model	Probability	0-10%	0-10%
		Risk-free rate	2.2%	2.5%

The fair values of the Company's financing derivatives are estimated using forward projections and are discounted back at rates commensurate with the remaining term of the related derivative. The primary sensitivity in the interest rate reset derivative liability is driven by the Company's Common Stock price at the measurement date, the observable volatility of the Common Stock, and the discount rate used to determine the present value of the instrument. The primary sensitivity for the change of control redemption derivative liability is driven by the probability of the change of control.