Fair Value Measurements

12 Months Ended

Dec. 31, 2015

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. There are three levels of inputs that may be used to measure fair value, which are as follows:

• Level 1 – Observable inputs, such as quoted market prices for identical assets and liabilities in active public markets.

• Level 2 – Observable inputs other than Level 1 prices based on quoted prices in markets with insufficient volume or infrequent transactions, or valuations in which all significant inputs are observable for substantially the full term of the asset or liability.

• Level 3 – Unobservable inputs to the valuation techniques that are significant to the fair value of the asset or liability.

Assets and liabilities are measured at fair value based on one or more of the following three valuation techniques:

• Market Approach – Fair value is determined based on prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities.

• Income Approach – Fair value is determined by converting relevant future amounts to a single present amount based on market expectations (including present value techniques and option pricing models).

• Cost Approach – Fair value represents the amount that currently would be required to replace the service capacity of the relevant asset (often referred to as replacement cost).

The fair value hierarchy of Actua’s financial assets measured at fair value on a recurring basis were as follows:

(in thousands)				Valuation
				technique
	Asset (liability)			(approach)	Level 1		Level 2		Level 3
December 31, 2015
Cash equivalents (money market accounts)	$	65,136		Market	$	65,136	$	—	$	—
Acquisition contingent consideration obligations	(1,968		)	Income	—		—		(1,968		)
	$	63,168			$	65,136	$	—	$	(1,968	)
December 31, 2014
Cash equivalents (money market accounts)	$	77,935		Market	$	77,935	$	—	$	—
Acquisition contingent consideration obligations	(3,320		)	Income	—		—		(3,320		)
	$	74,615			$	77,935	$	—	$	(3,320	)

As of December 31, 2015, Actua accounts for a contingent earn-out payment related to VelocityEHS’ acquisition of KMI, which was a component of VelocityEHS’ purchase price for KMI. That obligation was fair valued on the date of acquisition using Monte Carlo simulation models that yielded a value of $1.2 million on the acquisition date. The ultimate obligation could range in value from zero to $2.0 million; the fair value as of December 31, 2015 has been determined through the update of models, Actua’s calculations and/or qualitative analysis. The contingent obligation related to VelocityEHS’ acquisition of KMI will become due, if at all, in June 2016 and has been classified as a short-term liability on Actua’s Consolidated Balance Sheets as of December 31, 2015 and as a long term liability as of December 31, 2014.

As of December 31, 2014, Actua accounted for three contingent consideration obligations. Those obligations consisted of the earn-out payment related to VelocityEHS’ KMI acquisition, and two contingent obligations related to acquisitions made by FolioDynamix prior to Actua’s acquisition of FolioDynamix. The two contingent obligations related to FolioDynamix were also fair valued on the respective dates of acquisition using Monte Carlo simulation models that yielded an aggregate of $1.9 million of obligations. Both contingent consideration obligations related to FolioDynamix’s acquisitions were settled during the second quarter of 2015, and the portion of those payments that represent the initial fair value of the contingent obligations determined as of the acquisition date ($1.9 million) are reflected as cash used in financing activities, with the excess ($0.1 million) reflected as cash used in operating activities, on Actua’s Consolidated Statements of Cash Flows for the year ended December 31, 2015.

During the year ended December 31, 2015, contingent consideration obligations increased by $0.8 million, primarily related to the KMI acquisition. These increases are reflected as charges on the “Impairment related and other” line item on Actua’s Consolidated Statements of Operations.

The carrying value of certain of Actua’s other financial instruments, including accounts receivable and accounts payable approximates fair value due to the short-term nature of those instruments. The fair value of Actua’s long-term debt is based on assumptions concerning the amount and timing of estimated future cash flows and assumed risk-adjusted discount rates. See Note 9, “Debt” for further discussion.

As discussed in Note 3, "Goodwill and Intangible Assets", for the year ended December 31, 2015, a goodwill impairment charge was taken on the FolioDynamix reporting unit. For purposes of determining the goodwill impairment of the FolioDynamix reporting unit, Actua estimated the implied fair value of the goodwill using a variety of valuation methods, including the income and market approaches. The fair market value based on significant unobservable inputs within the Level 3 hierarchy was $126.5 million, in comparison to the net book value of $166.2 million, resulting in a total pre-tax (non-cash) impairment loss of $39.7 million. Actua's estimate of fair value under the income approach included discounted cash flow estimates and a risk adjusted discount rate of 23.4%.

Actua performs sensitivity analysis of the fair value calculation. In evaluating the reasonableness of the Actua’s fair value estimates, Actua considers, among other factors, the relationship between its book value, the market price of its common stock and the fair value of its reporting units. As of December 31, 2014, the closing price of our common stock ($18.47 per share) exceeded the book value of our assets ($11.08 per share). As of December 31, 2015, the closing price of our common stock ($11.45 per share) exceeded the book value of our assets ($8.78 per share). Market multiples of companies in the SAAS industry have decreased significantly since December 31, 2014. If the closing stock price or market multiples continue to decline, it would likely indicate the occurrence of events or changes that would cause Actua to perform additional impairment analyses which could result in further revisions to its fair value estimates. While Actua believes that its estimates of fair value at December 31, 2015 are reasonable, Actua will continue to monitor and evaluate this relationship. Additionally, should actual results differ materially from our projections, additional impairment would likely result.