Fair Value Measurements

9 Months Ended

Sep. 30, 2016

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			(Approach)	Level 1		Level 2		Level 3
September 30, 2016
Cash equivalents (money market accounts)	$	33,977		Market	$	33,977	$	—	$	—
	$	33,977			$	33,977	$	—	$	—
				Valuation
				Technique
	Asset (liability)			(Approach)	Level 1		Level 2		Level 3
December 31, 2015
Cash equivalents (money market accounts)	$	65,010		Market	$	65,010	$	—	$	—
Acquisition contingent consideration obligations	(1,968		)	Income	—		—		(1,968		)
	$	63,042			$	65,010	$	—	$	(1,968	)

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.

During the nine months ended September 30, 2016, cash equivalents related to GovDelivery were reclassified to the line item “Assets of discontinued operations” on Actua’s Consolidated Balance Sheets for all periods presented as a result of the execution of the GovDelivery Merger Agreement on September 20, 2016. The impact of the sale of GovDelivery is discussed in Note 5, “Discontinued Operations.” Based on the reclassification of cash equivalents related to GovDelivery as assets held for sale, Actua retrospectively decreased the value of cash equivalents as of December 31, 2015 by $0.1 million.

As of December 31, 2015, Actua accounted for a contingent earn-out payment related to VelocityEHS’ acquisition of Knowledge Management Innovations, LTD (“KMI”), which was a component of VelocityEHS’ purchase price for KMI (the “KMI Earnout”). A fair value of the KMI Earnout was determined on the date of acquisition using Monte Carlo simulation models that yielded a value of $1.2 million. During the three months ended September 30, 2016, the KMI Earnout was paid at its maximum value of $2.0 million. In prior periods, increases in value were reflected as charges in the “Impairment related and other” line item on Actua's Consolidated Statements of Operations. On Actua's Consolidated Statements of Cash Flows, the payment of the initial liability amount of $1.2 million is reflected as an outflow from financing activities, whereas the additional $0.8 million payment is reflected as an outflow from operating activities.

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 its 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 September 30, 2016, the closing price of Actua's Common Stock ($12.95 per share) exceeded the book value of its assets ($8.03 per share). Multiples of revenue are commonly used in valuing businesses. In 2016, the market multiples of comparable companies in the cloud technology industry recovered from the decrease experienced last year. If the closing stock price or market multiples were 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. Actua will continue to monitor and evaluate this relationship. Additionally, should actual results differ materially from Actua's projections, additional impairment would likely result.