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Fair Value Measurement
 12 Months Ended
Dec. 31, 2013
Fair Value Measurement  
Fair Value Measurement

13. Fair Value Measurement

        The Company records certain financial assets and liabilities at fair value on a recurring basis. The Company determines fair values based on that price it would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability.

        The prescribed fair value hierarchy and related valuation methodologies are as follows:

  •         Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

            Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, directly or indirectly, such as a quoted price for similar assets or liabilities in active markets.

            Level 3—Inputs are unobservable and are only used to measure fair value when observable inputs are not available. The inputs reflect the entity's own assumptions and are based on the best information available. This allows for the fair value of an asset or liability to be measured when no active market for that asset or liability exists.

        The following table discloses the assets and liabilities measured at fair value on a recurring basis as of December 31, 2012 and 2013 and the basis for that measurement:

 
   Fair Value Measurement
at December 31, 2012		  
(in thousands)
  Total   Level 1   Level 2   Level 3  

Money market

   $ 28,094   $ 28,094   $ —   $ —  

Contingent HCL-EMS acquisition consideration

     2,046     —     —     2,046  
                   
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

 

   $ 30,140   $ 28,094   $ —   $ 2,046  
                   
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
                   


 

 
   Fair Value Measurement
at December 31, 2013		  
(in thousands)
  Total   Level 1   Level 2   Level 3  

Money market

   $ 18,345   $ 18,345   $ —   $ —  

Contingent HCL-EMS acquisition consideration

     891     —     —     891  

Contingent oneTEM acquisition consideration

     206     —     —     206  
                   
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

 

   $ 19,442   $ 18,345   $ —   $ 1,097  
                   
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
                   

        The changes in the fair value of the Level 3 liability are as follows

 
   Contingent acquisition
consideration		  
 
   Years Ended December 31,  
 
   2012   2013  
(in thousands)
  HCL-EMS   HCL-EMS   oneTEM  

Balance, Beginning of Period

   $ 3,731   $ 2,046   $ —  

Initial earn-out consideration

     —     —     181  

Cash payments

     (1,882 )   (1,000 )   —  

Imputed interest

     197     12     25  

Second year earn-out adjustment

     —     (167 )   —  
               
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Balance, End of Period

   $ 2,046   $ 891   $ 206  
               
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
               

        The Company's investment in overnight money market institutional funds, which amounted to $18.3 million and $28.1 million at December 31, 2013 and 2012, respectively, is included in cash and cash equivalents on the accompanying consolidated balance sheets and is classified as a Level 1 input.

        The acquisition of HCL-EMS includes a contingent consideration agreement that requires additional consideration to be paid by the Company following each of the first and second anniversaries of the HCL-EMS Closing Date, pursuant to an earn-out formula ranging from 7.5% to 15% of specified revenues from specified customers acquired, subject to set-off rights of the Company with respect to indemnities given by HCL-EMS under the HCL-EMS APA. The fair value of the contingent consideration recognized was $3.4 million which was estimated by applying the income approach. The key assumptions include (a) a discount rate of 10.5% and (b) probability adjusted levels of revenue between approximately $12.6 million and $13.9 million. As of December 31, 2013, there were no changes in the recognized amounts, except for the accretion of interest, adjustment of the second year earn-out estimate to actual and the partial payment of the second year earn-out.

        The acquisition of oneTEM includes a contingent consideration agreement that requires additional consideration to be paid by the Company following each of the first four anniversaries of the oneTEM Closing Date. Historically, the oneTEM business had generated one-time revenue and under the earn-out formula, the earn-out consideration is equal to 9% of annual recurring revenue that the business begins to generate from specified customers in the first year and then year-over-year increases in annual recurring revenue growth from those specified customers during the earn-out periods. The earn-out period begins with the first full month after the oneTEM Closing Date and continues for four consecutive 12- month periods. The contingent consideration is subject to set-off rights of the Company with respect to indemnities given by the former holders of the issued share capital of oneTEM under the oneTEM Purchase Agreement. The fair value of the contingent consideration recognized was $0.2 million, which was estimated by applying the income approach. The key assumptions include (a) a discount rate of 15% and (b) probability adjusted levels of initial and then increased annual recurring revenue between approximately $0.2 million and $0.3 million.

        The carrying amounts of the Company's other non-cash financial instruments including accounts receivable and accounts payable approximate their fair values due to the relatively short-term nature of these instruments.