Contingent Consideration

9 Months Ended

Sep. 30, 2016

Business Combinations [Abstract]

Contingent Consideration

Contingent Consideration

In connection with certain of the Company’s acquisitions, contingent consideration is payable in cash or common stock upon the achievement of certain performance measures over future periods. The Company recorded the acquisition date fair value of the contingent consideration liability as additional purchase price. As discussed in Note 10, the process for determining the fair value of the contingent consideration liability consists of reviewing financial forecasts and assessing the likelihood of reaching the required performance measures based on factors specific to each acquisition as well as the Company’s historical experience with similar arrangements. Subsequent to the acquisition date, the Company estimates the fair value of the contingent consideration liability each reporting period, and any adjustments made to the fair value are recorded in the Company’s results of operations. If an acquisition reaches the required performance measures within the reporting period, the fair value of the contingent consideration liability is increased to 100%, the maximum potential payment, and reclassified to Due to seller.

The Company has recorded $19.3 million in contingent consideration at September 30, 2016 related to these arrangements. Any adjustments made to the fair value of the contingent consideration liability subsequent to the acquisition date will be recorded in the Company’s results of operations. During the three months ended September 30, 2016 and 2015, the Company recorded expense of $0.8 million and $0.7 million, respectively, to increase its contingent liability related to these arrangements. During the nine months ended September 30, 2016 and 2015, the Company recorded expense of $10.0 million and $1.7 million, respectively, to increase its contingent liability related to these arrangements.

For the three and nine months ended September 30, 2016, the Company's fair value adjustment to the contingent consideration liability includes an adjustment of $1.3 million and $9.4 million, respectively, of expense to increase the liability relating to the Eyelevel acquisition due to strong financial performance in recent periods and an improvement in forecasted results. This improved performance was primarily driven by significant expansion within Eyelevel's existing customer base during 2016. As a result of this growth and the increase in forecast, the probability of Eyelevel achieving the target threshold for the final earnout measurement period increased from less than probable to highly probable as of June 30, 2016, and further increased in probability as of September 30, 2016. These probability changes were the primary drivers of the increases in the fair value of the contingent consideration liability in these periods. The large year-to-date increase in fair value resulting from these probability changes also takes in to account the acquisition agreement's earnout payment structure for the final measurement period, which begins funding at $12.0 million based on cumulative EBITDA of $30.0 million but pays nothing below that threshold and up to a maximum payout of $24 million if cumulative EBITDA of $40.0 million is achieved. This increase to the contingent consideration liability for Eyelevel was partially offset by decreases in the fair value of other earnout agreements of $0.5 million and $0.6 million for the three and nine months ended September 30, 2016, respectively.

As of September 30, 2016, the potential maximum contingent payments, excluding the amounts recorded in Due to seller which are currently payable, would be due as follows if all performance measures are achieved (in thousands): 

	Maximum Potential Payment		Fair Value of Liability
2016	$	—	$	—
2017	69,490		19,320
	$	69,490	$	19,320

If the performance measures required by the applicable purchase agreements are not achieved, the Company may pay less than the maximum amounts presented in the table above, depending on the terms of the agreement. While the maximum potential payments shown in the table are $69.5 million, the Company estimates that the fair value of the payments that will be made is $19.3 million based on expected performance and the result in payouts.