FAIR VALUE MEASUREMENTS

12 Months Ended

Dec. 31, 2014

As required by the guidance for fair value measurements, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Thus, assets and liabilities categorized as Level 3 may be measured at fair value using inputs that are observable (Levels 1 and 2) and unobservable (Level 3). Significant unobservable inputs used in the fair value measurement of contingent consideration related to business acquisitions are forecasts of expected future operating results of those businesses as developed by the Company’s management and the probability of achievement of those operating forecasts. Management’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of assets and liabilities and their placement within the fair value hierarchy levels.

The following table represents the Company’s fair value hierarchy for its financial assets as of December 31, 2014 and 2013.



	As of December 2014
	Balance		Level 1		Level 2		Level 3
Cash and cash equivalents	$	220,534	$	220,534	$	—	$	—
Time deposits and restricted cash	156		—		156		—
Employee loans	6,515		—		—		6,515
Total assets measured at fair value on recurring basis	$	227,205	$	220,534	$	156	$	6,515



	As of December 2013
	Balance		Level 1		Level 2		Level 3
Cash and cash equivalents	$	169,207	$	169,207	$	—	$	—
Time deposits and restricted cash	1,711		—		1,711		—
Employee loans	6,390		—		—		6,390
Total assets measured at fair value on recurring basis	$	177,308	$	169,207	$	1,711	$	6,390

During the years ended December 31, 2014 and 2013, the Company issued a total of $3,162 and $8,963 of loans to its employees, respectively, and received $3,025 and $3,088 in loan repayments during the same periods, respectively.

During the years ended December 31, 2014 and 2013, there were no transfers amongst Level 1, Level 2, or Level 3 financial assets and liabilities.

The following tables show the fair values of the Company’s financial liabilities measured at fair value on a recurring basis:



	As of December 31, 2014
	Balance		Level 3
Contingent consideration	$	37,400	$	37,400
Performance-based equity awards	3,223		3,223
Total liabilities measured at fair value on a recurring basis	$	40,623	$	40,623

There were no liabilities measured at fair value on a recurring basis as of December 31, 2013.

As of December 31, 2014, contingent consideration and performance-based equity awards included amounts payable in cash and stock in connection with the acquisitions of businesses completed in the year ended December 31, 2014 (Note 2).

Sensitivity to Changes in Significant Unobservable Inputs

The fair value of the contingent consideration is based on the present value of the expected future payments to be made to the sellers of the acquired businesses in accordance with the provisions outlined in the respective purchase agreements. In determining fair value, the Company considered a variety of factors, including third party valuation experts and future performance of the acquired businesses using financial projections developed by the Company and market risk assumptions that were derived for revenue growth and/or earnings before interest, tax, and depreciation and amortization (“EBITDA”). The Company estimated future payments using the earnout formula and performance targets specified in each purchase agreement and adjusted those estimates to reflect the ability of the acquired entities to achieve the targets. It then discounted the payments to present value using the Company’s cost of debt for the cash component, and a risk-free rate for the stock component of the earnout for all of the Company’s 2014 acquisitions. Changes in financial projections, market risk assumptions for revenue growth and/or EBITDA, or the discount rates, would result in a change in the fair value of recorded contingent liabilities. In addition, inputs used in the valuation of the stock component of the earnout include term, stock price volatility, current stock price, and exercise price, with the Company current stock price factor being the input subject to the most variation. A significant increase in the Company stock price, in isolation, would result in a significantly higher fair value measurement. As the Company’s common stock does not have sufficient trading history, volatility was determined by measuring the volatility of a representative group of its peers, in conjunction with the volatility of the Company’s available trading history.

A reconciliation of the beginning and ending balances of acquisition-related contractual contingent liabilities using significant unobservable inputs (Level 3) for the year ended December 31, 2014 , was as follows:



	Amount
Contractual contingent liabilities at January 1, 2014	$	—
Acquisition date fair value of contractual contingent liabilities — Netsoft	1,825
Acquisition date fair value of contractual contingent liabilities — Jointech	20,000
Acquisition date fair value of contractual contingent liabilities — GGA	11,400
Acquisition date fair value of contractual contingent liabilities — Great Fridays	1,173
Liability-classified stock-based awards	3,088
Changes in fair value of contractual contingent liabilities included in earnings	2,059
Changes in fair value of contractual contingent liabilities recorded against goodwill	1,366
Effect of net foreign currency exchange rate changes	(288		)
Contractual contingent liabilities at December 31, 2014	$	40,623

There were no transfers in or out of Level 3 from other levels in the fair value hierarchy during the years ended December 31, 2014 and 2013. Changes in the values of the financial liabilities, if any, are recorded within other expense (income) in operating income on the Company’s consolidated statements of income and comprehensive income.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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