Fair Value Measurements

6 Months Ended

Jun. 30, 2019

Fair Value Measurements

Fair Value Measurements

10. Fair Value Measurements

Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering assumptions, the Company follows a three-tier fair value hierarchy, which is described in detail in the 2018 Annual Report on Form 10-K.

A summary of the Company’s liabilities measured at fair value on a recurring basis as of June 30, 2019 and December 31, 2018 is as follows (in thousands):

	As of June 30, 2019								As of December 31, 2018
	Fair Value		Level 1		Level 2		Level 3		Fair Value		Level 1		Level 2		Level 3
Liabilities
Contingent consideration	$	5,415	$	—	$	—	$	5,415	$	5,070	$	—	$	—	$	5,070

The Company is required to pay additional purchase consideration totaling eight percent of gross receipts collected by Motto each year (the “Revenue Share Year”) through September 30, 2026, with no limitation as to the maximum payout. The fair value of the contingent purchase consideration represents the forecasted discounted cash payments that the Company expects to pay. Increases or decreases in the fair value of the contingent purchase consideration can result from changes in discount rates as well as the timing and amount of forecasted revenues. The forecasted revenue growth assumption that is most sensitive is the assumed franchise sales count for which the forecast assumes between 50 and 80 franchises sold annually. This assumption is based on historical sales and an assumption of growth over time. A 10% reduction in the number of franchise sales would decrease the liability by $0.3 million. A 1% change to the discount rate applied to the forecast would change the liability by approximately $0.3 million. The Company measures this liability each reporting period and recognizes changes in fair value, if any, in “Selling, operating and administrative expenses” in the accompanying Condensed Consolidated Statements of Income.

The table below presents a reconciliation of this liability for the period from January 1, 2019 to June 30, 2019 (in thousands):

Balance at January 1, 2019	$	5,070
Fair value adjustments		345
Balance at June 30, 2019	$	5,415

The following table summarizes the carrying value and fair value of the Senior Secured Credit Facility as of June 30, 2019 and December 31, 2018 (in thousands):

	June 30,				December 31,
	2019				2018
	Carrying Amount		Fair Value Level 2		Carrying Amount		Fair Value Level 2
Senior Secured Credit Facility	$	226,233	$	227,395	$	227,152	$	221,673