AdvisorEngine Inc. - Financial Interests

3 Months Ended

Mar. 31, 2020

AdvisorEngine Inc. – Financial Interests

16. Variable Interest Entities

VIEs are entities with any of the following characteristics: (i) the entity does not have enough equity to finance its activities without additional financial support; (ii) the equity holders, as a group, lack the characteristics of a controlling financial interest; or (iii) the entity is structured with non-substantive voting rights.

Consolidation of a VIE is required for the party deemed to be the primary beneficiary, if any. The primary beneficiary is the party who has both (a) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and (b) an obligation to absorb losses of the entity or a right to receive benefits from the entity that could potentially be significant to the entity. The Company is not the primary beneficiary of any entities in which it has a variable interest as it does not have the power to direct the activities that most significantly impact the entities’ economic performance. Such power is conveyed through the entities’ boards of directors and the Company does not have control over the boards.

The following table presents information about the Company’s variable interests in non-consolidated VIEs:

	March 31, 2020		December 31, 2019
Carrying Amount – Assets (Securrency)
Preferred stock (Note 9)	$	8,112	$	8,112
Carrying Amount – Assets (AdvisorEngine)
Unsecured convertible notes receivable	$	—	$	2,126
Unsecured non-convertible note receivable		8,500		26,046
Preferred stock		—		—
Total carrying amount (Note 7)	$	8,500	$	28,172
Total carrying amount – Assets	$	8,500	$	36,284
Maximum exposure to loss	$	16,612	$	36,284

Advisor Engine [Member]

AdvisorEngine Inc. – Financial Interests

7. AdvisorEngine, Inc. – Financial Interests

The following table sets forth the Company’s financial interests in AdvisorEngine, Inc. (“AdvisorEngine”):

	March 31, 2020					December 31, 2019
	Amortized Cost, plus Accrued Interest		Net Carrying Value			Amortized Cost, plus Accrued Interest		Net Carrying Value
Unsecured convertible note (Note 8)	$	2,126	$	—		$	2,126	$	2,126
Unsecured non-convertible note (Note 8)		31,184		8,500			31,184		26,046
Preferred stock (Note 9)		25,000		—			25,000		—
Total(1)	$	58,310	$	8,500	(1)	$	58,310	$	28,172	(1)

(1) Net of an impairment of $49,810 and $30,138 in the aggregate at March 31, 2020 and December 31, 2019, respectively.

On May 4, 2020, the Company closed a transaction to exit from its investment in AdvisorEngine. The fair value of consideration payable to the Company was estimated to be $8,500. Consideration payable to the Company also includes contingent payments totaling $11,500 which will be payable only upon AdvisorEngine achieving certain revenue milestones during the first through fourth anniversaries of such exit. The fair value of the contingent payments was determined to be insignificant and were measured using a Monte-Carlo simulation whereby forecasted revenues assumed during the first, second, third and fourth years were simulated forward in a risk-neutral framework to determine whether the revenues would exceed the pre-defined revenue targets. 

The table below presents the range and weighted averages of significant unobservable inputs utilized in the Monte-Carlo simulation (classified as Level 3 in the fair value hierarchy):

Unobservable Inputs	March 31, 2020
Forecasted revenue simulated forward as a percentage of the pre-defined revenue targets	34% – 71% (47% weighted average)
Revenue volatility	25%

The weighted-average forecasted revenue simulated forward as a percentage of the pre-defined revenue targets represents the arithmetic average of the percentages for each of the four years. An increase in the forecasted revenue percentages and revenue volatility input would result in a higher fair value.

During the three months ended March 31, 2020, the Company recognized an impairment of $19,672 to adjust the carrying value of its financial interests in AdvisorEngine to fair value. Fair value was allocated to the unsecured non-convertible note at March 31, 2020.