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Commitments and Contingencies
 12 Months Ended
Dec. 31, 2021
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies
Note 10: Commitments and Contingencies
Purchase commitments
Our purchase commitments primarily consist of outsourced information technology and marketing services, commitments to our portfolio management tool vendor, commitments to our clearing firm provider, and commitments for financial professional support programs. As of December 31, 2021, our purchase commitments for the next five years and thereafter were as follows (in thousands):
2022$33,855 
202311,158 
20248,125 
20255,241 
20264,575 
Thereafter3,394 
Total purchase commitments$66,348 
Liability from 1st Global Acquisition
On May 6, 2019, we closed the 1st Global Acquisition. As part of the 1st Global Acquisition, we assumed a contingent liability related to a regulatory inquiry by the SEC. This contingent liability was recorded as part of the opening balance sheet when the acquisition was closed. As of December 31, 2020, an $11.3 million reserve (including accrued interest) was included within “Accrued expenses and other current liabilities” of the consolidated balance sheets. In the second quarter of 2021, we re-evaluated the range of probable losses as a result of our on-going discussions with the SEC and recorded a $5.5 million increase to the reserve. This increase to the reserve was recognized in “Acquisition and integration” expense on the accompanying consolidated statements of comprehensive income (loss).
In December 2021, 1st Global (which is now known as Avantax Investment Services, Inc.) consented to a settlement with the SEC, which resulted in us (without admitting or denying the findings set forth in the SEC’s Order) agreeing to pay disgorgement, interest and a penalty in the total amount of $16.9 million. The total $16.9 million reserve was settled in cash prior to December 31, 2021.
As part of the 1st Global Acquisition, we purchased representation and warranty insurance from a third party to supplement the indemnification provisions of the stock purchase agreement, dated as of March 18, 2019, by and among 1G Acquisitions, LLC, an indirect wholly owned subsidiary of the Company, 1st Global, Inc. and 1st Global Insurance Services, Inc., certain selling stockholders named therein and joinder sellers (the “1st Global Sellers”) and SAB Representative, LLC, as the Sellers’ representative, pursuant to which, the 1st Global Sellers agreed, among other things, to indemnify us from certain losses arising from breaches of representation, warranties, and covenants. At this time, we cannot yet estimate with reasonable probability the recovery related to these matters from insurance or the 1st Global Sellers, if any.
HKFS Contingent Consideration liability
On July 1, 2020, we closed the acquisition of Avantax Planning Partners, formerly “HKFS”, for an upfront cash purchase price of $104.4 million. The purchase price was subject to variable contingent consideration, or earn-out payments (the “HKFS Contingent Consideration”) totaling a maximum of $60.0 million.
The HKFS Contingent Consideration to be paid is determined based on advisory asset levels and the achievement of certain performance goals (i) for the period beginning July 1, 2020 and ending June 30, 2021 and (ii) for the period beginning July 1, 2021 and ending June 30, 2022. Pursuant to the Stock Purchase Agreement, dated as of January 6, 2020, by and among the Company, HKFS, the selling stockholders named therein (the “Sellers”), and JRD Seller Representative, LLC, as the Sellers’ representative (as amended on April 7, 2020, June 30, 2020, and June 29, 2021) (the “HKFS Purchase Agreement”), the maximum aggregate amount that we would be required to pay for each earn-out period is $30.0 million. If the asset market values on the applicable measurement date fall below certain specified thresholds, no payment of consideration is owed to the Sellers for such period.
Based on advisory asset levels and the achievement of performance goals for the first earn-out period specified in the HKFS Purchase Agreement, we paid the full $30.0 million to the sellers in the third quarter of 2021. The estimated fair value of the HKFS Contingent Consideration liability for the second earn-out period was $28.3 million as of December 31, 2021, and is included in “Accrued expenses and other current liabilities” on the consolidated balance sheets.
Litigation
From time to time, we are subject to various legal proceedings, regulatory matters or fines, or claims that arise in the ordinary course of business. We accrue a liability when management believes that it is both probable that a liability has been incurred and the amount of loss can be reasonably estimated. Although we believe that resolving such claims, individually or in aggregate, will not have a material adverse impact on our financial statements, these matters are subject to inherent uncertainties.
Aside from the contingent liability related to the HKFS Contingent Consideration, we are not currently a party to any such matters for which we have recognized a material liability on our consolidated balance sheet as of December 31, 2021.
We have entered into indemnification agreements in the ordinary course of business with our officers and directors. Pursuant to these agreements, we may be obligated to advance payment of legal fees and costs incurred by the defendants pursuant to our obligations under these indemnification agreements and applicable Delaware law.