Fair Value Measurements

The Company measures its cash equivalents at fair value based on an expected exit price as defined by the authoritative guidance on fair value measurements, which represents the amount that would be received on the sale of an asset or paid to transfer a liability, as the case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level. The following are the hierarchical levels of inputs to measure fair value:


•	Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.


•	Level 2: Inputs reflect: quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.


•	Level 3: Unobservable inputs reflecting the Company’s assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.

Financial Assets and Liabilities

The Company’s assets and liabilities that are measured at fair value on a recurring basis, by level, within the fair value hierarchy as of September 30, 2015 and December 31, 2014, are summarized as follows (amounts in thousands). The Company’s restricted cash balance of $5.4 million at September 30, 2015 is not held in a money market account and is not included in the following table.



	September 30, 2015								December 31, 2014
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	4,321	$	—	$	—	$	4,321	$	3,987	$	—	$	—	$	3,987
Foreign currency derivative contracts	—		39		—		39		—		—		—		—
Total assets	$	4,321	$	39	$	—	$	4,360	$	3,987	$	—	$	—	$	3,987

Liabilities:
Contingent earn-outs	$	—	$	—	$	782	$	782	$	—	$	—	$	6,940	$	6,940
Total liabilities	$	—	$	—	$	782	$	782	$	—	$	—	$	6,940	$	6,940

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value. Observable or market inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s assumptions based on the best information available.

The Company’s only asset that is measured at fair value on a recurring basis is money market funds, based on quoted market prices in active markets and therefore classified as level 1 within the fair value hierarchy. The Company’s contingent earn-out liability and foreign currency derivative contract liability are measured at fair value on a recurring basis and are classified as level 3 and level 2, respectively, within the fair value hierarchy. On a nonrecurring basis, the Company uses fair value measures when analyzing asset impairment. Long-lived tangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If it is determined such indicators are present and the review indicates that the assets will not be fully recoverable, based on undiscounted estimated cash flows over the remaining amortization periods, their carrying values are reduced to estimated fair value. The Company uses an income approach and inputs that constitute level 3. During the third quarter of each year, the Company evaluates goodwill for impairment at the reporting unit level. The Company uses a combination of discounted cash flows and other qualitative factors in accordance with ASU No. 2011-08 to determine whether it is “more likely than not” that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. This measurement is classified based on level 3 input.

The contingent earn-out in connection with the acquisition of Engage was $0.9 million as of December 31, 2014 and was recorded in accrued expenses in the condensed consolidated balance sheets. The contingent earn-out balance was increased by $1.8 million in June 2014 in connection with the acquisition of Synchronite and $4.2 million in November 2014 in connection with the acquisition of CAO!. During the three months ended September 30, 2015, the contingent-earnout decreased by $3.5 million in connection with the acquisition of CAO! due to both re-measurement to fair value of $3.2 million and cash payments of $0.3 million. During the nine months ended September 30, 2015, the contingent-earnout decreased by $0.9 million in connection with the Engage acquisition and by $1.7 million in connection with the acquisition of Synchronite due to both re-measurement to fair value and cash payments. The contingent earn-out amounts are recorded in accrued expense on the condensed consolidated balance sheets as they are payable in 2015. The contingent earn-out relating to Engage was based on the potential earn-out consideration if certain revenue targets are achieved. There was no remaining contingent earn-out in connection with the acquisition of Engage as of September 30, 2015. The contingent earn-out relating to Synchronite is based on the fulfillment of a complete product integration and a minimum number of “Co-Browse” interactions per month. The contingent earn-out relating to CAO! is based on achieving certain target strategic and integration objectives and milestones.

The changes in fair value of the Level 3 liabilities are as follows (amounts in thousands):



	Contingent Earn-Out
	September 30, 2015			December 31, 2014
Balance, Beginning of Period	$	6,940		$	1,660
Synchronite addition (see Note 8)	—			1,810
CAO! addition (see Note 8)	—			4,220
Cash payments	(2,366		)	(750		)
Changes in fair value	(3,792		)	—
Balance, End of Period	$	782		$	6,940

Derivative Financial Instruments

The Company is exposed to foreign exchange risks that in part are managed by using derivative financial instruments. Beginning January 2015, the Company entered into foreign currency forward contracts related to risks associated with foreign operations. The Company does not use derivatives for trading purposes and at September 30, 2015 has no derivatives that are designated as fair value hedges. Derivatives are recorded at their estimated fair values based upon Level 2 inputs. Derivatives designated and effective as cash flow hedges are reported as a component of other comprehensive income and reclassified to earnings in the same periods in which the hedged transactions impact earnings. Gains and losses related to derivatives not meeting the requirements of hedge accounting and the portion of derivatives related to hedge ineffectiveness are recognized in current earnings.

In accordance with the foreign currency forward contracts, the Company was required to pledge cash as collateral security to be maintained at the bank. The collateral shall remain in control of the lender, and these funds can be used to satisfy the outstanding obligation. Accordingly, the Company had cash at the bank of approximately $5.4 million at September 30, 2015 and is recorded as cash held as collateral in current assets.

The following summarizes certain information regarding the Company’s outstanding foreign currency derivative contracts related primarily to intercompany receivables and payables for the periods presented (in thousands):



	As of September 30, 2015		As of December 31, 2014
Notional amount of foreign currency derivative contracts	$	38,351	$	—
Fair value of foreign currency derivatives contracts	$	39	$	—

The fair value of the Company’s derivative instruments is summarized below (in thousands):



		Fair Value of Derivative Instruments
	Balance Sheet Location	As of September 30, 2015		As of December 31, 2014
Derivative Assets
Derivatives not designated as hedging instruments:
Foreign currency derivatives contracts	Prepaid expenses and other current assets	$	39	$	—

The following summarizes certain information regarding the Company’s derivatives that are not designated or are not effective as hedges (in thousands):



	Gain (losses) on Derivative Instruments Recognized in Income Statement
		Three Months Ended September 30,				Nine Months Ended September 30,
	Location	2015		2014		2015		2014
Foreign currency derivatives contracts	Other income	$	150	$	—	$	324	$	—