Fair Value Measurements

3 Months Ended

Mar. 31, 2017

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

The following table presents our assets and liabilities measured at fair value on a recurring basis (in thousands):

	Fair Value Measurements on a Recurring Basis as of March 31, 2017
Fair Value Measurements in:	Level 1		Level 2		Level 3		Total
Assets:
Money market account	$	50,484	$	—	$	—	$	50,484
Total	$	50,484	$	—	$	—	$	50,484
Liabilities:
Subsidiary unit awards	$	—	$	—	$	2,978	$	2,978
Contingent consideration liability from acquisition	—		—		—		—
Total	$	—	$	—	$	2,978	$	2,978

	Fair Value Measurements on a Recurring Basis as of December 31, 2016
Fair value measurements in:	Level 1		Level 2		Level 3		Total
Assets:
Money market account	$	135,204	$	—	$	—	$	135,204
Total	$	135,204	$	—	$	—	$	135,204
Liabilities:
Subsidiary unit awards	$	—	$	—	$	2,768	$	2,768
Contingent consideration liability from acquisition	—		—		—		—
Total	$	—	$	—	$	2,768	$	2,768

The following table summarizes the change in fair value of the Level 3 liabilities for subsidiary unit awards and contingent consideration liability from acquisition (in thousands):

	Fair Value Measurements Using Significant Unobservable Inputs
	Three Months Ended   March 31, 2017				Three Months Ended   March 31, 2016
	Subsidiary unit awards		Contingent consideration liability from acquisition		Subsidiary unit awards		Contingent consideration liability from acquisition
Beginning of period balance	$	2,768	$	—	$	532	$	230
Total (gains) losses included in earnings	210		—		18		(60		)
Ending of period balance	$	2,978	$	—	$	550	$	170

The money market account is included in our cash and cash equivalents in our condensed consolidated balance sheets. Our money market assets are valued using quoted prices in active markets.

The liability for the subsidiary unit awards relates to agreements established with two employees of our subsidiaries for cash awards contingent upon the subsidiary companies meeting certain financial milestones such as revenue, working capital, EBITDA and EBITDA margin. We account for these subsidiary awards using fair value and establish liabilities for the future payment for the repurchase of subsidiary units under the terms of the agreements based on estimating revenue, working capital, EBITDA and EBITDA margin of the subsidiary units over the periods of the two awards through the anticipated repurchase dates. We estimated the fair value of each liability by using a Monte Carlo simulation model for determining each of the projected measures by using an expected distribution of potential outcomes. The fair value of each liability is calculated with thousands of projected outcomes, the results of which are averaged and then discounted to estimate the present value. At each reporting date until the respective payment dates, we will remeasure these liabilities, using the same valuation approach based on the applicable subsidiary's revenue, an unobservable input, and we will record any changes in the employee's compensation expense. One of the awards is subject to the employee's continued employment and therefore recorded on a straight-line basis over the remaining service period. The liability balances are included in either accounts payable, accrued expenses and other current liabilities or other liabilities in our condensed consolidated balance sheets (see Note 11).

The amount of contingent consideration liability to be paid, up to a maximum of $2.0 million, from our acquisition of SecurityTrax in the first quarter of 2015, will be determined based on revenue and adjusted EBITDA for the year ended December 31, 2017. We estimated the fair value of the contingent consideration liability by using a Monte Carlo simulation model for determining projected revenue by using an expected distribution of potential outcomes. The fair value of contingent consideration liability is calculated with thousands of projected revenue outcomes, the results of which are averaged and then discounted to estimate the present value. At each reporting date until payment in first quarter of 2018, we will remeasure the contingent consideration liability, using the same valuation approach based on our subsidiary’s revenue, an unobservable input, and we will record any changes in general and administrative expense. The contingent consideration liability balance is included in our other liabilities in our condensed consolidated balance sheets (see Note 5).

We monitor the availability of observable market data to assess the appropriate classification of financial instruments within the fair value hierarchy. Changes in economic conditions or model-based valuation techniques may require the transfer of financial instruments from one fair value level to another. In such instances, the transfer is reported at the beginning of the reporting period. There were no transfers between Levels 1, 2 or 3 during the three months ended March 31, 2017 and 2016. We also monitor the value of the investments for other than temporary impairment on a quarterly basis. No other-than-temporary impairments occurred during the three months ended March 31, 2017 and 2016.