Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements Fair Value Measurements

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Fair Value Measurements Fair Value Measurements
6 Months Ended
Jun. 30, 2015
Fair Value Disclosures [Abstract]  
Fair Value Measurements
Fair Value Measurements
The Company records certain financial liabilities at fair value on a recurring basis. The Company determines fair values based on the price it would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability.
The prescribed fair value hierarchy and related valuation methodologies are as follows:
Level 1 - Inputs are quoted prices in active markets for identical assets or liabilities.
Level 2 - Inputs are quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable and market-corroborated inputs which are derived principally from or corroborated by observable market data.
Level 3 - Inputs are derived from valuation techniques in which one or more of the significant inputs or value drivers are unobservable.
The categorization of an asset or liability within the fair value hierarchy is based on the inputs described above and does not necessarily correspond to the Company’s perceived risk of that asset or liability. Moreover, the methods used by the Company may produce a fair value calculation that is not indicative of the net realizable value or reflective of future fair values. Furthermore, although the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments and non-financial assets and liabilities could result in a different fair value measurement at the reporting date.
Assets and liabilities measured at fair value on a recurring basis:
Contingent consideration obligations
The fair value of contingent consideration obligations is estimated using a probability weighted discount model which considers the achievement of the conditions upon which the respective contingent obligation is dependent. The probability of achieving the specified conditions is assessed by applying a Monte Carlo weighted-average model. Inputs into the valuation model include a discount rate specific to the acquired entity, a measure of the estimated volatility and the risk free rate of return. There were no changes in our valuation methodology during the periods ended June 30, 2015 and December 31, 2014.
Significant unobservable inputs used in the contingent consideration fair value measurements included the following at June 30, 2015 and December 31, 2014:
 
 
June 30, 2015
 
December 31, 2014
Discount rates
 
15.8 - 60.5%
 
22.5 - 64.0%
Volatility rates
 
35.0 - 54.0%
 
45.0 - 48.0%
Risk free rate of return
 
0.1% - 0.2%
 
0.1% - 0.2%

In addition to the inputs described above, the fair value estimates consider the projected future operating or financial results for the factor upon which the respective contingent obligation is dependent. The fair value estimates are generally sensitive to changes in these projections. We develop the projected future operating results based on an analysis of historical results, market conditions and the expected impact of anticipated changes in our overall business and/or product strategies.
The following table discloses the liabilities measured at fair value on a recurring basis as of June 30, 2015 and December 31, 2014:
 
Fair value at June 30, 2015
(in thousands)
 
Total
 
Level 1
 
Level 2
 
Level 3
Contingent consideration related to the acquisition of:
 
 
 
 
 
 
 
Active Building
$
463

 
$

 
$

 
$
463

MyBuilding
74

 

 

 
74

InstaManager
3,336

 

 

 
3,336

     VMM

 

 

 

Indatus
1,168

 

 

 
1,168

VRX
491

 

 

 
491

 
$
5,532

 
$

 
$

 
$
5,532

 
Fair value at December 31, 2014
(in thousands)
 
Total
 
Level 1
 
Level 2
 
Level 3
Contingent consideration related to the acquisition of:
 
 
 
 
 
 
 
Active Building
$
1,566

 
$

 
$

 
$
1,566

MyBuilding
248

 

 

 
248

InstaManager
2,335

 

 

 
2,335

     VMM
1

 

 

 
1

 
$
4,150

 
$

 
$

 
$
4,150


There were no assets measured at fair value on a recurring basis at June 30, 2015 or December 31, 2014.
The following table summarizes the changes in the fair value of our Level 3 liabilities for the six months ended June 30, 2015 and 2014:
 
Six Months Ended June 30,
 
2015
 
2014
 
(in thousands)
Balance at beginning of period
$
4,150

 
$
1,827

Initial contingent consideration
1,659

 
2,939

Settlements through cash payments
(687
)
 

Net loss (gain) on change in fair value
410

 
(73
)
Balance at end of period
$
5,532

 
$
4,693


Net gains or losses on the change in the fair value of the contingent consideration obligations are included in the "General and administrative" line in the accompanying Condensed Consolidated Statements of Operations.
Assets and liabilities measured at fair value on a non-recurring basis:
There were no assets or liabilities measured at fair value on a non-recurring basis as of June 30, 2015 and December 31, 2014.
Due to a change in circumstance, the Company assessed the InstaManager trade name for impairment during the period ended March 31, 2015. The impairment analysis included comparing the estimated fair value of the trade name to its carrying value. We used a discounted cash flow model to estimate the fair value of the trade name. Cash flows were estimated by applying a royalty rate to the estimated future revenues generated by the InstaManager trade name. Significant unobservable inputs used in deriving the fair value include the royalty rate applied to the projected revenue stream and the discount rate used to determine the present value of the estimated future cash flows. Through the application of this model, we concluded the fair value of the trade name was zero at March 31, 2015 and recognized an impairment charge in income. The analysis resulted in the recognition of an impairment charge in the amount of $0.5 million during the first quarter of 2015. See Note 5 for further discussion of the impairment. We believe that the methods and assumptions used to determine the fair value of the trade name were reasonable. Based on the significant unobservable inputs required, we concluded that the estimate should be classified as a Level 3 measurement.