Quarterly report pursuant to Section 13 or 15(d)

The Acquisition of Prestige

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The Acquisition of Prestige
 3 Months Ended
Mar. 31, 2015
Business Combinations [Abstract]  
The Acquisition of Prestige
3. The Acquisition of Prestige

 

On November 19, 2014, we completed the Acquisition of Prestige. Consideration for the Acquisition of Prestige includes a cash payment of up to $50 million upon achievement of certain 2015 revenue milestones. The contingent consideration is valued using various projected 2015 revenue scenarios weighted by the likelihood of each scenario occurring. The probability-weighted payout is then discounted at an appropriate discount rate commensurate for the risk of meeting the probabilistic cash flows. As the fair value is measured based upon significant inputs that are unobservable in the market, it was classified as Level 3 in the fair value hierarchy. Level 3 consists of significant unobservable inputs we believe market participants would use in pricing the asset or liability based on the best information available. The significant unobservable inputs used in the fair value measurement of the Company’s contingent consideration are the estimated annual Net Revenue and the probabilities associated with attaining the threshold and target Net Revenue as defined by the Agreement and Plan of Merger. A significant increase in the estimated Net Revenue or an increase in the probability associated with reaching the target would result in a significantly higher fair value measurement, with the maximum fair value not able to exceed $50 million. The $9.1 million fair value adjustment recognized in the three months ended March 31, 2015 is included in marketing, general and administrative expense.

 

The following table summarizes the change in fair value of the contingent consideration liability (in thousands):

Contingent
Consideration Liability
Balance as of December 31, 2014 $ 43,400
Fair value adjustment (Level 3) (9,100 )
Balance as of March 31, 2015 $ 34,300