NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1 — Description of Business, Basis of Presentation and Summary of Significant Accounting Policies
Description of Business
The Meet Group, Inc. (“Company,” or “The Meet Group”) is a leading provider of interactive live-streaming solutions. The Company leverages a powerful live video platform (“Live”), empowering its global community to forge meaningful connections. The Company’s primary applications (“apps”) are MeetMe®, Skout®, Tagged®, LOVOO® and Growlr®.
The Company operates location-based social networks for meeting new people — primarily on mobile platforms, including on iPhone, Android, iPad and other tablets — that facilitate interactions among users and encourage users to connect, communicate and engage with each other.
The Company also offers online marketing capabilities, which enable marketers to display their advertisements on its apps.
Basis of Presentation
The Company’s consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The consolidated financial statements include the accounts of all subsidiaries and affiliates in which the Company holds a controlling financial interest as of the date of the consolidated financial statements.
The consolidated financial statements include the accounts of The Meet Group and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
Unaudited Interim Financial Information
The unaudited consolidated financial statements have been prepared by the Company and reflect all normal, recurring adjustments that, in the opinion of management, are necessary for a fair presentation of the interim financial information. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for any subsequent quarter or for the year ending December 31, 2020. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted under the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). These unaudited consolidated financial statements and notes included herein should be read in conjunction with the audited consolidated financial statements and notes included therein in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, which was filed with the SEC on March 12, 2020.
Merger Agreement
On March 5, 2020, the Company entered into a definitive agreement to be acquired by ProSiebenSat.1 Media SE’s and General Atlantic Coöperatief U.A.’s joint company, NCG – NUCOM GROUP SE, a European stock corporation (“NuCom”), through eHarmony Holding, Inc., a subsidiary of NuCom’s platform company Parship Group GmbH (“Buyer”). Pursuant to the Agreement and Plan of Merger (“Merger Agreement”), by and among the Company, Buyer, Holly Merger Sub, Inc., a Delaware corporation and a direct, wholly-owned subsidiary of Buyer (“Merger Sub”), and NuCom, solely for the purpose of guaranteeing Buyer’s obligations under the Merger Agreement, Merger Sub shall merge with and into the Company (“Merger”). As a result of the Merger, the separate corporate existence of Merger Sub shall cease, the Company shall continue as the surviving corporation in the Merger (“Surviving Corporation”) and the Surviving Corporation shall become a wholly-owned subsidiary of Buyer. The Company recorded $3.1 million of acquisition, restructuring and other expenses related to the Merger Agreement during the three months ended March 31, 2020.
The Company expects the Merger to close in the second half of 2020, subject to the satisfaction of all closing conditions.
Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions are required in the determination of business combinations and contingent consideration arrangements, income taxes, the valuation of long-lived assets, including property and equipment, definite-lived intangible assets and goodwill and accounting for contingencies. Some of these judgments can be subjective and complex, and, consequently, actual results may differ from these estimates. The Company’s estimates are often based on complex judgments, probabilities and assumptions that it believes are reasonable but are inherently uncertain and unpredictable. For any given individual estimate or assumption made by the Company, there may also be other estimates or assumptions that are reasonable.
The Company regularly evaluates its estimates and assumptions using historical experience and other factors, including the economic environment. As future events and their effects cannot be determined with precision, the Company’s estimates and assumptions may prove to be incomplete or inaccurate, or unanticipated events and circumstances may occur that might cause it to change those estimates and assumptions. Market conditions, such as illiquid credit markets, volatile equity markets, dramatic fluctuations in foreign currency rates and economic downturn, can increase the uncertainty already inherent in its estimates and assumptions. The Company adjusts its estimates and assumptions when facts and circumstances indicate the need for change. Those changes generally will be reflected in the Company’s consolidated financial statements on a prospective basis unless they are required to be treated retrospectively under the relevant accounting standard. It is possible that other professionals, applying reasonable judgment to the same facts and circumstances, could develop and support a range of alternative estimated amounts. The Company is also subject to other risks and uncertainties that may cause actual results to differ from estimated amounts, such as changes in competition, litigation, legislation and regulations.
Recently-issued Accounting Standards
Recently-adopted Accounting Standards
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU No. 2016-13”), which requires the measurement and recognition of expected credit losses for certain financial assets, including trade accounts receivable. ASU No. 2016-13 replaces the existing incurred loss impairment model with an expected loss model that requires the use of relevant information, including an entity’s historical experience, current conditions and other reasonable and supportable forecasts that affect collectability over the life of a financial asset. The amendments in ASU No. 2016-13 are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption was permitted.
The Company adopted ASU No. 2016-13 on January 1, 2020, which resulted in an increase of $0.2 million to its allowance for credit losses that was recognized as a cumulative effect adjustment to its accumulated deficit under a modified retrospective transition method. The new standard did not materially impact the Company’s results of operations or cash flows.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement (“ASU No. 2018-13”). This standard removes, modifies and makes certain additions to the disclosure requirements for fair value measurement. The amendments in ASU No. 2018-13 are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption was permitted. The Company adopted ASU No. 2018-13 on January 1, 2020, and it did not have a material impact to its consolidated financial statement disclosures.
Accounting Standards Issued and Not Yet Adopted
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU No. 2019-12”). This standard simplifies the accounting for income taxes by removing certain exceptions to the general principles in Accounting Standards Codification Topic 740, Income Taxes, and clarifies and amends certain existing guidance. The amendments in ASU No. 2019-12 are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of this new standard will have on its financial position, results of operations and cash flows.
Impact of the 2019 Novel Coronavirus
The Company is closely monitoring the impact of the 2019 novel coronavirus (“COVID-19”) on all aspects of its business. COVID-19 was declared a global pandemic by the World Health Organization on March 11, 2020 and the U.S. President declared the COVID-19 outbreak a national emergency. While the COVID-19 pandemic has had minimal impact on the Company’s operations and financial results to date, the future impacts of the pandemic and any resulting economic impact are largely unknown and rapidly evolving. It is possible that the COVID-19 pandemic, the measures taken by the governments of countries affected and the resulting economic impact may negatively impact the Company’s results of operations, cash flows and financial position as well as its vendors, advertising partners and users.
Note 2 — Credit Risk and Allowance for Credit Losses
The Company is exposed to significant concentrations of credit risk for certain of its financial assets, including cash, cash equivalents and accounts receivable.
Cash and Cash Equivalents
Cash is carried on the Company’s consolidated balance sheets at amortized cost and consists primarily of U.S. dollars and euros held in insured depository accounts with major U.S. and international banks and financial institutions. The Company believes its risk of credit losses for cash is remote, and, accordingly, its allowance for credit losses was insignificant as of March 31, 2020 and December 31, 2019. As of March 31, 2020 and December 31, 2019, $25.4 million and $19.7 million of cash exceeded depository insurance limits, respectively.
The Company invests certain of its cash in cash equivalents that are high-quality, liquid money market funds maintained by major U.S. and international banks and financial institutions, and it does not have a history of any losses on its cash and/or cash equivalents. The Company’s cash equivalents are measured at fair value on its consolidated balance sheets using Level 1 inputs of the fair value hierarchy.
Accounts Receivable, Net
Accounts receivable are carried on the Company’s consolidated balance sheets at amortized cost, net of an allowance for expected credit losses. The Company extends credit in the normal course of business to both U.S. and international customers on a non-collateralized basis under payment terms that typically range from 30 to 120 days. Accounts receivable are written-off in the period that management determines they are uncollectible.
The following table sets forth the composition of accounts receivable, net as of March 31, 2020 and December 31, 2019:
|
|
|
|
|
|
|
|
|
(in thousands)
|
March 31, 2020
|
|
December 31, 2019
|
Accounts receivable
|
$
|
24,476
|
|
|
$
|
25,503
|
|
Less: Allowance for credit losses
|
(510
|
)
|
|
(269
|
)
|
Accounts receivable, net
|
$
|
23,966
|
|
|
$
|
25,234
|
|
The Company estimates an allowance for credit losses on its accounts receivable using historical information, current events and reasonable and supportable forecasts of future events. Such information includes, but is not limited to, the Company’s historical collections trends, its customers’ credit histories and other financial information, customer type, customer-specific circumstances, industry, peer and economic data. To estimate the allowance for credit losses, the Company uses an aging method that assigns a provision for expected credit losses to each aging category of accounts receivable, including current accounts, which increases as accounts age and/or extend past their due dates. The Company does not have a significant history of material losses from uncollectible accounts.
The following table sets forth a summary of the changes in the Company’s allowance for credit losses related to accounts receivable for the three months ended March 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
(in thousands)
|
|
2020
|
|
2019
|
Balance as of January 1
|
|
$
|
428
|
|
|
$
|
384
|
|
Provision for expected credit losses
|
|
82
|
|
|
325
|
|
Balance as of March 31
|
|
$
|
510
|
|
|
$
|
709
|
|
Concentration of Credit Risk
Three customers, which were advertising aggregators or payment processors representing thousands of advertisers, comprised 63% and 42% of the Company’s accounts receivable as of March 31, 2020 and December 31, 2019, respectively.
Note 3 — Prepaid Expenses and Other Current Assets
The following table sets forth the composition of prepaid expenses and other current assets as of March 31, 2020 and December 31, 2019:
|
|
|
|
|
|
|
|
|
(in thousands)
|
March 31, 2020
|
|
December 31, 2019
|
Value-added tax and income tax receivables
|
$
|
1,786
|
|
|
$
|
1,312
|
|
Fair value of derivative assets
|
655
|
|
|
583
|
|
Prepaid insurance
|
402
|
|
|
659
|
|
Prepaid support contracts
|
555
|
|
|
443
|
|
Prepaid service providers
|
1,606
|
|
|
1,765
|
|
Prepaid advertising
|
404
|
|
|
680
|
|
Other prepaid expenses and other current assets
|
412
|
|
|
620
|
|
Total prepaid expenses and other current assets
|
$
|
5,820
|
|
|
$
|
6,062
|
|
Note 4 — Property and Equipment, Net
The following table sets forth the composition of the Company’s property and equipment, net as of March 31, 2020 and December 31, 2019:
|
|
|
|
|
|
|
|
|
(in thousands)
|
March 31, 2020
|
|
December 31, 2019
|
Servers, computer equipment and software
|
$
|
14,930
|
|
|
$
|
14,901
|
|
Office furniture and equipment
|
879
|
|
|
863
|
|
Leasehold improvements
|
677
|
|
|
671
|
|
Total property and equipment
|
16,486
|
|
|
16,435
|
|
Less: Accumulated depreciation
|
(13,439
|
)
|
|
(12,810
|
)
|
Total property and equipment, net
|
$
|
3,047
|
|
|
$
|
3,625
|
|
Depreciation expense was $0.6 million for each of the three months ended March 31, 2020 and 2019.
Note 5 — Leases
The Company has operating leases for its operating facilities, data center storage facilities and certain data storage equipment in the U.S. and Germany, and finance leases for certain data centers, printers and other furniture in its German offices. The Company's lease terms include options to extend or terminate the lease and the Company includes these options in the lease term when it is reasonably certain to exercise that option.
The following table sets forth the Company’s lease costs for the three months ended March 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
(in thousands)
|
|
2020
|
|
2019
|
Lease costs:
|
|
|
|
|
Operating lease cost(1)
|
|
$
|
723
|
|
|
$
|
725
|
|
|
|
|
|
|
Finance lease cost:
|
|
|
|
|
Depreciation expense
|
|
$
|
5
|
|
|
$
|
2
|
|
Interest on lease liabilities
|
|
1
|
|
|
2
|
|
Total finance lease cost
|
|
$
|
6
|
|
|
$
|
4
|
|
(1) Short-term lease costs were immaterial.
The following table sets forth the supplemental cash flow information for the Company’s leases for the three months ended March 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
(in thousands)
|
2020
|
|
2019
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
Operating cash flows for operating leases
|
$
|
683
|
|
|
$
|
738
|
|
Operating cash flows for finance leases
|
$
|
1
|
|
|
$
|
2
|
|
Financing cash flows for finance leases
|
$
|
5
|
|
|
$
|
41
|
|
|
|
|
|
Right-of-use assets obtained in exchange for lease obligations:
|
|
|
|
Operating leases
|
$
|
794
|
|
|
$
|
4,070
|
|
The following table sets forth the Company’s aggregate future lease payments for operating and finance leases as of March 31, 2020:
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
Years Ending December 31,
|
|
Operating Leases
|
|
Finance Leases
|
Remaining in 2020
|
|
$
|
2,167
|
|
|
$
|
9
|
|
2021
|
|
2,459
|
|
|
12
|
|
2022
|
|
1,109
|
|
|
12
|
|
2023
|
|
585
|
|
|
12
|
|
2024
|
|
549
|
|
|
12
|
|
Thereafter
|
|
1,163
|
|
|
9
|
|
Total minimum lease payments
|
|
8,032
|
|
|
66
|
|
Less: Amount representing interest
|
|
782
|
|
|
9
|
|
Present value of minimum lease payments
|
|
7,250
|
|
|
57
|
|
Less: Current portion
|
|
2,527
|
|
|
9
|
|
Long-term portion
|
|
$
|
4,723
|
|
|
$
|
48
|
|
The following table sets forth the Company’s weighted-average remaining lease terms and discount rates as of March 31, 2020:
|
|
|
|
|
Weighted-average Remaining Lease Terms and Discount Rates
|
Weighted-average remaining lease terms (years):
|
|
Operating leases
|
4.27
|
|
Finance leases
|
5.50
|
|
|
|
Weighted-average discount rates:
|
|
Operating leases
|
4.41
|
%
|
Finance leases
|
3.06
|
%
|
Note 6 — Intangible Assets, Net
The following table sets forth the composition of the Company’s intangible assets, net as of March 31, 2020 and December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
(in thousands)
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
Trademarks and domain names
|
$
|
35,381
|
|
|
$
|
(18,266
|
)
|
|
$
|
17,115
|
|
Customer relationships
|
15,183
|
|
|
(10,621
|
)
|
|
4,562
|
|
Software
|
19,537
|
|
|
(14,269
|
)
|
|
5,268
|
|
Total intangible assets, net
|
$
|
70,101
|
|
|
$
|
(43,156
|
)
|
|
$
|
26,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
(in thousands)
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
Trademarks and domain names
|
$
|
35,602
|
|
|
$
|
(17,423
|
)
|
|
$
|
18,179
|
|
Customer relationships
|
15,248
|
|
|
(10,081
|
)
|
|
5,167
|
|
Software
|
19,561
|
|
|
(13,602
|
)
|
|
5,959
|
|
Total intangible assets, net
|
$
|
70,411
|
|
|
$
|
(41,106
|
)
|
|
$
|
29,305
|
|
Amortization expense was $2.2 million and $2.6 million for the three months ended March 31, 2020 and 2019, respectively.
The following table sets forth the Company’s annual future amortization expense on intangible assets for the next five years and thereafter as of March 31, 2020:
|
|
|
|
|
|
(in thousands)
|
|
Amortization
|
Years Ending December 31,
|
|
Expense
|
Remaining in 2020
|
|
$
|
6,349
|
|
2021
|
|
7,058
|
|
2022
|
|
4,120
|
|
2023
|
|
2,723
|
|
2024
|
|
2,160
|
|
Thereafter
|
|
4,535
|
|
Total amortization expense
|
|
$
|
26,945
|
|
Note 7 — Goodwill
The following table sets forth the change in the carrying amount of the Company’s goodwill for the three months ended March 31, 2020:
|
|
|
|
|
(in thousands)
|
Goodwill
|
Balance as of January 1, 2020
|
$
|
156,687
|
|
Foreign currency translation adjustment
|
(994
|
)
|
Balance as of March 31, 2020
|
$
|
155,693
|
|
Note 8 — Accrued Liabilities
The following table sets forth the composition of the Company’s accrued liabilities as of March 31, 2020 and December 31, 2019:
|
|
|
|
|
|
|
|
|
(in thousands)
|
March 31, 2020
|
|
December 31, 2019
|
Accrued broadcaster fees, net of breakage
|
$
|
5,994
|
|
|
$
|
5,350
|
|
Accrued professional fees
|
2,551
|
|
|
1,889
|
|
Accrued employee-related costs
|
2,710
|
|
|
4,803
|
|
Accrued service providers
|
337
|
|
|
940
|
|
Accrued advertising
|
1,472
|
|
|
2,315
|
|
Accrued current tax payable
|
717
|
|
|
1,209
|
|
Accrued value-added, sales, use and other taxes
|
1,691
|
|
|
1,472
|
|
Contingent consideration
|
917
|
|
|
—
|
|
Other accrued expenses
|
2,526
|
|
|
2,112
|
|
Total accrued liabilities
|
$
|
18,915
|
|
|
$
|
20,090
|
|
Note 9 — Debt
The following table sets forth the composition of the Company’s debt as of March 31, 2020 and December 31, 2019:
|
|
|
|
|
|
|
|
|
(in thousands)
|
March 31, 2020
|
|
December 31, 2019
|
Term loan facility
|
$
|
33,250
|
|
|
$
|
34,125
|
|
Less: Debt discount, net
|
(174
|
)
|
|
(192
|
)
|
Less: Debt issuance costs, net
|
(53
|
)
|
|
(58
|
)
|
Net carrying amount
|
33,023
|
|
|
33,875
|
|
Less: Current portion
|
3,500
|
|
|
3,500
|
|
Long-term debt, net
|
$
|
29,523
|
|
|
$
|
30,375
|
|
Credit Facilities
For the three months ended March 31, 2020, the weighted-average interest rate on the Company’s term loan facility amounted to 3.69%, and the unused commitment fee on the Company’s revolving credit facility was 0.25% per annum. There were no outstanding borrowings under the Company’s revolving credit facility as of March 31, 2020.
The Company was in compliance with its debt covenants as of March 31, 2020.
Scheduled Principal Payments
The following table sets forth the Company’s minimum future principal payments under the credit facilities as of March 31, 2020:
|
|
|
|
|
|
(in thousands)
|
|
Minimum
|
Years Ending December 31,
|
|
Principal Payments
|
Remaining in 2020
|
|
$
|
2,625
|
|
2021
|
|
3,500
|
|
2022
|
|
27,125
|
|
Total minimum principal payments
|
|
$
|
33,250
|
|
Note 10— Commitments and Contingencies
Cloud Data Storage
The Company stores a portion of its user and business data using Amazon Web Services in the U.S. with a minimum commitment agreement that expires in 2021, and a majority of its user and business data in the Google Cloud Platform in Germany under a non-cancelable minimum commitment agreement that expires in 2023.
The following table sets forth the minimum future commitment payments under cloud data storage contracts as of March 31, 2020:
|
|
|
|
|
|
|
|
Minimum
Commitment
Payments
|
(in thousands)
|
|
Years Ending December 31,
|
|
Remaining in 2020
|
|
$
|
3,814
|
|
2021
|
|
6,862
|
|
2022
|
|
1,023
|
|
2023
|
|
1,125
|
|
Total minimum commitment payments
|
|
$
|
12,824
|
|
Litigation
From time to time, the Company is party to certain legal proceedings that arise in the ordinary course of, and are incidental to, its business. The Company operates its business online, which is subject to extensive regulation by U.S. federal and state and foreign governments. Future events or circumstances, currently unknown to management, will determine whether the resolution of pending or threatened litigation or claims will ultimately have a material effect on the Company’s consolidated financial position, liquidity or results of operations in any future reporting periods.
Note 11— Stockholders’ Equity
Tax Benefits Preservation Plan
In connection with the execution of the Merger Agreement, the Company entered into an amendment to its Tax Benefits Preservation Plan to render it inapplicable to the Merger Agreement, the execution thereof and the performance or consummation of the transactions contemplated thereby, including, without limitation, the Merger.
Stock-based Compensation Expense
The following table sets forth the allocation of stock-based compensation expense in the consolidated statements of operations and comprehensive (loss) income for the three months ended March 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
(in thousands)
|
2020
|
|
2019
|
Sales and marketing
|
$
|
124
|
|
|
$
|
70
|
|
Product development and content
|
1,928
|
|
|
1,500
|
|
General and administrative
|
1,133
|
|
|
855
|
|
Total stock-based compensation expense
|
$
|
3,185
|
|
|
$
|
2,425
|
|
As of March 31, 2020, there was $0.1 million, $14.0 million and $3.0 million of total unrecognized stock-based compensation expense, which is expected to be recognized over a weighted-average vesting period of 0.3 years, 1.4 years and 1.9 years for the Company’s stock options, restricted stock awards (“RSAs”) and performance share units (“PSUs”), respectively.
Stock Options
Stock-based compensation expense for stock options was estimated on the date of grant and amortized on a straight-line basis over the requisite service period based on their fair value. The fair value of stock options was estimated on the grant date using the Black-Scholes option pricing model, based on weighted-average assumptions. Stock options generally vest over a three-year period with 33% vesting at the end of year one and the remaining vesting annually thereafter. The Company has not awarded any stock options since November 2017.
The following table sets forth the Company’s stock options activity for the three months ended March 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Stock Options
|
|
Weighted-
average
Exercise Price
|
|
Weighted-
average
Remaining
Contractual Life
(Years)
|
|
Aggregate Intrinsic Value
|
(in thousands, except share and per share data)
Stock Options
|
|
|
|
|
Outstanding as of January 1, 2020
|
|
3,680,146
|
|
|
$
|
3.60
|
|
|
|
|
|
|
Exercised
|
|
(162,841
|
)
|
|
3.47
|
|
|
|
|
|
|
Forfeited or expired
|
|
(85,000
|
)
|
|
3.65
|
|
|
|
|
|
|
Outstanding as of March 31, 2020
|
|
3,432,305
|
|
|
$
|
3.61
|
|
|
4.8
|
|
$
|
7,791
|
|
Exercisable as of March 31, 2020
|
|
3,333,817
|
|
|
$
|
3.60
|
|
|
4.7
|
|
$
|
7,607
|
|
The total intrinsic values of stock options exercised during the three months ended March 31, 2020 and 2019 were $0.4 million and $0.2 million, respectively. The Company recorded stock-based compensation expense related to its stock options of $0.2 million and $0.4 million and for the three months ended March 31, 2020 and 2019, respectively.
Restricted Stock Awards
Stock-based compensation expense for RSAs is recognized on a straight-line basis over the requisite service period. RSAs generally vest over a three-year period with 33% vesting at the end of year one and the remaining vesting annually thereafter.
The following table sets forth the Company’s RSA activity for the three months ended March 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
Restricted Stock
|
|
Weighted-average
|
Restricted Stock Awards
|
|
Awards
|
|
Stock Price
|
Outstanding as of January 1, 2020
|
|
4,036,398
|
|
|
$
|
4.85
|
|
Granted
|
|
620,277
|
|
|
5.51
|
|
Vested
|
|
(295,389
|
)
|
|
5.18
|
|
Forfeited or expired
|
|
(112,723
|
)
|
|
5.57
|
|
Outstanding as of March 31, 2020
|
|
4,248,563
|
|
|
$
|
4.90
|
|
Shares are forfeited if not vested within three years from the date of grant. The Company recorded stock-based compensation expense related to its RSAs of $2.5 million and $1.9 million for the three months ended March 31, 2020 and 2019, respectively.
Performance Share Units
The Company began granting PSUs to certain employees in April 2018. PSUs are based on a relative total shareholder return (“TSR”) metric over a performance period spanning three years from the grant date of the PSU. PSUs will vest at the end of the performance period and will be paid immediately in shares of common stock. Stock-based compensation expense for PSUs is estimated on the date of grant and amortized on a straight-line basis over the performance period. PSUs are forfeited if the participant is no longer employed on the third anniversary of the grant date, except in the event of an involuntary termination, death, disability or change in control. PSU share payouts range from a threshold of 33% to a maximum of 170% based on the relative ranking of the Company’s TSR as compared to the TSR of the companies in the Russell 2000 peer group. The PSU award stipulates certain limitations to the payout in the event the payout reaches a defined ceiling level or the Company’s TSR is negative.
The following table sets forth the Company’s PSU activity for the three months ended March 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
Performance Share
|
|
Weighted-average
|
Performance Share Units
|
|
Units
|
|
Stock Price
|
Outstanding as of January 1, 2020
|
|
1,086,100
|
|
|
$
|
4.34
|
|
Granted
|
|
60,000
|
|
|
6.61
|
|
Outstanding as of March 31, 2020
|
|
1,146,100
|
|
|
$
|
4.46
|
|
The Company recorded stock-based compensation expense related to its PSUs of $0.4 million and $0.2 million for the three months ended March 31, 2020 and 2019, respectively.
Note 12— Derivatives and Hedging Activities
Risk Management Objective of Using Derivatives
The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity and credit risk primarily by managing the amount, sources and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s borrowings.
Certain of the Company’s foreign operations expose it to fluctuations of foreign exchange rates. These fluctuations may impact the value of the Company’s cash receipts and payments in terms of its functional currency. The Company enters into derivative financial instruments to protect the value or fix the amount of certain liabilities in terms of its functional currency, the U.S. dollar.
Interest Rate Risk Management
The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps and caps as part of its interest rate risk management strategy. Interest rate swaps involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate caps involve the receipt of variable amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium. During 2020 and 2019, such derivatives were used to hedge the variable cash flows associated with the Company’s existing variable-rate debt.
Prior to March 5, 2020, the Company’s interest rate derivatives were designated and qualified as cash flow hedges of interest rate risk, where the gain or loss on the derivative was recorded in accumulated other comprehensive income or loss and subsequently reclassified into interest expense in the same period that the hedged transaction affected earnings. Gains and losses on the derivative that represented hedge components excluded from the assessment of effectiveness were recognized over the life of the hedge on a systematic and rational basis, as documented at hedge inception in accordance with the Company’s accounting policy election. The earnings recognition of excluded components was presented in interest expense. Amounts reported in accumulated other comprehensive income or loss related to derivatives were reclassified to interest expense as interest payments were made on the Company’s variable-rate debt.
On March 5, 2020, given the potential for changes in the Company’s future expected interest payments that were hedged by these interest rate derivatives as a result of the Merger Agreement, such derivatives no longer qualified as cash flow hedges and were dedesignated as such. Following this dedesignation, all changes in the fair values of the Company’s interest rate derivatives are recognized as a component of interest expense in the consolidated statements of operations and comprehensive (loss) income. The cumulative remaining unrealized gains at the dedesignation date that were previously recognized in accumulated other comprehensive loss will be amortized to interest expense in the consolidated statements of operations and comprehensive (loss) income over the remaining contractual terms for the Company’s interest rate derivatives.
The following table sets forth the Company’s outstanding interest rate derivatives that were not designated as a hedging instrument of interest rate risk as of March 31, 2020:
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Number of Instruments
|
|
At Inception Notional
|
|
As of March 31, 2020 Notional
|
|
Weighted-average
Maturity Date
(Years)
|
Interest Rate Derivatives
|
|
|
|
|
Interest rate swaps
|
|
2
|
|
$57,185
|
|
$22,560
|
|
1.76
|
Interest rate cap
|
|
1
|
|
$15,000
|
|
$10,690
|
|
0.47
|
Foreign Exchange Risk Management
The Company is exposed to fluctuations in various foreign currencies against its functional currency, the U.S. dollar. The Company uses foreign currency derivatives including cross-currency swaps to manage its exposure to fluctuations in the U.S. dollar to euro exchange rate. Cross-currency swaps involve exchanging fixed-rate interest payments for fixed-rate interest receipts, both of which will occur at the U.S. dollar to euro forward exchange rates in effect upon entering into the instrument. The Company designates these derivatives as cash flow hedges of foreign exchange risks.
For derivatives that are designated and that qualify as cash flow hedges of foreign exchange risk, the gain or loss on the derivative is recorded in other comprehensive income (loss) and subsequently reclassified in the period that the hedged transaction affects earnings within the same income statement line item as the earnings effect of the hedged transaction. During the next 12 months, the Company estimates that an additional $0.6 million will be reclassified as a decrease to interest expense.
The following table sets forth the Company’s outstanding foreign currency derivatives that were designated as cash flow hedges of foreign exchange risk as of March 31, 2020:
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Number of Instruments
|
|
At Inception Notional
|
|
As of March 31, 2020 Notional
|
|
Weighted-average
Maturity Date
(Years)
|
Foreign Currency Derivative
|
|
|
|
|
Cross-currency swap
|
|
1
|
|
€35,963
|
|
$39,750
|
|
2.41
|
|
|
|
|
(amortizing to €35,058 as of March 31, 2020)
|
|
(amortizing to $38,750 as of March 31, 2020)
|
|
|
The following table sets forth the effect of the Company’s cash flow hedge accounting on its other comprehensive loss for the three months ended March 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
Location of Loss (Gain) Reclassified from Other Comprehensive Loss into Income or Loss
|
|
Amount of Loss (Gain) Reclassified from Other Comprehensive Loss into
Income or Loss
|
|
|
|
Three Months Ended March 31,
|
|
|
2020
|
|
2019
|
Interest expense
|
|
$
|
14
|
|
|
$
|
(53
|
)
|
Interest expense on foreign currency transactions
|
|
(122
|
)
|
|
(203
|
)
|
Foreign currency transactions
|
|
(763
|
)
|
|
(866
|
)
|
Total gain reclassified
|
|
$
|
(871
|
)
|
|
$
|
(1,122
|
)
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Amount of (Loss) Gain Recognized in Other Comprehensive Loss from Derivatives
|
Derivatives in Cash Flow Hedging Relationships
|
|
|
|
Three Months Ended March 31,
|
|
|
2020
|
|
2019
|
Interest rate products
|
|
$
|
(583
|
)
|
|
$
|
(61
|
)
|
Cross-currency swap
|
|
1,859
|
|
|
1,275
|
|
Total unrealized gain
|
|
$
|
1,276
|
|
|
$
|
1,214
|
|
The following table sets forth the effect of the Company’s derivative financial instruments on its consolidated statements of operations for the three months ended March 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
Interest Expense
|
|
Three Months Ended March 31,
|
(in thousands)
|
2020
|
|
2019
|
Total amounts of interest expense presented in the consolidated statements of operations
|
$
|
(396
|
)
|
|
$
|
(403
|
)
|
Loss on derivatives not designated as a hedging instrument:
|
|
|
|
Amount of loss related to changes in fair values of interest rate derivatives not designated as a hedging instrument
|
$
|
(171
|
)
|
|
$
|
—
|
|
|
|
|
|
Gain on cash flow hedging relationships:
|
|
|
|
Amount of gain reclassified from accumulated other comprehensive loss into income or loss
|
$
|
(125
|
)
|
|
$
|
(256
|
)
|
Amount of loss reclassified from accumulated other comprehensive loss into income or loss as a result of a forecasted transaction being no longer probable of occurring
|
$
|
17
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Transactions
|
|
Three Months Ended March 31,
|
(in thousands)
|
2020
|
|
2019
|
Total amounts of loss on foreign currency transactions presented in the consolidated statements of operations
|
$
|
(7
|
)
|
|
$
|
(65
|
)
|
Gain on cash flow hedging relationships:
|
|
|
|
Amount of gain reclassified from accumulated other comprehensive loss into income or loss
|
$
|
(763
|
)
|
|
$
|
(867
|
)
|
Fair Value of Derivative Financial Instruments
The following table sets forth the fair value of the Company’s derivative financial instruments, as well as their classification on the consolidated balance sheets, as of March 31, 2020 and December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Derivative Financial Instruments
|
|
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
|
|
|
|
March 31, 2020
|
|
December 31, 2019
|
|
March 31, 2020
|
|
December 31, 2019
|
(in thousands)
|
|
Balance Sheet Location
|
|
Fair Value
|
|
Fair Value
|
|
Fair Value
|
|
Fair Value
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
Interest rate products
|
|
Accrued liabilities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(288
|
)
|
|
$
|
—
|
|
Interest rate products
|
|
Long-term derivative liabilities
|
|
—
|
|
|
—
|
|
|
(477
|
)
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
Interest rate products
|
|
Prepaid expenses and other current assets / Accrued liabilities
|
|
—
|
|
|
15
|
|
|
—
|
|
|
(12
|
)
|
Interest rate products
|
|
Long-term derivative liabilities
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(9
|
)
|
Cross-currency swap
|
|
Prepaid expenses and other current assets
|
|
655
|
|
|
568
|
|
|
—
|
|
|
—
|
|
Cross-currency swap
|
|
Other assets / Long-term derivative liabilities
|
|
162
|
|
|
—
|
|
|
—
|
|
|
(1,442
|
)
|
Total derivative financial instruments
|
|
|
|
$
|
817
|
|
|
$
|
583
|
|
|
$
|
(765
|
)
|
|
$
|
(1,463
|
)
|
The fair value of the Company’s derivative financial instruments is determined using widely-accepted valuation techniques, including a discounted cash flows analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The fair values of the interest rate swaps and the cross-currency swap are determined using the market-standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves.
The fair value of the interest rate cap is determined using the market-standard methodology of discounting the future expected cash receipts that would occur if variable interest rates rise above the strike rate of the cap. The variable interest rates used in the calculation of projected receipts on the cap are based on an expectation of future interest rates derived from observable market interest rate curves and volatilities.
The Company incorporates credit valuation adjustments to appropriately reflect both its non-performance risk and the respective counterparty’s non-performance risk in the fair value measurements. In adjusting the fair value of the Company’s derivative contracts for the effect of non-performance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts and guarantees. The Company made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio.
Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparties. The Company has determined the impact of the credit valuation adjustments made to its derivative contracts, which determination was based on the fair value of each individual contract, was not significant to the overall valuation. As a result, all of the Company’s derivatives held as of March 31, 2020 and 2019 were classified as Level 2 within the fair value hierarchy.
As of March 31, 2020, the fair value of the Company’s derivatives was in a net liability position of $0.8 million for its contracts, which included accrued interest but excluded any adjustment for non-performance risk. As of March 31, 2020, the Company had not posted any collateral related to these contracts. If the Company had breached any credit-risk related provisions as of March 31, 2020, it could have been required to settle its obligations under the contracts at their termination value of $0.8 million.
Note 13— Revenue
Disaggregation of Revenue
The following table sets forth the Company’s revenue disaggregated by revenue source for the three months ended March 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2020
|
|
2019
|
(in thousands)
|
$
|
|
%
|
|
$
|
|
%
|
User pay revenue:
|
|
|
|
|
|
|
|
Video
|
$
|
28,633
|
|
|
52.0
|
%
|
|
$
|
20,229
|
|
|
40.9
|
%
|
Subscription and other in-app products
|
14,395
|
|
|
26.1
|
%
|
|
15,596
|
|
|
31.5
|
%
|
Total user pay revenue
|
43,028
|
|
|
78.1
|
%
|
|
35,825
|
|
|
72.4
|
%
|
Advertising revenue
|
12,038
|
|
|
21.9
|
%
|
|
13,688
|
|
|
27.6
|
%
|
Total revenue
|
$
|
55,066
|
|
|
100.0
|
%
|
|
$
|
49,513
|
|
|
100.0
|
%
|
Significant Customers
During the three months ended March 31, 2020 and 2019, three customers, all of which were advertising aggregators or payment processors representing thousands of advertisers, comprised 73% and 61% of total revenue, respectively.
Contract Assets and Contract Liabilities
The following table sets forth the composition of the Company’s contract assets and liabilities as of March 31, 2020 and December 31, 2019:
|
|
|
|
|
|
|
|
|
(in thousands)
|
March 31, 2020
|
|
December 31, 2019
|
Assets:
|
|
|
|
Accounts receivable
|
$
|
24,476
|
|
|
$
|
25,503
|
|
Total contract assets
|
$
|
24,476
|
|
|
$
|
25,503
|
|
Liabilities:
|
|
|
|
|
Deferred revenue
|
$
|
3,563
|
|
|
$
|
3,884
|
|
Total contract liabilities
|
$
|
3,563
|
|
|
$
|
3,884
|
|
The Company’s deferred revenue balance for the three months ended March 31, 2020 increased by $42.5 million due to consideration received in advance of providing services to subscription and in-app purchases’ customers, including in-app purchases related to video. This amount was offset by $42.8 million of revenue recognized from deferred revenue due to performance obligations satisfied during the three months ended March 31, 2020.
Note 14 — Net (Loss) Income per Share
The following table sets forth the computation of the Company’s basic and diluted net (loss) income per share for the three months ended March 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
(in thousands, except share and per share data)
|
2020
|
|
2019
|
Numerator:
|
|
|
|
Net (loss) income
|
$
|
(2,408
|
)
|
|
$
|
1,258
|
|
Denominator:
|
|
|
|
Weighted-average shares outstanding — basic
|
71,001,906
|
|
|
74,848,080
|
|
Effect of dilutive securities
|
—
|
|
|
3,951,168
|
|
Weighted-average shares outstanding — diluted
|
71,001,906
|
|
|
78,799,248
|
|
Basic net (loss) income per share
|
$
|
(0.03
|
)
|
|
$
|
0.02
|
|
Diluted net (loss) income per share
|
$
|
(0.03
|
)
|
|
$
|
0.02
|
|
Basic net (loss) income per share is computed by dividing net (loss) income by the weighted-average number of common shares outstanding. Diluted net (loss) income per share is computed by dividing net (loss) income by the weighted-average number of common shares and common stock equivalents outstanding, calculated using the treasury stock method for options, RSAs and unvested in-the-money PSUs using the average market price during the period.
For the three months ended March 31, 2020, all of the stock-based compensation awards were excluded from the calculation of net loss per share because their inclusion would have an anti-dilutive effect. For the three months ended March 31, 2019, 1.1 million shares of the Company’s stock-based compensation awards that could potentially dilute basic net income per share in the future were excluded from the calculation of diluted net income per share as their effect would have been anti-dilutive.
Note 15 — Retirement Plan
The Company maintains The Meet Group, Inc. 401(k) Retirement Plan (“401(k) Plan”), which is a savings and investment plan intended to be qualified under of the Internal Revenue Code. The 401(k) Plan covers the majority of the employees of the Company. In January 2014, the Company began providing employer-matching contributions to the 401(k) Plan based on a participant’s contribution. The Company’s employer-matching contributions expense totaled $0.2 million for each of the three months ended March 31, 2020 and 2019. This expense is included in sales and marketing expenses, product development and content expenses and general and administrative expenses in the consolidated statements of operations and comprehensive (loss) income.
Note 16 — Income Taxes
Income tax expense was $0.4 million and $0.3 million for the three months ended March 31, 2020 and 2019, respectively. For the three months ended March 31, 2020, the Company’s effective tax rate (“ETR”) was (18.3)%, compared with an ETR of 16.8% for the three months ended March 31, 2019. The increase in the Company’s income tax expense and ETR for the three months ended March 31, 2020 were primarily attributable to certain non-deductible transaction costs incurred in connection with the Merger Agreement, the geographic mix of earnings between the U.S. and Germany, which has a higher statutory tax rate, and a decrease in windfall tax benefits on stock-based compensation. These increases were partially offset by the discrete impact of certain deductible transaction costs incurred in connection with the Merger Agreement.
As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets, primarily U.S. federal and state net operating loss carryforwards (“NOLs”). As of March 31, 2020 and December 31, 2019, the Company had a partial valuation allowance related to certain acquired state NOLs that it believes are more-likely-than-not to remain unutilized.
During each of the three months ended March 31, 2020 and 2019, the Company had no material changes in uncertain tax positions.
The Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law on March 27, 2020. The CARES Act made significant changes to U.S. federal tax law, including a five-year carryback of NOLs for the 2018, 2019 and 2020 tax years, and a temporary increase in the limitation of interest deductibility for the 2019 and 2020 tax years. Due to the Company's historical NOLs and limited interest deductibility, the provisions of the CARES Act are not expected to have a material impact to its financial position, results of operations or cash flows.
Note 17— Fair Value Measurements
The carrying amounts of the Company’s financial instruments of cash and certain cash equivalents, accounts receivable, accounts payable, accrued liabilities and deferred revenue approximate their fair values due to their short maturities. The Company has evaluated the estimated fair values of these financial instruments using available market information and management’s estimates. The use of different market assumptions and/or estimation methodologies could have a significant effect on the estimated fair value amounts.
The outstanding balance of the Company’s term loan facility as of March 31, 2020 and December 31, 2019 approximates fair value due to its variable market interest rate and relative short maturity.
Items measured at fair value on a recurring basis include the Company’s money market funds, derivative assets and liabilities and contingent consideration. During the periods presented, the Company has not changed the manner in which it values assets and liabilities that are measured at fair value using Level 3 inputs of the fair value hierarchy.
The following table sets forth the fair value hierarchy information for each major category of the Company’s assets and liabilities measured at fair value on a recurring basis as of March 31, 2020 and December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Quoted Prices
in Active
Markets for
Identical
Items
(Level 1)
|
|
Significant Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Total
|
March 31, 2020
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
Money market funds
|
$
|
12,090
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
12,090
|
|
Derivative assets
|
—
|
|
|
817
|
|
|
—
|
|
|
817
|
|
Total assets
|
$
|
12,090
|
|
|
$
|
817
|
|
|
$
|
—
|
|
|
$
|
12,907
|
|
Liabilities:
|
|
|
|
|
|
|
|
Contingent consideration
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(917
|
)
|
|
$
|
(917
|
)
|
Derivative liabilities
|
—
|
|
|
(765
|
)
|
|
—
|
|
|
(765
|
)
|
Total liabilities
|
$
|
—
|
|
|
$
|
(765
|
)
|
|
$
|
(917
|
)
|
|
$
|
(1,682
|
)
|
December 31, 2019
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
Money market funds
|
$
|
7,108
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,108
|
|
Derivative assets
|
—
|
|
|
583
|
|
|
—
|
|
|
583
|
|
Total assets
|
$
|
7,108
|
|
|
$
|
583
|
|
|
$
|
—
|
|
|
$
|
7,691
|
|
Liabilities:
|
|
|
|
|
|
|
|
Contingent consideration
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(894
|
)
|
|
$
|
(894
|
)
|
Derivative liabilities
|
—
|
|
|
(1,463
|
)
|
|
—
|
|
|
(1,463
|
)
|
Total liabilities
|
$
|
—
|
|
|
$
|
(1,463
|
)
|
|
$
|
(894
|
)
|
|
$
|
(2,357
|
)
|
Fair Value of Contingent Consideration
The following table sets forth a summary of changes in the fair value of the Company’s contingent consideration liability for the acquisition of Initech, LLC as of March 31, 2020:
|
|
|
|
|
(in thousands)
|
Contingent
Consideration
|
Balance as of December 31, 2019
|
$
|
894
|
|
Accretion
|
23
|
|
Balance as of December 31, 2020
|
$
|
917
|
|
The Company’s contingent consideration liability represents its contingent performance obligations related to the acquisition of Initech, LLC on March 5, 2019 and is measured at fair value using the income approach with assumed discount rates and payment probabilities. These assumptions are based on unobservable inputs in the market, which represents a Level 3 measurement within the fair value hierarchy. The Company assesses these estimates on an ongoing basis as additional data impacting the assumptions is obtained. The fair value of the Company’s contingent consideration liability is recognized on its consolidated balance sheets within accrued liabilities as of March 31, 2020 and within other liabilities as of December 31, 2019 and any changes therein are recognized within acquisition, restructuring and other expenses in the consolidated statements of operations and comprehensive (loss) income for the three months ended March 31, 2020 and 2019.