AdvisorEngine Inc. - Sale of Financial Interests

6 Months Ended

Jun. 30, 2020

AdvisorEngine Inc. – Sale of Financial Interests

7. AdvisorEngine Inc. – Sale of Financial Interests

On May 4, 2020, the Company closed a transaction to exit its investment in AdvisorEngine Inc. (“AdvisorEngine”). The fair value of upfront consideration payable to the Company was

$9,367 (of which $8,155 has been paid). The remaining receivable of $1,212 at June 30, 2020 was included in other current assets on the Consolidated Statements of Financial Condition.

Consideration also includes contingent payments totaling up to

10,633

which will be payable only upon AdvisorEngine achieving certain revenue milestones during the first through fourth anniversaries of such exit. The fair value of the contingent payments was determined to be insignificant at closing and

was

measured using a Monte-Carlo simulation whereby forecasted revenue assumed during the first, second, third and fourth years w

simulated forward in a risk-neutral framework to determine whether the revenues would exceed the

pre-defined

revenue targets.

The table below presents the range and weighted averages of significant unobservable inputs utilized in the Monte-Carlo simulation (classified as Level 3 in the fair value hierarchy):


Unobservable Inputs (Initial Recognition)
Forecasted revenue simulated forward as a percentage of the pre-defined revenue targets		34% - 71% (47% weighted average)
Revenue volatility		25%

The weighted-average forecasted revenue simulated forward as a percentage of the

pre-defined

revenue targets represents the arithmetic average of the percentages for each of the four years. An increase in the forecasted revenue percentages and revenue volatility input would result in a higher fair value.

The contingent payments are subsequently remeasured when the contingency is resolved and the gain is realized.

Summarized below are the financial interests previously held:


	June 30, 2020				December 31, 2019
	Amortized Cost, plus Accrued Interest		Net Carrying Value		Amortized Cost, plus Accrued Interest		Net Carrying Value
Unsecured convertible note	$	—	$	—	$	2,126	$	2,126
Unsecured non-convertible note		—		—		31,184		26,046

Subtotal - Notes receivable		—		—		33,310		28,172
Preferred stock		—		—		25,000		—

Total	$	—	$	—	$	58,310	$	28,172	(1)

(1)

Net of an impairment of $30,138 at December 31, 2019. During the six months ended June 30, 2020, the Company recorded an impairment of $19,672 on the carrying value of the notes receivable. During the three months ended June 30, 2020, the Company recognized a gain of $868 arising from an adjustment to the estimated fair value of consideration received from the sale of

its

financial interests in AdvisorEngine. This gain was included in other gains and losses, net on the Consolidated Statements of Operations.