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Acquisition of New York Code and Design Academy | 12 Months Ended
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Dec. 31, 2017
Acquisition of New York Code and Design Academy [Abstract] |
Acquisition of New York Code and Design Academy | 3. Acquisition of New York Code and Design Academy On January 13, 2016, the Company acquired all of the outstanding stock of New York Code and Design Academy, Inc. (“NYCDA”), a provider of web and application software development courses based in New York City (the “Acquisition”). The Acquisition supports the Company’s strategy to complement its traditional degree offerings with a broader platform of educational services. The Company incurred transaction costs of approximately $0.2 million, which were included in general and administrative costs. The Acquisition was accounted for as a business combination. The purchase price included $2.4 million paid up front in cash, plus contingent cash payments of (a) up to $12.5 million payable based on NYCDA’s results of operations over a five-year period (the “Earnout”), and (b) $5.5 million payable based on NYCDA’s receipt of state regulatory permits. Pursuant to the Acquisition, $1.0 million of the Earnout may be accelerated upon receipt of one of the state regulatory permits. The Company recorded total contingent consideration of $14.5 million at the time of acquisition. In April 2016 and August 2016, NYCDA received the state regulatory permits and the Company paid $6.0 and $0.5 million of contingent consideration to the sellers, respectively. In addition, the Company paid a total of $4.6 million to two of NYCDA’s founders who are required to remain employed for at least three years from the acquisition date. If either of them terminates employment voluntarily, or is terminated for cause (as defined), he is required to reimburse the Company his respective portion of the retention amount. This amount was classified as prepaid compensation and is amortized to compensation expense over three years. Total potential cash payments for the Acquisition, including the contingent cash payments and prepaid compensation, could total $25.0 million. The allocation of the purchase price was as follows (in thousands):
|  | Purchase |  |
|  | Price |  |
|  | Allocation |  | Useful Life
Cash | $ | 790 |  |
Other assets |  | 1,265 |  |
Intangibles: |  |  |  |
Trade name |  | 5,660 |  | Indefinite
Goodwill |  | 13,944 |  |
Liabilities assumed |  | (4,734) |  |
Total assets acquired and liabilities assumed, net |  | 16,925 |  |
Less: contingent consideration |  | (14,500) |  |
Less: cash acquired |  | (790) |  |
Cash paid for acquisition, net of cash acquired | $ | 1,635 |  |
The fair value of the Earnout was originally measured by applying a probability weighted discounted cash flow model based on significant inputs not observable in the market (Level 3 inputs). Key assumptions included the expected future value of payments, at the time, of $12.5 million. Following its initial recognition, the Company has adjusted the carrying value of the Earnout to the fair value to reflect revisions to the business plan, expectations relative to achieving the performance targets over the earnout period, and the impact of the discount rate. During the fourth quarter of 2016, the Company revised its assumptions of the timing of future cash flows and recorded an adjustment to reduce the fair value of contingent consideration by $1.3 million. During 2017, the Company continued to update its near-term revenue projections for NYCDA. As of December 31, 2017, the Company estimates that no amounts under the Earnout will be paid and the related liability has been recorded at zero. The fair value adjustments to the Earnout in 2017 aggregated to $7.8 million. The Company will continue to update its forecasts each period and record any fair value adjustments, as necessary. The maximum possible amount that could still be paid under the Earnout is $11.5 million. The fair value of assets acquired and liabilities assumed was determined based on assumptions that reasonable market participants would use while employing the concept of highest and best use of the respective items. The following assumptions were used, the majority of which include significant unobservable inputs (Level 3), and valuation methodologies to determine fair value:
| · |  | Intangibles – Income approaches were used to value the substantial majority of the acquired intangibles. The trade name was valued using the relief-from-royalty method, which represents the benefit of owning these intangible assets rather than paying royalties for their use.
| · |  | Other assets and liabilities – The carrying value of all other assets and liabilities approximated fair value at the time of acquisition.
Pro forma financial information for the NYCDA acquisition has not been presented as it was not material to the Company’s consolidated results.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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