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EX-32.2 - EXHIBIT 32.2 - Actua Corpexhibit322q12017.htm
EX-32.1 - EXHIBIT 32.1 - Actua Corpexhibit321q12017.htm
EX-31.2 - EXHIBIT 31.2 - Actua Corpexhibit312q12017.htm
EX-31.1 - EXHIBIT 31.1 - Actua Corpexhibit311q12017.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2017.
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURUTIES EXCHANGE ACT OF 1934
For the Transition Period from              to             .
Commission File Number 001-16249
 
Actua Corporation
(Exact Name of Registrant as Specified in Its Charter)
 

Delaware
 
23-2996071
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification Number)
 
 
 
 555 East Lancaster Ave., Suite 640, Radnor, PA
 
19087
(Address of Principal Executive Offices)
 
(Zip Code)
(610) 727-6900
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act. 
Large accelerated filer
 
¨
  
Accelerated filer
 
ý

Non-accelerated filer
 
¨  (Do not check if a smaller reporting company)
  
Smaller reporting company
 
¨
Emerging growth company
 
¨
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ¨
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  ý
The number of shares of the Company’s Common Stock, $0.001 par value per share, outstanding as of May 3, 2017 was 33,595,253 shares.
 
 
 
 
 



ACTUA CORPORATION
QUARTERLY REPORT ON FORM 10-Q
INDEX
ITEM
 
 
  
PAGE NO
 
 
PART I—FINANCIAL INFORMATION
 
 
ITEM 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ITEM 2.
 
 
ITEM 3.
 
 
ITEM 4.
 
 
 
 
PART II—OTHER INFORMATION
 
 
ITEM 1.
 
 
ITEM 1A.
 
 
ITEM 2.
 
 
ITEM 3.
 
 
ITEM 4.
 
 
ITEM 5.
 
 
ITEM 6.
 
 
 

1


Availability of Reports and Other Information
Our Internet website address is www.actua.com. Unless this Quarterly Report on Form 10-Q (this "Report") explicitly states otherwise, neither the information on our website, nor the information on the websites of any of our businesses, is incorporated by reference into this Report.
Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K (including, in each case, those filed by ICG Group, Inc. (NASDAQ: ICGE) prior to our corporate name change to Actua Corporation (NASDAQ: ACTA) in September 2014) and all amendments to those reports filed by us with the U.S. Securities and Exchange Commission (the "SEC") pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), are accessible free of charge through our website as soon as reasonably practicable after we electronically file those documents with, or otherwise furnish them to, the SEC.
The public may read and copy any of the reports that are filed with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information that publicly-traded companies file electronically with the SEC.
 
Forward-Looking Statements
Forward-looking statements made with respect to our financial condition, results of operations and business in this Report, and those made from time to time by us through our senior management, are made pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. Those forward-looking statements are based on our current expectations and projections about future events but are subject to known and unknown risks, uncertainties and assumptions about us and our companies that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by those forward-looking statements.
Factors that could cause our actual results, levels of activity, performance or achievements to differ materially from those anticipated in forward-looking statements include, but are not limited to, factors discussed elsewhere in this Report and include, among other things:
the valuation of public and private cloud-based businesses by analysts, investors and other market participants;
continued development of the cloud-based software market;
our ability to compete successfully in highly-competitive, rapidly-developing markets;
our ability to deploy capital effectively and on acceptable terms;
economic and market conditions generally;
capital spending by customers;
our ability to retain existing customer relationships and revenue streams (particularly significant ones) and to secure new ones;
developments in the vertical markets in which we operate, and our ability to respond to those changes in a timely and effective manner;
the availability, performance and security of our cloud-based technology, particularly in light of increased cybersecurity risks and concerns;
our ability to retain and motivate current key personnel and to attract new personnel;
our ability to successfully integrate any acquired businesses, and any other difficulties related to the acquisition of businesses;
our ability to prevent and remediate any material weaknesses in our internal control over financial reporting;
the impact of any potential acquisitions, dispositions, share repurchases or other strategic transactions, which may impact our operations, financial condition, capitalization or indebtedness; and
our ability to have continued access to capital and to manage capital resources effectively.
In light of those risks, uncertainties and assumptions, the forward-looking events discussed in this Report might not occur. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "could," "would," "expect," "plan," "anticipate," "believe," "estimate," "continue" or the negative of such terms or other similar expressions. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements included in this Report. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

2



Item 1. Financial Statements
ACTUA CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
 
March 31, 2017
 
December 31, 2016
ASSETS
(unaudited)
 
 
Current assets
 
 
 
Cash and cash equivalents
$
80,436

 
$
97,364

Restricted cash
1,583

 
1,648

Accounts receivables, net of allowance ($1,060-2017; $1,157-2016)
21,265

 
21,033

Prepaid expenses and other current assets
3,429

 
3,673

Total current assets
106,713

 
123,718

Fixed assets, net of accumulated depreciation and amortization ($9,248-2017; $8,666-2016)
5,247

 
5,359

Goodwill
231,424

 
231,787

Intangible assets, net
69,607

 
73,406

Deferred tax asset
702

 
762

Cost method businesses
17,250

 
17,250

Other assets, net
1,508

 
1,436

Total assets
$
432,451

 
$
453,718

LIABILITIES
 
 
 
Current liabilities
 
 
 
Short-term debt
$
1,320

 
$
1,320

Accounts payable
14,232

 
12,269

Accrued expenses
11,314

 
10,149

Accrued compensation and benefits
5,189

 
8,381

Deferred revenue
36,226

 
35,834

Total current liabilities
68,281

 
67,953

Deferred rent
4,155

 
4,165

Deferred revenue
1,071

 
990

Contingent consideration
8,065

 
7,444

Other liabilities
1,449

 
1,824

Total liabilities
83,021

 
82,376

Redeemable noncontrolling interests (Note 4, Consolidated Businesses)
5,893

 
5,858

EQUITY
 
 
 
Actua Corporation’s stockholders’ equity
 
 
 
Preferred stock, $0.01 par value; 10,000 shares authorized, none issued or outstanding

 

Common stock, $0.001 par value; 2,000,000 shares authorized, 46,430 shares (2017) and 46,523 shares (2016) issued
47

 
47

Treasury stock, at cost 12,482 shares (2017) and 11,586 shares (2016)
(142,279
)
 
(129,774
)
Additional paid-in capital
3,578,934

 
3,578,204

Accumulated deficit
(3,104,906
)
 
(3,095,236
)
Accumulated other comprehensive income (loss)
87

 
99

Total Actua Corporation’s stockholders’ equity
331,883

 
353,340

Noncontrolling interests
11,654

 
12,144

Total equity
343,537

 
365,484

Total liabilities, redeemable noncontrolling interest and equity
$
432,451

 
$
453,718

 

See accompanying notes to consolidated financial statements.

3

ACTUA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in thousands, except per share data)
(unaudited)


    
 
 
Three Months Ended March 31,
 
 
2017
 
2016
Revenue
 
$
30,507

 
$
25,186

Operating expenses
 
 
 
 
Cost of revenue
 
7,794

 
6,722

Sales and marketing
 
9,907

 
10,119

General and administrative
 
12,932

 
12,326

Research and development
 
6,733

 
5,307

Amortization of intangible assets
 
3,663

 
3,582

Impairment related and other
 
360

 
231

Total operating expenses
 
41,389

 
38,287

Operating income (loss)
 
(10,882
)
 
(13,101
)
Other income (loss), net
 
867

 
(90
)
Interest income
 
155

 
48

Interest expense
 
(27
)
 
(33
)
Income (loss) before income taxes and noncontrolling interests
 
(9,887
)
 
(13,176
)
Income tax benefit (expense)
 
(265
)
 
(126
)
Income (loss) from continuing operations
 
(10,152
)
 
(13,302
)
Income (loss) from discontinued operations, net of tax
 

 
(2,081
)
Net income (loss)
 
(10,152
)
 
(15,383
)
Less: Net income (loss) attributable to the noncontrolling interests
 
(482
)
 
(1,052
)
Net income (loss) attributable to Actua Corporation
 
$
(9,670
)
 
$
(14,331
)
 
 
 
 
 
Amounts attributable to Actua Corporation:
 
 
 
 
Net income (loss) from continuing operations
 
$
(9,670
)
 
$
(12,360
)
Net income (loss) from discontinued operations
 

 
(1,971
)
Net income (loss)
 
$
(9,670
)
 
$
(14,331
)

 
 
 
 
Basic and diluted income (loss) per share attributable to Actua Corporation:
 
 
 
 
Income (loss) from continuing operations
 
$
(0.30
)
 
$
(0.33
)
Income (loss) from discontinued operations
 
$

 
$
(0.05
)
Net income (loss)
 
$
(0.30
)
 
$
(0.38
)
 
 
 
 
 
Shares used in computation of basic and diluted income (loss) per share
 
32,113

 
37,293

 
 
 
 
 
Net income (loss)
 
$
(10,152
)
 
$
(15,383
)
Other comprehensive income (loss):
 
 
 
 
Foreign currency translation adjustment
 
(12
)
 
(74
)
Comprehensive income (loss)
 
(10,164
)
 
(15,457
)
Less: Comprehensive income (loss) attributable to the noncontrolling interests
 
(482
)
 
(1,052
)
Comprehensive income (loss) attributable to Actua Corporation
 
$
(9,682
)
 
$
(14,405
)
See accompanying notes to consolidated financial statements.

4

ACTUA CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(in thousands)
(unaudited)



 
 
Actua Corporation Stockholders’ Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Additional
Paid-In
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Income ("AOCI")
 
Non-
controlling
Interests
 
Total
 
 
Common Stock
 
Treasury Stock
 
 
 
 
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
 
Balance as of December 31, 2015
 
46,763

 
$
47

 
(5,988
)
 
$
(55,509
)
 
$
3,563,848

 
$
(3,165,321
)
 
$
40

 
$
14,866

 
$
357,971

Equity-based compensation expense related to stock appreciation rights (SARs) and stock options
 

 

 

 

 
58

 

 

 

 
58

Equity-based compensation related to deferred stock units (DSUs)
 

 

 

 

 
99

 

 

 

 
99

Equity-based compensation related to restricted stock (RS)
 

 

 

 

 
3,925

 

 

 

 
3,925

Issuance of RS, net of forfeitures primarily related to satisfying tax withholdings
 
(346
)
 

 

 

 
(1,529
)
 

 

 

 
(1,529
)
Impact of redeemable noncontrolling interests accretion
 

 

 

 

 
(564
)
 

 

 

 
(564
)
Impact of subsidiary equity transactions
 

 

 

 

 
492

 

 
(74
)
 
202

 
620

Repurchase of common stock
 

 

 
(470
)
 
(4,318
)
 

 

 

 

 
(4,318
)
Net income (loss)
 

 

 

 

 

 
(14,331
)
 

 
(983
)
 
(15,314
)
Balance as of March 31, 2016
 
46,417

 
$
47

 
(6,458
)
 
$
(59,827
)
 
$
3,566,329

 
$
(3,179,652
)
 
$
(34
)
 
$
14,085

 
$
340,948

 
See accompanying notes to consolidated financial statements.

  



















5

ACTUA CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(in thousands)
(unaudited)


 
 
Actua Corporation Stockholders’ Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Additional Paid-In
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive Income (Loss)
("AOCI")
 
Non-controlling
Interests
 
Total
 
 
Common Stock
 
Treasury Stock
 
 
 
 
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
 
Balance as of December 31, 2016
 
46,523

 
$
47

 
(11,586
)
 
$
(129,774
)
 
$
3,578,204

 
$
(3,095,236
)
 
$
99

 
$
12,144

 
$
365,484

Equity-based compensation expense related to stock appreciation rights (SARs) and stock options
 

 

 

 

 
10

 

 

 

 
10

Equity-based compensation related to deferred stock units (DSUs)
 

 

 

 

 
74

 

 

 

 
74

Equity-based compensation related to restricted stock (RS)
 

 

 

 

 
3,061

 

 

 

 
3,061

Issuance of RS, net of forfeitures related to satisfying tax withholdings
 
(93
)
 

 

 

 
(2,886
)
 

 

 

 
(2,886
)
Exercise of SARs and stock options, net of forfeitures related to satisfying tax withholdings
 

 

 

 

 
(1
)
 

 

 

 
(1
)
Impact of redeemable noncontrolling interests accretion
 

 

 

 

 
(35
)
 

 

 

 
(35
)
Impact of subsidiary equity transactions
 

 

 

 

 
507

 

 
(12
)
 
4

 
499

Repurchase of common stock
 

 

 
(896
)
 
(12,505
)
 

 

 

 

 
(12,505
)
Net income (loss)
 

 

 

 

 

 
(9,670
)
 

 
(494
)
 
(10,164
)
Balance as of March 31, 2017
 
46,430

 
$
47

 
(12,482
)
 
$
(142,279
)
 
$
3,578,934

 
$
(3,104,906
)
 
$
87

 
$
11,654

 
$
343,537

 
See accompanying notes to consolidated financial statements.


6

ACTUA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

 
 
Three Months Ended March 31,
 
 
2017
 
2016
OPERATING ACTIVITIES - Continuing Operations
 
 
 
 
Net loss
 
$
(10,152
)
 
$
(15,383
)
Loss from discontinued operations, net of tax
 

 
2,081

Adjustments to reconcile net loss to cash used in operating activities:
 
 
 
 
Depreciation and amortization
 
4,247

 
4,101

Equity-based compensation
 
3,765

 
4,657

Impairment related and other
 
2

 
215

Other (income) loss, net
 
(867
)
 
90

Deferred tax asset
 
60

 
(5
)
Contingent consideration
 
358

 
16

Changes in operating assets and liabilities - net of acquisitions:
 
 
 
 
Accounts receivable, net
 
(196
)
 
(760
)
Prepaid expenses and other assets
 
131

 
(637
)
Accounts payable
 
1,359

 
(34
)
Accrued expenses
 
477

 
1,060

Accrued compensation and benefits
 
(2,703
)
 
(4,622
)
Deferred revenue
 
317

 
3,123

Other liabilities
 
136

 
2,167

Cash flows provided by (used in) operating activities
 
(3,066
)
 
(3,931
)
INVESTING ACTIVITIES - Continuing Operations
 
 
 
 
Capital expenditures
 
(183
)
 
(934
)
Change in restricted cash
 
90

 
(148
)
Proceeds from sales/distribution of ownership interests
 
958

 
46

Ownership acquisition, net of cash acquired
 
(250
)
 
(2,150
)
Cash flows provided by (used in) investing activities
 
615

 
(3,186
)
FINANCING ACTIVITIES - Continuing Operations
 
 
 
 
Acquisition of noncontrolling interests in subsidiary equity
 
(112
)
 
(5,578
)
Repayment of capital lease obligations
 
(8
)
 

Purchase of treasury stock
 
(11,459
)
 
(4,048
)
Tax withholdings related to equity-based awards
 
(2,886
)
 
(1,529
)
Financing activities with discontinued operations, net
 

 
(2,500
)
Cash flows provided by (used in) financing activities
 
(14,465
)
 
(13,655
)
Effect of exchange rate on cash and cash equivalents
 
(12
)
 
(74
)
Net increase (decrease) in cash and cash equivalents from continuing operations
 
(16,928
)
 
(20,846
)
Discontinued Operations
 
 
 
 
Cash flows provided by (used in) operating activities
 

 
(9,134
)
Cash flows provided by (used in) investing activities
 

 
(79
)
Cash flows provided by (used in) financing activities
 

 
7,038

Net increase (decrease) in cash and cash equivalents from discontinued operations
 

 
(2,175
)
Cash and cash equivalents at beginning of period - discontinued operations
 

 
3,856

Less: cash and cash equivalents at end of period - discontinued operations
 

 
1,681

Cash and cash equivalents at beginning of period
 
97,364

 
72,457

Cash and cash equivalents at end of period
 
$
80,436

 
$
51,611

 
See accompanying notes to consolidated financial statements.


7

ACTUA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


 
1. The Company
Description of the Company
Actua Corporation (together with its subsidiaries, "Actua"), which was formed on March 4, 1996, is a multi-vertical cloud technology company with offerings that it believes create unique and compelling value for its customers and provide transformative efficiency to vertical markets worldwide. As of March 31, 2017, Actua owned three businesses, each of which addresses the needs of a specific vertical market or industry: BOLT Solutions, Inc. ("Bolt"), FolioDynamics Holdings, Inc. ("FolioDynamix") and VelocityEHS Holdings, Inc. ("VelocityEHS").
Please refer to Item 1, "Business," in Actua’s Annual Report on Form 10-K for the year ended December 31, 2016 for a more detailed description of Actua and its businesses.
Basis of Presentation
On October 18, 2016, the sale of GovDelivery Holdings, Inc. ("GovDelivery") to affiliates of Vista Equity Partners ("Vista") (such transaction, the "GovDelivery Sale") was consummated. Accordingly, the financial results and financial position of GovDelivery are presented as discontinued operations in the Consolidated Financial Statements for all periods presented.
The Consolidated Financial Statements contained herein (the "Consolidated Financial Statements") include the accounts of Actua Corporation and its wholly-owned subsidiaries and majority-owned subsidiaries.     
2. Significant Accounting Policies
Principles of Accounting for Ownership Interests
The various interests that Actua acquires in its businesses are accounted for under one of three methods: the consolidation method, the equity method or the cost method. The applicable accounting method is generally determined based on Actua’s voting interest in a company.
Consolidation Method
Businesses in which (1) Actua directly or indirectly owns more than 50% of the outstanding voting securities and (2) other stockholders do not possess the right to affect significant management decisions are generally accounted for under the consolidation method of accounting. Participation of other stockholders in the net assets and in the earnings or losses of a consolidated subsidiary is reflected in the line items "Noncontrolling interests" in Actua’s Consolidated Balance Sheets and "Net income (loss) attributable to the noncontrolling interest" in Actua’s Consolidated Statements of Operations and Comprehensive Income (Loss). Noncontrolling interest adjusts Actua’s consolidated results of operations to reflect only Actua’s share of the earnings or losses of the consolidated subsidiary.
Any changes in Actua’s ownership interest in a consolidated subsidiary, whether through additional equity issuances (to Actua or otherwise) by the consolidated subsidiary or through Actua acquiring equity interests from existing shareholders, following which Actua maintains control, is recognized as an equity transaction, with appropriate adjustments to both Actua’s additional paid-in capital and the corresponding noncontrolling interests. The difference between the carrying amount of Actua’s ownership interest in the company and the underlying net book value of the company after the issuance of stock by the company is reflected as an equity transaction in Actua’s Consolidated Statements of Changes in Equity.
An increase in Actua’s ownership interest in a business accounted for under the equity or cost method of accounting in which Actua obtains a controlling financial interest is accounted for as a step acquisition, with an allocation of the purchase price to the fair value of the net assets acquired. In addition, Actua remeasures its previously held ownership interest in a business that was previously not consolidated at the acquisition date fair value; any gain or loss resulting from such a remeasurement is recognized in Actua’s Consolidated Statements of Operations and Comprehensive Income (Loss) at the time of the remeasurement. Actua begins to include the financial position and operating results of the newly-consolidated subsidiary in its Consolidated Financial Statements from the date Actua obtains the controlling financial interest in that subsidiary. If control is lost, any retained interest is measured at fair value, and a gain or loss is recognized in Actua’s Consolidated Statements of Operations and Comprehensive Income (Loss) at that time. In addition, to the extent Actua maintains a smaller equity ownership, the accounting method used for that business is adjusted to the equity or cost method of accounting, as appropriate, for subsequent periods.


8

ACTUA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
(Unaudited)

Equity Method
Businesses that are not consolidated, but over which Actua exercises significant influence, are accounted for under the equity method of accounting. The determination as to whether or not Actua exercises significant influence with respect to a company depends on an evaluation of several factors, including, among others, representation on the company’s board of directors and equity ownership level, which is generally between a 20% and a 50% interest in the voting securities of an equity method business, as well as voting rights associated with Actua’s holdings in common stock, preferred stock and other convertible instruments in that company. Actua did not own any equity method businesses during the first quarter of 2017 or during the year ended December 31, 2016.
Cost Method
Businesses not accounted for under either the consolidation method or equity method of accounting are accounted for under the cost method of accounting and are further discussed in Note 6, "Cost Method Businesses." Actua’s share of the earnings and/or losses of cost method businesses is not included in Actua’s Consolidated Statement of Operations and Comprehensive Income (Loss). However, impairment charges related to cost method businesses are recognized in Actua’s Consolidated Statement of Operations and Comprehensive Income (Loss). If circumstances suggest that the value of a cost method business with respect to which an impairment charge has been made has subsequently recovered, that recovery is not recorded. The carrying values of Actua’s cost method businesses are reflected in the line item "Cost method businesses" in Actua’s Consolidated Balance Sheets.
Actua initially records its carrying value in businesses accounted for under the cost method at cost, unless the equity securities of a cost method business have readily determinable fair values based on quoted market prices, in which case the interests are valued at fair value and are classified as marketable securities or some other classification in accordance with guidance for ownership interests in debt and equity securities.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles ("GAAP") requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ materially from those estimates. The estimates, which include evaluation of Actua’s debt and equity holdings in businesses, asset impairment, revenue recognition, income taxes, and commitments and contingencies are based on management’s best judgments. Management evaluates its estimates and underlying assumptions on an ongoing basis using historical experience and other factors, such as the current economic environment, that management believes to be reasonable under the circumstances and adjusts its estimates and assumptions when facts and circumstances dictate that it is necessary or appropriate to do so. It is reasonably possible that Actua’s accounting estimates with respect to the ultimate recoverability of Actua’s ownership interests in convertible debt, equity holdings, goodwill, and the useful lives of intangible assets could change in the near term and that the effect of such changes on Actua’s Consolidated Financial Statements could be material. As of March 31, 2017 and December 31, 2016, management believes the recorded amounts of goodwill, intangible assets and cost method businesses were not impaired.
Cash and Cash Equivalents
Actua considers all highly liquid instruments with an original maturity of three months or less at the time of purchase to be cash equivalents. Cash and cash equivalents at March 31, 2017 and December 31, 2016 were invested principally in money market accounts.
Restricted Cash
Actua considers cash that is legally restricted and cash that is held as a compensative balance for both operating leases and trust accounts, maintained and operated in conjunction with Actua’s insurance business, as restricted cash. Actua had long-term restricted cash of $0.4 million as of March 31, 2017 and $0.4 million as of December 31, 2016 that is included in "Other assets, net" in Actua’s Consolidated Balance Sheets.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the net assets of businesses acquired. Actua has made acquisitions over the years that have resulted in the recognition and accumulation of significant goodwill. Actua tests goodwill for impairment annually during the fourth quarter of each year, or more frequently as conditions warrant.

9

ACTUA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
(Unaudited)

The first step of the test used to identify potential impairment compares the estimated fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered to be impaired and the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the impairment test must be performed to measure the amount of the impairment loss, if any.
The second step of the goodwill impairment test compares the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill. The implied fair value of goodwill is determined in the same manner as goodwill recognized in a business combination. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to the excess.
Actua estimates the fair value of its reporting units using "Level 2" and "Level 3" inputs, as described in Note 7, "Fair Value Measurements." Significant judgments and estimates are made to estimate the fair value of Actua’s reporting units, such as projected future earnings, applicable discount rates, the selection of peer earnings multiples and the relative weighting of different fair value indicators. Actua determines market multiples from comparable publicly-traded companies and applies those multiples to the revenue of the reporting units to estimate the fair values, which are then compared to the respective carrying values of the reporting units.
Refer to Note 3, "Goodwill and Intangible Assets," for further details related to Actua’s December 31, 2016 annual impairment evaluation.
Intangible Assets
Intangible assets with determinable lives primarily consist of customer relationships, trademarks and trade names, technology, non-compete agreements and other intellectual property. The cost of intangible assets with determinable lives is amortized on a straight-line basis over the estimated period of economic benefit. Indefinite-lived intangibles are subject to impairment testing at least annually. In addition, intangible assets are tested more frequently if a change in circumstances or the occurrence of events indicates that potential impairment exists.
Cost Method Businesses
Actua evaluates its carrying value in cost method businesses continuously to determine whether an other-than-temporary decline in the fair value of any such business exists and should be recognized. In order to make that determination, Actua considers each such business' achievement of its business plan objectives and milestones, the fair value of Actua's ownership interest in each such business (which, in the case of any company listed on a public stock exchange, is the quoted stock price of the relevant ownership interest), the financial condition and prospects of each such business, and other relevant factors. The business plan objectives and milestones Actua considers include, among others, those related to financial performance, such as achievement of planned financial results or completion of capital raising activities, and those that are not primarily financial in nature, such as obtaining key business partnerships or the hiring of key employees. Impairment charges are determined by comparing Actua’s carrying value of its cost method investment in a business with the estimated fair value of the investment. Fair value is determined by using a combination of estimating the cash flows related to the relevant business, including estimated proceeds on disposition, and an analysis of market price multiples of companies engaged in lines of business similar to the business being evaluated.
Financial Instruments
Cash and cash equivalents, accounts receivable and accounts payable are carried at cost, which approximates fair value due to the short-term maturity of these instruments. Marketable securities are carried at fair value.
Deferred Revenue
Deferred revenue consists primarily of payments received in advance of revenue being earned under the relevant customer agreements.
Contract Acquisition Costs
Commission costs associated with the negotiation of a contract are charged to expense as incurred.

10

ACTUA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
(Unaudited)

Revenue Recognition
Actua recognizes revenue when persuasive evidence of an arrangement exists, delivery of the service has occurred, no significant obligations with regard to implementation remain, the fee is fixed or determinable and collectability is probable.  
If a multiple deliverable arrangement is entered into, Actua evaluates each deliverable to determine whether that deliverable has standalone value. A delivered element has standalone value if the element has value to a customer on a standalone basis. This is typically determined by reference to whether an element is routinely sold independent of other offerings or a third-party vendor could provide a similar service to the customer. Additionally, whether or not there is a customer-negotiated refund or return right for the delivered element is considered. If these criteria are not met, the deliverable is combined with the undelivered elements and the allocation of the arrangement consideration and revenue recognition are determined for the combined elements and recognized over the applicable contract term.
For any deliverables that are determined to have standalone value, Actua allocates the total revenue to be earned under the arrangement among the various deliverables based on a selling price hierarchy using the relative selling price method. Vendor specific objective evidence ("VSOE") of fair value is based on the normal pricing and discounting practices for those offerings when sold separately. Third-party evidence ("TPE") of fair value is determined by evaluating largely similar and interchangeable competitor offerings in standalone sales to similarly situated customers. Best estimated selling price ("ESP") is established by considering factors such as margin objectives, market conditions and competition.  ESP represents the price at which the company would transact for the deliverable if it were sold by the company regularly on a standalone basis.  The selling price for a deliverable is based on VSOE of fair value if it can be established; otherwise, the selling price is based on TPE of fair value or ESP if TPE of fair value cannot be established.
Actua’s businesses recognize professional fees provided to new customers, which primarily relate to implementation services, over the initial terms of the contracts if they are determined to not have standalone value. At the time that a contract with a new customer is consummated, there is no history with such customer, and it cannot be determined whether the relationship with such customers will extend beyond the terms of the initial contract.
The following paragraphs provide more specific details regarding the manner in which each of our businesses recognizes revenue.
Bolt
Bolt generates revenue from (1) software as a service ("SaaS") software licenses, (2) maintenance and support services, (3) professional service fees, (4) insurance commissions, including contingency bonus revenues from insurance carriers, and (5) subscription fees.
Bolt enters into certain multiple deliverable arrangements that relate primarily to its software licenses, which are delivered through a cloud-based model and include professional services necessary for the functionality of the software, as well as maintenance and support services. Under Bolt’s cloud-based software licenses, certain professional services are essential for the functionality of the software. Therefore, these services and the related maintenance and support services in these arrangements do not have standalone value to Bolt’s customers and are combined into a single unit of accounting. Revenue under these arrangements is recognized ratably over the applicable contract term.  
For Bolt’s professional services or other deliverables that are determined to have standalone value, Bolt allocates the total revenue to be earned under the arrangement for each deliverable based on the ESP, since Bolt has concluded that historically VSOE of fair value and TPE of fair value cannot be established. These fees are then recognized as the services are performed or delivered. Finally, certain professional services are sold separately. Those fees are recognized as the professional services are delivered.
Bolt’s commissions on the premiums from sales of insurance policies are recognized when Bolt has sufficient information to determine (1) the amount that it is owed and (2) whether it is probable that the economic benefits associated with the transaction will be realized by Bolt. Bolt recognizes subscription fee revenue over the subscription period, which is generally a one-month period.  
Bolt has typically represented a small amount of Actua’s historical deferred revenue balances.  Bolt’s contracts are generally billed in annual, quarterly or monthly installments.
FolioDynamix
FolioDynamix generates revenues primarily in the form of (1) recurring software license and subscription fees, (2) maintenance and support services, (3) professional services fees from customization and integration services related to its software, (4) professional services fees for customized investment program management and consulting, and (5) investment advisory services.  The initial subscription arrangement term is typically between three and five years.

11

ACTUA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
(Unaudited)

FolioDynamix’s platform revenue from term software license arrangements is recognized on a subscription basis over the customer contract license term of use.  Revenue from annual maintenance is deferred and recognized on a straight-line basis over the period that the service is provided.  Revenue related to platform implementation professional services is deferred and recognized on a straight-line basis over the contract term.  FolioDynamix enters into multiple element arrangements with new customers that include both the software subscription and professional implementation services. The professional services in these arrangements do not have standalone value as they are essential for the functionality of the software. Therefore, revenue under these arrangements are recognized ratably over the applicable contract term.
Certain revenues earned by FolioDynamix for advisory services require judgment to determine whether the revenue should be recorded on a gross basis (that is, with FolioDynamix as a principal) or net of related costs (that is, with FolioDynamix as an agent). In general, these revenues are recognized on a net basis if FolioDynamix is not the primary obligor and when FolioDynamix is acting as an agent of the supplier.  
FolioDynamix represents $3.9 million of Actua's total deferred revenue balance of $37.3 million as of March 31, 2017. FolioDynamix’s contracts are billed in annual, quarterly or monthly installments and are primarily non-cancellable.
VelocityEHS
VelocityEHS derives revenue from two sources: (1) SaaS subscription fees and (2) professional services fees. The initial subscription arrangement term is typically between one and three years.
The vast majority of VelocityEHS’ revenue is derived from subscription fees from customers accessing VelocityEHS’ database and web-based tools; that revenue is recognized ratably over the applicable contract term, beginning with the subscription start date. VelocityEHS also generates professional service fees from (1) customer training, (2) authoring of safety data sheets for customers, and (3) compiling of customers’ online libraries of safety data sheet documents and indexing those documents. For new VelocityEHS customers, professional services are often included in the arrangement with the subscription fees. Under these arrangements, the professional fees are determined to have standalone value. VelocityEHS allocates the total revenue to be earned under the arrangement based on the ESP, as neither VSOE of fair value nor TPE of fair value can be established. ESP is determined by weighting the available evidence of selling prices which includes VelocityEHS’ pricing practices, contractual prices and pricing of standalone sales. These fees are then recognized as the services are performed.
VelocityEHS has typically represented the majority of Actua’s historical deferred revenue balances.  VelocityEHS’ contracts are generally billed annually and are non-cancellable.
Equity-Based Compensation
Actua recognizes equity-based compensation expenses in the Consolidated Financial Statements for all restricted stock awards and other equity-based arrangements that are expected to vest. Equity-based compensation expense is measured at the date of grant, based on the fair value of the award, and is recognized using the straight-line method over the employee’s requisite service period. Equity-based awards with vesting conditions other than service are recognized based on the probability that those conditions will be achieved. Employees have the ability to net settle their equity-based awards.
Research and Development
Research and development costs for software to be sold and marketed are charged to expense as those costs are incurred.
Income Taxes
Income taxes are accounted for under the asset and liability method, whereby deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and net operating loss and capital loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which the temporary differences and net operating loss and capital loss carryforwards are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
Actua records a valuation allowance to reduce its net deferred tax assets to the amount that is more likely than not to be realized. Actua considers future taxable income and prudent and feasible tax planning strategies in determining the need for a valuation allowance. In the event that Actua determines that it would not be able to realize all or part of its net deferred tax assets, an adjustment to the deferred tax assets would be charged to earnings in the period such determination is made. Likewise, if Actua later determines that it is more likely than not that the net deferred tax assets would be realized, the previously provided valuation allowance would be reversed.


12

ACTUA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
(Unaudited)

Net Income (Loss) Per Share
Basic net income (loss) per share ("EPS") is computed using the weighted average number of common shares outstanding during a given period, exclusive of unvested restricted stock. Diluted EPS includes shares, unless anti-dilutive, that would be issued in connection with the exercise of stock options and conversion of other convertible securities and is adjusted, if applicable, for the effect on net income (loss) of such transactions. See Note 13, "Net Income (Loss) Per Share."
Comprehensive Income (Loss)
Actua reports and displays comprehensive income (loss) and its components in the Consolidated Statements of Operations and Comprehensive Income (Loss). Comprehensive income (loss) is the change in equity of a business enterprise during a period from non-owner sources. Actua’s sources of comprehensive income (loss) are net income (loss) and foreign currency translation adjustments. Reclassification adjustments result from the recognition of gains or losses in net income (loss) that were included in comprehensive income (loss) in prior periods.
Supplemental Cash Flow Disclosures
Actua did not pay any interest or make any income tax payments during the three months ended March 31, 2017 and 2016. Fixed assets purchased during the three months ended March 31, 2017 and 2016, but not yet paid for as of those dates, were in the amounts of $0.4 million and $1.2 million, respectively. Actua reports cash received from the sale of a discontinued operation as cash flows from continuing operations.
Discontinued Operations
On September 20, 2016, GovDelivery entered into a merger agreement providing for the sale of GovDelivery to Vista; the GovDelivery Sale was consummated on October 18, 2016. Because of this and other factors, Actua has recast all financial information within the Consolidated Financial Statements to conform to the current period presentation and to present GovDelivery as discontinued operations for all periods presented.
Escrow Information
When an interest in one of Actua’s businesses is sold, a portion of the proceeds may be held in escrow primarily to satisfy purchase price adjustments and/or indemnity claims. Actua records gains on escrowed proceeds at the time Actua is entitled to receive those proceeds from escrow, the amount is fixed or determinable and realization is assured. As of March 31, 2017, $11.3 million related to Actua’s potential proceeds from sales of former businesses, particularly GovDelivery, remained in escrow to satisfy potential or unresolved indemnification claims. Those outstanding escrow amounts are scheduled to be released in the fourth quarter of 2017, subject to pending and potential indemnity claims pursuant to the terms of the applicable acquisition agreements.
Concentration of Customer Base and Credit Risk
No single customer of Actua’s consolidated businesses represented more than 10% of Actua’s consolidated revenue for the three months ended March 31, 2017 and 2016.
Commitments and Contingencies
From time to time, Actua and its businesses are involved in various claims and legal actions arising in the ordinary course of business. Actua does not expect any liability with respect to any legal claims or actions, either individually or in the aggregate, that would materially affect its consolidated financial position or cash flows.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers, which provides a single, comprehensive revenue recognition model for all contracts with customers. Under the new guidance, an entity will recognize revenue based on amounts the entity expects to be entitled to in exchange for the transfer of goods or services. The new guidance also includes enhanced disclosure requirements. This guidance, which will be applied either retrospectively or as a cumulative-effect adjustment as of the date of adoption, will be effective for Actua beginning on January 1, 2018. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), to clarify the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing, which clarifies the identification of performance obligations and the licensing implementation guidance. In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, which addresses collectability, sales and other taxes, noncash consideration, contract modifications at transition, completed contracts at transition and technical corrections. In December 2016, ASU 2016-20

13

ACTUA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
(Unaudited)

Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, was issued by the FASB to clarify and correct unintended application of the new revenue recognition guidance. The effective dates for these ASUs are the same as the effective date for ASU 2014-09. Actua has conducted a high level assessment to evaluate the impact of the new guidance by performing an initial analysis of its material contracts. During 2017, Actua will continue its impact assessment by performing detailed reviews of all of its contracts to determine the overall impact of the new accounting guidance on its results of operations and if there are any adjustments that Actua will need to make to its accounting policies, systems and controls. The assessment is ongoing; however, Actua currently believes that one of the key components in the guidance that will impact Actua is the requirement to capitalize the costs incurred to acquire new contracts. Currently, Actua expenses all sales commissions as incurred. Actua does not plan on adopting this guidance early and has not yet selected a transition methodology.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). Under the new guidance, most leases will be recognized on Actua’s Consolidated Balance Sheets as liabilities with corresponding right-of-use assets. The new guidance is effective for Actua for the annual period beginning January 1, 2019, including interim periods within those annual periods, with early adoption permitted. The standard must be adopted using a modified retrospective approach. Actua is in the process of evaluating the impact of this new pronouncement.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. The new standard requires that the statement of cash flows explain the change during the period of both cash and cash equivalents as well as restricted cash balances. Therefore, restricted cash should be included within the cash and cash equivalents balance when reconciling the beginning and ending period amounts shown on the statement of cash flows. This ASU is effective for fiscal years beginning after December 31, 2017, and early adoption is permitted. The adoption of this guidance will only impact the presentation of Actua's Statement of Cash Flows and will not have an impact on Actua's results of operations. Actua does not intend to early adopt this new guidance.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The new standard clarifies the definition of a business and whether an acquisition should be accounted for as an asset acquisition or a business acquisition. The new guidance is effective for Actua for the annual period beginning January 1, 2018, including interim periods within those annual periods. The new standard is to be applied prospectively only, and no further disclosure is required once the new methodology is adopted and applied.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The new standard simplifies the subsequent measurement of goodwill by eliminating Step 2 for the goodwill impairment test. In doing so, Actua will no longer determine goodwill impairment by calculating the implied fair value of the goodwill by assigning the fair value of a reporting unit to its assets and liabilities. Instead, Actua will compare the fair value of a reporting unit against Actua's carrying value of that reporting unit and record impairment for the amount that the carrying value exceeds the fair value, limited by the amount of goodwill assigned to that reporting unit. Actua plans to adopt this standard during the year ending December 31, 2017.
Recently Adopted Accounting Guidance
In March 2016, the FASB issued ASU 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which provides guidance involving several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. Under the new guidance, all excess tax benefits and tax deficiencies (including tax benefits of dividends on share-based payment awards) should be recognized as income tax expense or benefit in the statement of operations, whereas under prior GAAP, excess tax benefits were recognized in additional paid-in capital and tax deficiencies were recognized either as an offset to accumulated excess tax benefits, if any, or in the statement of operations. Under the new guidance, excess tax benefits should be classified along with other income tax cash flows as an operating activity, as opposed to a financing activity under prior GAAP. Additionally, an entity can make an accounting policy election to either estimate the number of awards that are expected to vest (prior GAAP) or account for forfeitures when they occur. The amendments in this update were effective for Actua for annual periods beginning January 1, 2017. The adoption of this guidance did not have a significant impact on Actua's Consolidated Financial Statements.

14

ACTUA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
(Unaudited)


3. Goodwill and Intangible Assets
Goodwill
The following table summarizes the activity related to Actua’s goodwill:
(in thousands)
 
Gross Carrying
Amount
 
Accumulated
Impairment
Losses
 
Net Carrying
Amount
Goodwill as of December 31, 2016
 
$
271,443

   
$
(39,656
)
 
$
231,787

Acquisitions (1)
 
(363
)
  

 
(363
)
Goodwill as of March 31, 2017
 
$
271,080

  
$
(39,656
)
 
$
231,424

________________
(1) 
Refer to Note 4, "Consolidated Businesses," for details of acquisitions.
 
As of March 31, 2017 and December 31, 2016, all of Actua’s goodwill was allocated to its vertical cloud segment.

Impairment
Actua completed its annual impairment testing in the fourth quarter of 2016, which resulted in no impairments related to Actua’s consolidated businesses because the fair value of the reporting units exceeded their carrying value for each of those reporting units, including goodwill.
Intangible Assets
The following table summarizes Actua’s intangible assets:
(in thousands)
 
 
 
As of March 31, 2017
 
 
 
 
Gross Carrying
 
Accumulated
 
Net Carrying
Intangible Assets
 
Useful Life
 
Amount
 
Amortization
 
Amount
Customer relationships
 
3-11 years
 
$
65,486

  
$
(23,640
)
  
$
41,846

Trademarks/trade names
 
3-11 years
 
22,904

   
(10,847
)
   
12,057

Technology
 
5-9 years
 
26,322

   
(11,654
)
   
14,668

Non-compete agreements
 
3-5 years
 
3,908

   
(3,572
)
   
336

 
 
 
 
118,620

   
(49,713
)
   
68,907

Other intellectual property (1)
 
Indefinite
 
700

   

   
700

 
 
 
 
$
119,320

  
$
(49,713
)
  
$
69,607

 
(in thousands)
 
 
 
As of December 31, 2016
 
 
 
 
Gross Carrying
 
Accumulated
 
Net Carrying
Intangible Assets
 
Useful Life
 
Amount
 
Amortization
 
Amount
Customer relationships
 
3-11 years
 
$
65,603

  
$
(21,783
)
  
$
43,820

Trademarks/trade names
 
3-11 years
 
22,904

  
(10,043
)
  
12,861

Technology
 
5-9 years
 
26,334

  
(10,675
)
  
15,659

Non-compete agreements
 
3-5 years
 
3,915

  
(3,549
)
  
366

 
 
 
 
118,756

  
(46,050
)
  
72,706

Other intellectual property (1)
 
Indefinite
 
700

  

  
700

 
 
 
 
$
119,456

  
$
(46,050
)
  
$
73,406

____________________
(1) 
Included in this line item is a domain name valued at $0.3 million that Actua currently believes has an indefinite life, and a domain name for which Actua estimated the residual value to approximate its carrying value of $0.4 million as of both March 31, 2017 and December 31, 2016.
 
Amortization expense for intangible assets during the three months ended March 31, 2017 was $3.7 million. Amortization expense for intangible assets during the three months ended March 31, 2016 was $3.6 million.

15

ACTUA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
(Unaudited)

The remaining estimated amortization expense for the respective years is set forth as follows:
 
(in thousands)
 
 
 
2017 (remaining nine months)
$
10,691

2018
12,892

2019
11,351

2020
9,911

2021
9,813

Thereafter
14,249

Remaining amortization expense
$
68,907

 
4. Consolidated Businesses
Acquisitions
On January 22, 2016, VelocityEHS acquired certain assets of ErgoAdvocate LLC ("ErgoAdvocate") for $1.25 million of cash consideration, $1.0 million of which was paid at the closing of the transaction, and $0.25 million of which was paid during the three months ended March 31, 2017. The acquisition was accounted for under the acquisition method. VelocityEHS has allocated the purchase price to the acquired identifiable intangible assets and goodwill based upon their respective fair values as of the date of acquisition.
On September 16, 2016, VelocityEHS acquired certain assets of E3 Solutions Inc. ("E3 Solutions") for $3.0 million of cash consideration, $2.7 million of which was paid at the closing of the transaction, and $0.3 million of which will be paid in equal installments on the 12-month and 18-month anniversaries of the closing. The acquisition was accounted for under the acquisition method. VelocityEHS has allocated the purchase price to the acquired identifiable intangible assets and goodwill based upon their respective fair values as of the date of acquisition.
On October 31, 2016, FolioDynamix acquired certain assets of SAS Capital Management, LLC ("SAS") for a maximum consideration of $25.0 million. The initial consideration paid, net of working capital, was approximately $2.9 million. Aggregate payments of approximately $1.0 million are payable over the 15-month period following the closing for a total fixed consideration of $3.9 million. The SAS acquisition is subject to an earnout based on the achievement of specified revenue targets that was valued at $7.9 million at the date of acquisition. The acquisition was accounted for under the acquisition method. FolioDynamix has preliminarily allocated the purchase price to identifiable tangible and intangible assets, goodwill and deferred revenue.
The allocations of the respective ErgoAdvocate, E3 Solutions and SAS purchase prices to identified intangible assets and tangible assets and liabilities were as follows:
(in thousands)
 
ErgoAdvocate
 
E3 Solutions
 
SAS
Goodwill
 
$
155

 
$
1,074

 
$
9,736

Customer lists (5-11 year life)
 
26

 
28

 
2,153

Trademarks, trade names and domain names (5-11 year life)
 

 
6

 

Technology (7-9 year life)
 
1,069

 
1,822

 
344

Non-compete agreement (5 year life)
 

 
70

 
233

Deferred revenue
 

 

 
(320
)
Other net assets (liabilities)
 

 

 
(397
)
  Total net assets acquired
 
$
1,250


$
3,000

 
$
11,749


Redeemable Noncontrolling Interests
In connection with GovDelivery's acquisitions of NuCivic, Inc. ("NuCivic") and Textizen, Inc. ("Textizen"), certain GovDelivery stockholders had the ability to require GovDelivery to redeem a portion of their shares in 2017, 2018, 2019 and 2020 based on a fair value determination. In connection with the GovDelivery Sale, the vesting of the redeemable shares related to the NuCivic and Textizen acquisitions was accelerated, and the shares were cashed out for a portion of the sale consideration.

16

ACTUA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
(Unaudited)

Certain VelocityEHS stockholders have the ability to require VelocityEHS to redeem a portion of their shares in 2017 based on a mutually agreed upon fair value determination. Certain FolioDynamix shareholders have the ability to require FolioDynamix to redeem a portion of their shares in 2018, 2019 and/or 2020 based on a mutually agreed upon fair value determination. Because any such redemptions would be outside the control of the respective businesses, Actua has classified the noncontrolling interests outside of equity and will accrete to the estimated redemption values with an offset to additional paid-in capital. The noncontrolling interests are classified as "Redeemable noncontrolling interests" in Actua’s Consolidated Balance Sheets.
The following is a reconciliation of the activity related to Actua’s redeemable noncontrolling interest during the three months ended March 31, 2017 and 2016:
(in thousands)
 
Balance at December 31, 2015
$
10,506

Redeemable noncontrolling interest portion of subsidiary net income (loss)
(69
)
Accretion to estimated redemption value
633

Equity transfer among owners (1)
(5,247
)
Balance at March 31, 2016
$
5,823

Balance at December 31, 2016
$
5,858

Redeemable noncontrolling interest portion of subsidiary net income (loss)
12

Accretion to estimated redemption value
23

Balance at March 31, 2017
$
5,893

____________________________
(1)
This amount primarily relates to cash payments made during the three months ended March 31, 2016 of $5.4 million to acquire $2.5 million of redeemable noncontrolling interests associated with GovDelivery, $2.4 million of redeemable noncontrolling interests associated with VelocityEHS and $0.5 million of redeemable noncontrolling interests associated with FolioDynamix. These transactions increased Actua’s ownership in GovDelivery from 92% to 94% and its ownership in VelocityEHS from 98% to 99%. Actua's ownership in FolioDynamix did not significantly change from the repurchase.

Other Consolidated Businesses Transactions
From time to time, Actua acquires additional equity ownership interests in its consolidated businesses. Purchasing equity ownership interests from a consolidated business’s existing shareholders results in an increase in Actua’s controlling interest in that business and a corresponding decrease in the noncontrolling interests ownership. Those transactions are accounted for as decreases to "Noncontrolling interests" and increases to "Additional paid-in capital" in Actua’s Consolidated Balance Sheets for the relevant periods. Actua may also acquire additional equity ownership interests in its consolidated businesses as a result of share issuances by one or more of those businesses, and Actua’s equity ownership interests may be diluted by any such share issuances to other parties. An issuance of equity securities by a consolidated business that results in a decrease in Actua’s equity ownership interests is accounted for in accordance with the policy for "Principles of Accounting for Ownership Interests" described in Note 2, "Significant Accounting Policies." Other changes to Actua’s equity ownership interests in its consolidated businesses, as well as equity-based compensation award activity at those businesses, also result in adjustments to "Additional paid-in capital" and "Noncontrolling interests" in Actua’s Consolidated Balance Sheets. The impact of any equity-related transactions at Actua’s consolidated businesses is included in the line item "Impact of subsidiary equity transactions" in Actua’s Consolidated Statements of Changes in Equity. During the three months ended March 31, 2016, the "Impact of subsidiary equity transactions" line item as shown on Actua’s Consolidated Statements of Changes in Equity was $0.5 million, which was comprised of $5.4 million paid by Actua in order to repurchase shares in its consolidated businesses offset by $4.9 million relating to Actua’s share of its consolidated businesses' equity transactions. Actua did not repurchase any shares of its consolidated businesses during the three months ended March 31, 2017; therefore, the balance of $0.5 million in the "Impact of subsidiary equity transactions" line item (as shown on Actua’s Consolidated Statements of Changes in Equity) relates entirely to Actua’s share of its consolidated businesses' equity transactions.

17

ACTUA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
(Unaudited)

Pro Forma Information (Unaudited)
The information in the following table represents the revenue, net loss attributable to Actua and the net loss per diluted share attributable to Actua for the relevant period had it owned E3 Solutions and SAS during that period.
(in thousands, except per share data)
 
Three Months Ended March 31, 2016
Revenue
 
$
26,721

Net loss attributable to Actua Corporation
 
$
(12,370
)
Net loss per diluted share attributable to Actua Corporation
 
$
(0.33
)
 
5. Discontinued Operations
On October 18, 2016, the sale of GovDelivery to Vista was consummated for $153.0 million in cash, subject to certain adjustments for working capital, cash, debt and other items. Actua realized approximately $133.0 million in cash, of which approximately $10.0 million is being held in escrow and is subject to potential indemnification claims. Actua recorded a gain of $124.8 million related to the transaction during the fourth quarter of 2016.
The results of Actua's discontinued GovDelivery operations, which are presented on the line item "Income (loss) from discontinued operations, net of tax" on Actua’s Consolidated Statements of Operations and Comprehensive Income (Loss) is summarized below:
(in thousands)
 
 
Major classes of line items constituting pretax loss of discontinued operations
 
Three Months Ended March 31, 2016
Revenue
 
$
9,424

Cost of revenue
 
(3,470
)
Selling, general, administrative and other operating expenses
 
(7,935
)
Other non-major income and expense items
 
(79
)
Total discontinued operations before income taxes
 
(2,060
)
Income tax benefit (expense)
 
(21
)
Total discontinued operations, net of income taxes
 
(2,081
)
Less: discontinued operations attributable to noncontrolling interests
 
(110
)
Discontinued operations attributable to Actua Corporation
 
$
(1,971
)

6. Cost Method Businesses
Actua’s carrying value of its holdings in cost method businesses was $17.3 million as of both March 31, 2017 and December 31, 2016, as reflected in the line item "Cost method businesses" in Actua’s Consolidated Balance Sheets as of the relevant dates.
Impairments
Actua performs ongoing business reviews of its cost method businesses to determine whether Actua’s carrying value in those businesses is impaired. Actua determined its carrying value in its cost method businesses was not impaired during the three months ended March 31, 2017 or the year ended December 31, 2016.

7. Fair Value Measurements
Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. There are three levels of inputs that may be used to measure fair value, which are as follows:
Level 1 – Observable inputs, such as quoted market prices for identical assets and liabilities in active public markets.
Level 2 – Observable inputs other than Level 1 prices based on quoted prices in markets with insufficient volume or infrequent transactions, or valuations in which all significant inputs are observable for substantially the full term of the asset or liability.
Level 3 – Unobservable inputs to the valuation techniques that are significant to the fair value of the asset or liability.

18

ACTUA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
(Unaudited)

Assets and liabilities are measured at fair value based on one or more of the following three valuation techniques:
Market approach – Fair value is determined based on prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities.
Income approach – Fair value is determined by converting relevant future amounts to a single present amount based on market expectations (including present value techniques and option pricing models).
Cost approach – Fair value represents the amount that currently would be required to replace the service capacity of the relevant asset (often referred to as replacement cost).
The fair value hierarchy of Actua’s financial assets and liabilities measured at fair value on a recurring basis were as follows:
(in thousands)
 
 
 
Valuation
 
 
 
 
 
 
 
 
 
 
Technique
 
 
 
 
 
 
 
 
Asset (Liability)
 
(Approach)
 
Level 1
 
Level 2
 
Level 3
March 31, 2017
 
 
 
 
 
 
 
 
 
 
Cash equivalents (money market accounts)
 
$
69,041

 
Market
 
$
69,041

 
$

 
$

Acquisition contingent consideration obligations
 
(8,610
)
 
Income
 

 

 
(8,610
)
 
 
$
60,431

 
 
 
$
69,041

 
$

 
$
(8,610
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Valuation
 
 
 
 
 
 
 
 
 
 
Technique
 
 
 
 
 
 
 
 
Asset (Liability)
 
(Approach)
 
Level 1
 
Level 2
 
Level 3
December 31, 2016
 
 
 
 
 
 
 
 
 
 
Cash equivalents (money market accounts)
 
$
89,220

 
Market
 
$
89,220

 
$

 
$

Acquisition contingent consideration obligations
 
(8,752
)
 
Income
 

 

 
(8,752
)
 
 
$
80,468

 
 
 
$
89,220

 
$

 
$
(8,752
)

The carrying value of certain of Actua’s other financial instruments, including accounts receivable and accounts payable, approximates fair value due to the short-term nature of those instruments.

As of March 31, 2017 and December 31, 2016, Actua accounted for a contingent earn-out payment related to FolioDynamix’s acquisition of SAS (the "SAS Earnout"), which was a component of the purchase price for SAS. A fair value of the SAS Earnout was determined on the date of acquisition using Monte Carlo simulation models that yielded a value of $7.9 million. The ultimate obligation could range in value up to $20.4 million. The fair value of the SAS Earnout as of March 31, 2017 is $8.6 million which has been determined through the update of models, Actua's calculations and/or qualitative analysis. Changes in the fair value of the SAS Earnout were reflected in the "Impairment related and other" line item on Actua's Consolidated Statements of Operations and Comprehensive Income (Loss).
8. Debt
On August 9, 2013, as part of a round of debt financing led by Actua, Bolt entered into certain loan agreements with one of its minority shareholders that exercised its preemptive rights, Neurone II Investments G.P., Ltd. ("Neurone"). Those agreements provided for a term loan of $0.5 million, subject to an interest rate of 8.0% and a maturity date of August 9, 2015. Since the loan matured on August 9, 2015, it has become payable on demand and interest continues to accrue at 8.0% interest. The principal amount on the loan, which is convertible into shares of preferred stock in Bolt, has a fair value of $0.5 million as of both March 31, 2017 and December 31, 2016. As of both March 31, 2017 and December 31, 2016, $0.5 million is outstanding under the term loan and is included in the line item "Short-term debt" in Actua’s Consolidated Balance Sheets.
On January 1, 2015, as part of a round of debt financing led by Actua, Bolt entered into certain additional loan agreements with Neurone that provided for a term loan of $0.8 million, which is subject to an interest rate of 8.0% and a maturity date of May 1, 2016 and is now payable on demand. The loan, which is convertible into shares of Bolt’s preferred stock, has a fair value of $0.8 million as of March 31, 2017.  As of both March 31, 2017 and December 31, 2016, $0.8 million is outstanding under the term loan and is included in the line item "Short-term debt" in Actua’s Consolidated Balance Sheets.


19

ACTUA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
(Unaudited)

9. Treasury Stock
Actua has been authorized by its Board of Directors (the "Board"), pursuant to a share repurchase program to repurchase, from time to time, shares of Common Stock in open market transactions, including pursuant to trading plans meeting the requirements of Rule 10b5-1 under the Exchange Act, in privately negotiated transactions or pursuant to one or more issuer tender offers. The program was adopted in 2008 and expanded in 2013 to allow for the repurchase of up to $150.0 million of shares of Actua's Common Stock. During the year ended December 31, 2016, the program was further expanded to allow for an additional $39.8 million of repurchases, increasing the total repurchase amount to $189.8 million, of which $43.4 million is available as of May 3, 2017. During the three months ended March 31, 2017, Actua repurchased 895,787 shares of its Common Stock for $12.5 million at an average stock price of $13.92 per share. During the three months ended March 31, 2017, Actua paid $11.5 million for these repurchases and accrued $1.0 million for the share repurchases not yet settled. During the three months ended March 31, 2016, Actua repurchased 470,000 shares of its Common Stock at an average stock price of $9.15 per share. During the three months ended March 31, 2016, Actua paid $4.0 million for these repurchases and accrued $0.3 million for the share repurchases not yet settled. From commencement of the program through May 3, 2017, Actua has deployed a total of $146.4 million to repurchase a total of 12,834,734 shares of Common Stock for an average purchase price of $11.41 per share. Repurchases are reflected in the line item "Treasury stock, at cost" as a reduction of stockholders’ equity in Actua’s Consolidated Balance Sheets in the relevant period.

10. Equity-Based Compensation
Equity-based compensation awards may be granted to Actua employees, directors and consultants and certain employees of its consolidated businesses under Actua’s 2005 Omnibus Equity Compensation Plan (as amended from time to time, the "Plan"). Generally, the awards vest over a period from one to four years or based on the achievement of performance-based or market-based conditions, and expire eight or ten years after the grant date. Most businesses in which Actua holds equity ownership interests also maintain their own equity incentive compensation plans. As of March 31, 2017, Actua had 2,110,719 shares of Common Stock reserved under the Plan for possible future issuance.
Actua may issue the following types of equity-based compensation to its employees and non-employee directors: (1) restricted stock and restricted stock units (which may be subject to performance-based or market-based conditions), (2) stock appreciation rights ("SARs"), (3) stock options and (4) deferred stock units ("DSUs").
Actua’s grants of equity-based compensation are approved by the Board or the Compensation Committee of the Board. Equity-based compensation is included in operating expenses, primarily in the line item "General and administrative" in Actua’s Consolidated Statements of Operations and Comprehensive Income (Loss).

20

ACTUA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
(Unaudited)

The following table summarizes the equity-based compensation recognized by expense line item on Actua’s Consolidated Statements of Operations and Comprehensive Income (Loss):
(in thousands)
 
Three Months Ended March 31,
 
 
2017
 
2016
Cost of revenue
 
$
102

 
$
32

Sales and marketing
 
92

 
88

General and administrative
 
3,489

 
4,423

Research and development
 
82

 
114

Total equity-based compensation
 
$
3,765

 
$
4,657


Equity-based compensation by equity award type:
(in thousands)
 
Three Months Ended March 31,
 
 
2017
 
2016
Restricted stock
 
$
3,061

 
$
3,925

SARs
 
10

 
58

DSUs
 
74

 
99

 
 
3,145

 
4,082

Equity-based compensation for consolidated businesses
 
620

 
575

Total equity-based compensation
 
$
3,765

 
$
4,657


Unrecognized equity-based compensation by equity award type:
(in thousands, except weighted average years)
 
Three Months Ended March 31,
 
Weighted Average Years Remaining of Equity-Based Compensation as of
 
 
2017
 
2016
 
March 31, 2017
Restricted stock
 
$
10,864

 
$
18,387

 
1.04
SARs
 
108

 
67

 
3.03
DSUs
 
356

 
869

 
1.20
 
 
11,328

 
19,323

 
 
Equity-based compensation for consolidated businesses
 
6,973

 
5,879

 
2.87
Total equity-based compensation
 
$
18,301

 
$
25,202

 
 

Restricted Stock
Actua periodically issues shares of restricted stock to its employees, employees of its consolidated businesses and its non-management directors. Recipients of restricted stock do not pay any cash consideration for the shares and have the right to vote all shares subject to the grant. Any cash dividends paid by Actua in respect of unvested restricted stock would be paid to the holders of outstanding restricted stock at the same time as cash dividends are paid to common stockholders. Any dividends paid by Actua in stock or other property in respect of unvested restricted stock would be paid to the holders of outstanding unvested restricted stock subject to the same terms and conditions related to vesting, forfeiture and non-transferability as the underlying stock.
Share activity with respect to restricted stock awards for the three months ended March 31, 2017 and 2016 was as follows:
 
 
Number of Shares
 
Weighted Average Grant Date Fair Value Per Share
Issued and unvested as of December 31, 2015
 
3,480,828

 
$
16.51

Granted
 
434,283

 
$
8.44

Vested
 
(657,317
)
 
$
18.75

Forfeited
 
(588,819
)
 
$
10.69

Issued and unvested as of March 31, 2016
 
2,668,975

 
$
15.93


21

ACTUA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
(Unaudited)


 
 
Number of Shares
 
Weighted Average Grant Date Fair Value Per Share
Issued and unvested as of December 31, 2016
 
2,644,030

 
$
14.15

Granted
 
286,256

 
$
13.85

Vested
 
(625,646
)
 
$
15.30

Forfeited
 
(167,712
)
 
$
8.44

Issued and unvested as of March 31, 2017
 
2,136,928

 
$
14.22


The total aggregate fair value of restricted stock awards that vested and were converted into Actua’s Common Stock during the three months ended March 31, 2017 and 2016 was as follows:
(in thousands)
 
2017
 
2016
Three months ended March 31,
 
$
8,548

 
$
5,243



The following shares were surrendered by Actua's employees to satisfy their obligations for withholding taxes:
 
 
2017
 
2016
Three months ended March 31,
 
211,560

 
191,898


As of March 31, 2017, issued and unvested shares of restricted stock granted to Actua’s employees and directors vest as follows:
Number of Shares Unvested
 
Vesting Conditions
1,335,700

 
Subject to certain market conditions, as discussed below
263,756

 
Subject to certain performance conditions, as discussed below
537,472

 
Subject to certain service conditions, as discussed below
2,136,928

 
 
 
 
 
 
 
 
 
 
Restricted Stock – Awards with Market Conditions
Actua has issued restricted stock awards with market-based vesting conditions to its employees and certain employees of its consolidated businesses, the vesting of which is contingent upon achievement of specified price targets of Actua’s Common Stock. The equity-based compensation expense for awards with market-based vesting conditions is recorded based on the fair value of the awards, which is determined using a Monte Carlo simulation model at the time the award is granted. For the majority of the market-based awards that are outstanding as of March 31, 2017, the derived service period over which the expense is to be recognized is also determined by the Monte Carlo simulation model. In the event that the market-based conditions are not achieved and the related restricted stock awards are forfeited, equity-based compensation expense would not be reversed; if an employee terminates service with Actua prior to vesting of a market-based vesting, any compensation expense associated with the unvested award would be reversed.  
During 2011, a total of 366,666 shares of restricted stock with market-based conditions were granted to Actua’s Chief Executive Officer and its President. The market-based conditions were not achieved and the relevant shares of restricted stock lapsed unvested in the first quarter of 2016.
In February 2014, a total of 1,277,500 shares of restricted stock with market-based conditions were granted to certain of Actua’s employees, including Actua’s executive officers, and certain executives of Actua’s consolidated businesses. The vesting of those shares is contingent upon the 45-trading day volume-weighted average price per share ("VWAP") of Actua’s Common Stock meeting or exceeding specified 45-trading day VWAP targets ($28.07, $30.16, $32.38 and $34.71) (the "2014 VWAP Targets") on or before February 28, 2018, with 25% of the shares vesting upon achievement of each of the targets. Through the quarter ended March 31, 2017, 20,000 shares related to this award have been forfeited. In the event that any of the 2014 VWAP Targets are not achieved, the relevant shares of restricted stock will lapse unvested.

22

ACTUA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
(Unaudited)

There are various other restricted stock awards that have been issued, the vesting of which are contingent upon the 45-trading day VWAP of Actua’s Common Stock meeting or exceeding the 2014 VWAP Targets on or before February 28, 2018, and such awards remain unvested as of March 31, 2017. These issuances total 90,800 shares awarded, of which 12,600 shares have been forfeited through the quarter ended March 31, 2017.
In aggregate, and inclusive of any amounts noted in the paragraphs of this subsection, compensation expense related to awards with market conditions was less than $0.1 million for the three months ended March 31, 2017 and $0.8 million for the equivalent period of 2016. Unamortized compensation expense is nominal and will be fully amortized in 2017.
Restricted Stock – Awards with Performance Conditions
Actua also grants restricted stock awards with performance-based vesting conditions to its employees and certain employees of its consolidated businesses, the vesting of which is contingent upon the achievement of specified financial goals. The equity-based compensation expense for awards with performance-based vesting conditions is recorded based on the fair value of the awards, determined by the closing price of Actua’s Common Stock on the date of grant. Actua assesses the probability of the achievement of any performance conditions and adjusts the related equity compensation expense accordingly. In the event that the performance-based conditions are not achieved and the related restricted stock awards are forfeited, equity-based compensation expense related to those awards would be reversed.
For the years ended or ending December 31, 2015, 2016 and 2017, senior Actua employees, including Actua's executive officers, were issued a certain number of shares of restricted stock in lieu of the right to receive up to a certain percentage of their respective target bonuses (ranging from 100% to 150%) in cash. The number of shares of restricted stock issued to each senior Actua employee was determined by reference to the closing price of Actua's Common Stock on the date of issue and the dollar amount of the target bonus potentially payable in Actua Common Stock. The number of each employee's restricted shares that vested or will vest in 2015, 2016 or 2017 is based on each employee's achievement percentage under the relevant performance plan. All expense related to the grant of restricted shares in connection with Actua's performance plans is recorded in the year of issuance; however, the vesting of such restricted shares occurs in the first quarter of the following year. The table below summarizes the grant and vesting of performance plan-related restricted stock grants for each of 2015, 2016 and 2017.
 
Percentage of Target Bonus Potentially Payable in Restricted Stock
 
ACTA Stock Price at Issuance
 
Restricted Shares Granted
 
Performance Plan Achievement Percentage
 
Restricted Shares Vested
 
Restricted Shares Forfeited
Actua 2015 Performance Plan
150
%
 
$
16.76

 
316,715

 
83
%
 
175,249

 
141,466

Actua 2016 Performance Plan
100
%
 
$
8.44

 
419,283

 
60
%
 
251,570

 
167,713

Actua 2017 Performance Plan
100
%
 
$
13.85

 
263,756

 
*

 
*

 
*

                                    
* To be determined in the first quarter of 2018.
In aggregate, and inclusive of any amounts noted in the paragraphs of this subsection, compensation expense related to performance-based awards was $0.9 million for the three months ended March 31, 2017 and $1.0 million for the equivalent period of 2016. Unamortized compensation expense of $2.7 million will be amortized over the nine months remaining in 2017.
Restricted Stock – Awards with Service Conditions
Actua grants restricted stock awards to its employees, its directors and certain employees of its consolidated businesses that vest over a period of time of employee or director service. The equity-based compensation expense for those time-based awards is recorded based on the fair value of the awards, determined by the ending price of Actua’s Common Stock on the date of grant. In the event that an individual terminates service with Actua (or its consolidated businesses) prior to the vesting of a time-based award, the related restricted stock awards are forfeited and equity-based compensation expense related to any forfeited award is reversed.  

23

ACTUA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
(Unaudited)

During February 2014, 1,377,500 shares of restricted stock were granted to certain of Actua’s employees, including Actua’s executive officers, and certain executives of Actua’s consolidated businesses. Those awards vest in equal increments each year for four years on the anniversary of the grant date.  Accordingly, 344,375 and 339,375 shares of restricted stock vested during the first quarter of 2016 and 2017, respectively. During the year ended December 31, 2016, 10,000 shares related to this award were forfeited. The unamortized equity-based compensation expense as of March 31, 2017 related to those time-based awards was $6.3 million; this amount will be recognized as follows: $5.2 million in the remaining nine months of 2017 and $1.1 million in 2018.
During June 2015, 140,416 shares of restricted stock were granted to Actua's non-management directors in accordance with the Amended Director Plan. Through the quarter ended March 31, 2017, 102,402 shares have vested and 514 shares have been forfeited; the remaining 37,500 shares vest in equal quarterly increments from June 2017 through June 2018. See "Non-Management Director Equity-Based Compensation - The Amended Director Plan" in this Note 10 for additional details regarding equity-based compensation awarded to Actua’s Board.
During June 2016, 72,397 shares of restricted stock with a grant date fair value of $9.02 were granted to Actua's non-management directors in accordance with the Amended Director Plan. These shares vest on the one-year anniversary of the grant date. See "Non-Management Director Equity-Based Compensation - The Amended Director Plan" in this Note 10 for additional details regarding equity-based compensation awarded to Actua’s Board.
There are various other restricted stock awards that were issued in the current and previous years to Actua employees, which vest according to specified service criteria and remain unvested as of March 31, 2017. Those awards include 88,200 shares of restricted stock from multiple grants, which vest on various dates through 2021.
In aggregate, and inclusive of any amounts noted in the foregoing paragraphs of this subsection, compensation expense related to awards with service conditions was $2.1 million for the three months ended March 31, 2017 and $2.2 million for the corresponding period of 2016. Unamortized compensation expense of $8.1 million will be amortized as follows: $6.1 million during the nine months remaining in 2017 and $2.0 million during the years 2018 through 2021.
SARs
Each SAR represents the right of the holder to receive, upon exercise of that SAR, shares of Actua Common Stock equal to the amount by which the fair market value of a share of that Common Stock on the date of exercise of the SAR exceeds the base price of the SAR. The base price is determined by the NASDAQ closing price of Actua’s Common Stock on the date of grant (or the closing price on the next trading day if there are no trades in Actua’s Common Stock on the date of grant). The fair value of each SAR is estimated on the grant date using the Black-Scholes option-pricing model. SARs generally vest over four years, with 25% vesting on the first anniversary of the grant date, and the remaining 75% vesting ratably each month over the subsequent 36 months.
 
The activity with respect to SARs for the three months ended March 31, 2017 and 2016 was as follows:
 
 
Number of SARs
 
Weighted Average Base Price
 
Weighted Average
Fair Value
Outstanding as of December 31, 2015
 
479,656

 
$
10.64

 
$
5.80

Activity for the three months ended March 31, 2016
 

 
$

 
$

Outstanding as of March 31, 2016
 
479,656

 
$
10.64

 
$
5.80

 
 
 
 
 
 
 
 
 
Number of SARs
 
Weighted Average Base Price
 
Weighted Average
Fair Value
Outstanding as of December 31, 2016
 
307,514

 
$
11.28

 
$
6.21

Exercised (1)
 
(939
)
 
$
9.98

 
$
5.33

Outstanding as of March 31, 2017
 
306,575

 
$
11.28

 
$
6.21

                                                    
(1) 
The exercise of SARs listed above resulted in the issuance of the following shares of Actua's Common Stock:
 
 
2017
 
2016
Three months ended March 31,
 
171

 



24

ACTUA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
(Unaudited)

The following table summarizes information about SARs outstanding as of March 31, 2017:
Grant price
 
Number of SARs outstanding
 
Number of SARs exercisable
 
Weighted average remaining contractual life of SARs outstanding
(in years)
 
Aggregate intrinsic value of SARs outstanding as of March 31, 2017
(in thousands)
$6.70 - $8.76
 
29,950

 
29,950

 
1.47
 
$
169

$9.02 - $9.25
 
43,625

 
18,625

 
7.50
 
$
215

$11.69 - $17.31
 
233,000

 
231,988

 
4.02
 
$
475

 
 
306,575

 
280,563

 
 
 
$
859

As of March 31, 2017 and 2016, there were 280,563 and 465,961 SARs exercisable, respectively, at a weighted average base price of $11.47 per share and $10.65 per share, respectively, under the Plan. As of March 31, 2017, Actua expects an additional 26,012 SARs to vest in the future. The aggregate intrinsic value of the SARs outstanding as of March 31, 2017 and 2016 was $0.9 million and $0.1 million, respectively.
Stock Options
The fair value of each stock option is estimated on the grant date using the Black-Scholes option-pricing model. Stock options generally vest over four years as follows: 25% vest on the first anniversary of the grant date, and the remaining 75% vest ratably each month over the subsequent 36 months.  
There was no activity with respect to stock options during the three months ended March 31, 2017 and 2016. There were 250 stock options outstanding as of both March 31, 2017 and 2016; the aggregate intrinsic value of the stock options outstanding as of both March 31, 2017 and 2016 was de minimis.
SARs and Stock Options Fair Value Assumptions
Actua estimates the grant date fair value of SARs and stock options using the Black-Scholes option-pricing model, which requires the input of highly subjective assumptions. Those assumptions include estimating the expected life of the award and estimating the volatility of Actua’s stock price over the expected term. Expected volatility approximates the historical volatility of Actua’s Common Stock over the period, commensurate with the expected term of the award. Actua has sufficient historical data to calculate an expected term for SARs and stock options granted in the future. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant for an instrument with a maturity that is commensurate with the expected term of the award. Changes in the above assumptions, the estimated forfeitures and/or the requisite service period can materially affect the amount of equity-based compensation recognized in Actua’s Consolidated Statements of Operations and Comprehensive Income (Loss). There were no SARs or stock options granted to Actua employees during the quarters ended March 31, 2017 and 2016.
Non-Management Director Equity-Based Compensation
Actua has periodically issued DSUs and/or shares of restricted stock to its non-management directors in accordance with the Director Plan and the Amended Director Plan. Each DSU represents a share of Actua's Common Stock into which that DSU will be converted upon the termination of the recipient’s service at Actua.
Non-Management Director Equity-Based Compensation – The Amended Director Plan
Pursuant to the Amended Director Plan, the compensation of Actua’s non-management directors was modified as follows for 2015:  (1) the form of director retainer fee payments changed from quarterly cash payments to annual director restricted stock grants (with restricted stock with a six-month vesting period being granted in January 2015 and, thereafter, annual grants being made in connection with Actua’s annual meetings of stockholders), and (2) the number and frequency of non-management director service grant DSUs/shares of director restricted stock changed from 7,500 annually to 22,500 triennially (with 7,500 DSUs/shares of director restricted stock vesting on the one-year anniversary of the grant date, and the remaining 15,000 DSUs/shares of director restricted stock vesting in equal quarterly installments over the following two years).  The annual grants of shares of director restricted stock that replaced the quarterly cash retainer fees (a) are made at the board meeting immediately following the annual meeting of stockholders, (b) are equal in value to the total amount of annual retainer fees that were previously payable for the year (based on the NASDAQ closing price of Actua’s Common Stock on the grant date), (c) vest on the one-year anniversary of the grant date and (d) are no longer subject to a director option to receive DSUs in lieu of the shares.

25

ACTUA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
(Unaudited)

During June 2015, 50,416 shares of restricted stock with a grant date fair value of $13.17 per share were granted to Actua’s non-management directors (as discussed previously in this Note 10), representing the director retainer fee for the period from the June 12, 2015 grant date through June 12, 2016; those awards vested in June 2016.
During June 2015, 90,000 shares of restricted stock and 90,000 DSUs (both with a grant date fair value of $13.17 per share) were granted to Actua’s non-management directors, representing the directors’ triennial service awards. Through the quarter ended March 31, 2017, 52,500 shares of restricted stock and 46,875 DSUs have vested, and 15,000 DSUs were forfeited in connection with a director's retirement. The remaining 37,500 shares of restricted stock and 28,125 DSUs are scheduled to vest in equal quarterly installments from June 2017 through June 2018.
The following table summarizes the activity related to DSUs for the quarters ended March 31, 2017 and 2016:
 
 
Number of shares
 
Weighted
average grant
date fair value
Issued and unvested as of December 31, 2015
 
90,000

 
$
13.17

Activity for the three months ended March 31, 2016
 

 
$

Issued and unvested as of March 31, 2016
 
90,000

 
$
13.17

 
 
 
 
 
 
 
Number of shares
 
Weighted
average grant
date fair value
Issued and unvested as of December 31, 2016
 
33,750

 
$
13.17

Vested
 
(5,625
)
 
$
13.17

Issued and unvested as of March 31, 2017
 
28,125

 
$
13.17

Expense associated with DSUs was $0.1 million for both the three months ended March 31, 2017 and 2016.
Consolidated Businesses
All of Actua’s consolidated businesses issue equity-based compensation awards to their employees. Those awards are most often in the form of stock options for the respective businesses’ stock that vest over four years. The fair value of the stock option awards is estimated on the grant date using the Black-Scholes option pricing model. The majority of the stock options vest 25% on the first anniversary of the grant date, with the remaining 75% vesting ratably each month over the subsequent 36 months. The other awards generally vest ratably over four years, with 25% vesting on each anniversary date over that term.
In conjunction with Actua’s acquisition of FolioDynamix, stock options with a total fair value of $5.1 million were granted to certain of FolioDynamix’s employees. The majority of those stock options vest as follows: 25% vested in November 2015, and the remaining 75% vest ratably each month through November 2018. The remaining stock options vest upon the achievement of certain performance or market conditions, as well as service conditions; to the extent that the performance or market conditions are not achieved, those stock options will lapse unvested. The expense associated with those awards is being recognized over the relative vesting periods. That expense is included in the line item "Equity-based compensation for consolidated businesses" in the equity-based compensation table above.
The following assumptions were used to determine the fair value of stock options granted by Actua's consolidated businesses to their employees during the three-month periods ended March 31, 2017 and 2016. Due to insufficient historical data, Actua's consolidated businesses used the simplified method to determine the expected life of all stock options granted under the respective equity incentive plans.
 
Three Months Ended March 31,
 
2017
 
2016
Expected volatility
50%
 
45% - 50%
Average expected life of stock options (in years)
6.25
 
5.93 - 6.25
Risk-free interest rate
2.07%
 
1.42% - 1.44%
Dividend yield
 
 


26

ACTUA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
(Unaudited)

11. Other Income (Loss), Net
Other income (loss), net, consists of the effect of transactions and other events relating to Actua’s ownership interests and its operations in general, and is comprised of the following:
(in thousands)
 
Three Months Ended March 31,
 
 
2017
 
2016
Gain (loss) on sales/distributions of ownership interests
 
$
958

 
$
46

Other (1)
 
(91
)
 
(136
)
Total other income (loss), net
 
$
867

 
$
(90
)
____________________________
(1)
This amount relates primarily to currency gain (loss) which is attributable to Actua's consolidated businesses.

During the three months ended March 31, 2017 and 2016, Actua received distributions in cash and stock related to its partnership investment in Anthem Venture Partners ("Anthem"), a cost method business that resulted in total proceeds of $1.0 million and $30 thousand, respectively. Actua had no remaining basis in Anthem, therefore, a gain was recognized in those amounts for the respective periods. Subsequent to the quarter ended March 31, 2017, Actua received additional distributions of approximately $1.4 million from Anthem.

12. Income Taxes
Actua Corporation, FolioDynamix and VelocityEHS file a consolidated federal income tax return. Bolt is not included in Actua’s consolidated federal income tax return. For the three months ended March 31, 2017 and 2016, a tax provision was recognized for state and foreign income taxes; no tax benefit for the loss from continuing operations was recognized as Actua maintains a full valuation allowance against its federal net deferred tax assets that it believes, after evaluating all the positive and negative evidence, both historical and prospective, is more likely than not to not be realized.

13. Net Income (Loss) Per Share
The calculations of net loss per share were as follows:
(in thousands, except per share data)
 
Three Months Ended March 31,
 
 
2017
 
2016
Basic and Diluted:
 
 
 
 
Net income (loss) from continuing operations
 
$
(9,670
)
 
$
(12,360
)
Net income (loss) from discontinued operations
 

 
(1,971
)
Net income (loss) attributable to Actua Corporation
 
$
(9,670
)
 
$
(14,331
)
 
 
 
 
 
Basic and Diluted:
 
 
 
 
Net income (loss) from continuing operations per share
 
$
(0.30
)
 
$
(0.33
)
Net income (loss) from discontinued operations per share
 

 
(0.05
)
Net income (loss) attributable to Actua Corporation per share
 
$
(0.30
)
 
$
(0.38
)
 
 
 
 
 
Shares used in computation of basic and diluted income (loss) per share
 
32,113

 
37,293



27

ACTUA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
(Unaudited)

The following potentially dilutive securities were not included in the computation of diluted net loss per share, as their effect would have been anti-dilutive:
 
 
Units
(in thousands)
 
Weighted Average
Price per Share
Three Months Ended March 31, 2017
 
 
 
 
SARs
 
307

 
$
11.28

Restricted stock (1)
 
2,137

 
$

DSUs
 
28

 
$

 
 
 
 
 
Three Months Ended March 31, 2016
 
 
 
 
SARs
 
480

 
$
10.64

Restricted stock (1)
 
2,669

 
$

DSUs
 
90

 
$

___________________________
(1) 
Anti-dilutive securities include contingently issuable shares unvested as of March 31, 2017 and 2016, the vesting of which is based on service conditions, performance conditions and market conditions that have not yet been achieved. See Note 10, "Equity-Based Compensation."

14. Segment Information
The results of operations of our businesses are reported in two segments; the "vertical cloud" reporting segment and the "vertical cloud (venture)" reporting segment.  The vertical cloud reporting segment reflects the aggregate financial results of Actua’s businesses (1) that share economic and other characteristics, (2) in which Actua’s management takes a very active role in providing strategic direction and operational support, and (3) towards which Actua devotes relatively large proportions of its personnel, financial capital and other resources.  Actua owns majority controlling equity positions in (and therefore consolidates the financial results of) the three businesses in the vertical cloud segment: Bolt, FolioDynamix and VelocityEHS.  The vertical cloud (venture) reporting segment includes businesses with many characteristics similar to those of the businesses in the vertical cloud segment, but in which Actua takes a less active role in terms of strategic direction and operational support, and, accordingly, towards which Actua devotes relatively small amounts of personnel, financial capital and other resources.
During the three months ended March 31, 2017, approximately $1.3 million of Actua's consolidated revenue relates to sales generated outside of the United States, primarily Europe and Canada. During the three months ended March 31, 2016, approximately $0.9 million of Actua’s consolidated revenue relates to sales generated outside of the United States, primarily Europe and Canada. As of March 31, 2017 and December 31, 2016, Actua’s assets were located primarily in the United States.

28

ACTUA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
(Unaudited)

The following tables summarize selected information related to Actua’s segments. The amounts presented as "Dispositions" in the following tables reflect the effects of the GovDelivery Sale for all periods presented. For more information, see Note 5, "Discontinued Operations."
(in thousands)
 
 
 
 
 
 
 
Reconciling Items
 
 
 
 
Vertical Cloud
 
Vertical Cloud
(Venture)
 
Total
Segment
 
Dispositions
 
Other (1)
 
Consolidated
Three Months Ended March 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
Revenue
 
$
30,507

 
$

 
$
30,507

 
$

 
$

 
$
30,507

Net income (loss) attributable to Actua Corporation
 
$
(4,104
)
 
$

 
$
(4,104
)
 
$

 
$
(5,566
)
 
$
(9,670
)
Three Months Ended March 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
Revenue
 
$
25,186

 
$

 
$
25,186

 
$

 
$

 
$
25,186

Net income (loss) attributable to Actua Corporation
 
$
(6,403
)
 
$

 
$
(6,403
)
 
$
(1,971
)
 
$
(5,957
)
 
$
(14,331
)
________________
(1) 
The following table reflects the components of "Net income (loss) attributable to Actua Corporation" included within the "Other" category:
 
(in thousands)
 
Three Months Ended March 31,
Selected Data:
 
2017
 
2016
General and administrative expense
 
$
(7,151
)
 
$
(6,982
)
Other income (loss), net (refer to Note 11)
 
957

 
46

Interest income
 
146

 
37

Net (income) loss attributable to the noncontrolling interest
 
482

 
942

Net income (loss)
 
$
(5,566
)
 
$
(5,957
)

(in thousands)
 
Vertical Cloud
 
Vertical Cloud (Venture)
 
Total Segment
 
Dispositions
 
Other
 
Consolidated Results
Assets as of:
 
 
 
 
 
 
 
 
 
 
 
 
March 31, 2017
 
$
356,128

 
$
17,250

 
$
373,378

 
$

 
$
59,073

 
$
432,451

December 31, 2016
 
$
358,522

 
$
17,250

 
$
375,772

 
$

 
$
77,946

 
$
453,718


15. Contingencies
Actua has recorded contingent consideration of $8.6 million as of March 31, 2017 related to the SAS Earnout resulting from FolioDynamix's acquisition of SAS on October 31, 2016. See Note 4, "Consolidated Businesses."
During 2008 and 2009, two carried interest plans (one in each year) were established, for which a carried interest of 15.0% is allocable to Actua’s management participants in each plan. Carried interest will be paid in connection with a liquidity event or income receipt at any of the businesses in which the carried interest plans hold debt or equity interests (primarily Bolt), subject to an aggregate specified hurdle threshold and hold back and claw back criteria. Actua has allocated approximately $76.6 million to date with respect to these plans, and there were no cash deployments related to these plans in 2016 or during the three months ended March 31, 2017. Actua’s ownership in Bolt acquired prior to 2015 is held in the 2009 carried interest plan, and the activity over the past few years relative to the 2009 carried interest plan primarily relates to cash deployment from Actua to achieve its objectives of increasing its ownership in, and supporting the cash needs of, Bolt. Beginning in 2015, any cash deployed to Bolt in the form of debt or equity financing has not been included in the carried interest plans. Other than the stake in Bolt held by the 2009 carried interest plan, the assets held by the carried interest plans are immaterial to Actua. As of March 31, 2017, Actua does not expect a liquidity event or income receipt at any of the relevant businesses that would trigger a payment under either of the carried interest plans to occur in the near future, and, accordingly, Actua has not recorded a liability with respect to these plans. Once a liquidity event or income receipt at any of the relevant businesses that would yield proceeds in excess of the calculated hurdle rate occurs, and a payment becomes probable and estimable, Actua would record the appropriate liability. Payments against that liability would occur thereafter, subject to relevant hold backs and clawbacks. As of March 31, 2017, there were no distributions over the aggregate specified hurdle thresholds, and none are expected in the foreseeable future.

29


ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth elsewhere in this Report and discussed in our other SEC filings. The following discussion should be read in conjunction with our unaudited Consolidated Financial Statements and the related Notes thereto included in this Report.
The Consolidated Financial Statements include the consolidated accounts of Actua Corporation, a company incorporated in Delaware, and its subsidiaries, both wholly-owned and consolidated (Actua Corporation and all such subsidiaries are collectively hereafter referred to as "Actua," the "Company," "we," "our," or "us"), and have been prepared in accordance with GAAP.
Executive Summary
Actua is a multi-vertical cloud technology company with offerings that we believe create unique and compelling value for our customers and provide transformative efficiency to vertical markets. We manage our consolidated vertical cloud-based businesses, which operate in the commercial and personal property and casualty insurance, wealth management and environmental, health and safety ("EH&S") markets, with a uniform set of industry-standard recurring revenue metrics and specifically look to drive growth at those businesses by:
continuously creating compelling, differentiated cloud-based offerings through investment in research and development;
driving efficient long-term growth in recurring revenue through investment in lead generation, marketing and sales;
identifying, structuring and executing accretive acquisitions that accelerate strategic plans, increase revenue growth and, over time, improve margins;
investing in and cultivating deep, domain-expert management teams; and
implementing strategies to obtain operational leverage and increased profitability while maintaining revenue growth, particularly as a company scales.
We believe that, through those and other measures, we are developing a set of leading businesses that possess assets which are hard to replicate and which provide competitive differentiation in the sizable vertical markets in which they operate.  We believe further that our vertical cloud business model focus, which drives the compelling value proposition of our businesses, positions us well to generate sustained, meaningful long-term returns for our stockholders through, among other things:
revenue visibility and predictability (and lower revenue volatility than traditional software companies);
strong gross margins;
disciplined customer acquisition and attractive lifetime customer values, which allow for efficient growth through investment in sales and marketing;
economies of scale inherent in multi-tenancy software architecture, which allow a focus on innovation; and
ultimately, long-term profitability and positive operating cash flow.
The results of operations of our businesses are reported in two segments:  the "vertical cloud" reporting segment and the "vertical cloud (venture)" reporting segment.  Our vertical cloud reporting segment reflects the aggregate financial results of our businesses:
that generally share the economic and other characteristics described above;
in which our management takes a very active role in providing strategic direction and operational support; and
towards which we devote relatively large proportions of our personnel, financial capital and other resources.
As of the date of this Report, we own substantial majority controlling equity positions in (and therefore consolidate the financial results of) each of the three businesses in our vertical cloud segment: Bolt (of which we own 70%), FolioDynamix (of which we own 98%) and VelocityEHS (of which we own 99%).
Our vertical cloud (venture) reporting segment includes businesses with many characteristics similar to those of the businesses in our vertical cloud segment, but in which we take a less active role in terms of strategic direction and operational support, and, accordingly, towards which we devote relatively small amounts of personnel, financial capital and other resources. Each of the businesses in our vertical cloud (venture) reporting segment, the most significant of which are InstaMed and Parchment, are accounted for under the cost method of accounting, since we own less than 20% in each of these businesses (see Note 2, "Significant Accounting Policies," to our Consolidated Financial Statements). GovDelivery, which was sold during the year ended December 31, 2016, is included in "Dispositions" in the segment disclosures contained herein and is presented as discontinued operations in our Consolidated Financial Statements.

30


As described further below, each of our three vertical cloud businesses, Bolt, FolioDynamix and VelocityEHS, offers cloud-based applications and services that address the needs of a specific vertical market or industry. Each of those businesses competes with one or more traditional or cloud-based software firms, some of which have a horizontal/multi-industry focus and some of which may have better name/brand recognition and greater financial and other resources than our businesses do. We believe that each of our businesses is well-positioned to compete with those firms because of, among other things, the vertical domain expertise and vertically-focused technology that we have cultivated.
Our focus on serving vertical markets, each of which has customers with similar needs and challenges, allows for narrowly-focused and rapid technology development, which results in technology that is often better suited than a horizontal solution to address customer needs and challenges. In addition, our proprietary, scalable and secure multi-tenant architecture enables us to have relatively lower research and development expenses than traditional software companies. Based in large part on those advantages, we have invested, and will continue to invest in research and development at each of our businesses to continue to develop differentiated, vertically-focused cloud-based offerings, which are highlighted by:
approximately 5,800 commercial and personal property and casualty insurance products from approximately 100 carriers that Bolt is able to offer through its platform;
the broad reach of FolioDynamix’s wealth management platform, which serviced approximately $732.4 billion of assets under management ("AUM") as of March 31, 2017, and its complementary investment advisory services, which encompassed approximately $25.3 billion of AUM (of which $7.2 billion are Regulatory AUM) as of March 31, 2017; and
VelocityEHS’ industry-leading proprietary database, which contains over 12 million safety data sheets.
Another key component of our business strategy, in addition to our multi-vertical domain expertise and effective and efficient research and development, is the leverage inherent in the recurring revenue generated by our cloud-based software delivery model. In part because our customers are required to make periodic payments to continue receiving access to our cloud-based offerings, we have established long-term relationships with our customers, many of which are governed by multi-year contracts that have historically high renewal rates.  The consistent revenue stream provided by our recurring revenue model, coupled with our relatively high gross margins, allow us to drive revenue growth more consistently over time through investment in lead generation, sales and marketing. In order to ensure that we are effectively leveraging our cloud-based model, we closely monitor and manage the revenue growth rates, along with the gross margins, number of customers and a variety of customer retention and sales efficiency metrics, at each of our businesses. Through the first quarter of 2017:
Bolt's revenue grew approximately 31% from the corresponding three-month prior year period. During the three months ended March 31, 2017, Bolt served approximately 2,100 independent commercial and personal property and casualty insurance agent customers, a number of large commercial and personal property and casualty insurance carrier-agency customers, six customers who are non-traditional sellers of commercial and personal property and casualty insurance products and one state commercial and personal property and casualty insurance exchange customer;
FolioDynamix’s revenue grew approximately 24% from the corresponding three-month prior year period. During the three months ended March 31, 2017, it served approximately 120 direct financial services organizations, such as brokerage firms, banks (trust and retail), large registered investment advisors ("RIAs") and RIA networks and other fee-based managed account providers; and
VelocityEHS’ revenue grew approximately 17% from the corresponding three-month prior year period. During the three months ended March 31, 2017, VelocityEHS served around 12,600 customers; approximately 75% are platform customers, consisting of large and mid-market North American businesses in a wide variety of industries.

We also actively source and intend to selectively pursue acquisitions that would provide one or more of our businesses with critical mass, complementary cloud-based offerings to sell to existing customers, additional customers for existing cloud-based offerings, access to adjacent cloud computing markets, and/or technology that is a differentiator in the business vertical cloud computing market. For example, in 2016:

VelocityEHS acquired substantially all of the assets of ErgoAdvocate, a company that provides ergonomics assessment and training software; the acquisition allows VelocityEHS to provide a new offering to customers;
VelocityEHS acquired certain assets of E3 Solutions, an environmental and sustainability software provider; the acquisition allows VelocityEHS to provide additional service offerings to its customers; and
FolioDynamix acquired certain assets of SAS, a company that provides a turnkey asset management program (TAMP) solution; the acquisition bolstered FolioDynamix's own existing solution.

31


Our ability to execute against our business strategy and continue to successfully grow our vertical cloud businesses will be dependent on a number of factors, including the following:
our ability to compete in highly-competitive, rapidly developing markets against traditional and cloud-based software firms, some of which may have better name recognition and greater financial and other resources than our businesses do;
the emergence of additional competitors in our markets and improved offerings by existing and new competitors;
our prospective customers’ willingness to migrate to cloud computing services;
the availability, performance and security of our cloud-based technology, particularly in light of increased cybersecurity risks and concerns;
our ability to continue to drive successful customer adoption and utilization of our cloud-based technologies;
our ability to continue to release, and gain customer acceptance of, new and improved features and functionality;
our ability to continue to maintain a leadership role in the vertical industries in which we operate;
our ability to have continued access to capital and to manage capital resources effectively;
our ability to deploy capital effectively and on favorable terms;
our ability to successfully integrate acquired businesses and technologies;
acceptance of our cloud-based offerings in new markets or markets where we have few customers;
our ability to continue to maintain appropriate data center capacity and security as our businesses grow;
our ability to attract new personnel and retain and motivate current personnel, particularly personnel with the vertical domain expertise that is critical to our success; and
general economic and regulatory conditions, which could affect our customers’ ability and willingness to purchase our cloud-based solutions, delay customers’ purchasing decisions or affect customer attrition rates.

Our Vertical Cloud Businesses

As of the date of this Report, we consolidated the following vertical cloud businesses:

Bolt

Bolt offers a cloud-based platform that, through its unique product and technology connectivity, is changing the way insurance is sold.  The platform provides:

large commercial and personal property and casualty insurance carrier-agencies with a means to enable all of their captive agents to meet the needs of their customers by giving them instant access to a wide range of commercial and personal property and casualty insurance products from a variety of other prominent carriers;
independent commercial and personal property and casualty insurance agents with a means to meet the needs of their customers by giving them instant access to a wide range of commercial and personal property and casualty insurance products from a variety of prominent carriers;
non-traditional sellers of commercial and personal property and casualty insurance products with a means to meet the needs of their customers by giving them instant access to a cloud-based distribution network and a wide range of commercial and personal property and casualty insurance products from a variety of prominent carriers; and
commercial and personal property and casualty insurance carriers with a variety of additional distribution channels that foster a richer flow of business across their commercial and personal property and casualty insurance product lines.

Bolt is able to provide its platform-subscriber customers and partners, which include large insurance carrier-agencies, independent insurance agents and other insurance-based organizations, with access to a wide array of commercial and personal property and casualty insurance products through its agency appointments from various prominent insurance carriers. Any loss by Bolt of one or more of these agency appointments or one or more of its large platform customers would have a negative impact on Bolt’s business, financial results and condition. Bolt does not have any customer the loss of which would have a materially adverse financial impact on our vertical cloud businesses as a whole. Bolt’s platform customers pay both subscription and transaction-based fees (commissions) for use of its platform; the insurance carriers whose products are sold on the platform pay Bolt on a commission basis for products sold. Bolt sells the periodic (usually multi-year) platform subscriptions to its customers and establishes and manages its carrier agency relationships directly through its internal sales team. In addition to the revenue Bolt derives from providing access to its platform, Bolt also operates as an independent insurance agency and sells commercial and personal property and casualty insurance products directly to consumers online through its platform; those sales represent a relatively small percentage of Bolt’s business.


32


The insurance intermediary business is highly competitive, and numerous firms, some of which have substantially greater financial and other resources, name recognition and market presence than Bolt, actively compete with Bolt for customers and insurance markets. Competition in the insurance business is largely based on innovation, quality of service and price. A number of insurance companies directly sell insurance, primarily to individuals, and do not pay commissions to third-party agents and brokers. In addition, the cloud has increasingly become a source for the direct placement of personal business lines.  We believe that Bolt’s unique platform and the product and technology connectivity that it offers allows Bolt to compete in the insurance market. During the three months ended March 31, 2017 and 2016, Bolt spent approximately $1.0 million and $1.0 million, respectively, on research and development activities.  
As of March 31, 2017, Bolt had 183 employees, all of which are full-time employees. 

FolioDynamix

FolioDynamix offers wealth management service providers and financial advisors a comprehensive, secure, cloud-based wealth management technology platform and advisory solutions for managing the full wealth management lifecycle across all types of investment programs. FolioDynamix provides its customers with leading-edge technology to attract and retain the best advisors, enable more effective business process management, accelerate client acquisition and gain visibility across all AUM.    

FolioDynamix’s customers include a variety of financial services organizations, such as brokerage firms, banks (trust and retail), large RIAs, and RIA networks and other fee-based managed account providers. FolioDynamix's customers access specified bundles of platform applications through the cloud on a periodic (usually multi-year) subscription basis. FolioDynamix sells the periodic subscriptions directly to its customers through its internal sales team.  FolioDynamix’s comprehensive, integrated platform enables highly sophisticated management of all aspects of a financial services organization’s wealth management process, including:

proposal generation and investment policy statement management;
client acquisition and onboarding;
investment model management;
portfolio rebalancing;
trading and trade order management;
performance management and reporting; and
portfolio accounting.

FolioDynamix complements its innovative wealth management platform and applications with institutional-quality research, content and consulting expertise through its subsidiary, FDx Advisors, Inc. ("FDx Advisors").  FDx Advisors is an RIA firm that is independently available to help wealth management firms with due diligence and discretionary investment solutions that can be fully integrated with the FolioDynamix technology platform. The company charges its customers, based on a specified percentage of AUM for these advisory services.

FolioDynamix’s five largest customers in terms of revenue generation represented approximately 50% of its revenue for the three months ended March 31, 2017. Although a loss of one or more of these customers (most of which have been signed to contracts through at least 2017) would have a negative impact on FolioDynamix’s financial results and condition, FolioDynamix does not have any customer the loss of which would have a materially adverse financial impact on our vertical cloud businesses as a whole.

The market for wealth management software and advisory services is fragmented, competitive and rapidly changing. When selling its software to large financial services organizations, FolioDynamix faces competition from software companies who provide end-to-end, cloud-based solutions and an even larger number of software companies that offer individual point solutions; some of these companies may have better name recognition and financial and other resources than FolioDynamix. To a lesser degree, the company competes with in-house solutions that its current and prospective clients may develop. We believe that FolioDynamix’s sophisticated, highly-scalable, comprehensive cloud-based technology platform, along with its deep wealth management domain knowledge and processes, particularly in the areas of research and regulatory compliance, provide it with a strong position in the wealth management software and advisory services market. In October 2016, the company further bolstered its TAMP offering through its acquisition of certain assets of SAS. See Note 4, "Consolidated Businesses," to our Consolidated Financial Statements for more information. During the three months ended March 31, 2017 and 2016, FolioDynamix spent approximately $3.6 million and $2.4 million, respectively, on research and development activities.
As of March 31, 2017, FolioDynamix had 153 employees, of which two were part-time employees.  


33


VelocityEHS

VelocityEHS is a platform that features a robust set of cloud-based EH&S tools. These tools allow customers to gain visibility into, and control risk at, their companies in the areas of incident management, audit and inspection training, compliance management, risk analysis, ergonomics, greenhouse gas reporting and sustainability metrics and reporting.
VelocityEHS’s platform helps businesses create safer work environments by identifying, managing and reducing potential workplace and environmental hazards that save time, lower costs and reduce the risk and liability associated with meeting compliance (particularly U.S. Occupational Safety and Health Administration ("OSHA")) requirements.  

VelocityEHS’s customers, which include large and mid-market North American businesses in a wide variety of industries (including healthcare, manufacturing, education, construction, hospitality and technology, among many others), access the company’s applications through the cloud on a subscription basis (usually through multi-year arrangements); VelocityEHS sells the subscriptions directly to its customers through its internal sales team.  

VelocityEHS’s principal offerings are currently chemical management applications. These cloud-based applications provide customers with the ability to track, manage and report on the hazardous chemicals contained in their workplaces, with the HQ RegXR application containing additional regulatory reporting functionality.  Specifically, the applications provide businesses with:

24/7 access to the industry’s leading database of chemical safety data sheets, which ensures that their safety data sheet libraries are complete, up-to-date and OSHA-compliant;
user-friendly tools that enable compliance with a variety of hazard communication requirements, such as chemical labeling, safe chemical handling and more (with the HQ RegXR Account application featuring a sophisticated regulatory cross-referencing engine);
robust chemical management tools, including chemical mapping features, which significantly increase control over the location, status and risks associated with the chemicals at their facilities;
mobile-enabled functionality and chemical inventory scanning technology, which allow on-the-spot access to chemical inventory information via mobile devices; and
quick return on investment and low cost of ownership, as they eliminate time-consuming, manual administrative tasks.

VelocityEHS offers a number of customer services to support its HQ Account and HQ RegXR Account applications, such as customer training, safety data sheet authoring and compiling/indexing of customers’ online safety data sheet libraries; those services are sold to customers on a project fee basis.

VelocityEHS has around 12,600 customers, none of which individually account for a material portion of the company’s annual revenues. The market for EH&S software is fragmented and competitive. When selling its applications and services to large organizations, VelocityEHS faces competition from both large horizontal/multi-industry software companies that offer EH&S modules and smaller software companies focused solely on EH&S markets; some of these software companies provide cloud-based software solutions, while others offer only traditional, on-premise software solutions. In the large enterprise EH&S market, VelocityEHS often competes with incumbent vendors, many of which have more name recognition and financial and other resources than VelocityEHS. In the mid-market, VelocityEHS competes sometimes with smaller software companies but more often with home-grown (often manual/off-line) solutions that current and prospective customers may develop. We believe that VelocityEHS’s unparalleled proprietary database, which contains over 12 million safety data sheets, along with its cloud-based, EH&S-focused technology, its sales and marketing expertise and its deep EH&S and regulatory domain knowledge, provides VelocityEHS with a strong competitive position relative to both large and small companies offering competing EH&S software solutions. During the three months ended March 31, 2017 and 2016, VelocityEHS spent approximately $2.1 million and $1.9 million, respectively, on research and development initiatives.     

As of March 31, 2017, VelocityEHS had 368 employees, of which five were part-time employees.


34


Our Vertical Cloud (Venture) Businesses

As of the date of this Report, the following are the most significant businesses included in our vertical cloud (venture) segment:
InstaMed Holdings, Inc. ("InstaMed")
InstaMed operates a cloud-based healthcare payments network focused exclusively on healthcare providers, payers and patients. With its bank partners, InstaMed moves billions of dollars and information on its single, integrated network, connecting thousands of hospitals, practices and payers, and millions of patients for business. InstaMed’s innovative private cloud technology transforms the healthcare payment process by delivering new levels of payment assurance, simplicity, convenience and cost savings to the healthcare industry.
Parchment Inc. ("Parchment")
Parchment is a leader in education credentials technology, allowing learners, educators and employers to collect, analyze, use and share credentials in simple and secure ways.  Parchment’s cloud-based software offering is a transcript exchange and intelligence platform that enables the secure, rapid exchange of electronic transcripts and other student records among schools, universities, state education agencies and individuals. Through parchment.com, students can research colleges and discover their chances of admission, see how they compare with peers, get college recommendations and send official transcripts when they are ready to apply.

Employees
Corporate headcount at Actua as of March 31, 2017 was 21. The headcount at our consolidated businesses as of March 31, 2017 was 704 employees.  See the individual descriptions of our consolidated businesses above for the number of employees at those businesses. 
Results of Operations
The following tables contain selected financial information related to our reportable segments. The segments, as applicable, include the results of our consolidated businesses and the businesses included in each segment are consistent between periods. The method of accounting for any particular business may change based upon, among other things, a change in our ownership interest.
"Dispositions" includes the results of those businesses that have been sold or ceased operations and are no longer included in our segments for the periods presented. A disposition could be the sale of a division, subsidiary or asset group of one of our consolidated businesses, typically classified as discontinued operations for accounting purposes, or the disposition of our ownership interest in a business accounted for under the equity method of accounting. "Other" expenses represent (1) the corporate general and administrative expenses of Actua’s business operations, which primarily include employee costs and costs associated with operating as a public company and acquiring businesses, (2) gains or losses on the dispositions of ownership interests, (3) income taxes and (4) the results of operations attributable to the respective noncontrolling interests of our businesses.
(in thousands)
 
Segment information
 
 
 
 
 
 
 
 
Reconciling Items
 
 
 
 
Vertical Cloud
 
Vertical Cloud
(Venture)
 
Total
Segment
 
Dispositions
 
Other
 
Consolidated
Three Months Ended March 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
Revenue
 
$
30,507

 
$

 
$
30,507

 
$

 
$

 
$
30,507

Net income (loss) attributable to Actua Corporation
 
$
(4,104
)
 
$

 
$
(4,104
)
 
$

 
$
(5,566
)
 
$
(9,670
)
Three Months Ended March 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
Revenue
 
$
25,186

 
$

 
$
25,186

 
$

 
$

 
$
25,186

Net income (loss) attributable to Actua Corporation
 
$
(6,403
)
 
$

 
$
(6,403
)
 
$
(1,971
)
 
$
(5,957
)
 
$
(14,331
)


35


Results of Operations – Vertical Cloud Businesses
For the Three Months Ended March 31, 2017 and 2016
The following presentation includes the consolidated financial results of Bolt, FolioDynamix and VelocityEHS.
        
(in thousands)
 
Three Months Ended March 31,
 
Quarterly Change
 
 
2017
 
2016
 
$ Change
 
% Change
Selected data:
 
 
 
 
 
 
 
 
Revenue
 
$
30,507

 
$
25,186

 
$
5,321

 
21
 %
Operating expenses
 
 
 
 
 
 
 
 
Cost of revenue
 
7,794

 
6,722

 
1,072

 
16
 %
Sales and marketing
 
9,907

 
10,119

 
(212
)
 
(2
)%
General and administrative
 
5,781

 
5,344

 
437

 
8
 %
Research and development
 
6,733

 
5,307

 
1,426

 
27
 %
Amortization of intangible assets
 
3,663

 
3,582

 
81

 
2
 %
Impairment related and other
 
360

 
231

 
129

 
56
 %
Total operating expenses
 
34,238

 
31,305

 
2,933

 
9
 %
Operating income (loss)
 
(3,731
)
 
(6,119
)
 
2,388

 
(39
)%
Other income (loss)
 
(90
)
 
(136
)
 
46

 
(34
)%
Interest income
 
9

 
11

 
(2
)
 
(18
)%
Interest expense
 
(27
)
 
(33
)
 
6

 
(18
)%
Income tax benefit (expense)
 
(265
)
 
(126
)
 
(139
)
 
110
 %
Net income (loss)
 
$
(4,104
)
 
$
(6,403
)
 
$
2,299

 
(36
)%
 
Revenue
Revenue for the three months ended March 31, 2017 increased $5.3 million from the three months ended March 31, 2016, from $25.2 million to $30.5 million, primarily due to additional customer revenue at all three of our businesses. We anticipate that the number of customers at our businesses will continue to increase due to both an increase in the number of cloud-based solutions we offer and an increase in the penetration of those solutions across our existing customer base.  Additionally, we plan to continue selectively pursuing acquisitions that further expand and complement certain of our existing businesses.
Cost of revenue
Cost of revenue for the three months ended March 31, 2017 was $7.8 million, an increase of $1.1 million (or 16%) from cost of revenue of $6.7 million for the three months ended March 31, 2016. The change was primarily due to higher personnel costs related to increased headcount at our businesses in 2017 as a result of staffing initiatives that were related to our growth. We also incurred higher expenses for occupancy and third-party direct costs in the three months ended March 31, 2017 than for the comparable 2016 period. Cost of revenue was 26% of revenue for the three months ended March 31, 2017 and 27% of revenue for the comparable 2016 period. Going forward, as our businesses expand, we anticipate that cost of revenue will increase in absolute dollars as we continue to hire additional personnel.
Sales and marketing expenses
Sales and marketing expenses for the three months ended March 31, 2017 were $9.9 million, a decrease of $0.2 million (or 2%) from sales and marketing expenses of $10.1 million for the three months ended March 31, 2016. As a percentage of revenue, sales and marketing expenses were 32% for the three months ended March 31, 2017 and 40% for the comparable 2016 period. As we expand our businesses, we will continue to add resources to our sales and marketing efforts, and, accordingly, we expect that our sales and marketing expenses will continue to increase in absolute dollars.

36


General and administrative expenses
General and administrative expenses for the three months ended March 31, 2017 were $5.8 million, an increase of $0.4 million (or 8%) from $5.3 million of general and administrative expenses for the three months ended March 31, 2016.  The change was due to higher personnel costs related to increased headcount at our businesses in 2017, as a result of staffing initiatives that were related to our growth. General and administrative expenses represented 19% of revenue for the three-month period ended March 31, 2017 and 21% for the comparable 2016 period. Going forward, as we expand our businesses, we expect that general and administrative expenses will continue to increase in absolute dollars but will decrease as a percentage of revenue.
Research and development expenses
Research and development expenses for the three months ended March 31, 2017 were $6.7 million, an increase of $1.4 million (or 27%) from $5.3 million for the three months ended March 31, 2016. This change was due primarily to higher personnel costs related to increased headcount at our businesses in 2017, as a result of staffing initiatives that were related to our growth. As a percentage of revenues, research and development expenses were 22% for the three months ended March 31, 2017 and 21% for the comparable 2016 period. As we enhance and expand our solutions and applications, we expect that research and development expenses will continue to increase in absolute dollars, but decrease as a percentage of revenue.
Amortization of intangible assets
Amortization expense for the three months ended March 31, 2017 was $3.7 million, and remained relatively consistent in comparison to the prior period with a nominal increase from $3.6 million of amortization expense for the three months ended March 31, 2016.  Over the next few years, we expect that amortization expense will increase in absolute dollars, but decrease as a percentage of revenue, if our businesses continue to consummate acquisitions.
Impairment related and other expense
Impairment related and other expenses for the three months ended March 31, 2017 increased approximately $0.1 million compared to the three months ended March 31, 2016. The expense for the three months ended March 31, 2017 was primarily comprised of the change in fair value associated with the SAS Earnout.
Other income (loss)
The change in other (loss) income for the three months ended March 31, 2017 compared to the three months ended March 31, 2016 was not material in absolute dollars; these amounts mainly relate to foreign exchange gains and losses.
Interest income
Interest income for the three months ended March 31, 2017 remained relatively consistent as compared to the three months ended March 31, 2016.
Interest expense
Interest expense for the three months ended March 31, 2017, compared to the three months ended March 31, 2016, remained relatively consistent.
Income tax benefit (expense)
Our provision for income taxes, which relates to state and foreign income tax expense, for the three months ended March 31, 2017 and the three months ended March 31, 2016 was not material in absolute dollars.


37


Results of Operations – Vertical Cloud (Venture) Businesses

As of March 31, 2017 and 2016, the vertical cloud (venture) segment includes only cost method businesses, which are reflected in the assets of that segment.

Results of Operations – Reconciling Items
For the Three Months Ended March 31, 2017 and 2016

Dispositions

The amounts presented as "Dispositions" are related to GovDelivery, which entered into the GovDelivery Merger Agreement on September 20, 2016 and was acquired by an affiliate of Vista Equity Partners on October 18, 2016. All amounts related to GovDelivery have been removed from the results of our segments and are included in "Dispositions" in the "Results of Operations" segment information table above for all periods presented. Refer to Note 5, "Discontinued Operations" for details regarding the disposition.  
Other
(in thousands)
 
Three Months Ended March 31,
 
Quarterly Change
Selected data:
 
2017
 
2016
 
$ Change
 
% Change
General and administrative expense
 
$
(7,151
)
 
$
(6,982
)
 
$
(169
)
 
2
 %
Other income (loss), net
 
957

 
46

 
911

 
1,980
 %
Interest income
 
146

 
37

 
109

 
295
 %
Noncontrolling interest (income) loss
 
482

 
942

 
(460
)
 
(49
)%
Net income (loss)
 
$
(5,566
)
 
$
(5,957
)
 
$
391

 
(7
)%
Corporate general and administrative
Corporate general and administrative expenses remained relatively consistent for the three months ended March 31, 2017 compared to the three months ended March 31, 2016, with a nominal increase of $0.2 million.
Other income (loss), net
Other income (loss) pertains to gains on sales/distributions of ownership interests. Other income increased for the three months ended March 31, 2017 compared to the three months ended March 31, 2016, primarily due to the gain on a distribution from a cost method investment.
Interest income
Interest income increased for the three months ended March 31, 2017 compared to the three months ended March 31, 2016. The increase is due to an increased cash balance as of March 31, 2017 as a result of the GovDelivery Sale in the fourth quarter of 2016.
Noncontrolling interest (income) loss
Noncontrolling interest loss pertains to the operating results from noncontrolling interests in Actua’s consolidated businesses. The loss attributable to the noncontrolling interests decreased $0.5 million for the three months ended March 31, 2017 compared to the three months ended March 31, 2016 due to an improvement in our operating results, primarily at Bolt.
Liquidity and Capital Resources
As of March 31, 2017, our principal source of liquidity was cash and cash equivalents totaling $80.4 million. Our cash and cash equivalents are comprised primarily of money market funds. We fund our operations with cash on hand, cash flow from operations, borrowings at certain of our businesses and proceeds from sales of businesses and other assets. We expect that these sources of liquidity will be sufficient to fund our cash requirements over the next 12 months. Bolt is expected to require additional borrowings to fund its operations for the foreseeable future; historically, Bolt's debt funding has come primarily from Actua. 
Our future capital requirements will depend on many factors, including the impact of any acquisitions, dispositions, share repurchases and/or other significant transactions (as discussed below), our customer and revenue growth rates, customer renewal activity, the timing and extent of research and development efforts, the timing and extent of sales and marketing activities, the decision whether to move into new geographical territories or markets, the introduction of new and enhanced solutions, and the continuing market acceptance of our solutions. As part of our business strategy, we currently expect to continue our sales and marketing campaigns and research and development initiatives. In addition, we actively source and intend to selectively pursue

38


acquisitions, which we could fund using cash, debt, equity or some combination thereof. In connection with any such acquisition, and as part of our capital allocation program, we may purchase additional debt or equity securities from our existing businesses. Additionally, we may repurchase outstanding equity securities of our businesses from employees or other holders. We may also use cash or incur indebtedness to repurchase shares of our Common Stock or purchase additional equity interests. We have never declared or paid cash dividends on our Common Stock, and we do not intend to pay cash dividends in the foreseeable future. Any future dividend will be subject to approval by our Board and our Board reserves the right to change the dividend policy at any time.  From time to time, we provide parent-company guarantees for our businesses. Since these guarantees are provided to consolidated subsidiaries, the consolidated balance sheet is not affected by the issuance of these guarantees.
Our consolidated businesses may issue additional securities, repurchase outstanding shares or undergo a recapitalization of their debt or equity interests. Recapitalizations or equity issuances or repurchases by one of our businesses, including dilution associated with management equity grants, may change the ownership split that we and the noncontrolling interest holders have in that business. Any change in the ownership of a consolidated subsidiary would result in an adjustment to our additional paid-in capital. From time to time, we may be required to increase our ownership in one or more of our consolidated businesses as a result of certain members of those businesses’ management teams exercising put rights (see Note 4, "Consolidated Businesses," in the Notes to our Consolidated Financial Statements). From time to time, we may also voluntarily seek to increase our ownership in one or more of our consolidated businesses. We do not expect any of our existing vertical cloud businesses to pay a dividend in the near future. However, because we do not own 100% of any of those businesses, if one of our existing businesses were to pay a dividend or to make any other distribution to its equity holders, or to receive any proceeds from the sale of that business, the noncontrolling interest holders would receive a portion of that dividend or distribution or those proceeds.
Our cash flows from operating, investing and financing activities of continuing operations, as reflected in the Consolidated Statements of Cash Flows, are summarized in the following table:
(in thousands)
 
Three Months Ended March 31,
 
 
2017
 
2016
Cash provided by (used in) operating activities
 
$
(3,066
)
 
$
(3,931
)
Cash provided by (used in) investing activities
 
$
615

 
$
(3,186
)
Cash provided by (used in) financing activities
 
$
(14,465
)
 
$
(13,655
)
 
Operating activities
Income (loss) from continuing operations is adjusted for non-cash and other items that include: (1) depreciation and amortization, (2) equity-based compensation charges, (3) impairment related and other, (4) other income (loss) associated with the disposal of ownership interests in businesses, (5) deferred income taxes, and (6) contingent consideration. During the three months ended March 31, 2017, cash used in operating activities improved compared to the equivalent period in 2016, mainly due to changes in working capital.
During 2017, we expect Folio and Velocity to generate cash from their operating activities. Bolt, on the other hand, has used a significant amount of cash in its operating activities over the past several years in connection with the research and development efforts and sales and marketing activities needed to build its unique, differentiated platform and to obtain appointments from, and establish other contractual arrangements with, prominent commercial and personal property and casualty carriers.  We expect Bolt to continue to use cash in its operating activities in 2017, and there can be no assurance that Bolt will ever begin to generate cash from its operating activities.
Investing activities
Cash generated from investing activities for the three months ended March 31, 2017 was mainly due to the receipt of a distribution from a cost method business. This was partially offset by capital expenditures, which were significantly less than the comparable period in 2016.
Financing activities
Cash used in financing activities increased for the three months ended March 31, 2017 compared to the equivalent period in 2016, primarily due to an increase in stock repurchases, which was partially offset by a decrease in the acquisition of noncontrolling interests in subsidiary equity.

39


Working capital and other considerations
Our working capital as of March 31, 2017 was $38.4 million, which decreased from working capital of $55.8 million as of December 31, 2016, primarily due to the decrease in cash during the 2017 period. The largest component of the decrease in cash is related to cash used in financing activities for the repurchase of shares during the three months ended March 31, 2017.
From time to time, we and our businesses are involved in various claims and legal actions arising in the ordinary course of business. We do not expect any liability with respect to any legal claims or actions, either individually or in the aggregate, that would materially affect our financial position or cash flows.
Contractual Cash Obligations and Commercial Commitments
In 2016, Actua signed an extension of the lease associated with its corporate headquarters in Radnor, PA. The lease is effective from September 1, 2017 through August 31, 2022. The cash commitment associated with this lease is approximately $1.5 million and will be paid as follows: $0.1 million will be paid in 2017, $0.3 million will be paid in each of 2018, 2019, 2020, and 2021, and $0.2 million will be paid in 2022.
Off-Balance Sheet Arrangements
We are not involved in any off-balance sheet arrangements that have or are reasonably likely to have a material future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based upon our Consolidated Financial Statements, which have been prepared in accordance with GAAP. The preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to goodwill, intangibles, our interests in our businesses, marketable securities, revenue, income taxes and commitments and contingencies. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from those estimates under different assumptions or conditions.
We believe the following critical accounting policies are important to the presentation of our financial statements and often require difficult, subjective and complex judgments.
Revenue Recognition
We recognize revenue when persuasive evidence of an arrangement exists, delivery of the service has occurred, no significant obligations with regard to implementation remain, the fee is fixed or determinable and collectability is probable.  Please refer to Note 2, "Significant Accounting Policies," to our Consolidated Financial Statements for more specific details regarding the manner in which each of our businesses recognizes revenue.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the net assets of businesses acquired. We have made acquisitions over the years that have resulted in the recognition and accumulation of significant goodwill. We test goodwill for impairment annually during the fourth quarter of each year, or more frequently as conditions warrant.
The first step of the test, used to identify potential impairment, compares the estimated fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered to be impaired and the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the impairment test must be performed to measure the amount of the impairment loss, if any.
The second step of the goodwill impairment test compares the implied fair value of reporting unit goodwill with the carrying amount of that goodwill. The implied fair value of goodwill is determined in the same manner as goodwill recognized in a business combination. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.

40


We estimate the fair value of our reporting units using "Level 2" and "Level 3" inputs as described in Note 7, "Fair Value Measurements," to the Consolidated Financial Statements. Significant judgments and estimates are made to estimate the fair value of our reporting units, such as projected future earnings, applicable discount rates, the selection of peer earnings multiples and the relative weighting of different fair value indicators. We determine market multiples from comparable publicly-traded companies and apply those multiples to the revenues of the reporting units to estimate the fair values, which are then compared to the respective carrying values of the reporting units.
Intangible Assets
Intangible assets with determinable lives primarily consist of customer relationships, trademarks and trade names, technology, non-compete agreements and other intellectual property. The cost of intangible assets with determinable lives is amortized on a straight-line basis over the estimated period of economic benefit. Indefinite-lived intangibles are subject to impairment testing at least annually. In addition, intangible assets are tested more frequently if a change in circumstances or the occurrence of events indicates that potential impairment exists.
Cost Method Businesses
We evaluate our cost method businesses continuously to determine whether an other-than-temporary decline in the fair value of any such business exists and should be recognized. In order to make that determination, we consider each such business’s achievement of its business plan objectives and milestones, the fair value of our ownership interest in each such business (which, in the case of any company listed on a public stock exchange, is the quoted stock price of the relevant ownership interest), the financial condition and prospects of each such business, and other relevant factors. The business plan objectives and milestones we consider include, among others, those related to financial performance, such as achievement of planned financial results or completion of capital raising activities, and those that are not primarily financial in nature, such as obtaining key business partnerships or the hiring of key employees. Impairment charges are determined by comparing our carrying value of the investment with the investment’s estimated fair value. Fair value is determined by using a combination of estimating the cash flows related to the relevant business, including estimated proceeds on disposition, and an analysis of market price multiples of companies engaged in lines of business similar to the business being evaluated. We concluded that the carrying values of our cost method businesses were not impaired as of March 31, 2017 or December 31, 2016.
Deferred Income Taxes
We record a valuation allowance to reduce our net deferred tax assets to the amount that is more likely than not to be realized. We consider future taxable income and prudent and feasible tax planning strategies in determining the need for a valuation allowance. In the event that we determine that we would not be able to realize all or part of our net deferred tax assets, an adjustment to the deferred tax assets would be charged to earnings in the period such determination is made. Likewise, if we later determine that it is more likely than not that the net deferred tax assets would be realized, the previously provided valuation allowance would be reversed.
Commitments and Contingencies
From time to time, we are a defendant or plaintiff in various legal actions that arise in the normal course of business. From time to time, we are also a guarantor of various third-party obligations and commitments. We are required to assess the likelihood of any adverse judgments or outcomes to these matters, as well as potential ranges of probable losses. A determination of the amount of reserves required for these contingencies, if any, which would be charged to earnings, is made after careful analysis of each individual matter. The required reserves may change in the future due to new developments in each matter or changes in circumstances, such as a change in settlement strategy. Changes in required reserves could increase or decrease our earnings in the period the changes are made.
Fair Value Measurements
Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. There are three levels of inputs that may be used to measure fair value.

Recent Accounting Pronouncements

Refer to the Recent Accounting Pronouncements in Note 2, "Significant Accounting Policies," to our Consolidated Financial Statements.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
As of March 31, 2017, our $80.4 million of cash and cash equivalents included $69.0 million that is held primarily in money market accounts. We may be exposed to market risk relating to changes in market interest rates and overall market conditions that

41


could affect the value of our cash and cash equivalents; however, we believe any changes in the fair value of our investment portfolio would be insignificant to our results, given current market conditions.

ITEM 4. Controls and Procedures
Disclosure Controls and Procedures
Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in our reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding our required disclosure. In designing and evaluating our disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating and implementing possible controls and procedures.

We carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered in this Report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that due to the material weakness in our internal control over financial reporting as described in Item 9A- Controls and Procedures in our 2016 Annual Report on Form 10-K, our disclosure controls and procedures were not effective as of March 31, 2017.

In light of the material weakness in internal control over financial reporting, we engaged significant internal resources to perform supplemental procedures prior to filing this Quarterly Report on Form 10-Q. These additional procedures have allowed us to conclude that, notwithstanding the material weakness in our internal control over financial reporting, the consolidated financial statements included in this Report fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with generally accepted accounting principles.
Changes in Internal Control Over Financial Reporting
Other than those noted below, there have been no significant changes in internal control over financial reporting during the period covered by this Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Remediation Plan
We are committed to remediating the material weakness in internal control over financial reporting. We are actively implementing a remediation plan that will address the material weakness in internal control over financial reporting described in our Annual Report on Form 10-K. Specifically, we intend to continue to implement and monitor, the following actions:

Implementing general information technology controls to assign appropriate user access to the information technology operating systems, applications and databases as well as program change, maintenance and development controls.

The Audit Committee of the Board is monitoring management’s remediation efforts. In addition, under the direction of the Audit Committee, management continues to review and make necessary changes to the overall design of the Company’s internal control environment as well as policies and procedures to improve the overall effectiveness of internal control over financial reporting.
Management believes the measures described above and others that are being implemented will remediate the material weakness identified and will strengthen internal control over financial reporting. Management is committed to continuous improvement of the Company’s internal control processes and will continue to diligently review our financial reporting controls and procedures. As management continues to evaluate and work to improve internal control over financial reporting, we may take additional measures to address control deficiencies or determine to modify certain of the remediation measures described above. We continue to expect these remedial actions and/or other actions related to the material weakness to be effectively implemented in 2017.
If the remedial measures described above are insufficient to address the identified material weakness or are not implemented effectively, or additional deficiencies arise in the future, material misstatements in our interim or annual financial statements may occur in the future which could harm our business.


42


PART II – OTHER INFORMATION
 
ITEM 1. Legal Proceedings
Actua and its consolidated subsidiaries are involved in various claims and legal actions arising in the ordinary course of business.  In the opinion of management, the amount of the ultimate liability with respect to any legal claims or actions, either individually or in the aggregate, will not materially affect the financial position, results of operations or cash flows of Actua or its consolidated businesses.   

ITEM 1A. Risk Factors
In addition to the other information set forth in this Report, you should carefully consider the factors discussed in Item 1A — "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2016, which could materially affect our business, financial condition or future results. Those are not the only risks facing us, however. Additional risks and uncertainties that are not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. 

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities. We maintain a share repurchase program under which we may, from time to time, repurchase shares of our Common Stock in the open market, including pursuant to trading plans meeting the requirements of Rule 10b5-1 under the Exchange Act, in privately negotiated transactions or pursuant to one or more issuer tender offers. The program was expanded in September 2013 and again in October 2016 to allow for the repurchase of up to $189.8 million of shares of our Common Stock (of which $43.4 million is available as of May 3, 2017). The table below contains information relating to the repurchases of our Common Stock that occurred under the share repurchase program from the program’s inception on July 31, 2008 through May 3, 2017.
  
Period
 
Total Number of Shares Purchased (1)
 
Average Price Paid per Share (2)
 
Total Number of Shares Purchased as Part of Publicly Announced Program (1)
 
Approximate Dollar Value That May 
Yet Be Purchased Under the Program
Repurchased through 12/31/2016
 
11,585,943

 
$
11.13

 
11,585,943

 
$ 60.8 million
1/1/2017 to 1/31/2017
 
78,015

 
$
13.99

 
78,015

 
$ 59.7 million
2/1/2017 to 2/28/2017
 
310,133

 
$
13.97

 
310,133

 
$ 55.4 million
3/1/2017 to 3/31/2017
 
507,639

 
$
13.88

 
507,639

 
$ 48.3 million
4/1/2017 to 4/30/2017
 
333,078

 
$
13.99

 
333,078

 
$ 43.7 million
5/1/2017 to 5/3/2017
 
19,926

 
$
14.00

 
19,926

 
$ 43.4 million
Total
 
12,834,734

 
$
11.41

 
12,834,734

 
$ 43.4 million
                                
(1) 
All shares purchased in open market transactions, excluding 4,588,094 shares repurchased in December 2016 at a price per share of $14.00 pursuant to an Offer to Purchase that was filed with the SEC on November 7, 2016.
(2) 
Average price paid per share excludes commissions and fees.

ITEM 3. Defaults Upon Senior Securities
None. 

ITEM 4. Mine Safety Disclosures
Not applicable.

ITEM 5. Other Information
None.

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ITEM 6. Exhibits
Exhibit Index
 
Exhibit
Number
  
Document
 
 
 
10.1
 
Actua 2017 Performance Plan (incorporated by reference to Exhibit 10.1 of Actua's Current Report on Form 8-K, filed March 10, 2017 (File No. 001-16249).*
 
 
 
10.2
 
Form of 2017 Performance Plan Restricted Share Agreement (incorporated by reference to Exhibit 10.2 of Actua's Current Report on Form 8-K, filed March 10, 2017 (File No. 001-16249))
 
 
 
11.1
  
Statement Regarding Computation of Per Share Earnings (included herein at Note 2-"Significant Accounting Policies" in the subsection Net Income (Loss) Per Share to the Consolidated Financial Statements and Note 13-"Net Income (Loss) Per Share" to the Consolidated Financial Statements)
 
 
 
31.1
  
Certification of Chief Executive Officer required by Section 302 of the Sarbanes-Oxley Act of 2002, as amended (filed herewith).
 
 
 
31.2
  
Certification of Chief Financial Officer required by Section 302 of the Sarbanes-Oxley Act of 2002, as amended (filed herewith).
 
 
 
32.1
  
Certification of the Chief Executive Officer required by Section 906 of the Sarbanes-Oxley Act of 2002, as amended (furnished herewith).
 
 
 
32.2
  
Certification of the Chief Financial Officer required by Section 906 of the Sarbanes-Oxley Act of 2002, as amended (furnished herewith).
 
 
 
101.0
  
The following financial information formatted in eXtensible Business Reporting Language (XBRL) from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 filed May 8, 2017: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations and Comprehensive Income (Loss), (iii) Consolidated Statements of Changes in Equity, (iv) Consolidated Statements of Cash Flows, and (v) Notes to Consolidated Financial Statements (filed herewith).
 
*
Management contract or compensatory plan or arrangement.


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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Actua Corporation has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
Date:
May 8, 2017
 
ACTUA CORPORATION
 
 
 
 
 
 
 
 
 
By:
 
/s/ R. KIRK MORGAN
 
 
 
Name:
 
R. Kirk Morgan
 
 
 
Title:
 
Chief Financial Officer
 
 
 
 
 
(Principal Financial and Accounting Officer)


45