Goodwill and Intangible Assets

Goodwill

The following table sets forth the changes in the carrying amount of goodwill for the nine months ended September 30, 2018:



	Amounts
Balance at December 31, 2017	$	33,872
Foreign currency translation adjustment	(1,024		)
Balance at September 30, 2018	$	32,848

In January 2017, the Company early adopted ASC Update No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test of Goodwill Impairment. ASC 350 requires the completion of a goodwill impairment test at least annually based on either an optional qualitative assessment or the first step of comparing the carrying value of a reporting unit to its estimated fair value as of the test date. Any impairment charges would be based on the first step. The Company now performs its annual goodwill impairment test as of October 1st. During the three months ended December 31, 2017, the Company changed its annual impairment assessment date from August 31st to October 1st to better align the timing of the test date with its annual budgeting cycle. In connection with the change in the date of its annual goodwill impairment test, the Company performed a goodwill impairment test as of both August 31, 2017 and October 1, 2017, and concluded that the fair values of its reporting units exceeded their respective carrying values. The Company notes that, as of August 31, 2017, the fair value of all of the Company’s reporting units exceeded their carrying values by more than 10%. For the October 1, 2017 test, the Company performed a qualitative assessment over goodwill impairment concluding it was more-likely-than-not that its reporting units fair value exceeded their carrying value. Accordingly, it was not necessary for the Company to perform the full Step 1 quantitative analysis. To date, the Company has not had accumulated goodwill impairment losses. A negative trend of operating results or material changes to forecasted operating results could result in the requirement for additional interim goodwill impairment tests and the potential of a future goodwill impairment charge, which could be material.

Intangible Assets

The changes in the carrying amount of intangible assets during the nine months ended September 30, 2018 are as follows:



	Amounts
Balance at December 31, 2017	$	15,120
Amortization expense	(3,101		)
Intangible assets acquired in asset acquisition	22
Foreign currency translation adjustment	(404		)
Balance at September 30, 2018	$	11,637

Intangible assets arose from an acquisition made prior to 2013, the acquisition of KVH Media Group (acquired as Headland Media Limited) in May 2013 and the acquisition of Videotel in July 2014. Intangibles arising from the acquisition made prior to 2013 are being amortized on a straight-line basis over an estimated useful life of 7 years. Intangibles arising from the acquisition of KVH Media Group are being amortized on a straight-line basis over the estimated useful life of: (i) 10 years for acquired subscriber relationships, (ii) 15 years for distribution rights, (iii) 3 years for internally developed software and (iv) 2 years for proprietary content. Intangibles arising from the acquisition of Videotel are being amortized on a straight-line basis over the estimated useful life of: (i) 8 years for acquired subscriber relationships, (ii) 5 years for favorable leases, (iii) 4 years for internally developed software and (iv) 5 years for proprietary content. The intangibles arising from the KVH Media Group and Videotel acquisitions were recorded in pounds sterling and fluctuations in exchange rates could cause these amounts to increase or decrease from time to time.

In January 2017, the Company completed the acquisition of certain subscriber relationships from a third party. This acquisition did not meet the definition of a business under ASC 2017-01, Business Combinations (Topic 805)-Clarifying the Definition of a Business, which the Company adopted on October 1, 2016. The Company ascribed $100 of the initial purchase price to the acquired subscriber relationships definite-lived intangible assets with an initial estimated useful life of 10 years. Under the asset purchase agreement, the purchase price includes a component of contingent consideration under which the Company is required to pay a percentage of recurring revenues received from the acquired subscriber relationships through 2026 up to a maximum annual payment of $114. As of September 30, 2018, the carrying value of the intangible assets acquired in the asset acquisition was $155. As the acquisition did not represent a business combination, the contingent consideration arrangement is recognized only when the contingency is resolved and the consideration is paid or becomes payable. The amounts payable under the contingent consideration arrangement, if any, will be included in the measurement of the cost of the acquired subscriber relationships. During the nine months ended September 30, 2018, $22 additional consideration was earned under the contingent consideration arrangement.

Acquired intangible assets are subject to amortization. The following table summarizes acquired intangible assets at September 30, 2018 and December 31, 2017, respectively:



	Gross Carrying Amount		Accumulated Amortization		Net Carrying Value
September 30, 2018
Subscriber relationships	$	17,662	$	9,858	$	7,804
Distribution rights	4,291		1,663		2,628
Internally developed software	2,327		2,327		—
Proprietary content	8,185		7,070		1,115
Intellectual property	2,284		2,284		—
Favorable lease	645		555		90
	$	35,394	$	23,757	$	11,637
December 31, 2017
Subscriber relationships	$	17,912	$	8,347	$	9,565
Distribution rights	4,385		1,450		2,935
Internally developed software	2,324		2,206		118
Proprietary content	8,223		5,908		2,315
Intellectual property	2,284		2,284		—
Favorable lease	648		461		187
	$	35,776	$	20,656	$	15,120

Amortization expense related to intangible assets for the three and nine months ended September 30, 2018 and 2017 was as follows:



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
Expense Category	2018		2017		2018		2017
Cost of service sales	$	374	$	375	$	1,163	$	1,097
General and administrative expense	584		721		1,938		2,169
Total amortization expense	$	958	$	1,096	$	3,101	$	3,266

As of September 30, 2018, the total weighted average remaining useful lives of the definite-lived intangible assets was 3.6 years and the weighted average remaining useful lives by the definite-lived intangible asset category are as follows:



Intangible Asset	Weighted Average Remaining Useful Life in Years
Subscriber relationships	4.1
Distribution rights	9.6
Proprietary content	0.8
Favorable lease	0.8

Estimated future amortization expense remaining at September 30, 2018 for intangible assets acquired is as follows:



Remainder of 2018	$	957
2019	3,018
2020	2,216
2021	2,216
2022	1,455
Thereafter	1,775
Total future amortization expense	$	11,637

For intangible assets, the Company assesses the carrying value of these assets whenever events or circumstances indicate that the carrying value may not be recoverable. Recoverability of assets to be held and used is measured by comparing the carrying amount of an asset, or asset group, to the future undiscounted cash flows expected to be generated by the asset, or asset group. There were no events or changes in circumstances during the third quarter of 2018 which indicated that an assessment of the impairment of goodwill and intangible assets was required.