Long-Lived Assets and Impairment

9 Months Ended

Sep. 30, 2018

Long-lived Assets And Impairment

Long-Lived Assets and Impairment

Intangible Assets.  The Company amortizes the costs of specifically identified definite-lived intangible assets using the straight-line method over the estimated useful lives of the assets.

The Company’s intangible assets are amortized over the following estimated useful lives (in thousands):

		September 30, 2018  (in thousands)							December 31, 2017  (in thousands)
Definite-lived Intangible Asset	Estimated Useful Life	Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net
Trademarks/trade names/licenses/domains	3 -7 years	$	16,589	$	(14,734	)	$	1,855	$	16,589	$	(4,037	)	$	12,552
Software and publications	3 years		1,300		(1,300	)		—		1,300		(1,300	)		—
Customer relationships	2 - 10 years		19,563		(14,485	)		5,078		19,563		(10,555	)		9,008
Employment/non-compete agreements	1 - 5 years		1,510		(1,510	)		—		1,510		(1,493	)		17
Developed technology	5 - 7 years		8,955		(4,601	)		4,354		8,955		(3,619	)		5,336
		$	47,917	$	(36,630	)	$	11,287	$	47,917	$	(21,004	)	$	26,913

		September 30, 2018						December 31, 2017
Indefinite-lived Intangible Asset	Estimated Useful Life	Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net
Domain	Indefinite	$	2,200	$	—	$	2,200	$	2,200	$	—	$	2,200

Amortization expense on intangible assets with definite lives is included in both Cost of revenues and Depreciation and amortization in the Unaudited Consolidated Condensed Statements of Operations. Total amortization expense was $1.6 million and $5.0 million for the three and nine months ended September 30, 2018, respectively. Amortization expense was $1.3 million and $4.1 million for the three and nine months ended September 30, 2017, respectively.

Amortization expense for the remainder of the year and for future years is as follows:

	Amortization Expense
Year		(in thousands)
2018	$	1,511
2019		4,872
2020		2,371
2021		1,499
2022		902
Thereafter		132
	$	11,287

Goodwill.  Goodwill represents the excess of the purchase price over the fair value of net assets acquired.  Goodwill is not amortized and is assessed annually for impairment or earlier, when events or circumstances indicate that the carrying value of such assets may not be recoverable. The Company impaired goodwill by $5.1 million during the nine months ended September 30, 2018. 

	(in thousands)
Goodwill as of December 31, 2017	$	5,133
Impairment charge		(5,133	)
Goodwill as of September 30, 2018	$	—

Impairment Testing of Intangible Assets

On October 5, 2017, the Company and DealerX Partners, LLC, a Florida limited liability company (“DealerX”), entered into a Master License and Services Agreement (“DealerX License Agreement”). Pursuant to the terms of the DealerX License Agreement, AutoWeb was granted a perpetual license to access and use DealerX’s proprietary platform and technology for targeted, online marketing.

The transaction consideration consisted of: (i) $8.0 million in cash paid to DealerX upon execution of the DealerX License Agreement and (ii) the right to 710,856 shares of the Company’s common stock, par value $0.001 per share, representing approximately five percent of the Company’s outstanding Common Stock as of the date the parties entered into the DealerX License Agreement (“Market Capitalization Shares”) if on or before October 5, 2022: (i) AutoWeb’s market capitalization averaged at least $225.0 million over a consecutive 90 day period or (ii) there occurred a change in control of AutoWeb that reflected a market capitalization of at least $225.0 million. If the Market Capitalization Shares were issued to DealerX, DealerX’s obligations to continue to support the platform (“Platform Support Obligations”) would continue in perpetuity. Alternatively, upon the occurrence of certain events prior to the issuance of the Market Capitalization Shares, AutoWeb could elect to make an additional lump-sum payment of $12.5 million (“Alternative Cash Payment”) in order to extend DealerX’s Platform Support Obligations in perpetuity. If the Alternative Cash payment was made, DealerX’s contingent right to receive the Market Capitalization Shares would be terminated. The fair value of the Market Capitalization Shares was calculated at $2.5 million. At the transaction date the Company recorded approximately $10.5 million as a definite-lived intangible asset which was amortized over its expected useful life of 7 years.

The Company makes judgments about the recoverability of purchased intangible assets with definite lives whenever events or changes in circumstances indicate that an impairment may exist. Recoverability of purchased intangible assets with definite lives is measured by comparing the carrying amount of the asset to the future undiscounted cash flows the asset is expected to generate. In the third quarter of 2018, the Company performed an analysis of its planned future use of two intangible assets in the licenses and customer relationships asset groups. As a result of realignment activities finalized in the third quarter, the Company made a determination that the Company's use of certain assets would not be continued as originally planned. Accordingly, the Company performed further analysis to quantitatively determine the amount of impairment for each of these intangible assets as of September 30, 2018.

 A structured test was performed with the DealerX license intangible asset, whereby lead generation and acquisition cost, amongst other things, was compare to alternate sources of lead generation available to the Company. As a result of the Company’s analysis, the Company concluded that the effectiveness of the platform was not in-line with the enhanced consumer-to-client matchmaking that the Company is seeking and made the decision in the third quarter to terminate DealerX’s Platform Support Obligations, significantly impacting the usability of the asset by the Company. Accordingly, the Company recorded impairment charges of $9.0 million in connection with the impairment of this long-lived asset with the expense recorded in Cost of revenues-impairment on the Company’s Unaudited Consolidated Condensed Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, 2018.

A quantitative analysis was performed by the Company on its customer relationship intangible assets, whereby it examined available data, namely historical activity and cash flows resulting from the customer relationships of previous acquisitions, in concert with projected future use of acquired customer relationships within the parameters of the Company’s future strategic plans. As a result of this analysis, the Company determined there to be impairment of $1.6 million related to customer relationship intangible assets acquired in a 2015 acquisition for which projected cash flows did not support the carrying values. Additionally, the Company determined that the estimated useful life of these customer relationship intangible assets had changed from 10 years to 5 years. This change in estimate has no impact on the current period but will impact amortization expense in future periods as amortization will be accelerated over the remaining estimated useful life of this asset due to the change in estimate.