Goodwill

The Company assesses goodwill for impairment annually, or more frequently whenever events or changes in circumstances indicate that an impairment may exist. Goodwill is tested for impairment at the reporting unit level. The Company believes it has two reporting units, The Meet Group US and Lovoo.

As of October 1, 2018, the Company completed its annual impairment test. In prior years, the Company performed its annual goodwill impairment test as of December 31st of a given calendar year. This change was made to more align with the Company’s internal forecasting process. The Company considered both a market approach using comparable company method and income approach using a discounted cash flow method which it believes to be an appropriate valuation methodology.

The major assumptions in the market approach include the selected multiples applied to certain operating statistics, such as sales revenues as well as an estimated control premium. The Company’s discounted cash flow model is highly reliant on various assumptions, including estimates of future cash flows, growth rates, discount rate, expectations about variations in the amount and timing of cash flows and the probability of achieving its estimated cash flow forecast. These assumptions are based on significant inputs not easily observable in the market and thus represent Level 3 measurements within the fair value hierarchy. For The Meet Group US valuation, a discount rate of 13.5% was used, as well as assumptions of a slight decrease in revenue for the full year of 2018 of 0.6%, as compared to full year 2017, and subsequent increases in revenue growth of 12.7%, 20.0%, 12.8%, 6.7% and 6.6% in 2019, 2020, 2021, 2022 and 2023, respectively, before a terminal value was estimated. For the Lovoo valuation, a discount rate of 15.0% was used, as well as assumptions of increases in revenue for the full year of 2018 of 38.9%, as compared to full year 2017, and subsequent increases in revenue growth of 25.5%, 20.2%, 10.6%, 10.0% and 5.5% in 2019, 2020, 2021, 2022 and 2023, respectively, before a terminal value was estimated. The discount rates were determined using the weighted average cost of capital for a typical market participant. The Company also notes that the conclusion of value was not overly sensitive to changes in the growth rates used in our analysis. Had the growth rates for the next 5 years been 1% lower, the aggregate valuation conclusion would have decreased by less than 2.5%. The Company believes the discount rate and other inputs and assumptions are reasonable and consistent with those that a market participant would use. At October 1, 2018, the Company concluded that the fair value of the Company’s reporting units exceeded their carrying value. The fair value for The Meet Group US and Lovoo were $296.6 million and $107.0 million, respectively, which was more than 97.1% and 81.8% greater than the reporting units’ carrying value, respectively.

In the fourth quarter of 2017, through the Company’s annual testing of goodwill, the Company determined that a $56.4 million one-time, non-cash impairment was required for our U.S. reporting unit, due predominantly to the market-driven impacts on advertising revenue resulting from lower cost per thousand (“CPM”) impressions which negatively affected the Company’s results and outlook. This non-cash impairment charge does not impact the Company’s ability to generate cash flow in the future and it is not tax deductible. As a result of this impairment charge, the fair value of goodwill for the US operations was $95.2 million as of December 31, 2017. The Company classifies goodwill as a non-recurring Level 3 measurement.

The following table sets forth a summary of changes goodwill:



	Goodwill
Balance at December 31, 2016	$	114,175,554
Goodwill acquired from if(we) Acquisition	37,489,373
Goodwill acquired from Lovoo Acquisition	54,677,878
Goodwill impairment	(56,428,861		)
Foreign currency translation adjustments	780,191
Balance at December 31, 2017	150,694,135
Foreign currency translation adjustments	(2,561,262		)
Balance at December 31, 2018	$	148,132,873