Goodwill and Identifiable Intangible Assets

12 Months Ended

Dec. 31, 2023

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Identifiable Intangible Assets

Note 15: Goodwill and Identifiable Intangible Assets

The Company’s goodwill is tested for impairment at the reporting unit level annually and in interim periods if certain events occur that indicate that the fair value of a reporting unit may be below its carrying value. Determining the number of reporting units and the fair value of a reporting unit requires the Company to make judgments and involves the use of significant estimates and assumptions. The Company performs its annual goodwill impairment assessment as of the first day of the fourth quarter.

As of December 31, 2023, the Company had two reporting units, MCM and Cabot, that carried goodwill. When performing its annual goodwill impairment assessment during the fourth quarter of 2023, the Company chose to proceed directly to performing quantitative tests for both reporting units. The annual goodwill impairment analysis resulted in an impairment charge for the Cabot reporting unit of $238.2 million. The fair value of the MCM reporting unit substantially exceeded its carrying value on the assessment date, as a result, there was no impairment of goodwill for the MCM reporting unit during the year ended December 31, 2023.

The Company applies various valuation techniques to estimate the fair value of each reporting unit when performing a quantitative impairment test, including the income approach and the market approach. Under the income approach, the Company uses a discounted cash flow method, or DCF, to estimate the fair value of a reporting unit. In applying the DCF method, an identified level of future cash flow is estimated. The cash flow projections are based on five-year financial forecasts developed by management that include purchasing volume, collections forecasts, capital spending trends, and cost assumptions to support anticipated growth, which are updated annually and reviewed by management. The value of the net cash flows beyond the fifth year (the “Terminal Year”) is determined by applying a market multiple to the projected estimated remaining collections. Annual estimated cash flows and a Terminal Year value are then discounted to their present value at an appropriate discount rate to obtain an indication of fair value. The Company bases the discount rate on the weighted-average cost of capital adjusted for the relevant risk associated with business-specific characteristics and the uncertainty related to the reporting unit’s ability to execute on the projected cash flows. Because DCF analyses are based on management’s long-term financial projections and require significant estimates and judgments, the market approach is conducted in addition to the income approach in estimating the fair value of a reporting unit. Under the market approach, the Company uses both a Guideline Public Company Method and Guideline Merged & Acquired Company method to estimate the fair value of equity and the business enterprise value of a reporting unit. The Guideline Public Company approach uses financial metrics from similar public traded companies to estimate fair value. The Guideline Merged and Acquired Company method calculates fair value by analyzing the actual prices paid for recent mergers and acquisitions in the industry. The fair value estimate of the Company’s reporting units was derived primarily from the income approach, and to a lesser extent, the market approach as described above. The Company believes that the current methodology used in determining the fair value at its reporting units represent its best estimates. In addition, the Company compares the aggregate fair value of the reporting units to its overall market capitalization.

The Company’s prior annual goodwill impairment test resulted in a sufficient cushion for the Cabot reporting unit. Additionally, the Company did not observe significant indicators of goodwill impairment triggers during its subsequent interim qualitative assessments. During the fourth quarter of 2023, management completed its annual update of the five-year financial forecast at the Cabot reporting unit, resulting in a revised forecast due to a combination of (1) the continuation of lower than expected levels of outstanding unsecured consumer borrowings and charge-off rates in Europe, (2) the continuation of portfolio pricing that management believes does not fully reflect the higher cost of capital, and (3) management allocating capital to the

higher-return US market instead of the Cabot markets, which all impact the expected purchasing volume and related collections forecasts at the Cabot reporting unit. The decline in the fair value of the Cabot reporting unit below its carrying value resulted from changes in expected future cash flows as compared to the Company’s prior year financial forecasts, decline in market multiples, as well as an increase in the cost of capital.

In conjunction with the quantitative goodwill impairment test, the Company tested the recoverability of long-lived assets and other assets of the Cabot reporting unit and concluded that the intangible assets carried at Cabot’s debt servicing business were fully impaired. As a result, the Company recorded an impairment charge of its intangible assets of $18.7 million during the fourth quarter of 2023. The Company recorded an impairment charge of $4.1 million for its definite-lived intangible assets during the year ended December 31, 2022.

Management continues to evaluate and monitor all key factors impacting the carrying value of the Company’s recorded goodwill and intangible assets. Adverse changes in the Company’s actual or expected operating results, market capitalization, business climate, economic factors or other negative events that may be outside the control of management could result in a material non-cash impairment charge in the future.

The Company’s goodwill is attributable to the MCM and Cabot reporting units included in its portfolio purchasing and recovery segment. The following table summarizes the activity in the Company’s goodwill balance (in thousands):

	MCM		Cabot		Total
Balance as of December 31, 2020	$	148,936	$	758,026	$	906,962
Effect of foreign currency translation	—		(9,167)		(9,167)
Balance as of December 31, 2021	148,936		748,859		897,795
Effect of foreign currency translation	—		(76,581)		(76,581)
Balance as of December 31, 2022	148,936		672,278		821,214
Goodwill impairment	—		(238,200)		(238,200)
Effect of foreign currency translation	—		23,461		23,461
Balance as of December 31, 2023	$	148,936	$	457,539	$	606,475

There was no accumulated goodwill impairment loss as of December 31, 2022 and 2021. The accumulated goodwill impairment loss at the Cabot reporting unit was $238.2 million as of December 31, 2023.

The Company’s acquired intangible assets are summarized as follows (in thousands):

	As of December 31, 2023						As of December 31, 2022
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Customer relationships	$	—	$	—	$	—	$	45,498	$	(23,507)	$	21,991
Trade name and other	918		(870)		48		909		(788)		121
Total intangible assets	$	918	$	(870)	$	48	$	46,407	$	(24,295)	$	22,112

The weighted-average useful lives of intangible assets at the time of acquisition were as follows (in years):

	Weighted-Average Useful Lives
Customer relationships	10
Trade name and other	7

The amortization expense for intangible assets subject to amortization was $3.6 million, $6.3 million, and $7.9 million during the years ended December 31, 2023, 2022, and 2021, respectively. Estimated future amortization expense related to finite-lived intangible assets as of December 31, 2023 was negligible.