Goodwill and Intangible Assets, Net

3 Months Ended

Mar. 31, 2020

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill

Goodwill has an estimated indefinite life and is not amortized; rather, it is reviewed for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.

The Company has four reporting units. Our reporting units are not discrete legal entities with discrete full financial statements. Our assets and liabilities are employed in and relate to the operations of our reporting units. Therefore, the equity carrying value and future cash flows must be estimated each time a goodwill impairment analysis is performed on a reporting unit. As a result, our assets, liabilities and cash flows are assigned to reporting units using reasonable and consistent allocation methodologies.

Our annual goodwill impairment review occurs during the fourth quarter of each fiscal year. We evaluate qualitative factors that could cause us to believe the estimated fair value of each of our reporting units may be lower than the carrying value and trigger a quantitative assessment, including, but not limited to (i) macroeconomic conditions, (ii) industry and market considerations, (iii) our overall financial performance, including an analysis of our current and projected cash flows, revenues and earnings, (iv) a sustained decrease in share price and (v) other relevant entity-specific events including changes in management, strategy, partners, or litigation.

2019 Goodwill Impairment Test

During the second half of 2019, the price of our Class A common stock declined significantly. The average closing price per share of our Class A common stock for the period from May 1 to October 31 decreased by $6.59 per common share, or 43.5%, compared to the average closing price for the period from January 1 to April 30. In addition, it is not certain that Passport will be awarded a Kentucky managed Medicaid contract for the next contract period, which is expected to begin on January 1, 2021. If Passport is not awarded a contract under the RFP, we expect that we will not receive any material revenue under our management services agreement from Passport Buyer subsequent to December 31, 2020 and the value of our investment in Passport and goodwill will be negatively impacted. A non-renewal of Passport’s contract would reduce our medium-term and long-term cash flow projections, causing the decline in our stock price to possibly be further prolonged, indicating it is more likely than not that that the fair value of the reporting units is less than the reporting unit’s carrying amounts.

In performing our October 31, 2019 impairment test, we estimated the fair value of our reporting units by considering a discounted cash flow valuation approach (“income approach”). In determining the estimated fair value using the income approach, we projected future cash flows based on management’s estimates and long-term plans and applied a discount rate based on the Company’s weighted average cost of capital. This analysis required us to make judgments about revenues, expenses, fixed asset and working capital requirements, the timing of exchanges of our Class B common shares, capital market assumptions, cash flows, the probability of the Passport RFP outcome and discount rates. The fair values determined by the income approach, as described above, were weighted considering future resolution of the Passport RFP result to determine the concluded fair value for each reporting unit. If the probability of Passport being awarded a

contract under the RFP increases, it is unlikely to result in a future impairment charge ignoring other events or circumstances, however, if the probability of Passport being awarded a contract under the RFP decreases, we will likely have a future impairment charge.

As of October 31, 2019, we determined that one of our three reporting units in the Services segment had an estimated fair value less than its carrying value. As a result, we recorded a non-cash goodwill impairment charge of $199.8 million in goodwill impairment on our consolidated statements of operations and comprehensive income (loss) for the year ended December 31, 2019. If other indications of impairment exist we may be required to recognize additional impairments in the future as a result of market conditions or other factors related to our performance, including changes in our forecasted results, investment strategy, interest rates or assumptions used as part of the goodwill impairment analysis. Any further impairment charges that we may record in the future could be material to our results of operations. As of March 31, 2020, the Company assessed whether there were additional events or changes in circumstances since its annual goodwill impairment test that would indicate that it was more likely than not that the fair value of the reporting units was less than the reporting unit’s carrying amounts that would require an additional interim impairment assessment after October 31, 2019. Considering the sharp decrease in the share price of the Company’s Class A common stock during the three months ended March 31, 2020, the Company determined indicators of an impairment were present and we performed an interim goodwill impairment assessment as of March 31, 2020. As a result of this test, the Company determined that there was no goodwill impairment of the reporting unit which recognized an impairment in the year ended December 31, 2019. As of March 31, 2020, the remaining goodwill attributable to the reporting unit from which we recognized a non-cash goodwill impairment charge for the year ended December 31, 2019 was $431.7 million.

The following table summarizes the changes in the carrying amount of goodwill, by reportable segment, for the periods presented (in thousands):



	For the Three Months Ended March 31, 2020
	Services			True Health		Consolidated
Balance as of December 31, 2019 ⁽¹⁾	$	566,359		$	5,705	$	572,064
Goodwill disposal ⁽²⁾	(2,200		)	—		(2,200		)
Foreign currency translation	(67		)	—		(67		)
Balance as of March 31, 2020	$	564,092		$	5,705	$	569,797



	For the Three Months Ended March 31, 2019
	Services		True Health		Consolidated
Balance as of December 31, 2018 ⁽¹⁾	$	762,419	$	5,705	$	768,124
Goodwill acquired	2,200		—		2,200
Foreign currency translation	10		—		10
Balance as of March 31, 2019	$	764,629	$	5,705	$	770,334

⁽¹⁾ Net of cumulative inception to date impairment of $360.4 million and $160.6 million as of December 31, 2019 and 2018, respectively.

⁽²⁾ Goodwill written down on disposal of a consolidated subsidiary.

Intangible Assets, Net

Details of our intangible assets (in thousands) are presented below:



	March 31, 2020							December 31, 2019
	Weighted- Average Remaining Useful Life	Gross Carrying Amount		Accumulated Amortization		Net Carrying Value		Weighted- Average Remaining Useful Life	Gross Carrying Amount		Accumulated Amortization		Net Carrying Value
Corporate trade name	13.9	$	23,300	$	5,236	$	18,064	14.2	$	23,300	$	4,891	$	18,409
Customer relationships	19.7	281,219		47,354		233,865		16.8	291,519		44,750		246,769
Technology	1.7	82,922		54,259		28,663		2.0	82,922		49,760		33,162
Below market lease, net	3.7	1,118		498		620		2.2	2,048		1,334		714
Provider network contracts	3.5	14,475		4,060		10,415		3.7	12,725		3,320		9,405
Total intangible assets, net		$	403,034	$	111,407	$	291,627		$	412,514	$	104,055	$	308,459

Amortization expense related to intangible assets for the three months ended March 31, 2020 and 2019 was $9.3 million and $9.1 million, respectively.

Future estimated amortization of intangible assets (in thousands) as of March 31, 2020, is as follows:



2020	$	23,524
2021	28,701
2022	24,819
2023	22,055
2024	16,171
Thereafter	176,357
Total future amortization of intangible assets	$	291,627

Intangible assets are reviewed for impairment if circumstances indicate the Company may not be able to recover the assets’ carrying value. We did not identify any circumstances during three months ended March 31, 2020, that would require an impairment test for our intangible assets.