GOODWILL AND IMPAIRMENT CHARGES

9 Months Ended

Sep. 30, 2021

Goodwill and Intangible Assets Disclosure [Abstract]

GOOWILL AND IMPAIRMENT CHARGES

GOODWILL AND IMPAIRMENT CHARGES

Goodwill and intangible assets acquired in a business combination determined to have an indefinite useful life are not amortized, but are instead tested for impairment, and assessed for potential triggering events, at least annually in accordance with the provisions of the ASC 350 Intangibles-Goodwill and Other (“ASC 350”). Intangible assets with estimated useful lives are amortized over their respective estimated useful lives to their estimated residual values and reviewed for impairment in accordance with ASC 350. We assess goodwill for impairment at the reporting unit level, which we have determined to be the same as our operating segments. If the carrying value of a reporting unit exceeds its fair value, we measure any goodwill impairment losses as the amount by which the carrying amount of a reporting unit exceeds its fair value, not to exceed the total amount of goodwill allocated to that reporting unit.

We test for impairment of our reporting units annually on December 1, and between annual tests if we become aware of an event or a change in circumstances that would indicate the carrying value may be impaired. During the three months ended March 31, 2020, we recognized a non-cash goodwill impairment charge of $191.8 million for the IHT operating segment. These charges were a result of an interim goodwill impairment test that was triggered due to certain impairment indicators that were present during the first quarter of 2020, primarily due to the decline in operating results due to COVID, lower oil prices and related impacts on the IHT operating segment.

We also performed our annual impairment test as of December 1, 2020 and concluded that there was no impairment based upon a qualitative assessment to determine if it was more likely than not (that is, a likelihood of more than 50 percent) that the fair values of the reporting units were less than their respective carrying values as of the reporting date. We further evaluated if there have been any events that would require an interim assessment of the carrying value of goodwill until June 30, 2021, and concluded that there was no impairment, however, after June 30, 2021, our stock price saw sustained declines continuing through September 2021 and our forecasted revenues and earnings continued to decline.

As a result, we determined that a triggering event had occurred as it was more likely than not that the carrying values of our reporting units exceeded their fair values. Our revenue growth and profitability are influenced by several industry trend factors, including end markets capital spending levels, supply and demand levels and technology. With oil prices and demand increasing, refiners (represents approximately 40% of our customers) are slowly recovering, as capital expenditures have not fully recovered resulting in lower current activity and pricing pressure for our products and services, primarily in our IHT and MS reporting units, which we expect to continue. In line with disruption to our business since the beginning of the pandemic, our market capitalization also deteriorated during the third quarter of 2021. The related continued curtailment of operations, decline in our forecast, continued declines in our stock price, reporting unit operating losses, and continued declines in the reporting units’ net sales compared to forecast, collectively, indicated that the reporting units had experienced a triggering event and the need to perform a quantitative interim evaluation of goodwill. Accordingly, we performed a quantitative assessment of the fair value of goodwill as of September 30, 2021.

We determined the fair value for each reporting unit in our goodwill impairment assessment using both a discounted cash flow analysis and a multiples-based market approach for comparable companies. We utilized third-party valuation advisors to assist us with these valuations. These analyses included significant judgment, including short-term and long-term forecast of operating performance, discount rates based on our weighted average cost of capital, revenue growth rates, profitability margins, capital expenditures and the timing of future cash flows. These impairment assessments incorporate inherent uncertainties, including supply and demand for our services, utilization forecasts, pricing forecasts and future market conditions, which are difficult to predict in volatile economic environments and could result in impairment charges in future periods if actual results materially differ from the assumptions utilized in our forecasts.

Based upon our impairment assessment, we determined the carrying amount of our MS reporting unit exceeded the fair value. As a result, in the three months ended September 30, 2021, we recorded $55.8 million in goodwill impairment charges on our MS reporting unit.

There was $34.2 million of goodwill at September 30, 2021 and $91.4 million at December 31, 2020. The following table presents a rollforward of goodwill for the nine months ended September 30, 2021 as follows (in thousands): 

	IHT						MS						Quest Integrity						Consolidated
	Goodwill, Gross		Accumulated Impairment		Goodwill, Net		Goodwill, Gross		Accumulated Impairment		Goodwill, Net		Goodwill, Gross		Accumulated Impairment		Goodwill, Net		Goodwill, Gross		Accumulated Impairment		Goodwill, Net
Balance at December 31, 2020	$	212,928	$	(212,928)	$	—	$	110,721	$	(54,101)	$	56,620	$	34,731	$	—	$	34,731	$	358,380	$	(267,029)	$	91,351
FX Adjustments	—		—		—		(783)		—		(783)		(550)		—		(550)		(1,333)		—		(1,333)
Impairment charge	—		—		—		—		(55,837)		(55,837)		—		—		—		—		(55,837)		(55,837)
Balance at September 30, 2021	$	212,928	$	(212,928)	$	—	$	109,938	$	(109,938)	$	—	$	34,181	$	—	$	34,181	$	357,047	$	(322,866)	$	34,181