GOODWILL AND INTANGIBLE ASSETS

9 Months Ended

Jun. 30, 2020

Goodwill and Intangible Assets Disclosure [Abstract]

GOODWILL AND INTANGIBLE ASSETS

NOTE 7 GOODWILL AND INTANGIBLE ASSETS

Goodwill

Goodwill represents the excess of the purchase price over the fair values of the assets acquired and liabilities assumed in a business combination, at the date of acquisition.  Goodwill is not amortized but is tested for potential impairment at the reporting unit level, at a minimum on an annual basis, or when indications of potential impairment exist.  All of our goodwill is within our North America Solutions reportable segment. 

The following is a summary of changes in goodwill (in thousands):

Balance at September 30, 2019	$	82,786
Additions	1,200
Impairment	(38,333		)
Balance at June 30, 2020	$	45,653

During the second quarter of fiscal year 2020, as a result of new information identified related to the acquisition of DrillScan, the acquisition date fair value of the contingent consideration and goodwill increased by approximately $1.2 million.

Intangible Assets

Finite-lived intangible assets are amortized using the straight-line method over the period in which these assets contribute to our cash flows and are evaluated for impairment in accordance with our policies for valuation of long-lived assets.  All of our intangible assets are within our North America Solutions reportable segment. Intangible assets consisted of the following:

		June 30, 2020						September 30, 2019
(in thousands)	Weighted Average Estimated Useful Lives	Gross Carrying Amount		Accumulated Amortization		Net		Gross Carrying Amount		Accumulated Amortization		Net
Finite-lived intangible asset:
Developed technology	15 years	$	89,097	$	14,817	$	74,280	$	89,096	$	10,256	$	78,840
Intellectual property	13 years	1,500		75		1,425		—		—		—
Trade name	20 years	5,865		763		5,102		5,865		522		5,343
Customer relationships	5 years	4,000		2,067		1,933		4,000		1,467		2,533
		$	100,462	$	17,722	$	82,740	$	98,961	$	12,245	$	86,716

Amortization expense in the Unaudited Condensed Consolidated Statements of Operations was $1.8 million and $1.4 million for the three months ended June 30, 2020 and 2019, respectively, and $5.5 million and $4.2 million for nine months ended June 30, 2020 and 2019, respectively. Intangible amortization is estimated to be approximately $1.8 million for the remainder of fiscal year 2020, approximately $7.2 million for fiscal years 2021 and 2022, approximately $6.5 million for fiscal year 2023 and approximately $6.4 million for fiscal year 2024.

Impairment

Consistent with our policy, we test goodwill annually for impairment in the fourth quarter of our fiscal year, or more frequently if there are indicators that goodwill might be impaired. Due to the market conditions described in Note 5—Property, Plant and Equipment, during the second quarter of fiscal year 2020, we concluded that goodwill might be impaired and tested the H&P Technologies reporting unit, where the goodwill balance is allocated, for recoverability. This resulted in a non-cash impairment charge of $38.3 million recorded in the Unaudited Condensed Consolidated Statement of Operations during the nine months ended June 30, 2020.

The recoverable amount of the H&P Technologies reporting unit is determined based on a fair value calculation which uses cash flow projections based on the Company’s financial projections presented to the board of directors covering a five-year period, and a discount rate of 14 percent. Cash flows beyond that five-year period have been extrapolated using the fifth-year data with no implied growth factor. The reporting unit level is defined as an operating segment or one level below an operating segment.

The recoverable amount of the intangible assets tested for impairment within the H&P Technologies reporting unit is determined based on undiscounted cash flow projections using the Company’s financial projections presented to the board of directors covering a five-year period, and extrapolated for the remaining weighted average useful lives of the intangible assets.

The most significant assumptions used in our cash flow model include timing on awards of future contracts, commercial pricing terms, utilization, discount rate, and the terminal value. These assumptions are classified as Level 3 inputs by ASC Topic 820 Fair Value Measurement and Disclosures as they are based upon unobservable inputs and primarily rely on management assumptions and forecasts. Although we believe the assumptions used in our analysis and the probability-weighted average of expected future cash flows are reasonable and appropriate, different assumptions and estimates could materially impact the analysis and our resulting conclusion.