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Note 8 - Goodwill and Intangible Assets

9 Months Ended

Sep. 30, 2022

Goodwill and Intangible Assets Disclosure [Text Block]

8. Goodwill and intangible assets

Goodwill

Goodwill represents the difference between the purchase price and the estimated fair value of identifiable assets acquired and liabilities assumed. Goodwill acquired in a business combination is determined to have an indefinite useful life and is not amortized, but instead is tested for impairment at least annually in accordance with ASC 350.

Intangible assets

Intangible assets, net consisted of the following as of September 30, 2022 and December 31, 2021:

(In thousands, except weighted average useful life)	September 30, 2022
Intangible assets:	Gross Carrying Value		Accumulated Amortization			Net Carrying Value		Weighted Average Useful Life (in years)
Customer Relationships	$	15,984	$	(3,539	)	$	12,445		9.6
Tradenames		29,635		(4,091	)		25,544		13.1
Technology - acquired		38,410		(12,063	)		26,347		5.1
Non-compete agreements		1,986		(856	)		1,130		2.3
In-process research and development⁽¹⁾		8,547		-			8,547		N/A
Total intangible assets	$	94,562	$	(20,549	)	$	74,013		9.0

(In thousands, except weighted average useful life)	December 31, 2021
Intangible assets:	Gross Carrying Value		Accumulated Amortization			Net Carrying Value		Weighted Average Useful Life (in years)
Customer Relationships	$	17,516	$	(1,776	)	$	15,740		10.3
Tradenames		35,574		(2,306	)		33,268		13.8
Technology - acquired		41,942		(7,789	)		34,153		5.9
Non-compete agreements		1,990		(442	)		1,548		3.0
In-process research and development⁽¹⁾		67,440		-			67,440		N/A
Total intangible assets	$	164,462	$	(12,313	)	$	152,149		9.8

(1) In-process R&D represents the fair value of incomplete research and development. We will begin to amortize the asset upon completion of development.

Amortization expense for definite-lived intangible assets was $2.5 million and $8.2 million for the three and nine months ended September 30, 2022, respectively, and $2.5 million and $5.3 million for the three and nine months ended September 30, 2021, respectively. As of September 30, 2022, the Company expects to record the following amortization expense for definite-lived intangible assets:

(In thousands)	Amortization
For the Years Ending December 31,	Expense
2022 (3 months remaining)	$	2,494
2023		9,570
2024		8,745
2025		8,398
2026		7,975
Thereafter		28,284
Total	$	65,466

Interim impairment testing

In the six months ended June 30, 2022, the Company experienced a significant decline in its market capitalization. In July 2022, the Company abandoned an in-process research and development project within the asset group acquired in the acquisition of Global Cooling and revised its forecasts for net income and net cash flows to be generated by that asset group. The Company determined that these three events constituted interim triggering events that required further analysis with respect to potential impairment to goodwill, indefinite-lived intangibles, and definite-lived intangibles. The Company performed an interim quantitative impairment test as of the June 30, 2022 balance sheet date.

To assess any potential impairment of goodwill, the Company compared the carrying value of its single reporting unit against its market capitalization, noting that the market capitalization exceeded the carrying value. As such, goodwill was not impaired as of June 30, 2022.

The abandonment of the aforementioned in-process research and development project resulted in a $8.0 million non-cash impairment charge during the three months ended June 30, 2022 in the line item intangible asset impairment charges in the Company's Unaudited Condensed Consolidated Statements of Operations, which represents the entirety of the asset’s carrying value.

In order to determine the fair value of our in-process research and development intangible assets not related to the abandoned project, the Company utilized an average of a discounted cash flow analysis and comparable public company analysis. The key assumptions associated with determining the estimated fair value include projected future revenue growth rates, earnings before interest, taxes, depreciation and amortization ("EBITDA") margins, the terminal growth rate, and the discount rate. As a result of the changes in these assumptions, we recognized a $50.9 million non-cash impairment charge during the three months ended June 30, 2022 in the line item intangible asset impairment charges in the Company's Unaudited Condensed Consolidated Statements of Operations, which represents the difference between the estimated fair value of the Company’s in-process research and development intangible assets and their carrying value. The carrying value of these assets prior to the impairment charge was $59.4 million.

In order to determine the fair value of the acquired technology, customer relationships, tradename, and non-compete definite-lived intangible assets, the Company utilized the excess earnings approach, distributor method, relief from royalty method, and with and without approach, respectively. The key assumptions associated with determining the estimated fair value include (i) the amount and timing of projected future cash flows (including revenue and expenses), (ii) the discount rate selected to measure the risks inherent in the future cash flows, (iii) the assessment of the asset’s life cycle, and (iv) the competitive trends impacting the asset. As a result of the analysis, we recognized non-cash impairment charges of $3.5 million, $1.5 million, $5.9 million, and $4,000 during the period ended June 30, 2022 for the acquired technology, customer relationships, tradename, and non-compete definite-lived intangible assets, respectively, in the line item intangible asset impairment charges in the Company's Unaudited Condensed Consolidated Statements of Operations, which represents the difference between the estimated fair value of the Company’s definite-lived intangible assets and their carrying values. The carrying value of the acquired technology, customer relationships, tradename, and non-compete definite-lived intangible assets were $31.2 million, $14.5 million, $32.0 million, and $1.3 million respectively prior to the impairment charges.

Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions, estimates and market factors. Estimating the fair value of the Company’s reporting unit, indefinite-lived intangible assets, and definite-lived intangible assets requires us to make assumptions and estimates regarding our future plans, as well as industry, economic, and regulatory conditions. These assumptions and estimates include projected future revenue growth rates, EBITDA margins, terminal growth rates, discount rates, royalty rates and other market factors. If current expectations of future growth rates, margins and cash flows are not met, or if market factors outside of our control change significantly, then our reporting unit, indefinite-lived intangible assets, and definite-lived intangible assets might become impaired in the future, negatively impacting our operating results and financial position. As the carrying amounts of the Company’s indefinite-lived and definite-lived intangible assets were impaired as of June 30, 2022 and written down to fair value, those amounts are more susceptible to an impairment risk if there are unfavorable changes in assumptions and estimates.

The Company performed a qualitative impairment assessment as of September 30, 2022. Based on the results of the assessment, it was determined the fair value of the Company’s indefinite-lived intangible assets was greater than the carrying value and therefore noted no impairment indicators existed as of September 30, 2022.