Goodwill and Identified Intangible Assets

12 Months Ended

Dec. 31, 2016

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Identified Intangible Assets

GOODWILL AND IDENTIFIED INTANGIBLE ASSETS

Goodwill

Goodwill represents the difference between the purchase price and the estimated fair value of the identifiable assets acquired and liabilities assumed. Goodwill is allocated among and evaluated for impairment at the reporting unit level, which is defined as an operating segment or one level below an operating segment. The Company has two reporting units, Video and Cable Edge.

The Company tests for goodwill impairment at the reporting unit level on an annual basis, or more frequently if events or changes in circumstances indicate that the asset is more likely than not impaired. The Company’s annual goodwill impairment test is performed in the fiscal fourth quarter, with a testing date at the end of fiscal October.

As of December 31, 2016, the Company has recorded goodwill of $41.7 million which includes the impact of measurement period adjustments for the TVN acquisition. Goodwill from the TVN acquisition is assigned to the Video reporting unit.

The changes in the carrying amount of goodwill for the year ended December 31, 2016 are as follows (in thousands):



	Video			Cable Edge			Total
Balance as of December 31, 2015	$	136,904		$	60,877		$	197,781
Goodwill from TVN acquisition	41,670			—			41,670
Foreign currency translation adjustment	(2,055		)	(117		)	(2,172		)
Balance as of December 31, 2016	$	176,519		$	60,760		$	237,279

Application of the goodwill impairment test requires judgment, including the identification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value of each reporting unit. Significant judgments required to estimate the fair value of reporting units include estimating future cash flows and determining appropriate discount rates, growth rates, an appropriate control premium and other assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value for each reporting unit which could trigger impairment. If the Company’s assumptions and related estimates change in the future, or if the Company’s reporting structure changes or other events and circumstances change (e.g. such as a sustained decrease in the Company’s stock price), the Company may be required to record impairment charges in future periods. Any impairment charges that the Company may take in the future could be material to its results of operations and financial condition.

A significant decline in a company’s stock price may suggest that an adverse change in the business climate may have caused the fair value of one or more reporting units to fall below their carrying value. During the second quarter of 2016, the sustained decline in the Company’s stock price led to a triggering event for goodwill impairment assessment. As of July 1, 2016, with a closing stock price of $3.01 on The NASDAQ Stock Market, the Company’s market capitalization was approximately $235 million. As this market capitalization was less than the Company’s net book value, further analysis was performed to determine if an impairment exists. When assessing goodwill for impairment, the Company used multiple valuation methodologies to determine its enterprise value. The valuation methods used included the Company’s market capitalization adjusted for a control premium and the Company’s discounted cash flow analysis, which involves making significant assumptions and estimates, including expectations of the Company’s future financial performance, the Company’s weighted average cost of capital and the Company’s interpretation of currently enacted tax laws. Based on the impairment test performed, management determined that the Company’s goodwill was not impaired as of July 1, 2016. As of September 30, 2016, the Company’s closing stock price was $5.93.

The Company performed its annual goodwill impairment review at October 31, 2016. As of October 31, 2016, with a closing stock price of $5.10 on The NASDAQ Stock Market, the Company’s market capitalization was approximately $400 million. The Company used the same methodologies as in the second quarter of 2016 to determine its enterprise value but with updated assumptions and estimates to reflect the most current expectations of the Company’s future financial performance. Based on the impairment test performed, management concluded that goodwill was not impaired as the Video and Cable Edge reporting units had estimated fair values in excess of their carrying value by approximately 67% and 123%, respectively. As of December 31, 2016, the Company’s closing stock price was $5.00.

The Company has not recorded any impairment charges related to goodwill for any prior periods.

Intangible Assets

For the year ended December 31, 2016, the gross amount for intangible assets increased $39.5 million, of which $41.1 million was due to the TVN acquisition, offset in part by $1.6 million of foreign currency exchange effect. The following is a summary of the Company’s identified intangible assets (in thousands):



		December 31, 2016							December 31, 2015
	Weighted Average Remaining Life (Years)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Developed core technology	3.2	$	31,707	$	(15,216	)	$	16,491	$	10,987	$	(10,987	)	$	—
Customer relationships/contracts	4.2	44,384		(32,098		)	12,286		29,200		(25,752		)	3,448
Trademarks and tradenames	3.2	573		(119		)	454		—		—			—
Maintenance agreements and related relationships	N/A	5,500		(5,500		)	—		5,500		(4,851		)	649
Order Backlog	N/A	3,011		(3,011		)	—		—		—			—
Total identifiable intangibles		$	85,175	$	(55,944	)	$	29,231	$	45,687	$	(41,590	)	$	4,097

The TVN in-process research and development efforts were completed by the end of the second quarter of 2016 and the Company determined that it has become a finite lived intangible asset (developed technology) with an estimated useful life of four years.

Amortization expense for the identifiable intangible assets for the years ended December 31, 2016, 2015 and 2014 was allocated as follows (in thousands):



	December 31,
	2016		2015		2014
Included in cost of revenue	$	4,434	$	719	$	13,745
Included in operating expenses	10,402		5,783		6,775
Total amortization expense	$	14,836	$	6,502	$	20,520

The estimated future amortization expense of identifiable intangible assets with definite lives is as follows (in thousands):



	Cost of Revenue		Operating Expenses		Total
Year ended December 31,
2017	$	5,180	$	3,092	$	8,272
2018	5,180		3,092		8,272
2019	5,180		3,092		8,272
2020	951		2,972		3,923
2021	—		492		492
Total future amortization expense	$	16,491	$	12,740	$	29,231

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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