Impairment of Fixed and Long-lived Assets

9 Months Ended

Sep. 30, 2020

Goodwill and Intangible Assets Disclosure [Abstract]

Impairment of Fixed and Long-lived Assets

The Company recorded impairment charges of fixed and intangible assets during the following periods (in thousands):



	Three months ended September 30,		Nine months ended September 30,
	2020		2020
Property and equipment, net	$	—	$	30,178
Operating lease right-of-use assets	—		7,434

Other Intangibles:
Patents and technology	4,831		14,733
Customer relationships	6,631		15,796
Intangible assets in progress	—		596
Trademarks and brand names	1,059		1,238
Total other intangibles	12,521		32,363

Total impairment of fixed, long-lived assets and intangibles	$	12,521	$	69,975

During the first quarter of 2020, the price of crude oil declined by over 50%, trading below $25 per barrel, causing a significant disruption across the industry, which began to negatively impact the Company’s results of operations. These declines of results of operations were driven by an oversupply of oil, insufficient storage, and demand destruction resulting from the reaction to COVID-19. Based on these factors, the Company concluded that a triggering event occurred and, accordingly, an interim quantitative impairment test was performed as of March 31, 2020.

Using the income approach, the fair value of the reporting unit was determined based on the present value of future cash flows. The Company utilized internal forecast trends and potential growth rates to estimate future cash flows of the asset group. Based on the results of the quantitative assessment, the Company concluded the carrying value of the asset group exceeded its fair value as of March 31, 2020 and an impairment loss of $57.5 million was recorded as a result of the adverse effect of the COVID-19 pandemic, estimated effect on the economy, and the related negative impact on oil and natural gas prices on projections of future cash flows.

During the second quarter of 2020, the Company purchased JP3 and formed the Data Analytics segment. The segment finished the third quarter with $0.7 million of revenue, most of which came from existing customers on minor project expansions. During the third quarter, revenue declined compared to the revenue after the date of acquisition in the second quarter. These declines were driven by reduced demand in the oil and gas sector because of capital spending reductions across our customer base, potential international markets addressed in original forecast were lower than anticipated, delayed start of the Company’s global sales business executive and continued impact of COVID-19. Although the site lockdowns and extreme caution to prevent the spread of COVID-19 that began in the first half of 2020 began to ease during the third quarter, the segment saw very little of the expected repeat business and almost none from new customers due to frozen budgets. Secondly, COVID-19 restrictions adversely impacted the Company’s ability to physically gain on-site access to customers’ operations, including laboratory and testing facilities, which is a critical component to JP3’s multi-phased sales approach.

In consideration of these events, management evaluated forecasted sales activity, expected margins and the long-term expectations of the Data Analytics segment. Based on these factors, the Company concluded a reduction in headcount was warranted and that a triggering event occurred in the Data Analytics segment and, accordingly, an interim quantitative impairment test was performed as of September 30, 2020.

Using the income approach, the fair value of the reporting unit was determined based on the present value of future cash flows. The Company utilized internal forecast trends and potential growth rates to estimate future cash flows of the asset group. Based on the results of the quantitative assessment, the Company concluded the carrying value of the asset group exceeded its fair value as of September 30, 2020 and an impairment loss of $12.5 million in the Data Analytics reporting unit, which resulted from reduced demand in the oil and gas sector, extended impact of the COVID-19 pandemic, and lower performance than expected by the reporting unit. See Note 3 - “JP3 Acquisition”.