Goodwill and Intangible Assets

3 Months Ended

Mar. 31, 2023

Goodwill and Intangible Assets Disclosure [Abstract]

In accordance with FASB ASC Topic No. 350, Intangibles-Goodwill and Other, Smith Micro reviews the recoverability of the carrying value of goodwill at least annually or whenever events or circumstances indicate a potential impairment. For purposes of our goodwill impairment test, we operate as a single reporting unit. Different judgments relating to the determination of reporting units could significantly affect the testing of goodwill for impairment and the amount of any impairment recognized.

In the first quarter of 2023, management concluded that the written notice of termination of a U.S. Tier 1 customer agreement for the Company's family safety solution, as disclosed in Note 16 of the 2022 Form 10-K, represented a triggering event indicating possible impairment of goodwill and long-lived assets, including Customer Relationships intangible assets.

Recoverability of goodwill is determined by comparing the fair value of the Company’s single reporting unit to the carrying value of the underlying net assets in the reporting unit. If the fair value of the reporting unit is determined to be less than the carrying value of its net assets, goodwill is deemed impaired and an impairment loss is recognized to the extent that the carrying value of goodwill exceeds the difference between the fair value of the reporting unit and the fair value of its other assets and liabilities. Due to the triggering event, an interim quantitative impairment analysis was performed as of February 28, 2023 for the Company's single reporting unit. The fair value for the reporting unit was

determined using Level 3 unobservable inputs which incorporated assumptions that the Company believes would be a reasonable market participant's view in a hypothetical purchase, to develop the discounted cash flows, which included estimates of revenue growth, earnings before interest taxes, depreciation and amortization ("EBITDA") and a discount rate of 22% derived from a capital asset pricing model. The fair value was estimated utilizing a combination of the income approach using the estimated discounted cash flows and a market-based valuation methodology applying an equal weighting. The impairment analysis contains inherent uncertainties due to uncontrollable events that could positively or negatively impact anticipated future economic and operating conditions. The estimated fair value of the Company's reporting unit exceeded the fair value of the other assets and liabilities (expressed as a percentage of carrying value) as of February 2023, and as such there was not any impairment. The Company determined that there were no further goodwill impairment indicators at March 31, 2023 and there were no goodwill impairment indicators at December 31, 2022. If current projections, including revenue growth and operating results are not achieved or specific valuation factors outside the Company's control, such as discount rates, economic or industry challenges, significantly change, goodwill could be subject to future impairment.

For intangibles, an impairment loss is recognized if the carrying amount of an intangible asset is not recoverable and its carrying amount exceeds its fair value. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. The Company assessed the assets impacted as a result of the triggering event indicated above and performed a recoverability test on the Customer relationships intangible asset from the Avast Family Safety Mobile Business acquisition as of February 28, 2023 using Level 3 unobservable inputs including estimates of revenue growth, and EBITDA. The Company's estimated undiscounted future cash flows exceeded the carrying amount of the Customer Relationships intangible asset, and therefore there was no impairment to the definite-lived intangible assets as a result of the triggering event.

The components of the Company’s intangible assets were as follows for the periods presented:


	March 31, 2023
	(unaudited, in thousands, except for useful life data)
	Weighted Average Remaining Useful Life (in Years)	Gross Carrying Amount		Accumulated Amortization		Net Book Value
Purchased technology	6	$	13,529	$	(6,272)	$	7,257
Customer relationships	12	27,548		(5,166)		22,382
Customer contracts	1	7,000		(5,802)		1,198
Software license	7	5,419		(1,752)		3,667
Patents	4	600		(257)		343
Total		$	54,096	$	(19,249)	$	34,847


	December 31, 2022
	(audited, in thousands, except for useful life data)
	Weighted Average Remaining Useful Life (in Years)	Gross Carrying Amount		Accumulated Amortization		Net Book Value
Purchased technology	7	$	13,529	$	(5,835)	$	7,694
Customer relationships	12	27,548		(4,490)		23,058
Customer contracts	1	7,000		(5,673)		1,327
Software license	7	5,419		(1,552)		3,867
Non-compete	1	283		(273)		10
Patents	5	600		(236)		364
Total		$	54,379	$	(18,059)	$	36,320

The Company amortizes intangible assets over the pattern of economic benefit expected to be generated from the use of the assets, with a total weighted average amortization period of approximately 10 years as of March 31, 2023 and December 31, 2022. During the three months ended March 31, 2023 and 2022, intangible asset amortization expense was $1.5 million and $1.6 million, respectively.

As of March 31, 2023, estimated amortization expense for the remainder of 2023 and thereafter was as follows (unaudited, in thousands):


Year Ending December 31,	Amortization Expense
2023	$	4,400
2024	5,635
2025	5,402
2026	5,007
2027	4,131
2028 and thereafter	10,272
Total	$	34,847