9. Goodwill and intangible assets, net

Goodwill

Impairment loss

Three and nine months ended March 31, 2019

The Company assesses the carrying value of goodwill for impairment annually, or more frequently, whenever events occur and circumstances change indicating potential impairment. The Company performs its annual impairment test as of June 30 of each year. The Company did not recognize an impairment loss during the three months ended March 31, 2019. During the second quarter of fiscal 2019, the Company performed an impairment analysis and during the nine months ended March 31, 2019, the Company recognized an impairment loss of approximately $8.2 million, of which approximately $7.0 related to goodwill allocated to its International Payment Group ("IPG") business within its international transaction processing operating segment and $1.2 million related to goodwill within its South African transaction processing operating segment.

Given the consolidation and restructuring of IPG over the period to December 31, 2018, several business lines were terminated or meaningfully reduced, resulting in lower than expected revenues, profits and cash flows. IPG's new business initiatives are still in their infancy, and it is expected to generate lower cash flows than initially forecast.

In order to determine the amount of goodwill impairment, the estimated fair value of the Company's IPG business assets and liabilities were compared to the carrying value of the IPG's assets and liabilities. The Company used a discounted cash flow model in order to determine the fair value of IPG. The allocation of the fair value of IPG required the Company to make a number of assumptions and estimates about the fair value of assets and liabilities where the fair values were not readily available or observable. Based on this analysis, the Company determined that the carrying value of IPG's assets and liabilities exceeded their fair value at the reporting date.

In the event that there is a deterioration in the South African transaction processing and the international transaction processing operating segment, or in any other of the Company's businesses, this may lead to additional impairments in future periods.

Three and nine months ended March 31, 2018

During the three and nine months ended March 31, 2018, the Company recognized an impairment loss of approximately $19.9 million related to goodwill allocated to the Masterpayment business within its international transaction processing operating segment as a result of changes to the operating model of Masterpayment. During the second quarter of fiscal 2018, the Company re-evaluated the operating performance and ongoing viability of Masterpayment's working capital financing and supply chain solutions offering and determined to exit this portion of its business. While the Company believed that it could scale this offering in the medium to long-term by focusing on customers and industries outside Masterpayment's initial target market, this standalone offering did not fit the Company's strategy of providing payment solutions and working capital to small and medium-sized merchants. In order to focus on the Company's stated international strategy, the Company decided to wind-down the traditional working capital finance book issued to non-payment solutions customers. During the third quarter of fiscal 2018, the Company evaluated Masterpayment's business strategy and following the wind-down referred to above, it has determined that Masterpayment is unlikely to deliver the financial results or cash flows previously anticipated. The Company and two of Masterpayment's senior managers agreed, by mutual consent, that with effect from the end of March 2018, the managers terminated their employment with Masterpayment in order to dedicate themselves to new professional tasks.

In order to determine the amount of goodwill impairment, the estimated fair value of the Company's Masterpayment business was allocated to the individual fair value of the assets and liabilities of Masterpayment as if it had been acquired in a business combination, which resulted in the implied fair value of the goodwill. The Company used a discounted cash flow model in order to determine the fair value of Masterpayment. The allocation of the fair value of Masterpayment required the Company to make a number of assumptions and estimates about the fair value of assets and liabilities where the fair values were not readily available or observable.

Summarized below is the movement in the carrying value of goodwill for the nine months ended March 31, 2019:


		Gross			Accumulated			Carrying
		value			impairment			value
Balance as of June 30, 2018	$	304,013		$	(20,773	)	$	283,240
Continuing		189,852			(20,773	)		169,079
Discontinued (Note 2)		114,161			-			114,161
Impairment of goodwill		-			(8,191	)		(8,191	)
Amendment to DNI preliminary purchase price allocation (Note 2)		5,017			-			5,017
Deconsolidation of DNI (Note 2)		(113,003	)		-			(113,003	)
Foreign currency adjustment⁽¹⁾		(10,730	)		166			(10,564	)
Balance as of March 31, 2019	$	185,297		$	(28,798	)	$	156,499

(1) – the foreign currency adjustment represents the effects of the fluctuations between the South African rand, the Euro and the Korean won, and the U.S. dollar on the carrying value.

Goodwill has been allocated to the Company's reportable segments as follows:


		South						Financial
		African			International			inclusion and
		transaction			transaction			applied			Carrying
		processing			processing			technologies			value
Balance as of June 30, 2018	$	20,946		$	123,948		$	138,346		$	283,240
Continuing		20,946			123,948			24,185			169,079
Discontinued (Note 2)		-			-			114,161			114,161
Impairment of goodwill		(1,180	)		(7,011	)		-			(8,191	)
Amendment to DNI preliminary
purchase price allocation (Note 2)		-			-			5,017			5,017
Deconsolidation of DNI (Note 2)		-			-			(113,003	)		(113,003	)
Foreign currency adjustment⁽¹⁾		(1,083	)		(2,349	)		(7,132	)		(10,564	)
Balance as of March 31, 2019	$	18,683		$	114,588		$	23,228		$	156,499

(1) – the foreign currency adjustment represents the effects of the fluctuations between the South African rand, the Euro and the Korean won, and the U.S. dollar on the carrying value.

Intangible assets

Impairment loss

The Company identified and recognized certain customer relationships as part of its acquisition of DNI, which included relationships related to an agreement with Cell C under which DNI shared in revenues earned by Cell C from other mobile telecommunications network renting ("tenant rentals") certain Cell C infrastructure that was constructed utilizing funding provided by DNI. Cell C expected to utilize the funding provided by DNI to construct 1,000 towers. Cell C recently entered into a roaming arrangement with another South African mobile telecommunications network provider which will extend its network coverage. Cell C utilized funding from DNI to construct approximately 22% of the towers that it had originally estimated to complete, however, the conclusion of the roaming arrangement has resulted in Cell C halting the construction of further network infrastructure.

The Company expects DNI to earn fewer tenant rentals than initially planned due to the lower number of towers constructed. During the three and nine months ended March 31, 2019, the Company updated the discounted cash flow model used to calculate the fair value of the customer relationships acquired on acquisition of DNI to assess the impact of the lower number of towers on its projected cash flows from the tenant rentals customer relationship. The lower number of towers has significantly reduced the projected cash flows earned from tenant rentals which resulted in a lower fair value attributed to the customer relationship. The Company compared the updated fair value of the customer relationship to the carrying amount and determined that the customer relationship is impaired. The Company has recorded an impairment loss of $5.3 million in the impairment loss caption on its unaudited condensed consolidated statement of operations for the three and nine months ended March 31, 2019. The customer relationship was not allocated to an operating segment and the impairment loss is included in corporate/eliminations.

The economics of the tenant rentals arrangement between DNI and Cell C was excluded from the performance targets agreed between DNI and the Company because the arrangement was outside of DNI's core business. DNI continues to perform above expectations and as of March 31, 2019, the Company believes that there are no other impairment indicators related to any of the other DNI intangible assets identified.

Carrying value and amortization of intangible assets

Summarized below is the carrying value and accumulated amortization of the intangible assets as of March 31, 2019 and June 30, 2018:


	As of March 31, 2019							As of June 30, 2018
		Gross					Net		Gross					Net
		carrying		Accumulated			carrying		carrying		Accumulated			carrying
		value		amortization			value		value		amortization			value
Finite-lived intangible assets:
Customer relationships⁽¹⁾	$	97,481	($	83,377	)	$	14,104		100,421		(76,237	)		24,184
Software and unpatented technology⁽¹⁾		32,272		(32,076	)		196		33,121		(32,342	)		779
FTS patent		2,646		(2,646	)		-		2,792		(2,792	)		-
Exclusive licenses		4,506		(4,506	)		-		4,506		(4,506	)		-
Trademarks and brands⁽¹⁾		6,776		(6,119	)		657		6,962		(5,589	)		1,373
Total finite-lived intangible assets		143,681		(128,724	)		14,957		147,802		(121,466	)		26,336
Indefinite-lived intangible assets:
Financial institution license		762		-			762		793		-			793
Total indefinite-lived intangible assets		762		-			762		793		-			793
Total intangible assets	$	144,443	$	(128,724	)	$	15,719	$	148,595	$	(121,466	)	$	27,129

(1) Intangible assets acquired as part of the DNI acquisition in June 2018 have been deconsolidated and are excluded from the March 31, 2019, balances, refer to Note 2.

Aggregate amortization expense on the finite-lived intangible assets for the three months ended March 31, 2019 and 2018, was approximately $6.1 million and $3.0 million, respectively. Aggregate amortization expense on the finite-lived intangible assets for the nine months ended March 31, 2019 and 2018, was approximately $18.3 million and $8.8 million, respectively.

Future estimated annual amortization expense for the next five fiscal years and thereafter, assuming exchange rates that prevailed on March 31, 2019, is presented in the table below. Actual amortization expense in future periods could differ from this estimate as a result of acquisitions, changes in useful lives, exchange rate fluctuations and other relevant factors.


Fiscal 2019⁽¹⁾	$	21,631
Fiscal 2020		7,810
Fiscal 2021		2,833
Fiscal 2022		69
Fiscal 2023		69
Thereafter		211
Total future estimated annual amortization expense	$	32,623

(1) Estimated annual amortization expense for fiscal 2019 includes amortization of DNI acquired intangible assets from July 1, 2018, until deconsolidation on March 31, 2019.