Goodwill and Intangible Assets

6 Months Ended

Jun. 30, 2022

Goodwill and Intangible Assets Disclosure [Abstract]

In connection with its acquisitions, the Company has applied ASC 805, using the acquisition method of accounting. The Company recorded $217.4 million of goodwill in connection with the Rasmussen Acquisition, representing the excess of the purchase price over the fair value of assets acquired and liabilities assumed, including identifiable intangible assets. The Company previously recorded goodwill in the amount of $38.6 million in connection with its acquisition of HCN, and later recorded non-cash impairment charges reducing the carrying value of HCN Segment goodwill to $26.6 million. There was no goodwill recorded in connection with the acquisition of GSUSA.

In addition to goodwill, in connection with the acquisitions of RU and HCN, the Company recorded identified intangible assets with an indefinite useful life in the aggregate amount of $51.0 million and $3.7 million, respectively, which includes trade name, accreditation, licensing, and Title IV, and affiliate agreements. There were no indefinite useful life intangible assets identified as a result of the GSUSA Acquisition. The Company recorded $35.5 million, $4.4 million and $1.0 million, respectively, of identified intangible assets with a definite useful life in connection with the acquisitions of RU, HCN and GSUSA. Amortization expense related to definite lived intangibles assets was approximately $4.0 million and $7.9 million for the three and six months ended June 30, 2022, respectively.

The following table represents the balance of the Company’s intangible assets as of June 30, 2022 (in thousands):


	Gross Carrying Amount		Accumulated Amortization		Impairment		Net Carrying Amount
	(Unaudited)
Finite-lived intangible assets
Student roster	$	20,000	$	8,332	$	—	$	11,668
Curricula	14,563		4,320		—		10,243
Student and customer contracts and relationships	4,614		4,019		—		595
Lead conversions	1,500		625		—		875
Non-compete agreements	86		86		—		—
Tradename	35		18		—		17
Accreditation and licenses	28		6		—		22
Total finite-lived intangible assets	$	40,826	$	17,406	$	—	$	23,420
Indefinite-lived intangible assets
Trade name	28,498		—		—		28,498
Accreditation, licensing, and Title IV	26,186		—		13,500		12,686
Affiliation agreements	37		—		—		37
Total indefinite-lived intangible assets	54,721		—		13,500		41,221
Total intangible assets	$	95,547	$	17,406	$	13,500	$	64,641

The following table represents the balance of the Company’s intangible assets as of December 31, 2021 (in thousands):


	Gross Carrying Amount		Accumulated Amortization		Impairment		Net Carrying Amount
Finite-lived intangible assets
Student roster	$	20,000	$	3,333	$	—	$	16,667
Curricula	14,405		1,961		—		12,444
Student contracts and relationships	3,870		3,870		—		—
Lead conversions	1,500		250		—		1,250
Non-compete agreements	86		86		—		—
Total finite-lived intangible assets	$	39,861	$	9,500	$	—	$	30,361
Indefinite-lived intangible assets
Trade name	28,498		—		—		28,498
Accreditation, licensing, and Title IV	26,186		—		—		26,186
Affiliation agreements	37		—		—		37
Total indefinite-lived intangible assets	54,721		—		—		54,721
Total intangible assets	$	94,582	$	9,500	$	—	$	85,082

During the three months ended June 30, 2022, in connection with preparation of this Quarterly Report, the Company completed a qualitative assessment to determine if an interim goodwill impairment test was necessary. The Company concluded it was more likely than not the fair value of the Company’s RU Segment was less than its carrying amount as a result of circumstances that included RU’s performance to date against 2022 internal targets and overall 2022 financial performance to date. There were no indicators of impairment at HCN. Therefore, the Company proceeded with a quantitative impairment test as of May 31, 2022. The implied fair value of goodwill was calculated and compared to the recorded goodwill. As a result, the Company recorded a non-cash impairment charge of $131.4 million, and to reflect the corresponding tax impact, to reduce the carrying value of RU Segment goodwill.

During the three months ended June 30, 2022, the Company also evaluated events and circumstances related to the valuation of its intangibles recorded within the RU and HCN Segments to determine if there were indicators of impairment. This evaluation included consideration of enrollment trends and financial performance, as well as industry and market conditions, and the impact of the COVID-19 pandemic. These evaluations concluded there were indicators of impairment during the three months ended June 30, 2022 of the RU Segment accreditation, licensing and Title IV indefinite-lived intangible asset. The Company determined the fair value of the intangible asset was $11.0 million, or $13.5 million less than its carrying value. As a result, the Company recorded a non-cash impairment charge of $13.5 million to reduce the carrying value of RU Segment indefinite-lived intangible assets.

In total, the Company recorded non-cash impairment charges of $144.9 million during the three months ended June 30, 2022 related to RU Segment goodwill and intangible assets, and the corresponding tax impact.

The Company utilized an independent valuation firm to determine the fair value of RU. The independent valuation firm weighted the results of two different valuation methods: discounted cash flow and guideline public company. Under the discounted cash flow method, fair value was determined by discounting the estimated future cash flows of RU at RU’s estimated weighted-average cost of capital. Under the guideline public company method, pricing multiples from other public companies in the public higher education market were used to determine the value of RU. Values derived under the two valuation methods were then weighted to estimate RU’s enterprise value. The goodwill impairment charge recorded in the quarter ended June 30, 2022 eliminated the difference between the fair value of goodwill and the book value of goodwill. Future changes, including minor changes in revenue, operating income, valuation multiples, discount rates, and other inputs to the valuation process may result in future impairment charges, and those charges could be material.

The following table summarizes the changes in the carrying amount of goodwill by reportable segment as of December 31, 2021 and June 30, 2022 (in thousands):


	APUS Segment		RU Segment		HCN Segment		Total Goodwill
	(Unaudited)
Goodwill as of December 31, 2021	$	—	$	216,923	$	26,563	$	243,486
Goodwill acquired	—		—		—		—
Impairment	—		(131,400)		—		(131,400)
Adjustments	—		507		—		507
Goodwill as of June 30, 2022	$	—	$	86,030	$	26,563	$	112,593

Determining fair value of goodwill and intangible assets requires judgment and the use of significant estimates and assumptions, including, but not limited to, fluctuations in enrollments, revenue growth rates, operating margins, discount rates, and future market conditions. Given the current competitive and regulatory environment, the impact of COVID-19, and the uncertainties regarding the related impact on the business, there can be no assurance that the estimates and assumptions made for purposes of the Company’s interim and annual goodwill and intangible asset impairment tests will prove to be accurate predictions of the future. If the Company’s assumptions are not realized, the Company may record goodwill and intangible asset impairment charges in future periods. It is not possible at this time to determine if any such future impairment charge would result or whether such charge would be material. Estimates are subjective and are not intended to predict actual future events, and subsequent events are not indicative of the reasonableness of the original estimates of fair value.

For additional information on goodwill and intangible assets, see the Consolidated Financial Statements and accompanying notes in its audited financial statements included in the Annual Report.