Goodwill and Intangible Assets

12 Months Ended

Dec. 31, 2022

Goodwill and Intangible Assets Disclosure [Abstract]

In connection with its acquisitions, the Company applied FASB ASC 805, Business Combinations, using the acquisition method of accounting. The Company recorded $217.4 million and $38.6 million of goodwill in connection with the RU and HCN acquisitions, respectively, representing the excess of the purchase price over the fair value of assets acquired and liabilities assumed, including identifiable intangible assets. The Company later recorded impairment charges reducing the carrying value of RU and HCN goodwill to $86.0 million and $26.6 million, respectively. There was no goodwill recorded in connection with the acquisition of GSUSA.

The Company accounts for goodwill and indefinite-lived intangible assets in accordance with FASB ASC 350, Intangibles Goodwill and Other, and ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The Company annually assesses goodwill for impairment, or more frequently if events and circumstances indicate that goodwill might be impaired. Goodwill impairment testing consists of an optional qualitative assessment as well as a quantitative test. The quantitative test compares the fair value of the reporting unit to its carrying value. If the carrying value of the reporting unit is greater than zero and its fair value is greater than its carrying amount, there is no impairment. If the carrying value is greater than the fair value, the difference between the two values is recorded as an impairment.

During the second quarter of 2022, 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 RU’s under performance compared to projections at the time of acquisition, along with the decline in market value of the Company and comparable companies. Therefore, during

the second quarter, the Company proceeded with an interim quantitative impairment test for the RU Segment. The implied fair value of goodwill was calculated and compared to the recorded goodwill. As a result, during the second quarter, the Company recorded a non-cash impairment charge of $131.4 million, and the corresponding tax impact of $36.0 million, to reduce the carrying value of RU Segment goodwill. The goodwill impairment charge recorded eliminated the difference between the fair value of goodwill and the book value of goodwill. During the fourth quarter of 2022, the Company completed its annual assessment of RU Segment goodwill for impairment and determined that the fair value was greater than the carrying value and therefore there was no impairment of RU Segment goodwill as of the valuation date which was October 31.

The Company engaged an independent valuation firm to assist with the valuations. The independent valuation firm weights the results of three different valuation methods to determine fair value: (1) discounted cash flow; (2) guideline public company; and (3) guideline transaction for comparable transactions. Under the discounted cash flow method, fair value was determined by discounting the estimated future cash flows of RU and HCN at their 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 fair value of RU and HCN. Under the comparable transaction method, pricing terms from other transactions in the higher education market were used to determine the fair value. Values derived under the three valuation methods were then weighted to estimate RU and HCN’s enterprise values. The income and cost approaches were used, as applicable, to value the RU and HCN’s indefinite-lived intangibles assets.

For the years ended December 31, 2020, 2021, and 2022, the Company completed its annual assessment of HCN goodwill and concluded that HCN’s fair value was more than the carrying value; consequently, there was no impairment.

The Company’s 2022 annual assessment concluded that the fair value of RU and HCN exceeded their carrying values by approximately $10.0 million, or 5%, and $4.9 million, or 13%, respectively.

Changes in the carrying amount of goodwill by reportable segment during the years ended December 31, 2021 and 2022 are as follows (in thousands):


	APUS Segment		RU Segment		HCN Segment		Total Goodwill

Goodwill as of December 31, 2020	$	—	$	—	$	26,563	$	26,563
Goodwill acquired			217,203				217,203
Impairment	—		—		—		—
Adjustments			(280)				(280)
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 December 31, 2022	$	—	$	86,030	$	26,563	$	112,593

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 of identified intangible assets with a definite useful life in connection with the acquisitions of RU, HCN and GSUSA, respectively. During the years ended December 31, 2021 and 2022, the Company recorded amortization expense related to definite lived intangible assets of $5.1 million and $15.8 million, respectively. As of December 31, 2020, all recorded identified intangible assets with a definite useful life related to the acquisition of HCN were fully amortized.

At the acquisition dates, the useful life assigned to each type of intangible asset with a definite useful life was as follows:


			Useful Life
Student contracts and relationships			2.5 years - 6 years
Non-compete agreements			5 years
Curricula			3 years
Accreditation and licensing			2.5 years
Lead conversions			2 years
Student Roster			2 years
Trade name			1 year

During the second and fourth quarters of 2022, the Company concluded it was more likely than not the fair value of the Company’s RU Segment intangible assets was less than its carrying amount as a result of RU’s under performance compared to projections at the time of acquisition and as compared to revised projections. As a result, the Company completed impairment tests related to the valuation of its RU Segment intangible assets during the second and fourth quarters. The implied fair value of intangible assets was calculated and compared to the recorded value and determined the fair value of the accreditation, licensing, and Title IV indefinite lived intangible assets was $11.0 million, or $13.5 million less than its carrying value during the second quarter, and $9.0 million, or $2.0 million less than the carrying value in the fourth quarter. As a result, the Company recorded a non-cash impairment charge of $15.5 million to reduce the carrying value of RU Segment indefinite-lived intangible assets during 2022. The impairment charge recorded eliminated the difference between the fair value of the accreditation, licensing, and Title IV indefinite lived intangible assets, and the book value.

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

The following table represents the balance of the Company’s intangible assets as of December 31, 2022 (in thousands):


	Gross Carrying Amount		Accumulated Amortization		Impairment		Net Carrying Amount
Finite-lived intangible assets
Student roster	$	20,000	$	13,333	$	—	$	6,667
Curricula	14,563		6,680		—		7,883
Student and customer contracts and relationships	4,614		4,168		—		446
Lead conversions	1,500		1,000		—		500
Non-compete agreements	86		86		—		—
Tradename	35		35		—		—
Accreditation and licensing	28		11		—		17
Total finite-lived intangible assets	$	40,826	$	25,313	$	—	$	15,513
Indefinite-lived intangible assets
Trade name	28,498		—		—		28,498
Accreditation, licensing, and Title IV	26,186		—		15,500		10,686
Affiliation agreements	37		—		—		37
Total indefinite-lived intangible assets	54,721		—		15,500		39,221
Total intangible assets	$	95,547	$	25,313	$	15,500	$	54,734

Finite-lived intangible assets are amortized in a manner that reflects the estimated economic benefit of the intangible assets and are amortized on a straight-line basis.

The future amortization of finite-lived intangible assets is as follows (in thousands):


Future Amortization of Intangibles	Amortization
2023	12,195
2024	3,318



Total	$	15,513

Determining fair value requires judgment and the use of significant estimates and assumptions, including fluctuations in enrollments, revenue growth rates, operating margins, discount rates, and future market conditions, among others. Given the current competitive and regulatory environment 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 impairment tests will prove to be accurate predictions of the future. If the Company’s assumptions are not realized, the Company may record additional goodwill 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.