Goodwill, Capitalized Software Development and Intangible Assets, Net

12 Months Ended

Dec. 31, 2021

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill, Capitalized Software Development and Intangible Assets, Net

GOODWILL, CAPITALIZED SOFTWARE DEVELOPMENT AND INTANGIBLE ASSETS, NET

Goodwill

For purposes of the goodwill impairment assessment, the Company as a whole is considered the reporting unit. The fair value of the reporting unit is estimated under a market-based approach using the fair value of the Company's common stock. The estimated fair value requires significant judgments, including timing and appropriateness of the price of common stock used (e.g., point-in-time application, simple moving average, exponential moving average), as well as application of an estimated control premium. There are a number of judgmental factors that are incorporated into our assessment to establish an estimated control premium, including the review of current and past market information published by a third-party resource, assessment of the Company's future projected discounted cash flows and other relevant information if available. While a formal impairment assessment is performed annually, the Company monitors its business environment for potential triggering events on a quarterly basis.

The change in goodwill for the year ended December 31, 2021, was as follows:

(Dollars in thousands)	Change in Goodwill
Goodwill at December 31, 2019	$	124,182
Impairment	$	(25,007)
Goodwill at December 31, 2020	$	99,175
Impairment	—
Goodwill at December 31, 2021	$	99,175

Capitalized Software Development

Capitalized software development is amortized on a straight-line basis over the estimated useful life of the asset, typically three years. Capitalized software development costs were $10.8 million and $11.3 million for the years ended December 31, 2021, and 2020, respectively. Amortization expense with respect to software development costs was $5.4 million and $1.1 million for the years ended December 31, 2021, and 2020, respectively.

During the quarter ended December 31, 2021, we determined that a triggering event had occurred based on a number of factors including a continuing trend of unsatisfactory Spok Go sales relative to our expectations, a significant accumulation of costs combined with a reduction of future sales projections which indicated continuing losses associated with Spok Go, and our expectation that Spok Go would not provide substantive future service potential. As such, further assessment of recoverability was necessary. We identified the long-lived asset group, for which we assessed recoverability, as our total capitalized software development costs. This asset group is the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities.

We assessed recoverability based on the sum of the estimated undiscounted net cash flows of the long-lived asset group. The assessment of recoverability requires significant judgment, including timing and appropriateness of the estimated undiscounted future net cash flows. Our assessment determined that the carrying amount of the long-lived asset group was greater than the estimated undiscounted cash flows and further assessment of fair value was necessary to determine whether an impairment loss should be recognized.

]We estimated fair value taking into consideration a number of factors including estimates used in our assessment of recoverability, discounted cash flow methods incorporating market-based information that we gathered as part of our on-going strategic alternatives process, and the projected continuance of costs necessary to create substantive future service potential. Given the nature of these capitalized software development costs where observable market prices are not readily available, the assessment of fair value requires significant judgment and estimates. This analysis determined that the remaining balance of capitalized software development costs had no fair value, and as a result, we recorded an impairment charge of $15.7 million for the three months ended December 31, 2021.

Intangible Assets

Amortizable intangible assets at December 31, 2021, and 2020 related primarily to customer relationships. These intangible assets, with an original gross carrying amount of $25.0 million, were being amortized over a period of ten years and became fully amortized during the quarter ended March 31, 2021. We did not record an impairment of our amortizable intangible assets during the years ended December 31, 2021, 2020 and 2019.

The net consolidated balance of intangible assets consisted of the following at December 31, 2021, and 2020: 

	As of December 31,
	2021						2020
(Dollars in thousands)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Customer relationships	$	25,002	$	(25,002)	$	—	$	25,002	$	(24,585)	$	417