Goodwill and Intangible Assets

9 Months Ended

Sep. 30, 2014

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill Impairment and Intangible Assets

Goodwill Impairment

The Company performs its annual impairment analysis of goodwill at the reporting unit level in the fourth quarter of each year and between annual tests if events or circumstances indicate that it is more likely than not that the asset is impaired according to the guidance within ASC 350 Intangibles - Goodwill and Other. The guidance requires that the Company perform a two-step impairment test of its goodwill. In the first step, the fair value of each reporting unit is compared to its carrying value. The Company's reporting units, Cloud and Business Intelligence and Managed Services, are consistent with segments identified in Note 13 of Notes to the Unaudited Condensed Consolidated Financial Statements.

Application of the goodwill impairment test requires judgment, including the identification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value of each reporting unit. Significant judgments required to estimate the fair value of reporting units include estimating future cash flows and determining appropriate discount rates, growth rates and other assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value of each reporting unit which could trigger impairment.

The fair value is determined based upon the income approach. Under the income approach, the Company estimates the fair value of the reporting unit based upon the present value of estimated future cash flows. Cash flow projections are determined by management to be commensurate with the risk inherent in current business model. Key assumptions used to estimate the fair value of the reporting units include the discount rate, compounded annual revenue growth rates, operating expense assumptions, and terminal value capitalization rate. The discount rate used is based on the weighted-average cost of capital adjusted for the relevant risk associated with business-specific characteristics and the uncertainty related to the reporting unit's ability to execute on the projected cash flows. The discount rate and terminal value capitalization rate are derived from the use of market data and are classified as a Level 3 within the fair value hierarchy.

If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to the reporting unit, goodwill is not impaired and the Company is not required to perform further testing. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, then step two of the impairment testing must be performed to determine the implied fair value of the reporting unit’s goodwill. The implied fair value of goodwill is calculated by deducting the fair value of all tangible and intangible assets of the reporting unit, excluding goodwill, from the fair value of the reporting unit as determined in the first step. If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, then an impairment charge equal to the difference is recorded. The inputs used to measure the estimated fair value of goodwill are classified as level 3.

During the third quarter of 2014, the Company’s market capitalization had a significant decline, the Company experienced slowing revenue growth for the Cloud and Business Intelligence (“CBI”) reporting unit in the near term and the company experienced churn of the CBI customer base. Therefore, the Company determined that there were sufficient indicators to require the Company to perform an interim impairment analysis in the third quarter of 2014. The Company compared the fair value of CBI reporting unit as determined under the income approach to its carrying value and determined that the fair value was less than the carrying value. The Company then performed step two of the impairment analysis.

Based on the result of the interim impairment analysis as described above, the Company concluded that an impairment of some of the CBI goodwill had occurred, resulting in a non-cash goodwill impairment charge of $21.0 million during the third quarter of 2014. We continue to monitor the recoverability of our goodwill. Additionally, the continued decline in the Company’s market capitalization, or other events or circumstances could require additional impairment charges to be recorded in future periods for the remaining goodwill.

The changes in the carrying amount of goodwill by operating segment as of September 30, 2014 were as follows:



	Managed Services		Cloud and Business Intelligence			Total
	(in thousands)
Balance as of December 31, 2013	$	6,334	$	—		$	6,334
Addition due to acquisition	—		22,653			22,653
Impairment	$	—	$	(21,000	)	$	(21,000	)
Balance as of September 30, 2014	$	6,334	$	1,653		$	7,987

Intangible Assets

Intangible Assets consisted of the following:



	Nine Months Ended September 30, 2014
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
	(in thousands)
Developed technology	$	4,330	$	(751	)	$	3,579
Customer relationships	3,400		(589		)	2,811
Trade name	1,290		(224		)	1,066
	$	9,020	$	(1,564	)	$	7,456

Amortization expense for intangibles assets recognized during the three and nine months ended September 30, 2014 was $0.6 million and $1.6 million respectively.

The estimated future amortization expense of purchased intangible assets as of September 30, 2014 was as follows:



	September 30, 2014
	(in thousands)
Years ending December 31,
2014 (remaining three months)	$	564
2015	2,255
2016	2,255
2017	2,255
2018	127
Total	$	7,456

The Company evaluates the recoverability of its long-lived assets with finite useful lives, including intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. Based on the assessment of various factors noted above in the Cloud and Business Intelligence (“CBI”) reporting unit, the Company determined that there were sufficient indicators to require the Company to perform an impairment analysis of its long-lived assets with finite useful lives, including intangible assets during the third quarter of 2014. We are required to assess impairment at the asset group level where there is identifiable cashflow. Our asset group where we have identifiable cashflows are CBI and Managed Services.

The impairment analysis includes comparing the sum of the undiscounted cash flows to the book value of the assets within the asset group. If the sum of undiscounted cash flows is less than the book value of the assets within the asset group, then the assets within the asset group are impaired. The impairment charge is measured as the difference between the book value and the fair value.

Based on the analysis, the Company concluded that there was no impairment to its developed technology, customer relationships, trade name and property and equipment during the third quarter of 2014.

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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