Goodwill and Intangible Assets, Net

12 Months Ended

Dec. 31, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill

Goodwill has an estimated indefinite life and is not amortized; rather, it is reviewed for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.

The Company has four reporting units. Our reporting units are not discrete legal entities with discrete full financial statements. Our assets and liabilities are employed in and relate to the operations of our reporting units. Therefore, the equity carrying value and future cash flows must be estimated each time a goodwill impairment analysis is performed on a reporting unit. As a result, our assets, liabilities and cash flows are assigned to reporting units using reasonable and consistent allocation methodologies.

Our annual goodwill impairment review occurs during the fourth quarter of each fiscal year. We evaluate qualitative factors that could cause us to believe the estimated fair value of each of our reporting units may be lower than the carrying value and trigger a quantitative assessment, including, but not limited to (i) macroeconomic conditions, (ii) industry and market considerations, (iii) our overall financial performance, including an analysis of our current and projected cash flows, revenues and earnings, (iv) a sustained decrease in share price and (v) other relevant entity-specific events including changes in management, strategy, partners, or litigation.

A description of our goodwill impairment tests during 2019 and 2018 follows below.

2019 Goodwill Impairment Test

During the second half of 2019, the price of our Class A common stock declined significantly. The average closing price per share of our Class A common stock for the period from May 1 to October 31 decreased by $6.59 per common share, or 43.5%, compared to the average closing price for the period from January 1 to April 30. In addition, it is not certain that Passport will be awarded a Kentucky managed Medicaid contract for the next contract period, which is expected to begin on January 1, 2021. If Passport is not awarded a contract under the RFP, we expect that we will not receive any material revenue under our management services agreement from Passport Buyer subsequent to December 31, 2020 and the value of our investment in Passport and goodwill will be negatively impacted. A non-renewal of Passport’s contract would reduce our medium-term and long-term cash flow projections, causing the decline in our stock price to possibly be further prolonged, indicating it is more likely than not that that the fair value of the reporting units is less than the reporting unit’s carrying amounts.

In performing our October 31, 2019 impairment test, we estimated the fair value of our reporting units by considering a discounted cash flow valuation approach (“income approach”). In determining the estimated fair value using the income approach, we projected future cash flows based on management’s estimates and long-term plans and applied a discount rate based on the Company’s weighted average cost of capital. This analysis required us to make judgments about revenues, expenses, fixed asset and working capital requirements, the timing of exchanges of our Class B common shares, capital market assumptions, cash flows, the probability of the Passport RFP outcome and discount rates. The fair values determined by the income approach, as described above, were weighted considering future resolution of the Passport RFP result to determine the concluded fair value for each reporting unit. If the probability of Passport being awarded a contract under the RFP increases, it is unlikely to result in a future impairment charge ignoring other events or circumstances, however, if the probability of Passport being awarded a contract under the RFP decreases, we will likely have a future impairment charge.

As of October 31, 2019, we determined that one of our three reporting units in the Services segment had an estimated fair value less than its carrying value. As a result, we recorded a non-cash goodwill impairment charge of $199.8 million in goodwill impairment on our consolidated statements of operations and comprehensive income (loss) for the year ended December 31, 2019. If other indications of impairment exist we may be required to recognize additional impairments in the future as a result of market conditions or other factors related to our performance, including changes in our forecasted results, investment strategy, interest rates or assumptions used as part of the goodwill impairment analysis. Any further impairment charges that we may record in the future could be material to our results of operations. As of December 31, 2019, the remaining goodwill attributable to the reporting unit from which we recognized a non-cash goodwill impairment charge for the year ended December was $431.7 million. After the impairment charge, the estimated fair value of equity for the reporting unit equals the carrying value of equity for such reporting unit. As of December 31, 2019, the Company assessed whether there were additional events or changes in circumstances since its annual goodwill impairment test that would indicate that it was more likely than not that the fair value of the reporting units was less than the reporting unit’s carrying amounts that would require

an additional interim impairment assessment after October 31, 2019. The Company determined there had been no such indicators, therefore, we did not perform an interim goodwill impairment assessment as of December 31, 2019.

2018 Goodwill Impairment Tests

On October 31, 2018, the Company performed its annual goodwill impairment review for fiscal year 2018. Based on our qualitative assessment, we did not identify sufficient indicators of impairment that would suggest fair value of our single reporting unit was below the carrying value. As a result, a quantitative goodwill impairment analysis was not required.

The following table summarizes the changes in the carrying amount of goodwill, by reportable segment, for the periods presented (in thousands):



	Services			True Health			Consolidated
Balance as of December 31, 2017	$	628,186		$	—		$	628,186
Goodwill acquired ⁽¹⁾	134,343			5,826			$	140,169
Measurement period adjustments ⁽²⁾	4			(121		)	(117		)
Foreign currency translation ⁽³⁾	(114		)	—			$	(114	)
Balance as of December 31, 2018	762,419			5,705			768,124
Goodwill acquired	3,416			—			3,416
Measurement period adjustments ⁽²⁾	351			—			351
Impairment	(199,800		)	—			(199,800		)
Foreign currency translation ⁽³⁾	(27		)	—			(27		)
Balance as of December 31, 2019	$	566,359		$	5,705		$	572,064

⁽¹⁾ Goodwill acquired primarily as a result of the New Century Health and True Health transactions, as discussed in Note 4.

⁽²⁾ Measurement period adjustments related to transactions completed in 2018.

⁽³⁾ Foreign currency translation related to a transaction completed during 2018.

Intangible Assets, Net

Details of our intangible assets (in thousands) are presented below:



	As of December 31, 2019							As of December 31, 2018
	Weighted- Average Remaining Useful Life	Gross Carrying Amount		Accumulated Amortization		Net Carrying Value		Weighted- Average Remaining Useful Life	Gross Carrying Amount		Accumulated Amortization		Net Carrying Value
Corporate trade name	14.2	$	23,300	$	4,891	$	18,409	15.2	$	23,300	$	3,511	$	19,789
Customer relationships	16.8	291,519		44,750		246,769		18.1	281,219		29,184		252,035
Technology	2.0	82,922		49,760		33,162		3.0	82,922		31,764		51,158
Below market lease, net	2.2	2,048		1,334		714		4.0	4,097		3,003		1,094
Provider network contracts	3.7	12,725		3,320		9,405		4.6	11,900		940		10,960
Total intangible assets, net		$	412,514	$	104,055	$	308,459		$	403,438	$	68,402	$	335,036

Amortization expense related to intangible assets for the years ended December 31, 2019, 2018 and 2017, was $37.7 million, $27.2 million and $22.8 million, respectively.

Future estimated amortization of intangible assets (in thousands) as of December 31, 2019, is as follows:



2020	$	33,451
2021	29,316
2022	25,434
2023	22,670
2024	17,111
Thereafter	180,477
Total future amortization of intangible assets	$	308,459

Intangible assets are reviewed for impairment if circumstances indicate the Company may not be able to recover the assets’ carrying value. As discussed above, we identified a triggering event and performed a quantitative analysis over the carrying value of our goodwill balance during the fourth quarter of 2019. Identification of the triggering event also triggered an impairment analysis of the carrying value of our intangible asset group. In conjunction with the impairment testing of the carrying value of our goodwill, we performed an analysis to determine whether the carrying amount of our intangible asset group was recoverable. We performed a quantitative analysis, which required management to compare the total pre-tax, undiscounted future cash flows of the intangible asset group to the current carrying amount. The total undiscounted cash flows included only the future cash flows that are directly associated with and that were expected to arise as a result of the use and eventual disposal of the asset group. Based on our quantitative analysis, we determined that the pre-tax, undiscounted cash flows exceeded the carrying value and therefore concluded that our intangible assets were recoverable.