Intangible Assets and Goodwill

9 Months Ended

Sep. 30, 2022

Goodwill and Intangible Assets Disclosure [Abstract]

Note 4 — Intangible Assets and Goodwill

Goodwill and non-amortizable intangible assets

The Company tests goodwill and indefinite lived intangibles for impairment at least annually or more frequently whenever events or circumstances occur indicating that it might be impaired. During the three months ended September 30, 2022, the Company’s market capitalization declined significantly, driven by rising interest rates and macroeconomic conditions. Additionally, the Company has slowed its expansion plans for the Services reporting unit. Based on these events, the Company concluded that an indicator of impairment existed for the Services reporting unit related to its goodwill during the three months ended September 30, 2022.

Goodwill impairment is evaluated based on a discounted cash flow method (Level 3). Significant assumptions and estimates are required, including, but not limited to, projecting future cash flows, determining appropriate discount rates and terminal growth rates, and other assumptions, to estimate the fair value of goodwill. In addition, the Company’s publicly traded market capitalization was reconciled to the sum of the fair values of the reporting units. Although the Company believes the assumptions and estimates made are reasonable and appropriate, different assumptions and estimates could materially impact its reported financial results.

As a result of the Company's interim impairment test, the Company determined that the fair value of the Services reporting unit was less than it's carrying value, resulting in a non-cash goodwill impairment charge of $47.3 million during the three and nine months ended September 30, 2022. No impairment was recognized for the three and nine months ended September 30, 2021.

Amortizable intangibles

Amortizable intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the sum of the expected undiscounted cash flows is less than the carrying value of the related asset or group of assets, a loss is recognized for the difference between the fair value and carrying value of the asset or group of assets.

Due to the aforementioned goodwill impairment, during the three months ended September 30, 2022, the Company determined that a triggering event had occurred for certain amortizable intangible assets and conducted Step 1 of impairment testing utilizing undiscounted cash flows. No additional impairment was recorded as a result of this test.

Intangible assets consist of the following at:


$'s in 000's	Useful Lives	September 30, 2022		December 31, 2021
Amortizable intangibles
Certification	7 years	$	350	$	350
Customer relationships	12-20 years	159,956		160,167
Patents and processes	5-10 years	14,494		14,843
Brand names	5-15 years	24,568		24,731
Total amortizable intangibles		199,368		200,091
Less accumulated amortization		(57,339)		(44,438)
Total net amortizable intangibles		142,029		155,653
Non-amortizable intangibles
Trademarks and other		33,239		33,341
In-process research and development		1,668		1,668
Intangible assets, net of accumulated amortization		$	176,936	$	190,662

Certain intangible assets are denominated in currencies other than the U.S. Dollar; therefore, their gross and net carrying values are subject to foreign currency movements. Amortization expense for the three months ended September 30, 2022 and 2021 was $4.6 million and $4.6 million, respectively, and $13.6 million and $17.7 million for the nine months ended September 30, 2022 and 2021, respectively.

The in-process research and development (“IPRD”), intangible assets represent the value assigned to three acquired Research and Development ("R&D") projects that principally represent rights to develop and sell products that the Company has acquired which has not yet been completed or approved. The IPRD acquired as part of the Perrigo Animal Health Acquisition is accounted for as an indefinite-lived asset until the product is available for sale and regulatory approval is obtained, or abandonment of the associated research and development efforts. If the research and development efforts are successfully completed, the IPRD would be amortized over its then estimated useful life. The fair value of the IPRD was estimated using the multi-period excess earnings income method. The projected cash flows estimates for the future products were based on certain key assumptions including estimates of future revenues and expenses, taking into account the stage of development at the acquisition date and the resources needed to complete development. In the event that the efforts are not successful, the Company will write off the relevant IPRD in the period in which it is no longer considered feasible. During the nine months ended September 30, 2021, the Company opted out of two of the acquired projects, effectively abandoning the associated research and development efforts. Accordingly, the Company wrote off the associated IPRD assets of $3.8 million, the expense for which is included as amortization expense in selling, general and administrative expenses on the condensed consolidated statement of operations for the nine months ended September 30, 2021.

Estimated future amortization expense for each of the following years is as follows:


Years ending December 31, ($'s in 000's)
Remainder of 2022	$	4,473
2023	16,875
2024	14,526
2025	13,874
2026	13,292
Thereafter	79,052

The following is a summary of the changes in the carrying value of goodwill for the period from January 1, 2021 to September 30, 2022:


	Reporting Unit
($'s in 000's)	Products		Services		Total
Goodwill as of January 1, 2021	183,894		47,264		231,158
Foreign currency translation	(48)		—		(48)
Goodwill as of December 31, 2021	183,846		47,264		231,110
Foreign currency translation	(897)		—		(897)
Impairment	—		(47,264)		(47,264)
Goodwill as of September 30, 2022	$	182,949	$	—	$	182,949