Intangible Assets

9 Months Ended

Sep. 30, 2020

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill

We are required to assess goodwill for impairment annually, or more frequently if circumstances indicate an impairment may have occurred. We perform the annual impairment assessment for each of our reporting units as of October 1st of each year. The Company concluded that the recent segment reorganization indicated that a triggering event occurred during the third quarter of 2020. A reporting unit is an operating segment, or one level below an operating segment, as defined by U.S. GAAP. As a result of our reorganization, we have six reporting units for purposes of goodwill impairment testing. Our North America operating segment is comprised of three reporting units based on our primary solution sets. The remaining three reporting units are our EMEA, Latin America and Asia Pacific operating segments. We considered our current projections, our share price in relation to the share price when the quantitative assessment was performed as of September 30, 2020 and the margin by which the fair values of the reporting units exceeded their carrying values. We concluded that each of our reporting units had excess fair values greater than their respective carrying values and that there was no indication of impairment. The Technical Performance Solutions and Latin America reporting units had fair values that exceeded their carrying value by less than 5% and 15%, respectively, as of the September 30, 2020 testing date. If the Technical Performance Solutions or Latin America reporting units fail to meet their financial projections, or if other adverse market conditions occur (such as a sustained material decrease in our stock price) which would lower the fair value of the business, we could incur material goodwill and other intangible asset impairment charges in the future. We will continue to test for impairment on an annual basis or on an interim basis if events and circumstances indicate a possible impairment.

We determined the fair value of our reporting units using both an income approach and a market approach, and weighed both approaches to determine the fair value of each reporting unit. Under the income approach, we performed a discounted cash flow analysis which incorporated management’s cash flow projections over a five-year period and a terminal value was calculated by applying a capitalization rate to terminal year projections based on an estimated long-term growth rate. The five-year projected cash flows and calculated terminal value were discounted using a weighted average cost of capital (“WACC”) which takes into account the costs of debt and equity. The cost of equity is based on the risk-free interest rate, equity risk premium, industry and size equity premiums and any additional market equity risk premiums as deemed appropriate for each reporting unit. To arrive at a fair value for each reporting unit, the terminal value was discounted by the WACC and added to the present value of the estimated cash flows over the discrete five-year period. There are a number of other variables which impact the projected cash flows, such as expected revenue growth and profitability levels, working capital requirements, capital expenditures and related depreciation and amortization. Under the market approach, we performed a comparable public company analysis and applied revenue and earnings multiples from the identified set of companies to the reporting unit’s actual and forecasted financial performance to determine the fair value of each reporting unit. We evaluated the reasonableness of the fair value calculations of our reporting units by reconciling the total of the fair values of all of our reporting units to our total market capitalization, and adjusting for an appropriate control premium. In addition, we made certain judgments in allocating shared assets and liabilities to determine the carrying values for each of our reporting units.

Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions. These estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates, future economic and market conditions and determination of appropriate market comparables. A significant assumption in our goodwill impairment test as of September 30, 2020 was an estimate of how long and the extent to which we expect COVID-19 to impact our revenues and gross margins. If the pandemic last longer than we assumed or has an adverse impact for a longer period than assumed in our projections, we could incur material goodwill impairment charges in the future. We base our fair value estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates. In addition, we make certain judgments and assumptions in allocating shared assets and liabilities to determine the carrying values for each of our reporting units. The timing and frequency of our goodwill impairment tests are based on

an ongoing assessment of events and circumstances that would indicate a possible impairment. We will continue to monitor our goodwill and intangible assets for impairment and conduct formal tests when impairment indicators are present.

Changes in the carrying amount of goodwill by reportable business segment for the nine months ended September 30, 2020 were as follows (in thousands):


	North America		EMEA		Emerging Markets		Total
Balance as of December 31, 2019	$	131,047	$	29,853	$	10,663	$	171,563
Assets held for sale	(9,249)		(3,333)		(1,648)		(14,230)

Divestiture	(2,594)		—		—		(2,594)
Foreign currency translation	(361)		(152)		(108)		(621)
Balance as of September 30, 2020	$	118,843	$	26,368	$	8,907	$	154,118

Intangible Assets Subject to Amortization

Intangible assets with finite lives are subject to amortization over their estimated useful lives. The primary assets included in this category and their respective balances were as follows (in thousands):


	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
September 30, 2020
Customer relationships	$	19,272	$	(7,011)	$	12,261
Customer relationships - Assets held for sale	(10,198)		3,197		(7,001)
Intellectual property and other	3,334		(2,469)		865
	$	12,408	$	(6,283)	$	6,125

December 31, 2019
Customer relationships	$	22,348	$	(7,473)	$	14,875

Intellectual property and other	3,915		(2,446)		1,469
	$	26,263	$	(9,919)	$	16,344