Quarterly report pursuant to Section 13 or 15(d)

Intangible Assets and Goodwill

v3.22.2.2
Intangible Assets and Goodwill
9 Months Ended
Sep. 30, 2022
Goodwill and Intangible Assets Disclosure [Abstract]  
Intangible Assets and Goodwill

Note 9. Intangible Assets and Goodwill

Intangible Assets, net:

Intangible assets consisted of the following as of September 30, 2022 and December 31, 2021:

    Gross book value     Accumulated amortization     Net book value     Weighted-average life (years)  
Customer contracts   $ 6,300     $ (417 )   $ 5,883       10  
Trademark     5,000       (517 )     4,483       10  
UL Listings     2,700       (188 )     2,512       12  
Patents     561       (422 )     139      
Various
 
Intangible assets, net as of September 30, 2022   $ 14,561     $ (1,544 )   $ 13,017          

  

    Gross book value     Accumulated amortization     Net book value     Weighted-average life (years)  
Customer contracts   $ 6,300     $ (51 )   $ 6,249       10  
Trademark     5,000       (42 )     4,958       10  
UL Listings     2,700       (19 )     2,681       12  
Patents     742       (468 )     274      
Various
 
Intangible assets, net as of December 31, 2021   $ 14,742     $ (580 )   $ 14,162          

 

The intangible assets are amortized over their respective original useful lives. The Company recorded amortization expense of $0.4 million and $4.9 million for the three months ended September 30, 2022 and 2021, respectively, and $1.1 million and $5.8 million for the nine months ended September 30, 2022 and 2021, respectively.

The estimated future amortization expense associated with intangible assets is as follows:

 

    Estimated amortization expense  
For the three months ending December 31, 2022   $ 694  
For the year ending December 31, 2023     1,386  
For the year ending December 31, 2024     1,377  
For the year ending December 31, 2025     1,376  
For the year ending December 31, 2026     1,374  
For the year ending December 31, 2027     1,362  
For the year ending December 31, 2028 and thereafter     5,448  
Total   $ 13,017  

Goodwill:

The following table represents the changes in goodwill for the nine months ended September 30, 2022:

 

Balance at January 1, 2022   $ 335,563  
     Impairment     (335,648 )
     ESS Metron purchase accounting adjustment     85  
Balance at September 30, 2022   $
—  
 

During the second quarter of 2022, adverse changes in business climate, including decreases in the price of Bitcoin and increased volatility of equity markets, as evidenced by declines in the market price of the Company’s securities, those of its peers, and major market indices, have reduced market multiples and increased weighted-average costs of capital, primarily driven by an increase in interest rates. Market concerns related to inflation, supply chain disruption issues and other macroeconomic factors have been some of the primary causes for these declines. Additionally, the price of Bitcoin has declined significantly, notably during the second quarter of 2022. Due primarily to these factors, the Company determined that a triggering event had occurred, and therefore, performed an interim goodwill impairment assessment as of June 30, 2022. The valuation of our reporting units was determined with the assistance of an independent valuation specialist firm using a market approach. The market approach was based on the Guideline Public Company Method, which is derived from metrics of publicly traded companies or historically completed transactions of comparable businesses. The selection of comparable businesses is based on the markets in which the reporting units operate, giving consideration to risk profiles, size, geography, and diversity of products and services. Under the market approach, the Company evaluated the fair value based on trailing and forward-looking earnings and revenue multiples derived from comparable publicly traded companies with similar market position and size as the Company’s reporting units. The unobservable inputs used to measure the fair value included projected revenue growth rates, the price of Bitcoin, the global Bitcoin network hash rate, the timing of miner shipments under currently executed contracts and their subsequent deployment, and the determination of appropriate market comparison companies. The trailing-twelve-month and next-twelve-month enterprise value-to-revenue multiples assumed in the analysis ranged from approximately 0.7x to approximately 3.9x. The resulting estimated fair values of the combined reporting units were reconciled to the Company’s market capitalization, including an estimated implied control premium of approximately 30%.

 

The results of the quantitative test indicated the fair value of the reporting units did not exceed their carrying amounts, including goodwill. The difference between the carrying amount and the fair value of $335.6 million was recognized as a non-cash impairment charge during the nine months ended September 30, 2022.