Xponential Fitness, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Goodwill and Intangible Assets

Goodwill and Intangible Assets

12 Months Ended

Dec. 31, 2022

Goodwill and Intangible Assets Disclosure [Abstract]

Note 7 – Goodwill and Intangible Assets

Goodwill represents the excess of cost over the fair value of identifiable net assets acquired related to the original purchase of the various franchise businesses and acquisition of company-owned transition studios. Goodwill is not amortized but is tested annually for impairment or more frequently if indicators of potential impairment exist.

Goodwill at December 31, 2022 decreased to $165,697 from $169,073 at December 31, 2021. The $3,376 decrease was due to an impairment charge of $3,376 recognized in the third quarter of 2022 included within selling, general and administrative expenses. This amount represents the accumulated total of impairments recognized to date related to goodwill. There were no other impairments recognized prior to January 1, 2022. During the year ended December 31, 2021, there was an increase of $29,393 in previously reported goodwill due to the acquisitions of Rumble and BFT as discussed in Note 3.

During the third quarter of 2022, the Company determined it was necessary to re-evaluate goodwill of the AKT reporting unit for impairment due to impacts arising from litigation resulting in decline in forecasted and actual cash flows. Therefore, the Company performed a quantitative assessment of the fair value of the reporting unit using an income approach with assumptions that are considered Level 3 inputs and concluded that the carrying value of the AKT reporting unit exceeded its fair value, resulting in a goodwill impairment of $3,376. The fair value of the reporting unit was determined by discounting estimated future cash flows, which were calculated based on revenue and expense long-term growth assumptions ranging from 2.0% to 5.0%, at a weighted average cost of capital (discount rate) of 16.0%. In addition, the Company determined that the trademark and franchise agreements intangible assets related to the AKT reporting unit were also impaired and recognized an impairment loss of $280 in the third quarter of 2022. There were no further impairment charges recognized on the Company's intangible assets for the remainder of 2022.

Intangible assets consisted of the following:


		December 31, 2022							December 31, 2021
	Amortization period (years)	Gross amount		Accumulated amortization			Net amount		Gross amount		Accumulated amortization			Net amount
Trademarks	10	$	21,110	$	(2,606	)	$	18,504	$	10,920	$	(794	)	$	10,126
Franchise agreements	7.5 – 10		69,100		(25,143	)		43,957		69,500		(17,166	)		52,334
Non-compete agreement	5		—		—			—		1,400		(1,282	)		118
Web design and domain	3 – 10		430		(196	)		234		430		(86	)		344
Deferred video production costs	3		4,046		(2,173	)		1,873		2,370		(1,036	)		1,334
Total definite-lived intangible assets			94,686		(30,118	)		64,568		84,620		(20,364	)		64,256
Indefinite-lived intangible assets:
Trademarks	N/A		72,607		—			72,607		72,607		—			72,607
Total intangible assets		$	167,293	$	(30,118	)	$	137,175	$	157,227	$	(20,364	)	$	136,863

Amortization expense for the years ended December 31, 2022, 2021 and 2020 was $11,384, $7,170 and $5,064, respectively.

The anticipated future amortization expense of intangible assets is as follows:


Year ending December 31,
2023	$	11,420
2024		10,903
2025		10,392
2026		7,481
2027		6,279
Thereafter		18,093
Total	$	64,568