Quarterly report pursuant to Section 13 or 15(d)

Goodwill and Intangible Assets

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

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 September 30, 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.

During the quarter ended September 30, 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.

Intangible assets consisted of the following:

 

 

 

 

 

September 30, 2022

 

 

December 31, 2021

 

 

 

Amortization
period
(years)

 

Gross
amount

 

 

Accumulated
amortization

 

 

Net
amount

 

 

Gross
amount

 

 

Accumulated
amortization

 

 

Net
amount

 

Trademarks

 

10

 

$

21,110

 

 

$

(2,078

)

 

$

19,032

 

 

$

10,920

 

 

$

(794

)

 

$

10,126

 

Franchise agreements

 

7.5 – 10

 

 

69,100

 

 

 

(23,111

)

 

 

45,989

 

 

 

69,500

 

 

 

(17,166

)

 

 

52,334

 

Non-compete agreement

 

5

 

 

1,400

 

 

 

(1,400

)

 

 

 

 

 

1,400

 

 

 

(1,282

)

 

 

118

 

Web design and domain

 

3 – 10

 

 

430

 

 

 

(168

)

 

 

262

 

 

 

430

 

 

 

(86

)

 

 

344

 

Deferred video production costs

 

3

 

 

3,709

 

 

 

(1,881

)

 

 

1,828

 

 

 

2,370

 

 

 

(1,036

)

 

 

1,334

 

Total definite-lived intangible assets

 

 

 

 

95,749

 

 

 

(28,638

)

 

 

67,111

 

 

 

84,620

 

 

 

(20,364

)

 

 

64,256

 

Indefinite-lived intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trademarks

 

N/A

 

 

72,607

 

 

 

 

 

 

72,607

 

 

 

72,607

 

 

 

 

 

 

72,607

 

Total intangible assets

 

 

 

$

168,356

 

 

$

(28,638

)

 

$

139,718

 

 

$

157,227

 

 

$

(20,364

)

 

$

136,863

 

 

Amortization expense was $3,100 and $8,505, for the three and nine months ended September 30, 2022, respectively, and $1,671 and $4,679 for the three and nine months ended September 30, 2021, respectively.

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

 

Remainder of 2022

 

$

2,908

 

2023

 

 

11,239

 

2024

 

 

10,813

 

2025

 

 

10,296

 

2026

 

 

7,481

 

Thereafter

 

 

24,374

 

Total

 

$

67,111