Intangibles Assets and Goodwill

6 Months Ended

Jun. 30, 2023

Goodwill and Intangible Assets Disclosure [Abstract]

Intangible Assets

Intangible assets with finite useful lives are amortized using the straight-line method over their estimated useful lives and include internally developed software, as well as software to be otherwise marketed, and trademarks/trade name/patents and customer relationships. The Company reviews the recoverability of its long-lived assets annually, or when events or changes in circumstances occur that indicate that the carrying value of the asset may not be recoverable. The Company has determined that the trademark intangible asset and domain names related to the rebranding initiative are indefinite-lived assets and therefore are not subject to amortization but are evaluated for impairment.

The Bite Squad and Delivery Dudes trade name intangible assets were being amortized over their estimated useful lives and were fully impaired as of December 31, 2022. Additionally, as of December 31, 2022, the Company’s internally developed software and customer relationship assets related to the Delivery Services Segment were fully impaired.

As of January 1, 2023, the Company’s remaining intangible assets included the trademark intangible asset and domain names related to the rebranding initiative, and trademarks and customer relationship intangible assets related to the Third-Party Payment Processing Referral Services Segment. See “Impairments” below for details of impairment testing for intangible assets as of June 30, 2023.

Intangible assets are stated at cost or acquisition-date fair value less accumulated amortization and impairment and consist of the following at June 30, 2023 and December 31, 2022 (in thousands):


	As of June 30, 2023
	Gross Carrying Amount		Accumulated Amortization		Accumulated Impairment		Intangible Assets, Net
Intangible assets subject to amortization:

Trademarks/Trade name/Patents	$	376	$	(213)	$	—	$	163
Customer Relationships	6,500		(1,589)		—		4,911
Total intangible assets subject to amortization	6,876		(1,802)		—		5,074
Trademarks, not subject to amortization	1,500		—		—		1,500
Total	$	8,376	$	(1,802)	$	—	$	6,574

	As of December 31, 2022
	Gross Carrying Amount		Accumulated Amortization		Accumulated Impairment		Intangible Assets, Net
Intangible assets subject to amortization:
Software	$	40,341	$	(13,542)	$	(26,799)	$	—
Trademarks/Trade name/Patents	6,549		(6,044)		(284)		221
Customer Relationships	96,510		(18,647)		(72,519)		5,344
Total intangible assets subject to amortization	143,400		(38,233)		(99,602)		5,565
Trademarks, not subject to amortization	3,038		—		(1,538)		1,500
Total	$	146,438	$	(38,233)	$	(101,140)	$	7,065

The Company recorded amortization expense of $246 and $2,465 for the three months ended June 30, 2023 and 2022, respectively, and $492 and $4,950 for the six months ended June 30, 2023 and 2022, respectively.

Estimated future amortization expense of intangible assets subject to amortization as of June 30, 2023 is as follows (in thousands):


	Amortization
The remainder of 2023	$	496
2024	953
2025	876
2026	871
2027	867
Thereafter	1,011
Total future amortization	$	5,074

Goodwill

Prior to the three months ended September 30, 2022, we concluded that we had one reporting unit for purposes of goodwill impairment testing. During the three months ended September 30, 2022, we quantitatively and qualitatively reassessed our segment reporting and determined the Third-Party Payment Processing Referral Services Segment is material to the group and now have two reporting units for purposes of goodwill impairment testing.

The following table presents changes in the carrying value of goodwill for the Company’s single reporting unit prior to the allocation of goodwill to segments (in thousands).


Balance as of December 31, 2021	$	130,624
March 15, 2022 impairment	(67,190)
Balance prior to segment allocation	63,434
September 30, 2022 impairment	(51,991)
Remaining goodwill to be allocated to segments	$	11,443

During the three months ended September 30, 2022, the Company reallocated its goodwill from a single reporting unit to the Delivery Services Segment and the Third-Party Payment Processing Referral Services Segment based on a relative fair value analysis using several probability weighted scenarios. The following table presents changes in the carrying value of goodwill for the Company’s segments after the allocation of goodwill to segments through December 31, 2022 (in thousands).


	Delivery Services Segment		Third-Party Payment Processing Referral Services Segment		Total
Goodwill allocation to segments	$	1,907	$	9,536	$	11,443

September 30, 2022 impairment	(1,907)		—		(1,907)
Balance as of December 31, 2022	$	—	$	9,536	$	9,536

No events or circumstances occurred during the three months ended March 31, 2023 that would indicate an impairment may have occurred, and accordingly, the Company determined that goodwill and long-lived asset impairment testing was not needed at March 31, 2023. As a result of a sustained decline in the Company’s stock price and market capitalization during the second quarter of 2023, the Company conducted an impairment test as of the valuation date of June 30, 2023, resulting in the full impairment of the Company’s remaining goodwill. See “Impairments” below for additional details. The following table presents the carrying value of goodwill for the Company’s segments as of June 30,

2023 (in thousands).


	Delivery Services Segment		Third-Party Payment Processing Referral Services Segment		Total
Balance as of December 31, 2022	$	—	$	9,536	$	9,536
June 30, 2023 impairment	—		(9,536)		(9,536)
Balance as of June 30, 2023	$	—	$	—	$	—

Impairments

The Company has historically conducted its goodwill and intangible asset impairment test annually in October, or more frequently if indicators of impairment exist. The Company conducts the impairment test in accordance with FASB ASC Topic 360, Impairment and Disposal of Long-Lived Assets (“ASC 360”) for certain long-lived assets, including capitalized contract costs, developed technology, customer relationships, and trade names, and in accordance with FASB ASC Topic 350, Intangibles – Goodwill and Other (“ASC 350”) for the reporting unit’s goodwill.

ASC 360 requires long-lived assets to be tested for impairment using a three-step impairment test. Step 1 of the test is giving consideration to whether indicators of impairment of long-lived assets are present. If indicators are present, the Company proceeds to Step 2 to determine whether an impairment loss should be measured. As a part of Step 2, the Company performs a recoverability test by comparing the estimated undiscounted cash flows of the long-lived asset group to its carrying amount. If the estimated undiscounted cash flows are less than the carrying amount of the long-lived asset group, an impairment loss is measured based on its fair value as part of Step 3. ASC 350 requires goodwill and other indefinite lived assets to be tested for impairment at the reporting unit level. Determining the fair value of a reporting unit and intangible assets requires the use of estimates and significant judgments that are based on a number of factors including actual operating results. It is reasonably possible that the judgments and estimates could change in future periods.

June 30, 2023 Impairment Analysis

As a result of a sustained decline in the Company’s stock price and market capitalization during the second quarter of 2023, the Company conducted an impairment test as of the valuation date of June 30, 2023. The Company engaged a third-party to assist management in estimating the fair values of long-lived assets and the reporting units for purposes of impairment testing under ASC 360 and ASC 350. Given the results of the qualitative assessment and indications of possible impairment, the Company proceeded to Step 2 to determine whether an impairment loss should be measured.

The customer relationships intangible assets, which are entirely related to the Third-Party Payment Processing Referral Services Segment, were tested for impairment under the guidance in ASC 360 using an undiscounted cash flow model. The undiscounted cash flows for the customer relationships intangible assets were above the carrying amounts and the Company determined that the long-lived asset group was recoverable, and no impairment existed as of June 30, 2023.

The trade name intangible assets related to the Third-Party Payment Processing Referral Services Segment were tested for impairment under the guidance in ASC 360 and were valued using an undiscounted cash flow model. The undiscounted cash flows for the trade names related to the Third-Party Payment Processing Referral Services Segment were above the carrying amount and the Company determined that the long-lived asset group was recoverable, and no impairment existed as of June 30, 2023. The Company determined that impairment testing was not warranted at June 30, 2023 for the $1,500 of trademarks related to the rebranding initiative given the recency of the prior valuation in September 2022.

For ASC 350 testing purposes, the Company compared the fair value of the reporting unit with its carrying amount. The fair value of the reporting unit was estimated giving consideration to the Income Approach, including the discounted cash flow method, and the Market Approach, including the guideline public company method. Significant inputs and assumptions in the ASC 350 analysis included forecasts (e.g., revenue, operating costs and capital expenditures), discount rate, long-term growth rate and tax rates for the reporting unit under the Income Approach and market-based enterprise value to revenue multiples under the Market Approach. As a result of the ASC 350 analysis, the Company recognized a non-cash pre-tax impairment loss of $9,536 to write down the carrying value of goodwill in the Third-Party Payment Processing Referral Services Segment to zero. The impairment loss is included in the unaudited condensed

consolidated statement of operations for the three and six months ended June 30, 2023 under the caption “goodwill impairment”.

Waitr Holdings Inc. 10-Q