Aterian, Inc. Goodwill & Intangibles Disclosure
| 17. | GOODWILL AND INTANGIBLES |
The following tables summarize the changes in the Company’s intangible assets as of December 31, 2022 and December 31, 2023 (in thousands):
| January 1, 2022 | Year-Ended December 31, 2022 | December 31, 2022 | ||||||||||||||
| Gross Carrying Amount | Additions | Impairments (1) | Net Book Value | |||||||||||||
| Goodwill | $ | 119,941 | $ | 468 | $ | (120,409 | ) | $ | — | |||||||
| (1) | The Company evaluated current economic conditions during 2022, including the impact of the Federal Reserve further increasing the risk-free interest rate, as well as the inflationary pressure on product and labor costs and operational impacts attributable to continued global supply chain disruptions. The Company believed that these conditions were factors in our market capitalization falling below the book value of net assets during the fiscal quarters ending March 31, 2022 and September 30, 2022. Accordingly, the Company concluded a triggering event had occurred in each of these periods and performed interim goodwill impairment analyses. As a result, the Company recorded a goodwill impairment charge of approximately $29.0 million and $90.9 during the three months ended March 31, 2022 and September 30, 2022, respectively. On October 4, 2022, the Company acquired Step and Go, a brand in the health and Wellness category, for $0.7 million. As part of the purchase price allocation of the acquisition, $0.5 million was attributed to goodwill. As our market capitalization was further reduced below net assets as of December 31, 2022, we concluded a triggering event has occurred to test goodwill, an impairment loss on goodwill of $0.5 million was recorded for the three months ended December 31, 2022, which is included in impairment loss on goodwill in the Consolidated Statement of Operations for the year-ended December 31, 2022. |
For the year-ended December 31, 2022, total goodwill impairment was approximately $120.4 million. There is no remaining goodwill balance as of December 31, 2022 and December 31, 2023.
The following tables summarize the changes in the Company’s intangible assets as of December 31, 2022 and December 31, 2023 (in thousands):
| January 1, 2022 | Year-Ended December 31, 2022 | December 31, 2022 | December 31, 2022 | |||||||||||||||||
| Gross Carrying Amount | Additions | Impairments (1) | Accumulated Amortization | Net Book Value | ||||||||||||||||
| Trademarks | $ | 65,910 | 192 | $ | (3,087 | ) | $ | (13,008 | ) | $ | 50,007 | |||||||||
| Non-competition agreement | 111 | — | (31 | ) | (80 | ) | — | |||||||||||||
| Transition services agreement | 23 | — | — | (23 | ) | — | ||||||||||||||
| Customer relationships | 5,700 | — | — | (950 | ) | 4,750 | ||||||||||||||
| Other | 700 | — | — | (700 | ) | — | ||||||||||||||
| Total intangibles | $ | 72,444 | $ | 192 | $ | (3,118 | ) | $ | (14,761 | ) | $ | 54,757 | ||||||||
| January 1, 2023 | Year Ended December 31, 2023 | December 31, 2023 | December 31, 2023 | |||||||||||||||||
| Gross Carrying Amount | Additions | Impairments (2) | Accumulated Amortization | Net Book Value | ||||||||||||||||
| Trademarks(3) | $ | 62,202 | $ | — | $ | (39,728 | ) | $ | (15,335 | ) | $ | 7,140 | ||||||||
| Non-competition agreement | 11 | — | — | (11 | ) | — | ||||||||||||||
| Transition services agreement | 12 | — | — | (12 | ) | — | ||||||||||||||
| Customer relationships(3) | 5,700 | — | — | (1,520 | ) | 4,180 | ||||||||||||||
| Other | 700 | — | — | (700 | ) | — | ||||||||||||||
| Total intangibles(3) | $ | 68,625 | $ | — | $ | (39,728 | ) | $ | (17,578 | ) | $ | 11,320 | ||||||||
| (1) | Certain asset groups experienced a significant decrease in sales and contribution margin through September 30, 2022. This was considered an interim triggering event for the three months ended September 30, 2022. Based on the analysis of comparing the undiscounted cash flow to the carrying value of the asset group, one group tested indicated that the assets may not be recoverable. For this asset group, the Company compared the fair value to the carrying amount of the asset group and recorded an intangible impairment charge of $3.1 million for the year-ended December 31, 2022. |
| (2) | On March 20, 2023, the Company made certain leadership changes in our essential oil business resulting in a change in strategy and outlook for the business which will result in a reduced portfolio offering. This reduction in the portfolio will be impactful to our essential oil business's future revenues and profitability and as a result the Company made revisions to our internal forecasts. The Company concluded that this change was an interim triggering event for the three months ending March 31, 2023 indicating the carrying value of our essential oil business's long-lived assets including trademarks may not be recoverable. Accordingly, the Company performed an interim impairment test of the trademark and assessed the recoverability of the related intangible assets by using level 3 inputs and comparing the carrying value of an asset group to the net undiscounted cash flow expected to be generated. The recoverability test indicated that certain definite-live trademark intangible assets were impaired. The Company concluded the carrying value of the trademark exceeded its estimated fair value which was determined utilizing the relief-from-royalty method to determine discounted projected future cash flows which resulted in an impairment charge. The Company recorded an intangible impairment charge of $16.7 million in the three months ending March 31, 2023 within impairment loss on intangibles on the condensed consolidated statement of operations.
During the three months ended June 30, 2023, the Company had a substantial decrease in its market capitalization, primarily relating to a decrease in share price. Further, the Company continues to see reduced net revenues across its portfolio primarily due to the current macroeconomic environment reducing demand for consumer goods. Finally, during the three months ending June 30, 2023, the Company implemented a strategy of rationalizing certain less profitable products and reducing its product offering, specifically related to its kitchen appliance products. As a result of this rationalization, along with the reduced demand for its products, the Company has made certain revisions to its internal forecasts for its Paper business and Kitchen appliance business. The Company concluded that these factors were an interim triggering event for the three months ending June 30, 2023 indicating the carrying value of our Paper and Kitchen appliance business’s long-lived assets, including trademarks, may not be recoverable. Accordingly, the Company performed an interim impairment test of the trademark and assessed the recoverability of the related intangible assets by using level 3 inputs and comparing the carrying value of an asset group to the net undiscounted cash flow expected to be generated. The recoverability test indicated that certain definite-live trademark intangible assets were impaired. The Company concluded the carrying value of the trademark exceeded its estimated fair value which was determined utilizing the relief-from-royalty method to determine discounted projected future cash flows which resulted in an impairment charge. The Company recorded an intangible impairment charge of $22.8 million for the Paper business and Kitchen appliance business during the three months ending June 30, 2023 within impairment loss on intangibles on the condensed consolidated statement of operations.
During the three months ended December 31, 2023, The Company continued to see reduced revenue in its paper business resulting in certain revisions to its internal forecasts. Due to these revisions in forecast due to reduced demand,, The Company concluded this was an interim triggering event for the three months ending December 31, 2023 indicating the carrying value of our Paper business’s long-lived assets, including trademarks, may not be recoverable. Accordingly, the Company performed an interim impairment test of the trademark and assessed the recoverability of the related intangible assets by using level 3 inputs and comparing the carrying value of an asset group to the net undiscounted cash flow expected to be generated. The recoverability test indicated that certain definite-live trademark intangible assets were impaired. The Company concluded the carrying value of the trademark exceeded its estimated fair value which was determined utilizing the relief-from-royalty method to determine discounted projected future cash flows which resulted in an impairment charge. The Company recorded an intangible impairment charge of $0.3 million for the Paper business during the three months ending December 31, 2023 within impairment loss on intangibles on the consolidated statement of operations. | |
| (3) | As of December 31, 2023, the weighted-average remaining amortization period for Trademarks and Customer Relationships was 7.21 years and 7.33 years, respectively. The weighted-average remaining amortization period for total intangibles was 7.26 years. |
The following table sets forth the estimated aggregate amortization of our in-place intangible assets and favorable intangible assets for the next five years and thereafter (amounts in thousands):
| 2024 | $ | 1,592 | ||
| 2025 | 1,551 | |||
| 2026 | 1,551 | |||
| 2027 | 1,551 | |||
| 2028 | 1,551 | |||
| Thereafter | 3,524 | |||
| Total | $ | 11,320 |
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2023 | Mar 19, 2024 | Showing above |
| 2022 | Mar 16, 2023 | |
| 2021 | Mar 16, 2022 | |
About Goodwill & Intangibles Disclosures
Goodwill and intangible asset disclosures reveal the premium paid in acquisitions and how management assesses whether that premium retains its value. Since goodwill is no longer amortized under US GAAP, the annual impairment test is the only mechanism that adjusts carrying values downward — making the assumptions behind that test critically important for investors.
Key signals: a history of goodwill impairments suggests management consistently overpays for acquisitions. Watch the gap between reporting unit fair value and carrying amount — when fair value exceeds carrying amount by less than 10-20%, a small decline in business performance could trigger a write-down. For finite-lived intangibles, examine useful life assumptions across customer relationships, technology, and trade names; aggressive estimates inflate near-term earnings. Compare total intangibles-to-total-assets ratios against peers to assess acquisition dependency. Rising goodwill as a percentage of equity can signal balance sheet fragility.