OptimizeRx Corp Goodwill & Intangibles Disclosure

NOTE 7 – GOODWILL AND INTANGIBLE ASSETS

 

Goodwill

 

Our goodwill is related to the acquisitions of Medicx Health in 2023, EvinceMed in 2022, RMDY Health, Inc. in 2019 and CareSpeak Communications in 2018. Goodwill is not amortizable for financial statement purposes.

 

Goodwill is tested for impairment at a reporting segment level at least annually, as of December 31, or on an interim basis if an event occurs or circumstances change (a “Triggering Event”).

 

During the third quarter of 2024, the Company experienced a Triggering Event due to a sustained decline in its stock price and overall market capitalization. Accordingly, the Company conducted a quantitative impairment test of its goodwill at September 30, 2024. The Company estimated the implied fair value of its goodwill using a combination of a market approach and income approach. It was determined that the fair value of the Company’s single reporting unit was less than its carrying value. A noncash charge of $7,489, representing the amount by which the Company’s book value exceeds its estimated fair value, was recorded as a goodwill impairment in the year ended December 31, 2024.

The Company performed the annual goodwill impairment test as of December 31, 2024. The Company performed its annual goodwill impairment test on a quantitative basis for its single reporting unit. In estimating the reporting unit’s fair value, the Company performed a valuation analysis, utilizing a discounted cash flow income approach and a guideline public company market approach. We assigned a probability weighting to each approach of 50%. The determination of the fair value of the reporting unit requires the Company to make significant estimates and assumptions about the reporting unit’s expected future cash flows. These estimates and assumptions primarily include, but are not limited to, the discount rate, revenue growth rates, operating margins and multiples of earnings. These estimates and assumptions were determined in connection with support from a third-party valuation specialist. The discount rate used is based on the estimated weighted-average cost of capital for companies with profiles similar to our profile and based on an assessment of the risk inherent in those future cash flows. To forecast the reporting unit’s cash flows, the Company takes into consideration economic conditions and trends, historical results and recent performance, estimated future operating results, management’s and a market participant’s view of growth rates, management’s ability to execute on planned future strategic initiatives and anticipates future economic conditions. Macroeconomic factors such as changes in economies, changes in the competitive landscape, changes in government legislation, industry consolidations and other changes beyond the Company’s control could have a positive or negative impact on achieving its targets. Due to the inherent uncertainty involved in making these estimates, actual results could differ from those estimates. In addition, changes in underlying assumptions, especially as they relate to the key assumptions detailed, could have a significant impact on the fair value of the reporting unit. The market approach compares the valuation multiples of similar companies to that of the associated reporting unit. The Company then reconciles the calculated fair values to its market capitalization. After completing testing, it was determined that the fair value of the Company’s single reporting unit was exactly equal to its carrying value and no further impairment to goodwill was recorded for the year ended December 31, 2024. Any amount of negative change to the above disclosed key assumptions could result in future impairment to goodwill.

 

The fair value of any reporting units, used in the annual assessments in 2024 and 2023, is classified as Level 3 measurements within the fair value hierarchy due to significant unobservable inputs, such as discount rates, projections of revenue, cost of revenue and operating expense growth rates, long-term growth rates and income tax rates.

 

Changes in the carrying amount of goodwill on the consolidated balance sheet consist of the following:

 

Balance January 1, 2023		$	22,674
Acquisitions			56,993
Disposal of business			(1,310	)
Impairments			—
Balance January 1, 2024		$	78,357
Acquisitions			—
Impairments			(7,488	)
Balance December 31, 2024		$	70,869

 

During the year ended December 31, 2023, we entered into various agreements, including a Product License Agreement and Platform Assets Purchase Agreement, with Mercalis, Inc.(“Mercalis”), collectively the “Transaction”. Under the terms of the Transaction, Mercalis agreed to purchase certain customer contract assets and liabilities related to the Company’s Access and Patient Engagement technologies. In addition, Mercalis was granted a perpetual license to the Access products and a non-exclusive two-year term license to the Patient Engagement products. Total consideration due for the Transaction was $3,740 including $2,540 related to the Access products.

The Access products portion of the Transaction was deemed to be the disposal of a business for accounting purposes and accordingly the Company recorded a loss on disposal of $2,142 including the allocation of a portion of the Company’s goodwill balance of $1,310 and the net book value of the underlying technology assets of $3,328.

 

Intangible Assets

 

Intangible assets included on the consolidated balance sheets consist of the following:

 

		December 31, 2024
		Gross Carrying Amount				Accumulated Amortization				Net				Weighted Average Life Remaining
Patent rights		$	7,164			$	1,647			$	5,517				7.7
Technology assets			9,711				1,531				8,180				7.5
Other intangible assets
Tradename			134				12				122				9.7
Non-compete agreements			1,093				1,093				—				—
Customer relationships			34,923				3,226				31,697				13.6
Total other			36,150				4,331				31,819
Total intangible assets		$	53,025			$	7,509			$	45,516

 

		December 31, 2023
		Gross Carrying Amount				Accumulated Amortization				Net				Weighted Average Life Remaining
Patent rights		$	7,164			$	979			$	6,185				8.8
Technology assets			12,388				3,375				9,013				6.6
Other intangible assets
Tradename			134				—				134				10.7
Non-compete agreements			1,093				1,093				—				—
Customer relationships			34,923				859				34,064				14.6
Total other			36,150				1,952				34,198
Total intangible assets		$	55,702			$	6,306			$	49,396

During the year ended December 31, 2023, we recorded asset impairment charges of $6,738 relating to Technology assets patent rights and tradenames that were not considered to be core solutions on a go forward basis, resulting in lower projected revenues for these solutions, as well as the outcome of the disposal of the Access products discussed above.

 

Intangibles are being amortized on a straight-line basis over the following estimated useful lives.

 

Patents		15 – 17 years
Tradenames		15 years
Non-compete agreements		2 – 4 years
Customer relationships		8 years
Technology assets		3 – 10 years

 

The Company recorded amortization expense of $4,218 and $2,302 in the years ended December 31, 2024 and 2023, respectively. Expected future amortization expense of the intangibles assets as of December 31, 2024 is as follows:

 

Year ended December 31,
2025		$	4,258
2026			4,203
2027			3,906
2028			3,787
2029			3,787
Thereafter			25,575
Total		$	45,516