RYTHM, Inc. Goodwill & Intangibles Disclosure
Note 7 — Goodwill and Intangible Assets, Net
Intangible assets are initially recorded at fair value and tested periodically for impairment. Goodwill represents the excess of the purchase price over the fair value of identifiable tangible and intangible assets acquired and liabilities assumed in a business combination and is tested at least annually for impairment. The Company performs its goodwill impairment testing annually during the fourth quarter, or sooner if indicators or circumstances were to occur that would more likely than not reduce the fair value of the Company’s reporting unit below its carrying amount. The Company would recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill.
The Company has concluded that there was an impairment-triggering event during the quarter ended June 30, 2022 that required the Company to perform a detailed analysis of the current carrying value of its goodwill and intangible assets. For goodwill and intangible asset impairment testing purposes, the Company has one reporting unit.
During the quarter ended June 30, 2022, the Company’s market capitalization fell below total net assets. In addition, financial performance continued to weaken during the quarter, which was contrary to prior experience. Management reassessed business performance expectations following persistent adverse developments in equity markets, deterioration in the environment in which the Company operates, lower-than-expected sales, and an increase in operating expenses. These indicators, in the aggregate, required impairment testing for goodwill and intangible assets.
Based on the results of this testing, the Company determined that the carrying values of the aggregate value of its goodwill and intangible assets were not recoverable. The Company recorded impairment charges during the second quarter of 2022, representing a full impairment of the carrying value of its goodwill and intangible assets. The Company recorded an impairment charge of approximately $69.9 million, representing the carrying values of goodwill and intangible assets, which totaled $54.7 million and $15.2 million, respectively.
Changes in goodwill consisted of the following:
| (In thousands) | 2022 | |||
| Goodwill - beginning of period | $ | 50,090 | ||
| Goodwill acquired during period | 4,368 | |||
| Goodwill purchase accounting adjustment | 289 | |||
| Goodwill impairment loss | (54,747 | ) | ||
| Goodwill - end of period | $ | |||
Intangible assets, net as of December 31, 2022 were as follows:
| Intangible Assets, Gross | Accumulated Amortization and Impairment | Intangible Assets, Net | ||||||||||||||||||||||||||||||
| (In thousands) | January 1, 2022 | Additions and Retirements, net | December 31, 2022 | January 1, 2022 | Expense and Retirements, net | December 31, 2022 | January 1, 2022 | December 31, 2022 | ||||||||||||||||||||||||
| Trade names | $ | 2,418 | $ | 317 | $ | 2,735 | $ | (227 | ) | $ | (2,508 | ) | $ | (2,735 | ) | $ | 2,191 | $ | ||||||||||||||
| Customer relationships | 6,176 | 713 | 6,889 | (302 | ) | (6,587 | ) | (6,889 | ) | 5,874 | ||||||||||||||||||||||
| Acquired developed technology | 4,911 | 1,432 | 6,343 | (191 | ) | (6,152 | ) | (6,343 | ) | 4,720 | ||||||||||||||||||||||
| Non-compete | 1,202 | 1,202 | (60 | ) | (1,142 | ) | (1,202 | ) | 1,142 | |||||||||||||||||||||||
| Capitalized website costs | 245 | 245 | (100 | ) | (145 | ) | (245 | ) | 145 | |||||||||||||||||||||||
| Total | $ | 14,952 | $ | 2,462 | $ | 17,414 | $ | (880 | ) | $ | (16,534 | ) | $ | (17,414 | ) | $ | 14,072 | $ | ||||||||||||||
Amortization expense recorded in general and administrative expense in the consolidated statements of operations was zero and $1.4 million for the years ended December 31, 2023, and 2022, respectively.
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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.