Quarterly report pursuant to Section 13 or 15(d)

Goodwill and Intangible Assets

v3.20.2
Goodwill and Intangible Assets
9 Months Ended
Sep. 30, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and Intangible Assets Goodwill and Intangible Assets
Goodwill

Goodwill arises from the acquisition method of accounting for business combinations and represents the excess of the purchase price over the fair value of the net assets and other identifiable intangible assets acquired. The fair values of net tangible assets and intangible assets acquired are based upon preliminary valuations and the Company’s estimates and assumptions are subject to change within the measurement period (potentially up to one year from the acquisition date).

The following table presents the changes in the carrying amount of goodwill for the periods indicated:   
Nine Months Ended September 30,
2020 2019
(in thousands)
Beginning balance $ 238,330  $ 238,330 
Acquisitions (Note 3) 64,246  — 
Ending balance $ 302,576  $ 238,330 

The Company performs an annual goodwill impairment assessment on October 31st each year, which effective in 2020, compares the fair value of each reporting unit, which the Company has determined to be the entity itself, with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds the carrying amount, the goodwill of the reporting unit is considered not impaired.

In addition to its annual review, the Company performs a test of impairment when indicators of impairment are present. During the three and nine months ended September 30, 2020 and 2019, no goodwill impairment was recognized.

Acquired Intangibles
Finite-lived Intangible Assets
The following table sets forth the Company’s finite-lived intangible assets resulting from business acquisitions and other purchases:
September 30, 2020 December 31, 2019
Weighted
Average
Useful Life
(in Years)
Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Value Accumulated Amortization Net Carrying Amount
(in thousands)
Licensed technology 3.7 $ 2,458  $ (1,890) $ 568  $ 2,156  $ (1,583) $ 573 
Developed technology 6.9 310,961  (135,585) 175,376  243,361  (108,522) 134,839 
Trademarks and trade names 6.7 15,000  (8,220) 6,780  13,800  (6,511) 7,289 
Customer relationships 4.6 130,900  (90,882) 40,018  121,100  (75,847) 45,253 
Non-compete covenants 3.0 1,100  (1,100) —  1,100  (1,083) 17 
Backlog 3.8 2,500  (294) 2,206  —  —  — 
6.2 $ 462,919  $ (237,971) $ 224,948  $ 381,517  $ (193,546) $ 187,971 
The following table sets forth amortization expense associated with finite-lived intangible assets, which is included in the consolidated statements of operations as follows:
Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
(in thousands) (in thousands)
Cost of net revenue $ 9,910  $ 8,487  $ 27,093  $ 25,410 
Research and development 47 
Selling, general and administrative 6,056  5,723  17,328  17,312 
$ 15,968  $ 14,211  $ 44,425  $ 42,769 

Amortization of finite-lived intangible assets in cost of net revenue in the consolidated statements of operations results primarily from acquired developed technology.

The following table sets forth the activity related to finite-lived intangible assets:
Nine Months Ended September 30,
2020 2019
(in thousands)
Beginning balance $ 187,971  $ 240,500 
Acquisitions (Note 3) 81,100  — 
Additions 388  86 
Transfers to developed technology from IPR&D —  1,500 
Amortization (44,425) (42,769)
Impairment losses (86) — 
Ending balance $ 224,948  $ 199,317 

The Company regularly reviews the carrying amount of its long-lived assets subject to depreciation and amortization, as well as the related useful lives, to determine whether indicators of impairment may exist that warrant adjustments to carrying values or estimated useful lives. An impairment loss is recognized when the sum of the expected future undiscounted net cash flows is less than the carrying amount of the asset. Should impairment exist, the impairment loss is measured based on the excess of the carrying amount of the asset over the asset’s fair value. During the three and nine months ended September 30, 2020, the Company recognized impairment losses related to finite-lived intangible assets of $0 and $0.1 million, respectively. During the three and nine months ended September 30, 2019, no impairment losses related to finite-lived intangible assets were recognized.

The following table presents future amortization of the Company’s finite-lived intangible assets at September 30, 2020:
Amount
(in thousands)
2020 (3 months) $ 17,596 
2021 68,918 
2022 50,322 
2023 37,879 
2024 21,900 
Thereafter 28,333 
Total $ 224,948 
Indefinite-lived Intangible Assets
Indefinite-lived intangible assets consisted entirely of acquired in-process research and development technology, or IPR&D. The following table sets forth the Company’s activities related to the indefinite-lived intangible assets:
Nine Months Ended September 30,
2020 2019
(in thousands)
Beginning balance $ —  $ 4,400 
Acquisitions (Note 3) 7,200  — 
Transfers to developed technology from IPR&D —  (1,500)
Ending balance $ 7,200  $ 2,900 
The Company performs its annual assessment of indefinite-lived intangible assets on October 31 each year or more frequently if events or changes in circumstances indicate that the asset might be impaired utilizing a qualitative test as a precursor to the quantitative test comparing the fair value of the assets with their carrying amount. Based on the qualitative test, if it is more likely than not that indicators of impairment exists, the Company proceeds to perform a quantitative analysis. During the three and nine months ended September 30, 2020 and 2019, no indicators of impairment were identified and, as a result, no IPR&D impairment losses were recorded.