Goodwill

12 Months Ended

Jul. 31, 2024

Long-lived Assets, including Goodwill

The following table represents goodwill by reportable operating segment as of July 31, 2024 and July 31, 2023:


	Satellite and Space Communications		Terrestrial and Wireless Networks	Total
Balance as of July 31, 2023	$	173,602,000	174,090,000	$	347,692,000
PST Divestiture	(14,587,000)		—	(14,587,000)
Goodwill impairment	(48,925,000)		—	(48,925,000)
Balance as of July 31, 2024	$	110,090,000	174,090,000	$	284,180,000

During the first quarter of fiscal 2024, we determined that the PST Disposal Group met the criteria to be classified as held for sale. Because the PST Disposal Group represented the disposal of a portion of the Satellite and Space Communications reporting unit, we assigned $14,587,000 of goodwill to the PST Disposal Group on a relative fair value basis. For purposes of allocating goodwill to the PST Disposal Group, we determined the fair value of the PST Disposal Group (based on consideration received from the sale transaction) and the fair value of the retained businesses of the Satellite and Space Communications reporting unit (based on a combination of the income and market approach). In conjunction with the relative fair value allocation, we tested goodwill assigned to the PST Disposal Group and retained businesses of the Satellite and Space Communications reporting unit for impairment and concluded that no impairment existed at the time the held for sale criteria were met. As discussed further in Note (3) - "Business Divestiture," we completed the PST Divestiture in the second quarter of fiscal 2024 and reduced goodwill by $14,587,000 as part of determining the loss on business divestiture.

In accordance with FASB ASC 350, we perform a goodwill impairment analysis at least annually (in the first quarter of each fiscal year), unless indicators of impairment exist in interim periods. If we fail the quantitative assessment of goodwill impairment ("quantitative assessment"), we would be required to recognize an impairment loss equal to the amount that a reporting unit's carrying value exceeded its fair value; however, any loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.

During the fourth quarter of fiscal year 2024, our lower than expected financial performance, default on certain credit facility covenants and the sustained decrease in stock price since August 1, 2023 were considered triggering events which required a quantitative impairment test as of July 31, 2024. We performed a quantitative assessment using market participant assumptions to determine if the fair value of each of our reporting units with goodwill exceeded its carrying value. In making this assessment, we considered, among other things, expectations of projected net sales and cash flows, assumptions impacting the weighted average cost of capital, trends in trading multiples of comparable companies, changes in our stock price and changes in the carrying values of our reporting units with goodwill. We also considered overall business conditions.

In performing the quantitative assessment, we estimated the fair value of each of our reporting units using a combination of the income and market approaches. The income approach, also known as the discounted cash flow ("DCF") method, utilizes the present value of cash flows to estimate fair value. The future cash flows for our reporting units were projected based on our estimates, at that time, of future revenues, operating income and other factors (such as working capital and capital expenditures). For purposes of conducting our impairment analysis, we assumed revenue growth rates and cash flow projections that are below our actual long-term expectations. The discount rates used in our DCF method were based on a weighted-average cost of capital ("WACC") determined from relevant market comparisons, adjusted upward for specific reporting unit risks (primarily the uncertainty of achieving projected operating cash flows). A terminal value growth rate was applied to the final year of the projected period, which reflects our estimate of stable, perpetual growth. We then calculated a present value of the respective cash flows for each reporting unit to arrive at an estimate of fair value under the income approach. Under the market approach, we estimated a fair value based on comparable companies' market multiples of revenues and earnings before interest, taxes, depreciation and amortization and factored in a control premium. Finally, we compared our estimates of fair values to our total public market capitalization and assessed implied control premiums based on our common stock price of $3.17 as of the date of testing.

Ultimately, based on our quantitative evaluation, we determined that the carrying value of our Satellite and Space Communications reporting unit exceeded its fair value and recognized a goodwill impairment loss of $48,925,000 in fiscal 2024 in our Consolidated Statements of Operations. We also determined that our Terrestrial and Wireless Networks reporting unit had an estimated fair value in excess of its carrying value of at least 24.7% and concluded that our goodwill for this reporting unit was not impaired.

In connection with our decision in July 2024 to exit our subsidiary operations in Basingstoke, United Kingdom, such operations became a separate asset group (the “U.K. Asset Group”) and we assessed the recoverability of the carrying value of the U.K. Asset Group under the accounting standards for assets held and used as of July 31, 2024. The undiscounted future cash flows to complete the exit of our Basingstoke operations indicated that the carrying amount of the asset group is not recoverable. The fair value of the U.K. Asset Group was estimated using an income approach and was lower than the U.K Asset Group’s carrying amount. As a result, we recorded a long-lived asset impairment charge of $15,600,000 within the Satellite and Space Communications segment in our fiscal 2024 Consolidated Statements of Operations. We allocated $9,925,000 of this impairment to the carrying value of Intangibles with Finite Lives, net, $2,651,000 to Property, Plant & Equipment, net, $1,873,000 to Other Assets, net and $1,151,000 to Operating Lease Right-of-Use Assets, net.

In addition, as disclosed in Note (1) Summary of Significant Accounting and Reporting Policies, Liquidity and Going Concern, the Credit Facility was amended on October 17, 2024 to waive certain defaults or events of default, including in connection with our Net Leverage Ratio and a Fixed Charge Coverage Ratio covenants as of July 31, 2024. Although we have cured our defaults under the Credit Facility, a sustained significant decline in our actual operating performance, as compared to our forecast, and/or a continued sustained decline in our common stock price, may require us to perform another interim quantitative impairment test, which may result in an impairment of the goodwill assigned to both of our reporting units by an amount that could be material if we conclude our forecasted operating results will be adversely impacted for the foreseeable future.

In any event, we are required to perform the next annual goodwill impairment analysis on August 1, 2025 (the start of our fiscal 2026). If our assumptions and related estimates change in the future, or if we change our reporting unit structure or other events and circumstances change (e.g., a sustained decrease in the price of our common stock (considered on both absolute terms and relative to peers)), we may be required to record impairment charges when we perform these tests, or in other future periods. Any impairment charges that we may record in the future could be material to our results of operations and financial condition.