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Goodwill and Intangible Assets

12 Months Ended

Jun. 30, 2020

Goodwill and Intangible Assets Disclosure [Abstract]

12. Goodwill and Intangible Assets

The table below summarizes goodwill balances by reporting unit (in thousands):


	June 30,
Reporting Unit	2020		2019
Chamberlain	$	4,716	$	4,716
AUC		68,321		68,321
RUSM and RUSVM		237,173		237,173
Financial Services		376,004		377,046
Total	$	686,214	$	687,256

The table below summarizes goodwill balances by reportable segment (in thousands):


	June 30,
Reportable Segment	2020		2019
Medical and Healthcare	$	310,210	$	310,210
Financial Services		376,004		377,046
Total	$	686,214	$	687,256

The table below summarizes the changes in the carrying amount of goodwill by reportable segment (in thousands):


	Medical and		Financial
	Healthcare		Services		Total
June 30, 2018	$	310,210	$	317,699	$	627,909
Acquisitions		—		59,519		59,519
Foreign exchange rate changes		—		(172)		(172)
June 30, 2019		310,210		377,046		687,256
Purchase accounting adjustments		—		(92)		(92)
Foreign exchange rate changes		—		(950)		(950)
June 30, 2020	$	310,210	$	376,004	$	686,214

The decrease in the goodwill balance from June 30, 2019 in the Financial Services segment is primarily the result of a change in the value of the Indian Rupee compared to the U.S. dollar. Since EduPristine’s goodwill is recorded in local currency, fluctuations in the values of the Indian Rupee in relation to the U.S. dollar will cause changes in the balance of this asset.

Intangible assets consist of the following (in thousands):


	June 30, 2020
	Gross				Weighted-Average
	Carrying		Accumulated		Amortization
	Amount		Amortization		Period
Amortizable intangible assets:
Customer relationships	$	68,900	$	(21,044)	10 Years
Curriculum/software		11,600		(2,094)	6 Years
Course delivery technology		7,200		(1,952)	5 Years
Total	$	87,700	$	(25,090)
Indefinite-lived intangible assets:
Trade names	$	95,664
Chamberlain Title IV eligibility and accreditations		1,200
AUC Title IV eligibility and accreditations		100,000
Ross Title IV eligibility and accreditations		14,100
Intellectual property		13,940
Total	$	224,904


	June 30, 2019
	Gross
	Carrying		Accumulated
	Amount		Amortization
Amortizable intangible assets:
Customer relationships	$	69,300	$	(14,448)
Curriculum/software		16,600		(5,193)
Course delivery technology		7,200		(487)
Total	$	93,100	$	(20,128)
Indefinite-lived intangible assets:
Trade names	$	95,777
Chamberlain Title IV eligibility and accreditations		1,200
AUC Title IV eligibility and accreditations		100,000
Ross Title IV eligibility and accreditations		14,100
Intellectual property		13,940
Total	$	225,017

The table below summarizes the indefinite-lived intangible asset balances by reportable segment (in thousands):


	June 30,
Reportable Segment	2020		2019
Medical and Healthcare	$	137,500	$	137,500
Financial Services		87,404		87,517
Total	$	224,904	$	225,017

Amortization expense for amortized intangible assets was $10.3 million, $6.9 million, and $6.5 million for the years ended June 30, 2020, 2019, and 2018, respectively. Estimated amortization expense for amortizable intangible assets for the next five fiscal years ending June 30 and in the aggregate, by reporting unit, is as follows (in thousands):


	Financial
Fiscal Year	Services
2021	$	10,073
2022		9,943
2023		9,792
2024		9,509
2025		7,933
Thereafter		15,360
Total	$	62,610

All amortizable intangible assets except ACAMS customer relationships are amortized on a straight-line basis. The amount amortized for ACAMS customer relationships is based on the estimated retention of the customers, giving consideration to the revenue and cash flow associated with these existing customers.

Indefinite-lived intangible assets related to trade names, Title IV eligibility and accreditations, and intellectual property are not amortized, as there are no legal, regulatory, contractual, economic, or other factors that limit the useful life of these intangible assets to the reporting entity.

Goodwill and indefinite-lived intangibles are not amortized, but are tested for impairment annually and when an event occurs or circumstances change such that it is more likely than not that an impairment may exist. Our annual testing date is May 31.

Adtalem has four reporting units that contained goodwill as of May 31, 2020. These reporting units constitute components for which discrete financial information is available and regularly reviewed by segment management and the

Board. If the carrying amount of a reporting unit containing the goodwill exceeds the fair value of that reporting unit, an impairment loss is recognized to the extent the fair value of the reporting unit goodwill is less than the carrying amount of the goodwill, up to the amount of goodwill recorded. In analyzing the results of operations and business conditions of all four reporting units (Step 0), it was determined that a Step 1 impairment analysis was not necessary for any reporting unit to determine if the carrying values of the reporting unit exceeded their fair values as of the May 31, 2020 annual impairment review date because it was determined to be more likely than not that fair value exceeded carrying value. If a Step 1 impairment analysis is needed, the estimate of the fair value is based on management’s projection of revenue, gross margin, operating costs, and cash flows considering planned business and operational strategies over a long-term planning horizon of five years along with a terminal value calculated based on discounted cash flows. These measures of business performance are similar to those management uses to evaluate the results of operations on a regular basis. The growth rates used to project cash flows, operating results, and terminal values are based upon an analysis of the economic environment in which the reporting unit operates. The valuation employs present value techniques to estimate fair value and considers market factors. Management believes the assumptions used for the impairment testing are consistent with those that would be utilized by a market participant in performing similar valuations. The discount rate utilized takes into account management’s assumptions on growth rates and risk, both organization specific and macro-economic, inherent in that reporting unit. Management bases its fair value estimates on assumptions it believes to be reasonable at the time, but such assumptions are subject to inherent uncertainty. Actual results may differ from these estimates which could lead to impairments of goodwill.

Adtalem has four reporting units that contained indefinite-lived intangible assets as of May 31, 2020. For indefinite-lived intangible assets, management first analyzes qualitative factors, including results of operations and business conditions of the four reporting units that contained indefinite-lived intangible assets, significant changes in cash flows at the individual indefinite-lived intangible asset level, if applicable, as well as how much previously calculated fair values exceed carrying values to determine if it is more likely than not that the intangible assets associated with these reporting units have been impaired. In qualitatively assessing the indefinite-lived intangible assets of the four reporting units, it was determined that it was more likely than not that these assets’ fair values exceeded their carrying values as of the May 31, 2020 annual impairment review date, except for in the case of the ACAMS Trade Name.

Based on recent revenue trends, management had reason to believe the carrying value of the ACAMS Trade Name may have exceeded its fair value. Accordingly, management performed a quantitative impairment review. In calculating fair value, Adtalem used a royalty rate model. The royalty rate method is based on management’s projection of revenue considering planned business and operational strategies over a long-term planning horizon of five years. The assumed royalty rate of 5% is based upon historical results and analysis of the economic environment in which ACAMS operates. Adtalem employs the Profit Split Analysis Method in determining the royalty rates used for valuing trade names. In this method, royalty rates are assessed based on an analysis of profit levels. Specifically, an implied royalty rate is calculated based on current and projected profitability levels to assess the affordability of the trade name, or a feasible royalty that a hypothetical market participant would pay to license the trade name. The valuation employed present value techniques utilizing a discount rate of 10.2% to measure the fair value of the revenue over the five-year planning horizon plus a terminal value assuming a reasonable long-term revenue growth rate that considered market factors. Management believes the assumptions used for the impairment testing are consistent with those that would be utilized by a market participant in performing similar valuations of its indefinite-lived intangible assets. The results of this quantitative analysis showed the fair value of the ACAMS Trade Name did exceed its carrying value by a significant margin; thus, there was no indication that this asset was impaired.

Determining the fair value of a reporting unit or an intangible asset involves the use of significant estimates and assumptions. Management bases its fair value estimates on assumptions it believes to be reasonable at the time, but such assumptions are subject to inherent uncertainty. Actual results may differ from those estimates, which could lead to future impairments of goodwill or intangible assets.