Goodwill and Intangible Assets

6 Months Ended

Jun. 30, 2024

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill — Goodwill by reportable segment as of June 30, 2024 and changes for the six months then ended are as follows (in thousands):


	Completion Services		Drilling Products		Total
Balance at January 1, 2024	$	922,125	$	457,616	$	1,379,741
Measurement period adjustment	—		(2,293)		(2,293)
Balance at June 30, 2024	$	922,125	$	455,323	$	1,377,448

Goodwill is evaluated at least annually on July 31, or more frequently when events and circumstances occur indicating recorded goodwill may be impaired. Goodwill is tested at the reporting unit level, which is at or one level below our operating segments. We determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value after considering qualitative, market and other factors, and if that is the case, any necessary goodwill impairment is determined using a quantitative impairment test. If the resulting fair value of goodwill is less than the carrying value of goodwill, an impairment loss would be recognized for the amount of the shortfall.

We determined our drilling products operating segment consists of a single reporting unit and, accordingly, goodwill acquired from the Ulterra acquisition was allocated to that reporting unit. We determined our completion services operating segment consists of two reporting units; completion services, which is primarily comprised of our hydraulic fracturing operations and other integrated service offerings, and cementing services.

Goodwill Impairment Assessment

During the second quarter of 2024, we lowered our expectations with respect to near-term future activity levels in certain of our operating segments. This decline was deemed a triggering event that warranted a quantitative assessment for goodwill impairment.

We estimated the fair value of the drilling products and the completion services reporting units using the income approach. Under this approach, we used a discounted cash flow model, which utilizes present values of cash flows to estimate fair value. Forecasted cash flows reflected known market conditions in the second quarter of 2024 and management’s anticipated business outlook for each reporting unit. Future cash flows were projected based on estimates of revenue, gross profit, selling, general and administrative expense, changes in working capital, and capital expenditures. The terminal period used within the discounted cash flow model for each reporting unit consisted of a 1% growth estimate. Future cash flows were then discounted using a market-participant, risk-adjusted weighted average cost of capital of 11% for the drilling products reporting unit and 12% for the completion services reporting unit.

The forecast for the drilling products reporting unit assumes continued growth domestically as well as in international markets. Geopolitical instability in regions in which we expect to maintain and grow market share, a global decrease in the demand of drilling products, or other unforeseen macroeconomic considerations could negatively impact the key assumptions used in our goodwill assessment for our drilling products reporting unit.

The forecast for the completion services reporting unit assumes lower activity in 2024 compared to 2023 exit levels and increases in activity of 7% to 9% beginning in 2025 through 2027, which was based on rig count forecasts in the second quarter and estimated market share. A sustained decrease in oil prices and rig count could negatively affect the key assumptions used in our goodwill assessment for completion services.

We estimated the fair value of the cementing services reporting unit using a market approach. The market approach was based on trading multiples of companies comparable to the cementing services reporting unit.

Based on the results of the goodwill impairment tests, the fair values of the drilling products, completion services, and cementing services reporting units exceeded their carrying values by approximately 10%, 9%, and 77%, respectively. Accordingly, no impairment was recorded for any of the reporting units.

Geopolitical instability, a global decrease in the demand of drilling products, or other unforeseen macroeconomic considerations could negatively impact the key assumptions used in our goodwill assessment for our drilling products reporting unit. A sustained decrease in oil prices and rig count could negatively affect the key assumptions used in our goodwill assessment for completion services. A decrease in fair value resulting from unfavorable changes to these assumptions, or others, could result in goodwill impairment in future periods that could be material to our results of operations and financial statements as a whole.

Intangible Assets — The following table presents the gross carrying amount and accumulated amortization of our intangible assets as of June 30, 2024 and December 31, 2023 (in thousands):


	June 30, 2024						December 31, 2023
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Customer relationships	$	784,874	$	(60,745)	$	724,129	$	786,715	$	(25,563)	$	761,152
Developed technology	202,772		(36,498)		166,274		202,772		(16,435)		186,337
Trade name	101,000		(8,406)		92,594		101,000		(3,406)		97,594
Other	11,020		(1,828)		9,192		7,345		(731)		6,614
Intangible assets, net	$	1,099,666	$	(107,477)	$	992,189	$	1,097,832	$	(46,135)	$	1,051,697

Amortization expense on intangible assets of approximately $30.9 million and $0.4 million was recorded for the three months ended June 30, 2024 and 2023, respectively. Amortization expense on intangible assets of approximately $61.3 million and $0.7 million was recorded for the six months ended June 30, 2024 and 2023, respectively.