Goodwill and Other Identifiable Intangible Assets, Net

6 Months Ended

Mar. 31, 2020

Goodwill and Intangible Assets Disclosure [Abstract]

GOODWILL AND OTHER IDENTIFIABLE INTANGIBLE ASSETS, NET

GOODWILL AND OTHER INTANGIBLE ASSETS, NET

Amortizable intangible assets were (in thousands):



	March 31, 2020							September 30, 2019
	Gross carrying amount		Accum. amort.			Net		Gross carrying amount		Accum. amort.			Net
Purchased and core technology	$	75,662	$	(52,802	)	$	22,860	$	57,699	$	(50,986	)	$	6,713
License agreements	102		(88		)	14		102		(74		)	28
Patents and trademarks	22,662		(12,667		)	9,995		14,577		(11,970		)	2,607
Customer relationships	125,255		(29,084		)	96,171		46,315		(25,266		)	21,049
Non-compete agreements	600		(390		)	210		600		(330		)	270
Order backlog	1,800		(1,800		)	—		1,800		(1,800		)	—
Total	$	226,081	$	(96,831	)	$	129,250	$	121,093	$	(90,426	)	$	30,667

Amortization expense was $4.1 million and $2.1 million for the three months ended March 31, 2020 and 2019, respectively, and $6.6 million and $4.6 million for the six months ended March 31, 2020 and 2019, respectively. Amortization expense is recorded on our condensed consolidated statements of operations within cost of sales and in general and administrative expense.

6. GOODWILL AND OTHER INTANGIBLE ASSETS, NET (CONTINUED)

Estimated amortization expense related to intangible assets for the remainder of fiscal 2020 and the five succeeding fiscal years is (in thousands):



2020 (six months)	$	8,145
2021	$	15,520
2022	$	14,676
2023	$	12,488
2024	$	11,785
2025	$	8,328

The changes in the carrying amount of goodwill by reportable segments are (in thousands):



	Six months ended March 31,
	IoT Products and Services			IoT Solutions			Total
Balance on September 30, 2019	$	103,519		$	49,903		$	153,422
Acquisitions	54,686			—			54,686
Foreign currency translation adjustment	(27		)	(731		)	(758		)
Balance at March 31, 2020	$	158,178		$	49,172		$	207,350

Goodwill represents the excess of cost over the fair value of net identifiable assets acquired. Goodwill is tested for impairment on an annual basis as of June 30, or more frequently if events or circumstances occur which could indicate impairment. There were no triggering events identified for the six months ended March 31, 2020. However, depending on the future economic impact of the current public health crisis related to COVID-19, among other factors, could cause a goodwill impairment charge in the future. For our quantitative goodwill impairment tests, we determine the estimated fair value of each reporting unit and compare it to the carrying value of the reporting unit, including goodwill. If the carrying amount of a reporting unit is higher than its estimated fair value, then an impairment loss must be recognized for the excess. Both of our operating segments constitute separate reporting units and both units were tested individually for impairments.

The fair value of each reporting unit is determined using a weighted combination of an income and market approach. A discounted cash flow ("DCF") method is utilized for the income approach. In developing the discounted cash flow analysis, our assumptions about future revenues, expenses, capital expenditures, and changes in working capital are based on management's projections, and assume a terminal growth rate thereafter. A separate discount rate is determined for each reporting unit and these cash flows are then discounted to determine the fair value of the reporting unit. The market approach determines a value derived from the guideline company method. This market approach method estimates the price reasonably expected to be realized from the sale of the reporting unit based on comparable companies.

Assumptions and estimates to determine fair values under the income and market approaches are complex and often subjective. They can be affected by a variety of factors, including external factors such as industry and economic trends, and internal factors such as changes in our business strategy and our internal forecasts. If our future operating results do not meet current forecasts or if we experience a sustained decline in our market capitalization that is determined to be indicative of a reduction in fair value of one or more of our reporting units, we may be required to record future impairment charges for goodwill.

Results of our Fiscal 2019 Annual Impairment Test

As of June 30, 2019, we had a total of $104.0 million of goodwill for the IoT Products & Services reporting unit and $50.0 million of goodwill for the IoT Solutions reporting unit. At June 30, 2019, fair value exceeded the carrying value by more than 10% for both reporting units. Implied fair values for both reporting units were each calculated on a standalone basis using a weighted combination of the income approach and market approach. The implied fair values of each reporting unit were added together to get an indicated value of total equity to which a range of indicated value of total equity was derived. This range was compared to the total market capitalization of $356.6 million as of June 30, 2019, which implied a range of control premiums of 13.3% to 20.3%. This range of control premiums fell below the control premiums observed in the last five years in the communications equipment industry. As a result, the market capitalization reconciliation analysis proved support for the reasonableness of the fair values estimated for each individual reporting unit.