Impairment of Fixed, Long-lived and Intangible Assets

12 Months Ended

Dec. 31, 2020

Goodwill and Intangible Assets Disclosure [Abstract]

Impairment of Fixed, Long-lived and Intangible Assets

The Company recorded impairment charges of fixed, long-lived and intangible assets during the year ended December 31, 2020, as follows (in thousands):




Property and equipment, net	$	30,178
Operating lease right-of-use assets	7,434
Other Intangibles:
Patents and technology	14,733
Customer relationships	15,796
Intangible assets in progress	596
Trademarks and brand names	1,238
Total other intangibles	32,363

Total impairment of fixed, long-lived and intangible assets	$	69,975

During the first quarter of 2020, the price of crude oil declined by over 50%, trading below $25 per barrel, causing a significant disruption across the industry, which began to negatively impact the Company’s results of operations. These declines of results of operations were driven by market factors, including an oversupply of oil, insufficient storage and demand destruction resulting from the reaction to COVID-19. Based on these factors, the Company concluded that a triggering event occurred and, accordingly, an interim quantitative impairment test was performed as of March 31, 2020.

Using the income approach, the fair value of the reporting unit was determined based on the present value of future cash flows. The Company utilized internal forecast trends and potential growth rates to estimate future cash flows of the asset group. Based on the results of the quantitative assessment, the Company concluded the carrying value of the asset group exceeded its fair value as of March 31, 2020, and an impairment loss of $57.5 million was recorded as a result of the adverse effect of the COVID-19 pandemic, estimated effect on the economy, and the related negative impact on oil and natural gas prices on projections of future cash flows.

During the second quarter of 2020, the Company purchased JP3 and formed the DA segment. During the third quarter of 2020, revenue declined due to limited access to worksites, inability to install equipment, changes in the Company’s leadership, reduction of capital spending by clients due to COVID-19, inability to present to new customers and difficulty in working on the international marketing of the Verax analyzer. Further, the Company was negatively impacted by reduced demand in the oil and gas sector because of reductions in capital spending across our customer base, lower than anticipated growth in the international market gained from the JP3 acquisition and the delayed start of the Company’s global sales business executive.

Although the site lockdowns and extreme caution to prevent the spread of COVID-19 that began in the first half of 2020 began to ease during the third quarter, the segment saw very little of the expected repeat business and almost none from new customers due to frozen budgets. Secondly, COVID-19 restrictions adversely impacted the Company’s ability to physically gain on-site access to customers’ operations, including laboratory and testing facilities, which is a critical component to JP3’s multi-phased sales approach.

In consideration of these events, management reevaluated forecasted sales activity, expected margins and the long-term expectations of the DA segment for the third quarter of 2020. Based on these factors, the Company concluded a triggering event occurred in the DA segment, and accordingly, an interim quantitative impairment test was performed as of September 30, 2020.

Using the income approach, the fair value of the reporting unit was determined based on the present value of future cash flows. The Company utilized internal forecast trends and potential growth rates to estimate future cash flows of the asset group. Based on the results of the quantitative assessment, the Company concluded the carrying value of the asset group exceeded its fair value as of September 30, 2020. The Company recognized an impairment loss of $12.5 million in the DA reporting unit finite-lived intangible assets, which resulted primarily from lower performance than expected by the reporting unit. The extended

impact of COVID-19 and declines in the oil and gas sector also contributed to the impairment loss. Also see Note 3, “Business Combination.” No impairments of fixed, long-lived and intangible assets occurred during the fourth quarter of 2020.