GOODWILL, INTERNAL-USE SOFTWARE DEVELOPMENT COSTS, NET, AND INTANGIBLE ASSETS, NET

12 Months Ended

Dec. 31, 2022

Goodwill and Intangible Assets Disclosure [Abstract]

GOODWILL, INTERNAL-USE SOFTWARE DEVELOPMENT COSTS, NET, AND INTANGIBLE ASSETS, NET

Goodwill

The changes to goodwill by reportable segments were as follows:


	Owned and Operated Advertising		Partner Network		Subscription		Total
Goodwill at January 27, 2022	$	—	$	—	$	—	$	—
Additions	355,316		93,400		433,184		881,900
Impairment	(355,316)		(10,993)		—		(366,309)
Goodwill at December 31, 2022	$	—	$	82,407	$	433,184	$	515,591

Additions to Goodwill were from the acquisitions of S1 Holdco, Protected.net, CouponFollow, RoadWarrior and Answers in 2022. See discussion below regarding impairment of goodwill.

There was no Goodwill activity for the year ended December 31, 2021 and the period from January 1, 2021 through January 26, 2022 (Predecessor). Goodwill by reportable segments as of December 31, 2021 was as follows:


	Owned and Operated Advertising		Partner Network		Total
Goodwill at December 31, 2021	$	24,403	$	20,417	$	44,820

Goodwill Impairment

The Company assesses goodwill for impairment annually as of December 31 or more frequently if events or changes in circumstances indicate the asset might be impaired. Prior to the fourth quarter of 2022, the Company had four reporting units, as follows:

i.Publishing and Lead Generation - within Owned and Operated Advertising reportable segment

ii.Search and Applications - within Owned and Operated Advertising reportable segment

iii.Partner Network – reportable segment and reporting unit

iv.Subscription – reportable segment and reporting unit

The Company has experienced adverse macroeconomic impacts as a result of changes in market conditions and increases in interest rates, which contributed to reduced forecasted revenues and reduced expectations for future cash flows. In response to these ongoing macroeconomic conditions and a broad weakening of consumer demand during the third quarter of 2022, the Company reduced its earnings forecasts for the Owned and Operated Advertising & Partner Network reportable segments. Given these adverse impacts, the Company performed an interim quantitative goodwill impairment analysis for all its reporting units as of September 30, 2022.

Based on the Company’s quantitative impairment analysis as of September 30, 2022:

•the fair value of the Subscription reporting unit exceeded its carrying amount by 13%.

•the fair value of the Search and Applications reporting unit exceeded its carrying amount by 2%.

•the fair value of the Publishing and Lead Generation reporting unit was substantially less than its carrying amount. As a result, the Company impaired all the goodwill attributable to this reporting unit of $329,133.

•the fair value of the Partner Network reporting unit was less than its carrying amount, resulting in a $10,976 impairment of goodwill attributable to this reporting unit.

During the quarter ended December 31, 2022, the Company realigned its reporting structure due to changes in management such that the Search and Applications reporting unit became part of the Publishing and Lead Generation reporting unit and the new reporting unit was renamed Owned and Operated Advertising.

Based on the Company’s December 31, 2022 annual impairment analysis:

•the fair value of the Subscription reporting unit exceeded its carrying amount by 18%.

•the fair value of the Owned and Operated Advertising reporting unit was substantially less than its carrying amount. As a result, the Company impaired all the goodwill attributable to this reporting unit of $26,200.

•the fair value of the Partner Network reporting unit exceeded the carrying amount by 9%, as the Partner Network reporting unit experienced improved results during the fourth quarter of 2022.

The fair values of the Company’s reporting units as of September 30, 2022 and December 31, 2022 were computed by weighting a discounted cash flow model and a reference transaction model which included inputs developed using both internal and market-based data. The Company's key assumptions in the discounted cash flow model included, but were not limited to, the weighted average cost of capital, revenue growth rates (including long-term growth rates), and operating margins. The weighted average cost of capital reflected the increases in market interest rates. The Company's reference transaction model derives indications of value based on mergers and acquisition transactions in the digital advertising industry. Key assumptions in this model include, but were not limited to, selection of comparable transactions, revenue and EBITDA multiples and EBITDA margins from those transactions.

Any deviation in actual financial results compared to the forecasted financial results or valuation assumptions, a decline in equity valuations, or increases in interest rates, among other factors, could have a material adverse effect to the fair value of the reporting units and could result in a future impairment charge. There can be no assurance that the Company’s future asset impairment testing will not result in a material charge to earnings.

Internal-use software development costs and intangible assets

Internal-use software development costs and intangible assets consisted of the following:


	December 31, 2022 (Successor)
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Total internal-use software development costs	$	7,206	$	(258)	$	6,948
Intangibles:
Developed technology	$	196,128	$	(45,322)	$	150,806
Trademarks and trade names	287,857		(26,241)		261,616
Software	5,100		(1,066)		4,034
Customer relationships	121,000		(44,770)		76,230
Total intangible costs	$	610,085	$	(117,399)	$	492,686


	December 31, 2021 (Predecessor)
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Total internal-use software development costs	$	21,274	$	(10,061)	$	11,213
Intangibles:
Developed technology	$	8,398	$	(7,242)	$	1,156
Trademarks and trade names	69,007		(21,375)		47,632
Professional service agreement	3,100		(2,359)		741
Customer relationships	1,500		(661)		839
Total intangible costs	$	82,005	$	(31,637)	$	50,368

The internal-use software development costs include capitalized costs not ready for its internal use of $4,955 and $2,540 as of December 31, 2022 and 2021, respectively.

Amortization expense for internal-use software development costs and intangible assets were as follows:


	Successor		Predecessor
	Period from January 27, 2022 through December 31, 2022		Period from January 1, 2022 through January 26, 2022		Year Ended December 31, 2021
Amortization expense for internal-use software development	$	467	$	355	$	4,934
Amortization expense for intangible assets	$	117,399	$	629	$	8,641

No impairment of internal-use software development cost or intangible assets was identified for the periods presented in this report.

As of December 31, 2022, the expected amortization expense associated with the Company’s intangible assets and internal-use software development costs was as follows:


Amortization Expense
2023	$	111,177
2024	102,167
2025	95,217
2026	43,903
2027	29,258
Thereafter	117,912
Total amortization expense	$	499,634

As of December 31, 2022, the weighted average amortization period for all intangible assets was 7 years.