Quarterly report pursuant to Section 13 or 15(d)

Acquisitions, Goodwill and Other Intangible Assets

v3.20.2
Acquisitions, Goodwill and Other Intangible Assets
9 Months Ended
Sep. 30, 2020
Business Combinations [Abstract]  
Acquisitions, Goodwill and Other Intangible Assets
 
6.
Acquisitions, Goodwill and Other Intangible Assets
During the nine months ended September 30, 2020, the Company expanded its network of its real estate sales and financing professionals and provided further diversification to its real estate brokerage and financing ser
v
ices
.
 
The Company completed an acquisition of two businesses that were accounted for as business combinations and the results have been included in the condensed consolidated financial statements beginning on the acquisition dates. Aggregate terms of these acquisitions included: (i) cash paid at closing of approximately $11.8 million, net of cash received, (ii) the fair value of contingent consideration of $1.8 million with payments conditioned upon achieving certain financial metrics, and (iii) the fair value of deferred consideration of $3.9 million with the only remaining condition on such payments being the passage of time. Contingent consideration and deferred consideration are included in accounts payable and other liabilities and other liabilities captions in the condensed consolidated balance sheets. See Note 10 – “Fair Value Measurements” for additional information on contingent and deferred consideration.
Based on preliminary purchase price allocations, $8.3 million was allocated to the fair values of intangible assets with the remainder of $9.2 million allocated to goodwill. The Company recorded acquisition related costs of $480,000 and $199,000 for the three months ended September 30, 2020 and 2019, respectively, and $1.5 million and $339,000 for the nine months ended September 30, 2020 and 2019, respectively. These amounts are included in selling, general and administrative expense in the accompanying condensed consolidated statements of net and comprehensive income.
The goodwill recorded as part of the acquisitions primarily arises from the acquired assembled workforce and brokerage and financing sales platforms. The Company expects all of the goodwill to be tax deductible, with the
tax-deductible
amount of goodwill related to the contingent and deferred consideration to be determined once the cash payments are made to settle any contingent and deferred consideration. The goodwill resulting from acquisitions is allocated to the Company’s one reporting unit.
Goodwill and intangible assets, net consisted of the following (in thousands):
 
     September 30, 2020      December 31, 2019  
     Gross
Carrying
Amount
     Accumulated
Amortization
    Net Book
Value
     Gross
Carrying
Amount
     Accumulated
Amortization
    Net Book
Value
 
Goodwill and intangible assets:
               
Goodwill
   $ 24,319      $ —       $ 24,319      $ 15,072      $ —       $ 15,072  
Intangible assets
(1)
     17,291        (4,727     12,564        9,050        (1,810     7,240  
  
 
 
    
 
 
   
 
 
    
 
 
    
 
 
   
 
 
 
   $ 41,610      $  (4,727   $ 36,883      $ 24,122      $  (1,810   $ 22,312  
  
 
 
    
 
 
   
 
 
    
 
 
    
 
 
   
 
 
 
 
(1)
Total weighted average amortization period was 5.18 years and 4.37 years as of September 30, 2020 and December 31, 2019, respectively.
The changes in the carrying amount of goodwill consisted of the following (in thousands):
 
     Nine Months Ended
September 30,
 
     2020      2019  
Beginning balance
   $ 15,072      $ 11,459  
Additions from acquisitions
     9,247        —    
Impairment losses
     —          —    
  
 
 
    
 
 
 
Ending balance
   $ 24,319      $ 11,459  
  
 
 
    
 
 
 
Estimated amortization expense for intangible assets by year for the next five years and thereafter consisted of the following (in thousands):
 
     September 30,
 
2020
 
Remainder of 2020
   $ 934  
2021
     2,857  
2022
     2,531  
2023
     2,476  
2024
     1,963  
Thereafter
     1,803  
  
 
 
 
   $  12,564  
  
 
 
 
 
The Company evaluates goodwill for impairment annually in the fourth quarter. In addition to the annual impairment evaluation, the Company evaluates at least quarterly whether events or circumstances have occurred in the period subsequent to the annual impairment testing which indicate that it is more likely than not an impairment loss has occurred. The Company evaluates its intangible assets that have finite useful lives whenever an event or change in circumstances indicates that the carrying value of the asset may not be recoverable.
As of September 30, 2020, the Company considered the impact of
COVID-19
pandemic and evaluated its goodwill and intangible assets for impairment testing. The Company considered qualitative and quantitative factors, including the impact from the
COVID-19
induced economic slowdown and current projected recovery timeframes. The Company estimated the recoverability of the intangible assets by comparing the carrying amount of each asset to the future undiscounted cash flows that the Company expects the asset to generate. The sum of the undiscounted expected future cash flows was greater than the carrying amount of the intangible assets. The Company concluded that as of September 30, 2020, there was no impairment of its goodwill and intangible assets.