Better Choice Company Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Goodwill and intangible assets

Goodwill and intangible assets

9 Months Ended

Sep. 30, 2022

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill

Goodwill was $18.6 million as of September 30, 2022 and December 31, 2021, respectively. Goodwill is evaluated for impairment if an event occurs or circumstances change that indicate the carrying value of a reporting unit may not be recoverable. During July 2022, the Company completed a legal merger of TruPet, LLC, a wholly owned subsidiary of Better Choice Company Inc. ("TruPet"), and Halo, Purely for Pets, Inc., a wholly owned subsidiary of Better Choice Company Inc. ("Halo"), with Halo as the surviving entity in connection with the execution of rebranding its former TruDog brand under the Halo brand umbrella. In conjunction with the legal merger and rebranding, the Company performed an analysis of its reporting units and concluded it has one reporting unit after the legal merger and rebrand, and as such, the Company performed a quantitative goodwill assessment as of July 1, 2022. Under the quantitative approach, the Company makes various estimates and assumptions to determine the estimated fair value of the reporting unit using a combination of a discounted cash flow model and a guideline comparable analysis. The fair value measurements used in the impairment review of goodwill are Level 3 measurements which include unobservable inputs that are supported by little, infrequent or no market activity and reflect management’s own assumptions. Key assumptions used in the discounted cash flow analysis included a discount rate, forecasted operating results and long-term growth rates; key assumptions used in the guideline comparable analysis include the determination of comparable companies and market multiples. As a result of the Company's quantitative analysis, no impairment charge was recorded as the fair value of the reporting unit exceeded the carrying value.

During the period from July 2, 2022 through September 30, 2022, there was a decline in the Company's stock price and a change in the Company's Chief Executive Officer ("CEO"), and as such, the Company determined there were triggering events present during the interim period. The Company performed a qualitative analysis around its market capitalization and determined the decline in stock price is not indicative of its operating results and that the decline in market value from July 2,2022 to September 30, 2022 was not of sufficient duration to indicate impairment. Additionally, the Company performed other qualitative analyses which considered the potential impacts of the change in CEO and other known information that could cause a change in the assumptions used in the July 1, 2022 assessment. As a result of the Company's qualitative analysis, it was concluded that it was more-likely-than-not that the carrying value of the reporting unit did not exceed the fair value and no impairment charge was recorded. As of September 30, 2022 and December 31, 2021, there was no accumulated impairment loss and no impairment expense related to goodwill. If global macroeconomic or geopolitical conditions worsen, projected revenue growth rates or projected operating margins decline, weighted average cost of capital increases, or if the Company has a further sustained decline in its stock price, it is possible this could result in a material impairment charge.

Intangible assets

The Company’s intangible assets (in thousands) and related useful lives (in years) are as follows:


				September 30, 2022				December 31, 2021
	Estimated useful life	Gross carrying amount		Accumulated amortization		Net carrying amount		Accumulated amortization		Net carrying amount
Customer relationships	7	$	7,190	$	(2,858)	$	4,332	$	(2,088)	$	5,102
Trade name	15	7,500		(1,391)		6,109		(1,016)		6,484
Total intangible assets		$	14,690	$	(4,249)	$	10,441	$	(3,104)	$	11,586

Amortization expense was $0.4 million and $1.2 million for the three and nine months ended September 30, 2022 and 2021, respectively.

The estimated future amortization of intangible assets over the remaining weighted average useful life of 8.9 years is as follows (in thousands):


Remainder of 2022	$	382
2023	1,527
2024	1,527
2025	1,527
2026	1,494
Thereafter	3,984
	$	10,441

The Company assesses intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be fully recoverable. If impairment indicators are present, the Company performs a recoverability test by comparing the sum of the estimated undiscounted future cash flows attributable to these long-lived assets to their carrying value. Based on the potential impairment indicators described above, the Company performed an assessment of its intangible assets at the end of the reporting period and determined that the undiscounted cash flows of the intangible asset group exceeded the carrying value, and as such, there has been no impairment of the intangible assets as of September 30, 2022.