Intangible Assets and Goodwill
|12 Months Ended|
Dec. 31, 2022
|Goodwill and Intangible Assets Disclosure [Abstract]|
|Intangible Assets and Goodwill||
10. Intangible Assets and Goodwill
The changes in the carrying amount of goodwill and intangible assets for the years ended December 31, 2022 and 2021 were as follows:
No goodwill has been acquired through business combinations in December 31, 2022 (2021: $49.6 million - Note 4). Goodwill has an indefinite remaining useful life. The total net book value is considered to be the recoverable amount, as this balance is reviewed annually and impaired as necessary (Note 2).
Impairment Analysis for Reporting Units Containing Goodwill and Other Intangibles
Goodwill and other intangibles are subject to impairment testing on an annual basis or whenever events or circumstances indicate that the carrying amount of goodwill may no longer be recoverable. During the second quarter of fiscal year 2022, the Company identified a triggering events associated with a combination of factors including a decline in its stock price, increases in market rates of interest, and a decline in general economic conditions impacting multiple sectors including the healthcare industry. In the fourth quarter of fiscal year 2022, we identified a separate triggering event as it was determined that the assets under the Higi and IPA reporting units, were more likely than not going to be disposed prior to the end of their previously determined useful lives. The terms Higi reporting unit and IPA reporting unit are considered interchangeable with “Higi Business” or “IPA Business”, respectively, throughout the Company’s consolidated financial statements. This resulted in the performance of both interim and annual impairment tests.
Interim Impairment Test
IPA Reporting Unit
The recoverable amount of the IPA reporting unit that included these intangible assets was estimated based on the present value of the future cash flows expected to be derived from the IPA reporting unit, using a discount rate of 14.5% and a terminal value growth rate of 3.0% from 2027. The recoverable amount of the IPA reporting unit was estimated to be higher than its carrying amount, and as a result there was no impairment related to the IPA reporting unit in 2022.
The below are factors considered when performing the 2022 sensitivity analysis:
Terminal value growth rate: Babylon used a terminal growth value of 3.0% which reflects long-term assumptions of growth. A 2.75% terminal growth rate would have resulted in a reduction to the fair value of the IPA reporting unit of $1.3 million, and a 2.5% terminal growth rate would have resulted in a reduction of $3.2 million.
Discount factor: Babylon used a discount factor of 14.5% based on market participation assumptions of comparable public companies. An increase in the discount rate to 15.0% would have resulted in a reduction to the fair value of the IPA reporting unit of $4.8 million, and a discount rate of 15.5% would have resulted in a reduction of $9.2 million.
No reasonably possible change to the key assumptions would lead to an impairment of goodwill.
Higi Reporting Unit
The recoverable amount of the Higi reporting unit that included these intangible assets was estimated based on the present value of the future cash flows expected to be derived from the Higi reporting unit. The income approach utilizes management’s estimates of future operating results and discounted cash flows using operating forecasts over a period of 8 years with the terminal period beginning in 2031, approved by management. As a result of the analysis, the Company identified that the carrying amount of its Higi reporting unit exceeded its value in use by $24.8 million. The impairment was allocated to long lived assets on a pro rata basis using the relative carrying amounts of those assets but limited to the extent that the adjusted carrying amounts were not reduced below the asset’s fair value. Based on this pro rata allocation, the impairment charge was allocated between Goodwill for $14.3 million, and Other intangible assets for $4.3 million, along with Property, Plant and Equipment for $6.3 million described in more detail in Note 12.
The recoverable amount of the Higi reporting unit was estimated based on the present value of the future cash flows expected to be derived from the Higi reporting unit, using a discount rate of 13.5% and a terminal value growth rate of 3.0%. The discount rate was based on the WACC using market participant assumptions, which was adjusted for specific risks, and the terminal value growth rate was based on long term assumptions of growth. The estimation of recoverable amount reflects numerous assumptions that are subject to various risks and uncertainties, including key assumptions regarding expected growth rates and operating margin, discount rates, terminal growth rates, and other assumptions with respect to matters outside of the Group's control. It requires significant judgments and estimates, and actual results including its fair value less costs of disposal, could be materially different than the judgments and estimates used to estimate value in use.
The following summarizes the impact of the recoverable amount on the Higi reporting unit for changes in significant assumptions:
Discount rate: An increase in the discount rate by 100 basis points would have resulted in a reduction of the recoverable amount by $9.8 million.
Terminal growth rates: A decrease in the terminal growth rate by 100 basis points would have resulted in a reduction of the recoverable amount by $5.3 million.
Revenue growth: A decrease of virtual and digital revenue growth by 5.0% would have resulted in a reduction of the recoverable amount by $6.7 million.
Annual Impairment Test
IPA Reporting Unit
The recoverable amount of the IPA reporting unit was estimated using the same method used during our interim impairment testing, updated for any change in fact or circumstances occurring over the last six months of fiscal year 2022 impacting the underlying assumptions and resulting estimated cash flows. As a result of this review, the sensitivities disclosed in our interim impairment test and the conclusion that the fair value of the IPA reporting unit continued to be in excess of the carrying amount remain unchanged and therefore no impairment charge was recognized.
Higi Reporting UnitThe recoverable amount of the Higi reporting unit was estimated using the same method used during our interim impairment testing, updated for any change in fact or circumstances occurring over the last six months of fiscal year 2022 impacting the underlying assumptions and resulting estimated cash flows. As a result of this review, we noted that impacts from both macroeconomic factors effecting interest rates and market volatility combined with a decrease in estimated revenues and margins of the Higi reporting unit’s projected cash flows resulted in an incremental Goodwill impairment charge of $20.6 million. Refer to Note 5 for more details on further impairment recorded to the valuation allowance for impaired assets within the Higi reporting unit classified as held for sale as of the year ended December 31, 2022.
No definition available.
The entire disclosure for goodwill and intangible assets.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef