ESTABLISHMENT LABS HOLDINGS INC. - 10-Q filing on 2023-11-08

Goodwill and Other Intangible Assets

9 Months Ended

Sep. 30, 2023

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Other Intangible AssetsGoodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in a business combination. Intangible assets resulting from the acquisitions of entities accounted for using the acquisition method of accounting are recorded at the estimated fair value of the assets acquired. Purchased intangibles include certain patents and license rights, 510(k) authorization by the FDA to sell a medical device and other intangible assets.

The Company’s goodwill and most intangibles at September 30, 2023 are the result of previous asset and business acquisitions. Finite-lived intangibles are amortized over their estimated useful lives based on expected future benefit.

In addition to the intangibles acquired, the Company capitalized certain patent and license rights as identified intangibles based on patent and license rights agreements entered into over the past several years. Additionally, the Company capitalized certain software development costs.

There were no changes in the carrying amount of goodwill during the nine months ended September 30, 2023:



	Balance as of January 1, 2023		Additions		Accumulated Impairment Losses		Balance as of September 30, 2023

	(in thousands)
Goodwill	$	465	$	—	$	—	$	465

The carrying amounts of these intangible assets other than goodwill as of September 30, 2023 were as follows:



	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Estimated Useful Lives

	(in thousands)						(in years)
Patents and license rights	$	2,007	$	(1,389)	$	618	7-12
Customer relationships	2,033		(1,983)		50		4-10
510(k) authorization	567		(298)		269		15
Developed technology	62		(62)		—		10
Capitalized software development costs	5,293		(2,388)		2,905		2-5
Other	183		(41)		142		2-5
Capitalized software development costs not yet amortized	1,280		—		1,280
Patents and license rights not yet amortized	441		—		441
	$	11,866	$	(6,161)	$	5,705

The carrying amounts of intangible assets other than goodwill as of December 31, 2022 were as follows:



	Gross Carrying Amount			Accumulated Amortization		Net Carrying Amount		Estimated Useful Lives

	(in thousands)							(in years)
Patents and license rights	$	1,757		$	(1,321)	$	436	7-12
Customer relationships	2,033			(1,967)		66		4-10
510(k) authorization	567			(269)		298		15
Developed technology	62			(58)		4		10
Capitalized software development costs	5,001		‘	(1,630)		3,371		2-5
Other	183			(41)		142		2-5
Capitalized patents and license rights not yet amortized	291			—		291
	$	9,894		$	(5,286)	$	4,608

For each of the three months ended September 30, 2023 and 2022, amortization expense related to intangible assets was $0.3 million. The amortization expense associated with intangible assets was $0.9 million for each of the nine months ended September 30, 2023 and 2022. Non-product related amortization is recorded in SG&A while product related amortization is recorded in cost of revenue.

As of September 30, 2023, the amortization expense related to identifiable intangible assets, with definite useful lives, in future periods is expected to be as follows:



Year Ending December 31,	(in thousands)
2023 (remaining)	$	308
2024	1,154
2025	1,024
2026	561
2027	329
Thereafter	608
Total	$	3,984

The Company evaluates the recoverability of goodwill and indefinite-lived intangible assets annually and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. During the year ended December 31, 2022, there was no impairment of goodwill or intangible assets based on the qualitative assessments performed by the Company. As of September 30, 2023, no triggering events have occurred which would indicate that the acquired intangible asset values may not be recoverable.