Note 6. Goodwill and intangible assets

The Company tests goodwill for impairment annually on December 31 and more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit or asset group below its carrying amount and tests intangible assets if an indicator suggests that the carrying amount may not be recoverable.

For 2023, the Company completed a qualitative triggering events assessment which considered significant events and circumstances such as the reporting unit’s historical and current results, assumptions regarding future performance, operating income or cash flows, strategic initiatives and overall economic factors, including significant negative industry or economic trends and macro-economic developments, and sustained declines in the Company's share price or market capitalization. These factors were considered in both absolute terms and relative to peers, to determine whether any of these factors may indicate that it is more likely than not that the fair value of the reporting unit or intangible asset is less than its carrying value. If indicators of impairment are identified, a quantitative impairment test is performed. The qualitative assessments performed for 2023 included an assessment of excess inventories, supply chain constraints, and macroeconomic considerations. Based on the operating results for 2023 and these other considerations, the Company concluded that it was more likely than not that the enterprise value for its one reporting unit and the fair value of intangibles was still greater than their carrying values.

During the third quarter of 2024, the Company experienced a debt covenant breach and a decline in its market capitalization as a result of a sustained decrease in the trading price of the Company's ordinary shares, each of which represented a triggering event causing management to perform a qualitative goodwill impairment test as of September 30, 2024. The impairment analysis as of September 30, 2024 resulted in an impairment of goodwill, long-lived assets, customer relationships intangible assets and right-of-use lease assets for the period ended September 30, 2024. Refer to Note 19. Restatement of previously issued unaudited interim consolidated financial statements for the impact on the Company's previously issued unaudited consolidated financial statements as of September 30, 2024.

The following reflects the activities performed by the Company as part of the quantitative assessment of impairment of goodwill, long-lived assets, definite-lived intangibles, including software, and right-of-use operating lease assets.

For the assessment of goodwill, management determined it operates as one reporting unit and compared the fair value of its one reporting unit to its carrying value. The Company used an income approach in determining the fair value of the reporting unit. The income approach, or discounted cash flow method, utilized the Company's forecast based on management's estimates of revenue, expenses, capital expenditures and working capital projections. The residual value was captured utilizing the Gordon Growth method and the discount rate was determined based on the Company's weighted average cost of capital. Based on the results of the quantitative assessments, the fair value of the Company's one reporting unit was determined to be below its carrying value. Goodwill was impaired as of September 30, 2024 and the Company recorded an impairment loss of $9.0 million. This is included in Impairment expense on the consolidated statements of operations. As of December 31, 2024, the Company's single reporting unit had a negative carrying value and no further impairment was recorded.

The Company also considered its long-lived assets (including intangible assets with definite useful lives), which are amortized over their estimated useful lives. These assets are reviewed for impairment only when facts or circumstances indicate that the carrying values may not be recoverable. As of September 30, 2024, the breach of covenants under the Amended Credit Agreement, as well as the decline in the Company's market capitalization driven by a sustained decrease in the trading price of the Company's ordinary shares, and the Company's history of operating losses and cash flow losses together with forecasted operating losses and cash flow losses, were additional factors considered as triggering events causing long-lived assets to be reviewed for impairment. Management concluded the asset group is at the same level as the Company's reporting unit, the primary asset of the asset group was determined to be the Company's customer relationships, with the remaining useful life of the customer relationships estimated to be approximately 58 months. The undiscounted cash flows of the asset group was estimated on a pre-tax basis over the life of the primary asset. Since the asset group constitutes a reporting unit or a business, a residual value was included to capture the approximate proceeds from the eventual disposition of the business. A terminal value approach was used to determine the residual value of the business. The carrying value of the asset group was determined to be the Company's invested capital less debt plus equity. The asset group's recoverability was determined by comparing the carrying value of the asset group to the sum of the undiscounted cash flows of the asset group. Based on the results of the assessment, the Company determined that the undiscounted cash flows were less than the carrying value of the asset group, and the asset group was unrecoverable as of September 30, 2024.

The income approach was used to determine the fair value of the operating lease right-of-use assets. Current market rents were calculated by investigating the market for lease rates for facilities comparable to the subject properties. The market rents, less any incentives received, are the net effective market rents. The net effective market rents were projected through the end of the current terms for each location and discounted back to present value using a real estate rate of return based on the property to determine the fair values of each location. These fair values were then compared to the carrying value of the operating lease right-of-use asset values as of September 30, 2024. The carrying value was higher than the computed fair value for five of the eleven locations, resulting in a total impairment of $0.1 million. The Company recorded this impairment as of September 30, 2024 and the loss is included in Impairment expense on the consolidated statements of operations and comprehensive loss.

For the long-lived assets classified as property and equipment, including leasehold improvements on certain operating leases, and internal use software, the assets were valued using a cost approach. A replacement cost was estimated by applying age and asset-type specific indices to the assets' original cost. That replacement cost was then depreciated for physical wear and tear by applying a straight-line method with lives based on the book depreciation lives for property and equipment and internal use software, and lives based on the lesser of the physical life and the life of the property lease for leasehold improvements. The resulting depreciated replacement cost was then reduced further for economic obsolescence. After completing a business enterprise valuation, the Company determined that earnings were insufficient to support the values of the assets and an adjustment was made. As a result, the Company determined that the carrying values were higher than the computed fair values for most of the assets, resulting in an impairment loss of $8.8 million. The Company recorded this impairment as of September 30, 2024 and the loss is included in Impairment expense on the consolidated statements of operations and comprehensive loss.

Intangible assets are amortized over their expected useful life and none are expected to have a significant residual value. Intangible assets amortization expense was $1.5 million and $1.1 million for the years ended December 31, 2023 and 2024, respectively.

As part of the Company's review of its long-lived assets, the Company completed an assessment of the customer relationship intangible at September 30, 2024 to determine its fair value. The excess earnings method was utilized to value the customer relationships intangible. Based on the results of its assessment, the Company determined that fair value of its customer relationship intangible was negative and the entire value was impaired, resulting in an impairment loss of $6.6 million. As part of the restatement, the Company recorded this impairment as of September 30, 2024 and the loss is included in Impairment expense on the consolidated statements of operations and comprehensive loss.