Drilling Tools International Corp

Previous wording

We are a global oilfield services company that designs, engineers, manufactures and provides a differentiated, rental-focused offering of tools for use in onshore and offshore horizontal and directional drilling operations, as well as other cutting-edge solutions across the well life cycle. We now operate from 16 service and support centers across North America and maintains 10 international service and support centers across the Europe, Middle East, and Africa ("EMEA") regions and Asia-Pacific ("APAC") regions.

Current wording

We are a global oilfield services company that designs, engineers, manufactures and provides a differentiated, rental-focused offering of tools for use in onshore and offshore horizontal and directional drilling operations, as well as other cutting-edge solutions across the well life cycle. We now operate from 16 service and support centers across North America and maintains 11 international service and support centers across the Europe, Middle East, and Africa ("EMEA") regions and Asia-Pacific ("APAC") regions.

Previous wording

Our business model primarily centers on revenue generated from tool rentals and product sales. We generated revenue from total tool rentals and product sales of $37.5 million and $37.9 million for the three months ended June 30, 2024 and 2023, respectively, and had net income of $0.4 million and $0.9 million for those same periods. Additionally, we generated revenue from tool rentals and product sales of $74.5 million and $78.7 million for the six months ended June 30, 2024 and 2023, respectively, and had net income of $3.5 million and $6.6 million for those same periods, respectively. As of June 30, 2024, we had cash and cash equivalents of $6.8 million, and an accumulated deficit of $3.1 million.

Current wording

Our business model primarily centers on revenue generated from tool rentals and product sales. We generated revenue from total tool rentals and product sales of $40.1 million and $38.1 million for the three months ended September 30, 2024 and 2023, respectively, and had net income of $0.9 million and $4.3 million for those same periods. Additionally, we generated revenue from tool rentals and product sales of $114.6 million and $116.8 million for the nine months ended September 30, 2024 and 2023, respectively, and had net income of $4.4 million and $10.9 million for those same periods, respectively. As of September 30, 2024, we had cash and cash equivalents of $12.0 million, and an accumulated deficit of $2.2 million.

Previous wording

In the first half of 2024, the oil and gas market witnessed a dynamic interplay of geopolitical tensions, supply concerns, and global demand fluctuations. Crude oil prices remained volatile, with benchmarks such as Brent and WTI experiencing fluctuations driven by a multitude of factors. Geopolitical tensions in key oil-producing regions, such as the Middle East, continued to influence market sentiment, leading to sporadic spikes in prices. Additionally, concerns over supply disruptions, particularly amidst conflicts and geopolitical uncertainties, added to the market’s unease. As the global market for crude oil has continued its recovery, technical recessions, specifically in China, have slowed progress and created fluctuations in global demand. As of June 30, 2024, the WTI oil price was approximately $83.29 per barrel.

Current wording

In the first half of 2024, the oil and gas market witnessed a dynamic interplay of geopolitical tensions, supply concerns, and global demand fluctuations. Crude oil prices remained volatile, with benchmarks such as Brent and WTI experiencing fluctuations driven by a multitude of factors. Geopolitical tensions in key oil-producing regions, such as the Middle East, continued to influence market sentiment, leading to sporadic spikes in prices. Additionally, concerns over supply disruptions, particularly amidst conflicts and geopolitical uncertainties, added to the market’s unease. As the global market for crude oil has continued its recovery, technical recessions, specifically in China, have slowed progress and created fluctuations in global demand. As of September 30, 2024, the WTI oil price was approximately $68.75 per barrel.

Previous wording

Henry Hub natural gas spot prices have increased from an average of $2.18 per one million British Thermal Units (“MMBtu”) in June 2023 to $2.53 per MMBtu in June 2024.

Current wording

Henry Hub natural gas spot prices have decreased from an average of $2.64 per one million British Thermal Units (“MMBtu”) in September 2023 to $2.28 per MMBtu in September 2024.

Previous wording

Tool rental revenue decreased $0.7 million, or (2)%, to $28.3 million for the three months ended June 30, 2024 as compared to $29.0 million for the three months ended June 30, 2023. The decrease was primarily driven by decreased market activity in relation to our Directional Tool Rentals (“DTR”) division, the revenue of which decreased $2.5 million. The decrease was partially offset by an increase in our Premium Tools Division ("PTD"), the revenue of which increased $1.0 million, our Wellbore Optimization Tools ("WOT") Division, the revenue of which increased $0.5 million, and the addition of Deep Casing, which added rental revenue of $0.3 million for the three months ended June 30, 2024.

Current wording

Tool rental revenue decreased $1.2 million, or (4)%, to $28.1 million for the three months ended September 30, 2024 as compared to $29.4 million for the three months ended September 30, 2023. The decrease was primarily driven by decreased market activity in relation to our Directional Tool Rentals (“DTR”) division, the revenue of which decreased $2.5 million. The decrease was partially offset by an increase in our Premium Tools Division ("PTD"), the revenue of which increased $0.4 million and an increase at our Wellbore Optizimation Tools ("WOT") division, revenue of which increased $0.6 million.

Previous wording

Product sale revenue increased $0.3 million, or 3%, to $9.2 million for the three months ended June 30, 2024 as compared to $8.9 million for the three months ended June 30, 2023. The increase by additional product sales as it relates to Deep Casing which was acquired in March 2024. This increase was partially offset by lower tool recovery revenue for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023.

Current wording

Product sale revenue increased $3.2 million, or 36%, to $12.0 million for the three months ended September 30, 2024 as compared to $8.8 million for the three months ended September 30, 2023. The increase by additional product sales as it relates to Deep Casing ("DCT") which was acquired in March 2024 and the Diamond Products Division ("DPD"), which was acquired in August 2024. This increase was partially offset by lower tool recovery revenue for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023.

Previous wording

Cost of tool rental revenue decreased $0.2 million, or (3)%, to $7.5 million for the three months ended June 30, 2024 as compared to $7.7 million for the for the three months ended June 30, 2023. The decrease in cost of tool rental revenue was primarily driven by a decrease in labor cost and repairs cost due to the decrease in rental activity.

Current wording

Cost of tool rental revenue decreased $3.3 million, or (44)%, to $4.1 million for the three months ended September 30, 2024 as compared to $7.3 million for the for the three months ended September 30, 2023. The decrease in cost of tool rental revenue was primarily driven by a decrease in labor and repairs cost due to the decrease in rental activity.

Previous wording

Cost of product sale revenue increased $1.4 million, or 120%, to $2.5 million for the three months ended June 30, 2024 as compared to $1.2 million for the for the three months ended June 30, 2023. The increase in cost of product sale revenue was primarily driven by additional cost of product sales from Deep Casing, offset by a decrease in cost of product sales associated with tool recovery.

Current wording

Cost of product sale revenue increased $3.9 million, or 216%, to $5.7 million for the three months ended September 30, 2024 as compared to $1.8 million for the for the three months ended September 30, 2023. The increase in cost of product sale revenue was primarily driven by additional cost of product sales from Deep Casing and DPD, offset by a decrease in cost of product sales associated with tool recovery.

Previous wording

Selling, general, and administrative expense increased $1.9 million, or 11%, to $19.6 million for the three months ended June 30, 2024 as compared to $17.7 million for the three months ended June 30, 2023. This increase was primarily driven by an increase in personnel related fees and other costs associated with the public company transition. No other driver of this increase was significant.

Current wording

Selling, general, and administrative expense increased $3.3 million, or 20%, to $19.9 million for the three months ended September 30, 2024 as compared to $16.6 million for the three months ended September 30, 2023. This increase was primarily driven by an increase in personnel related fees and other costs associated with the public company transition. No other driver of this increase was significant.

Previous wording

Depreciation and amortization expenses increased $1.0 million, or 20%, to $5.7 million for the three months ended June 30, 2024 as compared to $4.7 million for the three months ended June 30, 2023. The increase was primarily due an increase in depreciation expense resulting from a higher property, plant and equipment balance as of June 30, 2024.

Current wording

Depreciation and amortization expenses increased $0.9 million, or 17%, to $6.2 million for the three months ended September 30, 2024 as compared to $5.3 million for the three months ended September 30, 2023. The increase was primarily due an increase in depreciation expense resulting from a higher property, plant and equipment balance as of September 30, 2024.

Previous wording

Interest expense increased $463 thousand, or 133%, to $0.8 million for the three months ended June 30, 2024 as compared to $0.3 million for the three months ended June 30, 2023. The increase was primarily due to an increase in interest expense on the term loan entered into in March 2024.

Current wording

Interest expense increased $965 thousand, or 1322%, to $1.0 million for the three months ended September 30, 2024 as compared to $0.1 million for the three months ended September 30, 2023. The increase was primarily due to an increase in interest expense on the term loan entered into in March 2024 and the Credit Facility, which was drawn on during three months ended September 30, 2024.

Previous wording

Other expense for the six months ended June 30, 2024 was $2.8 million, a decrease of $3.2 million, or (54)%, compared to the six months ended June 30, 2023. The decrease was primarily due to increased transaction costs related to the completion of the merger with ROC Energy Acquisition in June 2023.

Current wording

Other expense for the three months ended September 30, 2024 was $2.4 million, a increase of $2.3 million, or (1710)%, compared to the three months ended September 30, 2023. The increase was primarily due to increased transaction costs related to the completion of the acquisition of SDPI during the third quarter of 2024.

Previous wording

Tool rental revenue decreased $3.0 million, or (5)%, to $58.3 million for the six months ended June 30, 2024 as compared to $61.3 million for the six months ended June 30, 2023. The decrease was primarily driven by decreased market activity across certain divisions, especially in relation to our DTR division, the revenue of which decreased $4.0 million and our PTD division, the revenue of which decreased $1.0 million. These decreases were offset by increases at our WOT division, the revenue of which increased by $2.0 million.

Current wording

Tool rental revenue decreased $4.2 million, or (5)%, to $86.4 million for the nine months ended September 30, 2024 as compared to $90.6 million for the nine months ended September 30, 2023. The decrease was primarily driven by decreased market activity across certain divisions, especially in relation to our DTR division, the revenue of which decreased $8.0 million and our PTD division, the revenue of which decreased $0.9 million. These decreases were offset by increases at our WOT division, the revenue of which increased by $2.3 million and DCT, the revenue of which increased $0.6 million.

Previous wording

Product sale revenue decreased $1.2 million, or (7)%, to $16.2 million for the six months ended June 30, 2024 as compared to $17.4 million for the six months ended June 30, 2023. The decrease was primarily driven by higher than average rental tool recovery events in the six months ended June 30, 2023, partially offset by additional product sales at Deep Casing for the six months ended June 30, 2024.

Current wording

Product sale revenue decreased $2.0 million, or 8%, to $28.2 million for the nine months ended September 30, 2024 as compared to $26.2 million for the nine months ended September 30, 2023. The decrease was primarily driven by higher than average rental tool recovery events in the nine months ended September 30, 2023, partially offset by additional product sales at DCT and DPD for the nine months ended September 30, 2024.

Previous wording

Cost of tool rental revenue decreased $1.4 million, or (9)%, to $14.5 million for the six months ended June 30, 2024 as compared to $15.8 million for the for the six months ended June 30, 2023. The decrease in cost of tool rental revenue was primarily driven by a decrease in labor cost and repairs cost due to the decrease in rental activity.

Current wording

Cost of tool rental revenue decreased $4.0 million, or (19)%, to $17.6 million for the nine months ended September 30, 2024 as compared to $21.6 million for the for the nine months ended September 30, 2023. The decrease in cost of tool rental revenue was primarily driven by a decrease in sub rental, accessory, and repair cost due to the decrease in rental activity.

Previous wording

Cost of product sale revenue increased $1.6 million, or 66%, to $4.1 million for the six months ended June 30, 2024 as compared to $2.5 million for the for the six months ended June 30, 2023. The increase in cost of product sale revenue was primarily driven by additional cost of product sales from Deep Casing, offset by a decrease in cost of product sales associated with tool recovery.

Current wording

Cost of product sale revenue increased $4.9 million, or 84%, to $10.8 million for the nine months ended September 30, 2024 as compared to $5.9 million for the for the nine months ended September 30, 2023. The increase in cost of product sale revenue was primarily driven by additional cost of product sales from DCT and DPD, offset by a decrease in cost of product sales associated with tool recovery.

Previous wording

Selling, general, and administrative expense increased $3.1 million, or 9%, to $37.6 million for the six months ended June 30, 2024 as compared to $34.4 million for the six months ended June 30, 2023. This increase was primarily driven by an increase in personnel related fees and other costs associated with the public company transition. No other driver of this increase was significant.

Current wording

Selling, general, and administrative expense increased $6.4 million, or 13%, to $57.4 million for the nine months ended September 30, 2024 as compared to $51.0 million for the nine months ended September 30, 2023. This increase was primarily driven by an increase in personnel related fees and other costs associated with the public company transition. No other driver of this increase was significant.

Previous wording

Depreciation and amortization expenses increased $1.3 million, or 14%, to $11.0 million for the six months ended June 30, 2024 as compared to $9.7 million for the six months ended June 30, 2023. The increase was primarily due to an increase in depreciation expense resulting from a higher property, plant and equipment balance as of June 30, 2024.

Current wording

Depreciation and amortization expenses increased $2.2 million, or 15%, to $17.2 million for the nine months ended September 30, 2024 as compared to $15.0 million for the nine months ended September 30, 2023. The increase was primarily due to an increase in depreciation expense resulting from a higher property, plant and equipment balance as of September 30, 2024.

Previous wording

For the six months ended June 30, 2024 we had interest expense of $1.0 million as compared to interest expense of $0.9 million for the six months ended June 30, 2023. This change of $0.1 million or 8% was primarily due to additional interest charges on the Term Loan entered into during 2024.

Current wording

For the nine months ended September 30, 2024 we had interest expense of $2.0 million as compared to interest expense of $1.0 million for the nine months ended September 30, 2023. This change of $1.0 million or 104%. The increase was primarily due to an increase in interest expense on the term loan entered into in March 2024 and the Credit Facility, which was drawn on during three months ended September 30, 2024.

Previous wording

Other expense for the three months ended June 30, 2024 was $1.7 million, a decrease of $2.7 million, or (62)%, compared to the three months ended June 30, 2023. The decrease was primarily due to increased transaction costs related to the completion of the merger with ROC Energy Acquisition in June 2023.

Current wording

Other expense for the nine months ended September 30, 2024 was $5.2 million, a decrease of $0.9 million, or (15)%, compared to the nine months ended September 30, 2023. The decrease was primarily due to increased transaction costs related to the completion of the merger with ROC Energy Acquisition in June 2023 and compared to transaction costs incurred during the nine months ended September 30, 2024.

Previous wording

The following tables present a reconciliation of Adjusted EBITDA to net income (loss) for the three and six months ended June 30, 2024 and 2023 (non-recurring transaction expenses recorded to other (income) expense are presented separately within Adjusted EBITDA):

Current wording

The following tables present a reconciliation of Adjusted EBITDA to net income (loss) for the three and nine months ended September 30, 2024 and 2023 (non-recurring transaction expenses recorded to other (income) expense are presented separately within Adjusted EBITDA):

Previous wording

At June 30, 2024, we had $6.8 million of cash and cash equivalents. Our primary sources of liquidity and capital resources are cash on hand, cash flows generated by operating activities and, if necessary, borrowings under the Credit Facility Agreement. We may use additional cash generated to execute strategic acquisitions or for general corporate purposes. We believe that our existing cash on hand, cash generated from operations and available borrowings under the Credit Facility Agreement will be sufficient for at least the next 12 months to meet working capital requirements and anticipated capital expenditures.

Current wording

At September 30, 2024, we had $12.0 million of cash and cash equivalents. Our primary sources of liquidity and capital resources are cash on hand, cash flows generated by operating activities and, if necessary, borrowings under the Credit Facility Agreement. We may use additional cash generated to execute strategic acquisitions or for general corporate purposes. We believe that our existing cash on hand, cash generated from operations and available borrowings under the Credit Facility Agreement will be sufficient for at least the next 12 months to meet working capital requirements and anticipated capital expenditures.

Previous wording

Net cash provided by operating activities for the six months ended June 30, 2024 was $4.4 million resulting from our net income of $3.5 million, adjusted for non-cash charges of $13.5 million in depreciation and amortization, including amortization of right of use assets and deferred financing costs, $1.0 million of stock-based compensation expense, and $0.2 million in provisions for excess and obsolete property, plant, and equipment. This was partially offset by a $5.0 million gain on rental tool recovery sales, $0.4 million in deferred tax expense, and $7.7 million in net changes from operating assets and liabilities. The $7.7 million in cash used in operating assets and liabilities is primarily due to a $1.5 million cash outflow in accounts receivable, $2.2 million cash outflows related to operating lease liabilities, and $5.9 million cash outflows related to accounts payable and accrued liabilities due to the timing of disbursements. These outflows were offset by a $2.0 million cash inflow related to prepaid expenses. We will continue to evaluate our capital requirements for both short-term and long-term liquidity needs, which could be affected by various risks and uncertainties, including, but not limited to, the effects of the current inflationary environment, rising interest rates, and other risks detailed in the section of this Report entitled “Risk Factors.”

Current wording

Net cash provided by operating activities for the nine months ended September 30, 2024 was $9.7 million resulting from our net income of $4.4 million, adjusted for non-cash charges of $21.1 million in depreciation and amortization, including non-cash lease expense and deferred financing costs, $1.6 million of stock-based compensation expense, and $0.3 million in provisions for excess and obsolete property, plant, and equipment and credit losses. This was partially offset by a $7.3 million gain on rental tool recovery sales, $1.3 million in deferred tax expense, and $8.6 million in net changes from operating assets and liabilities. The $8.6 million in cash used in operating assets and liabilities is primarily due to a $0.6 million cash outflow in prepaid expenses due to the timing of payments, a $2.9 million cash outflow in inventory, $3.4 million cash outflow in operating lease liabilities, and a $3.7 million cash outflow related to accounts payable and accrued expenses. These outflows were offset by a $2.1 million cash inflow related to accounts receivables. We will continue to evaluate our capital requirements for both short-term and long-term liquidity needs, which could be affected by various risks and uncertainties, including, but not limited to, the effects of the current inflationary environment, rising interest rates, and other risks detailed in the section of this Report entitled “Risk Factors.”

Previous wording

Net cash provided by operating activities for the six months ended June 30, 2023 was $14.1 million resulting from our net income of $8.2 million, adjusted for non-cash charges of $12.0 million in depreciation and amortization, including amortization of right of use assets and deferred financing costs, $4.0 million of stock-based compensation expense as a result of the Business Combination, $0.4 million of bad debt expense and $0.5 million in deferred tax expense. This was partially offset by a $9.1 million gain on rental tool recovery sales and $1.8 million in net changes from operating assets and liabilities. The $1.8 million in cash used in operating assets and liabilities is primarily due to a $1.8 million cash outflow in accounts receivable associated with an increase in sales and higher revenues during the first six months of 2023 compared to the first six months of 2022, a $2.2 million cash outflow from operating lease liabilities as we increase right-of-use assets on hand and a $1.5 million cash outflow from prepaid expenses due to differences in timing of prepayments. This was partially offset by a $2.3 million cash inflow in accounts payable and accrued expenses due to differences in the timing of disbursements and a $1.4 million cash flow from inventory as a result of increased sales and revenues during the first six months of 2023. We will continue to evaluate our capital requirements for both short-term and long-term liquidity needs, which could be affected by various risks and uncertainties, including, but not limited to, the effects of the current inflationary environment, rising interest rates, and other risks detailed in the section of this Report entitled “Risk Factors.”

Current wording

Net cash provided by operating activities for the nine months ended September 30, 2023 was $17.5 million resulting from our net income of $10.9 million, adjusted for non-cash charges of $18.5 million in depreciation and amortization, including amortization of right of use assets and deferred financing costs, $4.0 million of stock-based compensation expense as a result of the Merger, $0.5 million of bad debt expense and $3.7 million in deferred tax expense. This was partially offset by a $14.0 million gain on rental tool recovery sales and $6.7 million in net changes from operating assets and liabilities. The $6.7million in cash used in operating assets and liabilities is primarily due to a $0.5 million cash outflow in accounts receivable associated with an increase in sales and higher revenues during the first nine months of 2023 compared to the first nine months of 2022, a $3.3 million cash outflow from operating lease liabilities as we increase right-of-use assets on hand and a $2.9 million cash outflow from inventories due to purchased inventory related to our attempt to reduce risk and uncertainties in our supply chain. This was partially offset by a $0.1 million cash inflow in accounts payable and accrued expenses due to differences in the timing of disbursements. We will continue to evaluate our capital requirements for both short-term and long-term liquidity needs, which could be affected by various risks and uncertainties, including, but not limited to, the effects of the current inflationary environment, rising interest rates, and other risks detailed in the section of this Report entitled “Risk Factors.”

Previous wording

Net cash used in investing activities for the six months ended June 30, 2024 was $26.7 million. Purchases of property, plant, and equipment of $16.3 million and the acquisition of CTG for $18.2 million were partially offset by proceeds from rental tool recovery sales of $7.7 million.

Current wording

Net cash used in investing activities for the nine months ended September 30, 2024 was $46.1 million. Purchases of property, plant, and equipment of $19.6 million and business acquisitions of $38.6 million were partially offset by proceeds from rental tool recovery sales of $10.9 million and proceeds from the sale of equity securities of $1.2 million.

Previous wording

Net cash used in investing activities for the six months ended June 30, 2023 was $13.4 million. Purchases of property, plant, and equipment of $24.6 million were partially offset by proceeds from rental tool recovery sales of $11.1 million and proceeds from the sale of property of $0.1 million.

Current wording

Net cash used in investing activities for the nine months ended September 30, 2023 was $20.0 million. Purchases of property, plant, and equipment of $36.7 million were partially offset by proceeds from rental tool recovery sales of $16.6 million and proceeds from sale of property of $0.1 million.

Previous wording

Net cash provided by financing activities for the six months ended June 30, 2024 was $23.5 million resulting from proceeds from the term loan of $25 million offset by $0.6 million in payments of deferred financing costs and $0.8 million in repayments of the Term Loan.

Current wording

Net cash provided by financing activities for the nine months ended September 30, 2024 was $43.4 million resulting from proceeds from the term loan of $25 million and proceeds from the revolving line of credit of $30.1 million offset by $0.7 million in payments of deferred financing costs and $10.9 million in repayments of the Term Loan and the revolving line of credit.

Previous wording

Net cash used in financing activities for the six months ended June 30, 2023 was $4.3 million resulting from proceeds from the Business Combination and PIPE Financing, net of transaction costs, of $23.1 million, partially offset by a net decrease in amounts outstanding under the Credit Facility Agreement of $18.3 million, payments of deferred financing costs of $0.3 million and payments to holders of DTIH convertible preferred stock in connection with the Business Combination of $0.2 million.

Current wording

Net cash provided by financing activities for the nine months ended September 30, 2023 was $4.3 million resulting from proceeds from the Merger and PIPE Financing, net of transaction costs, of $23.1 million, partially offset by a net decrease in amounts outstanding under the Credit Facility Agreement of $18.3 million, payments of deferred financing costs of $0.3 million and payments to holders of DTIH convertible preferred stock in connection with the Merger of $0.2 million.

Previous wording

For a description of our critical accounting policies and estimates, see our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (the "Annual Report"). In addition to the critical accounting policies and estimates disclosed in our Annual Report, accounting for Business Combinations was identified as a new critical accounting policy and estimate in the six months ended June, 2024.

Current wording

For a description of our critical accounting policies and estimates, see our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (the "Annual Report"). In addition to the critical accounting policies and estimates disclosed in our Annual Report, accounting for Business Combinations was identified as a new critical accounting policy and estimate in the nine months ended September 30, 2024.

Previous wording

We account for business combinations using the acquisition method of accounting in accordance with ASC 805, Business Combinations. On the acquisition date for a business combination, we allocate the total purchase consideration for the acquisition to the assets acquired and liabilities assumed based on their respective estimated fair values on the acquisition date. Additionally, we identify and attribute fair values and estimated lives to acquired intangible assets. We identify an acquired intangible asset apart from goodwill whenever the intangible asset arises from contractual or other legal rights, or when it can be separately sold, transferred, licensed, rented, or exchanged.

Current wording

We account for business combinations using the acquisition method of accounting in accordance with ASC 805, Business Combinations. On the acquisition date for a business combination, we allocate the total purchase consideration for the acquisition to the assets acquired and liabilities assumed based on their respective estimated fair values on the acquisition date. Additionally, we identify and attribute fair values and estimated lives to acquired intangible assets. We identify an acquired intangible asset apart from goodwill whenever the intangible asset arises from contractual or other legal rights, or when it can be separately sold, transferred, licensed, rented, or exchanged. We recognize goodwill, if any, in the amount by which the aggregate fair value of the total purchase consideration exceeds the aggregate fair value of the net assets (including intangible assets) acquired.