Goodwill and Intangible Assets

9 Months Ended

Sep. 30, 2023

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill

As described in Note 8, in the second quarter of 2023, the Company concluded it had two operating and reportable segments. In connection with the shift from one operating and reportable segment to two operating and reportable segments, the Company reevaluated its reporting unit structure and determined that it had multiple reporting units. As such, during the second quarter of 2023, the Company reallocated goodwill to its newly formed reporting units.

The Company estimates the fair value of its reporting units using a weighting of fair values derived from an income and a market approach. Estimating the fair value by these methods involves the use of a number of key assumptions including forecasted revenues and related growth rates, forecasted operating cash flows, the discount rate, and the selection of relevant market multiples of comparable publicly-traded companies with similar characteristics to the reporting unit. Under the income approach, the Company determined the fair value of a reporting unit based on the present value of estimated future cash flows. Cash flow projections are based on the Company’s best estimates of forecasted economic and market conditions over the period including growth rates and expected changes in operating cash flows. The discount rate used is based on a weighted average cost of capital adjusted for the relevant risk associated with the characteristics of the business and the projected cash flows. The market approach estimates fair value based on market multiples of current and forward 12-month revenue or adjusted EBITDA, as applicable, derived from comparable publicly traded companies with similar operating and investment characteristics as the reporting unit.

While these assumptions reflect management’s best estimates of future performance at the time, these estimates are inherently complex and uncertain and the Company’s actual results could differ materially from these estimates.

In connection with the goodwill reallocation, the Company assessed goodwill for impairment immediately before and immediately after the change in the reporting unit structure and related goodwill reallocation. Both assessments concluded that the fair value of the reporting units were above their respective carrying amounts.

The following table presents the goodwill allocated to the Company’s reportable segments as of September 30, 2023 and December 31, 2022, and the changes during the period:


	Twilio Communications		Twilio Data & Applications		Total
	(In thousands)
Balance as of December 31, 2022	$	—	$	—	$	5,284,153
Foreign currency adjustments					26
Reallocation to segments in the second quarter of 2023(1)	4,321,130		963,049		—
Foreign currency adjustments	251		—		251
Goodwill divested(2)	(41,164)		—		(41,164)

Balance as of September 30, 2023	$	4,280,217	$	963,049	$	5,243,266

____________________________________

(1) Represents reallocation of goodwill as a result of changes in segment structure in the second quarter of 2023.

(2) Represents goodwill related to the divestitures of IoT and ValueFirst. See Note 5 for further details.

Intangible assets

Intangible assets consisted of the following:


	As of September 30, 2023
	Cost		Accumulated Amortization		Net
Amortizable intangible assets:	(In thousands)
Developed technology	$	778,609	$	(408,446)	$	370,163
Customer relationships	523,074		(252,195)		270,879
Supplier relationships	49,756		(24,046)		25,710
Trade names	25,968		(22,330)		3,638
Order backlog	10,000		(10,000)		—
Patent	3,968		(852)		3,116
Total amortizable intangible assets	1,391,375		(717,869)		673,506
Non-amortizable intangible assets:
Telecommunication licenses	4,920		—		4,920
Trademarks and other	295		—		295
Total	$	1,396,590	$	(717,869)	$	678,721


	As of December 31, 2022
	Cost		Accumulated Amortization		Net
Amortizable intangible assets:	(In thousands)
Developed technology	$	795,753	$	(335,893)	$	459,860
Customer relationships	538,466		(204,241)		334,225
Supplier relationships	56,922		(19,846)		37,076
Trade names	30,342		(20,106)		10,236
Order backlog	10,000		(10,000)		—
Patent	4,028		(705)		3,323
Total amortizable intangible assets	1,435,511		(590,791)		844,720
Non-amortizable intangible assets:
Telecommunication licenses	4,920		—		4,920
Trademarks and other	295		—		295
Total	$	1,440,726	$	(590,791)	$	849,935

Amortization expense was $48.9 million and $51.7 million for the three months ended September 30, 2023 and 2022, respectively, and $150.0 million and $155.4 million for the nine months ended September 30, 2023 and 2022, respectively.

Total estimated future amortization expense is as follows:


	As of September 30, 2023
Year Ended December 31,	(In thousands)
2023 (remaining three months)	$	48,922
2024	191,486
2025	187,912
2026	117,416
2027	69,871
Thereafter	57,899
Total	$	673,506