Acquisitions

9 Months Ended

Sep. 30, 2022

Business Combination and Asset Acquisition [Abstract]

Acquisitions

Acquisitions

Acquisition-related costs during the three and nine months ended September 30, 2022 were $0.2 million and $10.6 million, respectively, and are included in general and administrative expense in the condensed consolidated statements of income. Pro forma results of operations for the acquisition completed during the nine months ended September 30, 2022 have not been presented because the effects of the acquisition were not material to the Company's consolidated financial results.

Linode

In March 2022, the Company acquired all the outstanding equity interests of Linode Limited Liability Company ("Linode") for $898.5 million in cash. Linode is an infrastructure-as-a-service platform provider that allows for developer-friendly cloud computing capabilities. The acquisition is intended to enhance the Company’s computing services by enabling it to create a unique cloud platform to build, run and secure applications from the cloud to the edge. Revenue attributable to Linode since the date of the acquisition, included in the Company's condensed consolidated statements of income, for the three and nine months ended September 30, 2022 was $33.1 million and $68.9 million, respectively. Earnings included in the Company's condensed consolidated statements of income since the date of the acquisition are not material.

The following table represents the preliminary allocation of the purchase price for Linode (in thousands):

Total purchase consideration	$	898,516
Allocation of the purchase consideration:
Cash	$	26,678
Accounts receivable	7,171
Prepaid expenses and other current assets	4,478
Property and equipment	56,268
Operating lease right-of-use assets	17,000
Identifiable intangible assets	196,020
Goodwill	617,695
Deferred income tax assets	2,528
Other assets	292
Total assets acquired	928,130
Accounts payable	(5,767)
Accrued expenses	(1,958)
Operating lease liabilities	(17,235)
Other liabilities	(4,654)
Total liabilities assumed	(29,614)
Net assets acquired	$	898,516

As of September 30, 2022, the purchase price allocation was substantially complete except for the finalization of certain income tax matters and net working capital. Measurement period adjustments to goodwill recognized during the nine months ended September 30, 2022 were $29.3 million and primarily related to property and equipment and intangible asset adjustments. The measurement period adjustments did not have a material effect on the Company's results of operations.

The value of the goodwill can be attributed to a number of business factors, including a trained technical workforce and cost synergies expected to be realized. The Company expects that all of the goodwill related to the acquisition of Linode will be deductible for tax purposes.

The following were the identified intangible assets acquired and their respective weighted average useful lives (in thousands, except years):

	Gross Carrying Amount		Weighted Average Useful Life (in years)
Customer-related intangible assets	$	84,200	17
Completed technologies	70,900		6
Acquired license rights	34,320		15
Trademarks and trade name	6,600		9
Total	$	196,020

The Company applied the relief-from-royalty method to estimate the fair values of the completed technologies and trademarks and the excess earnings method to estimate the fair values of the customer-related acquired intangible assets. The Company used readily available market data to estimate the fair values of the acquired license rights. The total weighted average amortization period for the intangible assets acquired from Linode is 12.2 years. The intangible assets are being amortized based upon the pattern in which the economic benefits of the intangible assets are being utilized.