Friday, February 23, 2024

BENTLEY SYSTEMS INC Management’s Discussion and Analysis of Financial Condition and Results of Operations (form 10-K) | MarketScreener

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The following discussion should be read in conjunction with our audited
consolidated financial statements and notes thereto appearing in Part II, Item 8
of this Annual Report on Form 10­K. In addition to historical information, this
discussion contains forward­looking statements that involve risks,
uncertainties, and assumptions that could cause actual results to differ
materially from management's expectations. Factors that could cause such
differences are set forth in Part I, Item 1A. Risk Factors of this Annual Report
on Form 10­K. Refer to Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations in our   2021 Annual Report on
Form         10    ­    K   for management's discussion and analysis of
financial condition and results of operations for the year ended December 31,
2021 compared to the year ended December 31, 2020.

All amounts presented in this Management's Discussion and Analysis of Financial
Condition and Results of Operations, except share and per share amounts, are
presented in thousands. Additionally, many of the amounts and percentages have
been rounded for convenience of presentation.

Overview:


We enable infrastructure professionals and their organizations, by "going
digital" through our software and cloud services offerings, to better design,
build, and operate better infrastructure. We were founded in 1984 by the Bentley
brothers and on September 25, 2020, we completed our IPO.

Our enduring commitment is to develop and support the most comprehensive
portfolio of integrated software offerings across professional disciplines,
project and asset lifecycles, infrastructure sectors, and geographies. Our
software enables digital workflows across engineering disciplines, across
distributed project teams, and from offices to the field. Moreover, we believe
that our offerings, in particular our infrastructure digital twin solutions,
empower the achievement of sustainable development goals by helping our users -
infrastructure professionals - realize outcomes that are more sustainable and
resilient.

We deliver our solutions via on­premises, cloud, and hybrid environments. Our
users engineer, construct, and operate projects and assets across the following
infrastructure sectors:

•public works (including roads, rail, bridges, tunnels, airports, ports, and
federal, state, and municipal agencies)/utilities (including networks for
electricity, gas, communications, and water, wastewater, and drainage). We
estimate that this sector represents 49% of the net infrastructure asset value
of the global top 500 infrastructure owners based on the 2022 edition of the
Bentley Infrastructure 500 Top Owners, our annual compilation of the world's
largest infrastructure owners ranked by net depreciated value of their tangible
fixed assets;

•resources (including mining, oil and gas "upstream," offshore, pipelines,
environmental management, and renewable energy). We estimate that this sector
represents 21% of the global top 500 infrastructure owners' net infrastructure
asset value;

•industrial (including discrete and process manufacturing, oil and gas
“downstream,” and power generation). We estimate that this sector represents 18%
of the global top 500 infrastructure owners’ net infrastructure asset value; and

•commercial/facilities (including office buildings, retail facilities,
hospitals, and campuses). We estimate that this sector represents 12% of the
global top 500 infrastructure owners’ net infrastructure asset value.

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We offer solutions for enterprises and professionals across the infrastructure
lifecycle. Our engineering applications and geoprofessional applications support
the breadth of engineering and geoprofessional disciplines and are primarily
desktop applications for professional practitioners. Our project delivery and
asset performance Enterprise Systems are provided via cloud and hybrid
environments, developed respectively to extend enterprise collaboration during
project delivery, and to manage and leverage engineering information during
operations and maintenance. Our Industry Solutions solve domain­specific
problems for owners of infrastructure assets, and the project delivery
ecosystems that support these owners. Our cloud-native iTwin Platform solutions
enable digital twin workflows, which can span project and asset lifecycles.

We continue to make substantial investments in research and development because
we believe the infrastructure engineering software market presents compelling
opportunities for the application of new technologies that advance our current
solutions. Our research and development roadmap balances technology advances and
new offerings with continuous enhancements to existing offerings. Our allocation
of research and development resources is guided by management­established
priorities, input from product managers, and user and sales force feedback.

We bring our offerings to market primarily through direct sales channels that
generated approximately 92% of our 2022 total revenues.


Since its founding, Bentley Systems has remained focused on our mission to
provide software in support of the professional needs of those responsible for
creating and managing the world's infrastructure. We have methodically grown
through periods of global expansion, periods of expansion in our portfolio of
solutions, and periods of rapid technological change. The following provides key
corporate milestones over our 38­year history:

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Our sources of revenue growth, excluding the impact from acquisitions, come from
additional subscriptions revenues from existing accounts using the same products
and represent the majority of our revenue growth, additional subscriptions
revenues from existing accounts using new products, and subscriptions revenues
from new accounts. For the year ended December 31, 2022, subscriptions
represented 87% of our total revenues, and together with certain services
revenues that are recurring in nature and represented 2% of our total revenues,
brought the proportion of our recurring revenues to 89% of our total revenues.
The remaining 11% of our revenues were generated from the sale of perpetual
licenses and the delivery of non­recurring services. We have a
highly­diversified account base, with our largest account representing no more
than 2% of our total revenues in 2022. Our 2022 total revenues were also
diversified by account type, size, and geography. Additionally, we believe that
we have a loyal account base, with over 70% of our 2022 total revenues from
organizations that have been our accounts for over ten years.

Our Commercial Offerings:


Our solutions are made available to our accounts in a broad range of commercial
offerings designed to accommodate the diverse preferences of our accounts, which
range from owned versus subscribed, short­term subscriptions versus annual
subscriptions, and fee­certain arrangements versus variable or consumption­based
arrangements with consumption measurement durations of less than one year. We
contract our commercial offerings under a single form of standard contract,
which includes liability and other risk protections in our favor, and
appropriate standard addendums to the primary contract, which specifically
address the commercial offerings provided. Our standard commercial offerings are
summarized in the table below, with further descriptions following the table:

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Enterprise Subscriptions. Our enterprise subscription offerings provide our
enterprise accounts with complete and unlimited global access to our
comprehensive portfolio of solutions.


•Enterprise 365 ("E365") Subscriptions. Under our E365 subscription, accounts
are charged primarily based upon daily usage. E365 subscriptions can contain
quarterly usage floors or collars. The daily usage fee includes a term license
component, SELECT maintenance and support, hosting, and Success Blueprints,
which are designed to achieve business outcomes through more efficient and
effective use of our software.

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•Enterprise License Subscriptions ("ELS"). Under our ELS offering, accounts are
charged based upon a fixed annual fee. Subsequent annual renewals are based on
the account's usage of software in the preceding year, effectively resulting in
a fee­certain annual consumption­based arrangement. We are completing efforts to
transition ELS subscribers to E365 subscriptions, primarily to simplify pricing,
more closely align consumption to monetization, and to establish Success
Blueprints as recurring to ensure better business outcomes for our users. In
transitioning subscribers to E365, we recognize a greater proportion of our
revenues on a quarterly basis rather than substantially upfront.

SELECT Subscriptions. Our SELECT subscription is a prepaid annual recurring
subscription that accompanies a new or previously purchased perpetual license.
We believe that the SELECT benefits summarized below support our favorable rates
of account retention and growth:

•Software upgrades;

•Comprehensive technical support;

•License pooling providing accounts with efficiency advantages;

•Portfolio balancing providing accounts the opportunity to exchange unused or
under used licenses with other of our license offerings;

•Learning benefits, Azure­based cloud collaboration services, and mobility
advantages; and

•Access to our entire application portfolio with usage of licenses not
previously purchased monetized quarterly in arrears based on consumption. See
the section titled “-Term License Subscriptions” below.

Term License Subscriptions


Annual Term Licenses ("ATL") Subscription. Annual term licenses are generally
prepaid annually for named user access to specific products and include our
Virtuoso subscriptions sold via our Virtuosity eStore for practitioner licenses.
Virtuoso subscriptions are bundles with customizable training and expert
consultation administered through "keys" or credits. ATL are also used to
monetize site or enterprise wide access for certain of our AssetWise solutions
within given usage bands.

Quarterly Term License ("QTL") Subscription. Through quarterly term licenses,
accounts pay quarterly in arrears for licenses they have used representing usage
beyond their contracted quantities. Much like our enterprise subscription
programs, a QTL allows smaller- and medium­sized accounts to match usage to
ongoing project requirements.

Monthly Term License (“MTL”) Subscription. Monthly term licenses are identical
to QTL subscriptions, except for the term of the license, and the manner in
which they are monetized. MTL subscriptions require a Cloud Services
Subscription, which is discussed below.


Visas. Visas are quarterly or annual term licenses enabling users to access
specific project or enterprise information and entitles our users to certain
functionality of our ProjectWise and AssetWise systems. Generally, a Visa
provides desktop, web, and mobile application access to project information and
certain functions, plus added functionality depending upon the product to which
the Visa is aligned.

While certain legacy arrangements are supported, our standard offering requires
Visas to be fulfilled and contracted via a CSS, which is discussed below.

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Cloud Services Subscription ("CSS"). CSS is designed to streamline the
procurement, administration, and payment process for us and our accounts. A CSS
requires an upfront annual estimation of MTL, Visa consumption, and any Success
Services expected for the upcoming year. A deposit for the annual estimated
consumption is submitted in advance. Actual consumption is monitored and
invoiced against the deposit on a calendar quarter basis. Accounts are charged
only for what gets used and deposited amounts never expire.

Perpetual Licenses


We historically have sold perpetual licenses and continue to offer them to our
accounts as an available option for most of our applications. Perpetual licenses
are available for accounts that prefer to own their software licenses and may be
sold with or without attaching a SELECT subscription. Historically, attachment
and retention of the SELECT subscription has been high given the benefits of the
SELECT subscription.

Services

We provide professional services, including training, implementation,
configuration, customization, and strategic consulting services. We perform
projects on both a time and materials and a fixed fee basis. Certain of our
fixed­fee arrangements, including our Success Services offerings, are structured
as subscription­like, packaged offerings that are annually recurring in nature.
Success Services are standard service offerings that provide a level of
dedicated professional services above the standard technical support offered to
all accounts as part of their SELECT or enterprise agreement.

Key Business Metrics:


We regularly review the following key metrics to evaluate our business, measure
our performance, identify trends in our business, prepare financial projections,
and make strategic decisions.

                                                                        

December 31,

                                                        2022                2021                2020
Annualized recurring revenues ("ARR")              $ 1,036,548          $  921,218          $  752,697
Last twelve-months recurring revenues              $   978,024          $  834,150          $  696,662
Twelve-months ended constant currency:
ARR growth rate                                             15  %               26  %                8  %
Account retention rate                                      98  %               98  %               98  %

Recurring revenues dollar-based net retention rate 110 %

    109  %              107  %


ARR. Our ARR is defined as the sum of the annualized value of our portfolio of
contracts that produce recurring revenues as of the last day of the reporting
period, and the annualized value of the last three months of recognized revenues
for our contractually recurring consumption­based software subscriptions with
consumption measurement durations of less than one year, calculated using the
spot foreign exchange rates. We believe that the last three months of recognized
revenues, on an annualized basis, for our recurring software subscriptions with
consumption measurement period durations of less than one year is a reasonable
estimate of the annual revenues, given our consistently high retention rate and
stability of usage under such subscriptions. ARR resulting from the
annualization of recurring contracts with consumption measurement durations of
less than one year, as a percentage of total ARR, was 43%, 38%, and 36% as of
December 31, 2022, 2021, and 2020, respectively. Within our consumption­measured
ARR, the continuous uptake of our E365 subscription offering has increased daily
consumption­measured ARR, representing 35% of total ARR as of December 31, 2022.
We believe that ARR is an important metric indicating the scale and growth of
our business. Furthermore, we believe ARR, considered in connection with our
recurring revenues dollar­based net retention rate, is a leading indicator of
revenue growth.

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In March 2022, in response to the Russia­Ukraine war, we announced a pause of
sales in Russia and Belarus, in addition to our strict compliance with
applicable sanctions, regimes, and other regulatory restrictions on business
activities in those countries. As a result of the conflict, we deemed our
overall business recurrence in the affected countries to have been reduced by
approximately 50%, and accordingly, reduced our related ARR by $5,190 as of
March 31, 2022. During the second quarter of 2022, the marked shifts in the
Russian business environment and economic outlook led us to conclude it was no
longer viable for us to continue operations in Russia. Accordingly, we made the
decision to wind down business and exit the Russian market, which resulted in a
further reduction in our ARR by $6,000.

Last twelve­months recurring revenues. Last twelve­months recurring revenues is
calculated as recurring revenues recognized over the preceding twelve­month
period. We define recurring revenues as subscriptions revenues that recur
monthly, quarterly, or annually with specific or automatic renewal clauses and
services revenues in which the underlying contract is based on a fixed fee and
contains automatic annual renewal provisions.

We believe that last twelve­months recurring revenues is an important indicator
of our performance during the immediately preceding twelve­month time period. We
believe that we will continue to experience favorable growth in recurring
revenues primarily due to our strong account retention and recurring revenues
dollar­based net retention rates, as well as the addition of new accounts with
recurring revenues. The last twelve­months recurring revenues for the periods
ended December 31, 2022, 2021, and 2020 compared to the last twelve­months of
the preceding twelve­month period increased by $143,874, $137,488, and $65,565,
respectively. This increase was primarily due to growth in ARR, which is
primarily the result of growing our recurring revenues within our existing
accounts as expressed in our recurring revenues dollar­based net retention rate,
as well as additional recurring revenues resulting from new accounts and
acquisitions, including the favorable impact from our platform acquisitions of
Power Line Systems and Seequent. For the twelve months ended December 31, 2022,
2021, and 2020, 89%, 86%, and 87%, respectively, of our revenues were recurring
revenues.

Constant currency metrics. In reporting period­over­period results, we calculate
the effects of foreign currency fluctuations and constant currency information
by translating current period results using prior period average foreign
currency exchange rates. Our definition of constant currency may differ from
other companies reporting similarly named measures, and these constant currency
performance measures should be viewed in addition to, and not as a substitute
for, our operating performance measures calculated in accordance with U.S. GAAP.

ARR growth rate. Our ARR growth rate is the growth rate of our ARR, measured on
a constant currency basis. Our ARR growth rate was favorably impacted by the ARR
onboarding from our platform acquisition of Power Line Systems by 2.5% for the
year ended December 31, 2022 and by 13% for the year ended December 31, 2021 due
to the ARR onboarding from our platform acquisition of Seequent. We believe that
ARR growth is an important metric indicating the scale and growth of our
business.

Account retention rate. Our account retention rate for any given twelve-month
period is calculated using the average currency exchange rates for the prior
period, as follows: the prior period recurring revenues from all accounts with
recurring revenues in the current and prior period, divided by total recurring
revenues from all accounts during the prior period. Our account retention rate
is an important indicator that provides insight into the long­term value of our
account relationships and our ability to retain our account base. We believe
that our consistent and high account retention rates illustrate our ability to
retain and cultivate long­term relationships with our accounts.

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Recurring revenues dollar­based net retention rate. Our recurring revenues
dollar­based net retention rate is calculated using the average exchange rates
for the prior period, as follows: the recurring revenues for the current period,
including any growth or reductions from existing accounts, but excluding
recurring revenues from any new accounts added during the current period,
divided by the total recurring revenues from all accounts during the prior
period. A period is defined as any trailing twelve months. Related to our
platform acquisitions, recurring revenues into new accounts will be captured as
existing accounts starting with the second anniversary of the acquisition when
such data conforms to the calculation methodology. This may cause variability in
the comparison. We believe our recurring revenues dollar­based net retention
rate is a key indicator of our success in growing our revenues within our
existing accounts. Given that recurring revenues represented 89% of our total
revenues for the twelve months ended December 31, 2022, this metric helps
explain our revenue performance, excluding the impact from acquisitions, as
primarily growth into existing accounts. We believe that our consistent and high
recurring revenues dollar­based net retention rate illustrates our ability to
consistently retain accounts and grow them.

Our calculation of these metrics may not be comparable to other companies with
similarly­titled metrics.


Non-GAAP Financial Measures:

In addition to our results determined in accordance with U.S. GAAP, we also use
the below non­GAAP financial information to evaluate our ongoing operations and
for internal planning and forecasting purposes.

                               Year Ended December 31,
                         2022           2021           2020

Adjusted EBITDA $ 366,440 $ 324,948 $ 266,376
Adjusted Net Income 274,518 267,892 193,334



Adjusted EBITDA. We define Adjusted EBITDA as net income adjusted for interest
expense, net, provision (benefit) for income taxes, depreciation and
amortization, stock­based compensation, expense (income) relating to deferred
compensation plan liabilities, acquisition expenses, realignment expenses,
expenses associated with IPO, other non­operating (income) expense, net, and
(income) loss from investments accounted for using the equity method, net of
tax.

Adjusted Net Income. We define Adjusted Net Income as net income adjusted for
the following: amortization of purchased intangibles, stock­based compensation,
expense (income) relating to deferred compensation plan liabilities, acquisition
expenses, realignment expenses, expenses associated with IPO, other
non­operating (income) expense, net, the tax effect of the above adjustments to
net income, and (income) loss from investments accounted for using the equity
method, net of tax. The income tax effect of non­GAAP adjustments was determined
using the applicable rates in the taxing jurisdictions in which income or
expense occurred, and represent both current and deferred income tax expense or
benefit based on the nature of the non­GAAP adjustments, including the tax
effects of non­cash stock­based compensation expense.

Adjusted EBITDA and Adjusted Net Income are not presentations made in accordance
with U.S. GAAP, and our use of the terms Adjusted EBITDA and Adjusted Net Income
may vary from the use of similarly titled measures by others in our industry due
to the potential inconsistencies in the method of calculation and differences
due to items subject to interpretation. We believe the presentation of Adjusted
EBITDA and Adjusted Net Income provides useful information to management and
investors regarding financial and business trends related to our results of
operations and that when non­GAAP financial information is viewed with U.S. GAAP
financial information, investors are provided with a more meaningful
understanding of our ongoing operating performance. We also use Adjusted EBITDA
and Adjusted Net Income to compare our results to those of our competitors and
to consistently measure our performance from period to period.

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Adjusted EBITDA and Adjusted Net Income should not be considered as alternatives
to net income, operating income, or any other performance measures derived in
accordance with U.S. GAAP as measures of operating performance. Adjusted EBITDA
and Adjusted Net Income have important limitations as analytical tools and
should not be considered in isolation or as a substitute for analysis of our
results as reported under U.S. GAAP.

Reconciliation of net income to Adjusted EBITDA:

                                                                 Year Ended December 31,
                                                      2022                2021                2020
Net income                                        $  174,780          $   93,192          $  126,521
Interest expense, net                                 34,635              11,221               6,780
Provision (benefit) for income taxes                  21,283              (3,448)             38,625
Depreciation and amortization                         71,537              52,793              36,117
Stock-based compensation (2)                          74,566              48,152              32,114
Deferred compensation plan (3)                       (15,782)             95,046                 177
Acquisition expenses (4)                              25,398              34,368              11,666
Realignment expenses (5)                               2,109                   -              10,022
Expenses associated with IPO (6)                           -                   -              26,130
Other income, net (7)                                (24,298)             (9,961)            (24,250)
Loss from investments accounted for using the
equity method, net of tax                              2,212               3,585               2,474
Adjusted EBITDA                                   $  366,440          $  324,948          $  266,376

Reconciliation of net income to Adjusted Net Income:

                                                                 Year Ended December 31,
                                                      2022                2021                2020
Net income                                        $  174,780          $   93,192          $  126,521
Non-GAAP adjustments, prior to income taxes:
Amortization of purchased intangibles (1)             53,592              34,001              20,721
Stock-based compensation (2)                          74,566              48,152              32,114
Deferred compensation plan (3)                       (15,782)             95,046                 177
Acquisition expenses (4)                              25,398              34,368              11,666
Realignment expenses (5)                               2,109                   -              10,022
Expenses associated with IPO (6)                           -                   -              26,130
Other income, net (7)                                (24,298)             (9,961)            (24,250)
Total non-GAAP adjustments, prior to income taxes    115,585             201,606              76,580
Income tax effect of non-GAAP adjustments            (18,059)            (30,491)            (12,241)
Loss from investments accounted for using the
equity method, net of tax                              2,212               3,585               2,474
Adjusted Net Income                               $  274,518          $  267,892          $  193,334


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Further explanation of certain of our adjustments in arriving at Adjusted EBITDA
and Adjusted Net Income are as follows:


(1)Amortization of purchased intangibles. Amortization of purchased intangibles
varies in amount and frequency and is significantly impacted by the timing and
size of our acquisitions. Management finds it useful to exclude these non­cash
charges from our operating expenses to assist in budgeting, planning, and
forecasting future periods. The use of intangible assets contributed to our
revenues earned during the periods presented and will also contribute to our
revenues in future periods. Amortization of purchased intangible assets will
recur in future periods.

(2)Stock­based compensation. We exclude certain stock­based compensation
expenses from our non­GAAP measures primarily because they are non­cash expenses
and management finds it useful to exclude certain non­cash charges to assess the
appropriate level of various operating expenses to assist in budgeting,
planning, and forecasting future periods. Moreover, because of the variety of
award types and subjective assumptions made in recognizing stock­based
compensation expense, we believe excluding stock­based compensation expenses
allows investors to make meaningful comparisons between our recurring core
business results of operations and those of other companies.

(3)Deferred compensation plan. In August 2021, our board of directors approved
an amendment to the amended and restated Bentley Systems, Incorporated
Nonqualified Deferred Compensation Plan (the "DCP"), which offered to certain
active executives in the DCP a one­time, short­term election to reallocate a
limited portion of their DCP holdings from phantom shares of the Company's
Class B Common Stock into other phantom investment funds. The offer to
reallocate was subject to a proration mechanism which adjusted the aggregate
elections to a maximum of 1,500,000 phantom shares of the Company's Class B
Common Stock. This one­time reallocation opportunity was offered only to certain
active executives (but not to Directors or Bentley family members) in order to
encourage retention, as otherwise these executives could only have materially
diversified their investments in Company equity (primarily held in the DCP) by
voluntarily terminating employment to trigger DCP distributions. These
executives in aggregate accordingly diversified 24% of their phantom shares of
the Company's Class B Common Stock. While DCP participants' investments in
phantom shares remain equity classified, as they will be settled in shares of
Class B Common Stock upon eventual distribution, the amendment and elections
resulted in a change to liability classification for the reallocated phantom
investments, as they will be settled in cash upon eventual distribution. As a
result, during the year ended December 31, 2021, we recognized a one­time
compensation charge of $90,721 to Deferred compensation plan expenses in the
consolidated statement of operations to record the reallocated deferred
compensation plan liabilities at their fair value. Deferred compensation plan
liabilities are marked to market at the end of each reporting period, with
changes in the liabilities recorded as an expense (income) to Deferred
compensation plan in the consolidated statements of operations. We exclude
Deferred compensation plan expense (income) when we evaluate our continuing
operational performance because it is not reflective of our ongoing business and
results of operation. We believe it is useful for investors to understand the
effects of this item on our total operating expenses.

(4)Acquisition expenses. We incur expenses for professional services rendered in
connection with business combinations, which are included in our U.S. GAAP
presentation of general and administrative expense (See Note 4 to our
consolidated financial statements included in Part II, Item 8 of this Annual
Report on Form 10­K). Also included in our acquisition expenses are retention
incentives paid to executives of the acquired companies. For the year ended
December 31, 2022, $9,804 of our acquisition expenses related to our platform
acquisition of Power Line Systems. For the year ended December 31, 2021, $16,557
and $1,644 of our acquisition expenses related to our platform acquisitions of
Seequent and Power Line Systems, respectively. We exclude these acquisition
expenses when we evaluate our continuing operational performance as we would not
have otherwise incurred these expenses in the periods presented as part of our
continuing operations.

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(5)Realignment expenses. During 2022, the marked shifts in the Russian business
environment and economic outlook led us to conclude it was no longer viable for
us to continue operations in Russia. Accordingly, we made the decision to wind
down business and exit the Russian market. As a result, we incurred exit costs,
which were comprised of termination benefits for colleagues whose positions were
eliminated and asset impairments. During 2020, these expenses were associated
with realigning our business strategies to better serve our accounts and to
better align resources with the evolving needs of the business. In connection
with these actions, we recognized costs related to termination benefits for
colleagues whose positions were eliminated. We exclude these charges and
subsequent adjustments to our estimates when we evaluate our continuing
operational performance because they are not reflective of our ongoing business
and results of operations. We believe it is useful for investors to understand
the effects of these items on our total operating expenses. In the ordinary
course of operating our business, we incur severance expenses that are not
included in this adjustment.

(6)Expenses associated with IPO. These expenses include certain non-recurring
costs relating to our IPO, consisting of the payment of underwriting discounts
and commissions applicable to the sale of shares by the selling stockholders,
professional fees, and other expenses. We exclude these charges because they are
not reflective of our ongoing business and results of operation. We believe it
is useful for investors to understand the effects of these items on our total
operating expenses.

(7)Other income, net. The table below contains the details of Other income, net.
We exclude these items because they are not reflective of our ongoing business
and results of operations. We believe it is useful for investors to understand
the effects of these items on our results of operations.

                                                                  Year Ended December 31,
                                                       2022                 2021                 2020
(Gain) loss from:
Change in fair value of interest rate swap        $   (27,083)         $    (9,770)         $      (347)
Foreign exchange (a)                                    9,901                 (827)             (22,919)

Sale of aircraft                                       (2,029)                   -                    -

Change in fair value of acquisition contingent
consideration                                          (1,427)                 550               (1,340)
Payments related to interest rate swap                 (1,947)               1,270                  696
Other income, net                                      (1,713)              (1,184)                (340)
Total other income, net                           $   (24,298)         $    (9,961)         $   (24,250)




(a)Foreign exchange loss (gain) is primarily attributable to foreign currency
translation derived mainly from U.S. Dollar denominated cash and cash
equivalents, account receivables, customer deposits, and intercompany balances
held by foreign subsidiaries. Intercompany finance transactions primarily
denominated in U.S. Dollars resulted in unrealized foreign exchange losses
(gains) of $7,369, $779, and $(22,310) for the years ended December 31, 2022,
2021, and 2020, respectively.

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Key Factors Impacting Comparability and Performance:


In addition to our performance previously discussed in "-Key Business Metrics"
and "-Non-GAAP Financial Measures," and as discussed further below in "-Results
of Operations" and "-Liquidity and Capital Resources," our consolidated
financial statements were impacted by the following:

Acquisitions. Since our founding, we have purposefully pursued a strategy of
regularly acquiring and integrating specialized infrastructure engineering
software businesses. As a public company, we have been able to make platform
acquisitions which appreciably increase our scale and/or the scope of our
platform capabilities. Our relatively numerous and frequent programmatic
acquisitions, which most often "fill white space" within our ecosystem and add
their particular value principally by virtue of our existing platform
comprehensiveness, and accordingly we consider this programmatic aspect of our
growth as characteristically within our mainstream business performance (unlike
platform acquisitions).

We completed 6, 13, and 6 acquisitions for the years ended December 31, 2022,
2021, and 2020, respectively. Our year ended December 31, 2022 consolidated
financial statements were meaningfully impacted by our platform acquisition of
Power Line Systems, which was completed on January 31, 2022 for $695,968 in
cash, net of cash acquired. Our year ended December 31, 2022 and 2021
consolidated financial statements were meaningfully impacted by our platform
acquisition of Seequent, which was completed on June 17, 2021 for $883,336 in
cash, net of cash acquired, plus 3,141,342 shares of our Class B Common Stock.
For the year ended December 31, 2022, $9,804 of our acquisition expenses related
to the acquisition of Power Line Systems. For the year ended December 31, 2021,
$16,557 and $1,644 of our acquisition expenses related to the acquisitions of
Seequent and Power Line Systems, respectively.

DCP Amendment. In August 2021, our board of directors approved an amendment to
the DCP, which offered to certain active executives in the DCP a one­time,
short­term election to reallocate a limited portion of their DCP holdings from
phantom shares of our Class B Common Stock into other phantom investment funds.
The offer to reallocate was subject to a proration mechanism which adjusted the
aggregate elections to a maximum of 1,500,000 phantom shares of the Company's
Class B Common Stock. This one­time reallocation opportunity was offered only to
certain active executives (but not to Directors or Bentley family members) in
order to encourage retention, as otherwise these executives could only have
materially diversified their investments in Company equity (primarily held in
the DCP) by voluntarily terminating employment to trigger DCP distributions.
These executives in aggregate accordingly diversified 24% of their phantom
shares of the Company's Class B Common Stock. While DCP participants'
investments in phantom shares remain equity classified, as they will be settled
in shares of Class B Common Stock upon eventual distribution, the amendment and
elections resulted in a change to liability classification for the reallocated
phantom investments, as they will be settled in cash upon eventual distribution.
As a result, during the year ended December 31, 2021, we recognized a one­time
compensation charge of $90,721 to Deferred compensation plan expenses in the
consolidated statement of operations to record the reallocated deferred
compensation plan liabilities at their fair value. Subsequent to the one­time
reallocation, these diversified deferred compensation plan liabilities are
marked to market at the end of each reporting period, with changes in the
liabilities recorded as an expense (income) to Deferred compensation plan in the
consolidated statements of operations.

BSY Stock Repurchase Program. On May 11, 2022, we announced that our board of
directors approved the BSY Stock Repurchase Program (the "Repurchase Program")
authorizing us to repurchase up to $200,000 of our Class B Common Stock through
June 30, 2024. On December 14, 2022, our board of directors amended the
Repurchase Program to allow us also to repurchase its outstanding convertible
senior notes. This additional authorization did not increase the overall dollar
limit of the Repurchase Program. For the year ended December 31, 2022, we
repurchased 896,126 shares for $28,250, and $2,170 aggregate principal amount of
our outstanding 2026 Notes for $1,998.

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Impact of foreign currency. A portion of our total revenues and operating
expenses were derived from outside the U.S. and, as such, were denominated in
various foreign currencies, including most significantly: Euros, British Pounds,
Canadian Dollars, Australian Dollars, Chinese Yuan Renminbi, and New Zealand
Dollars. Our financial results are therefore affected by changes in foreign
currency rates. For the years ended December 31, 2022, 2021, and 2020, 36%, 47%,
and 43%, respectively, of our total revenues were denominated in various foreign
currencies. Correspondingly, for the years ended December 31, 2022, 2021, and
2020, 46%, 42%, and 46%, respectively, of our total operating expenses were
denominated in various foreign currencies. Other than the natural hedge
attributable to matching revenues and expenses in the same currencies, we do not
currently hedge foreign currency exposure. Accordingly, our results of
operations have been, and in the future will be, affected by changes in foreign
exchange rates.

We identify the effects of foreign currency on our operations and present
constant currency growth rates and fluctuations because we believe exchange
rates are an important factor in understanding period­over­period comparisons
and enhance the understanding of our results and evaluation of our performance.
In reporting period-over-period results, we calculate the effects of foreign
currency fluctuations and constant currency information by translating current
period results using prior period average foreign currency exchange rates. Our
definition of constant currency may differ from other companies reporting
similarly named measures, and these constant currency performance measures
should be viewed in addition to, and not as a substitute for, our operating
performance measures calculated in accordance with U.S. GAAP.

Components of Results of Operations:


We manage our business globally within one operating segment, the development
and marketing of computer software and related services, which is consistent
with how our chief operating decision maker reviews and manages our business.

Revenues

We generate revenues from subscriptions, perpetual licenses, and services.

Subscriptions


Enterprise subscriptions. We provide enterprise subscription offerings, which
provide our enterprise accounts with complete and unlimited global access to our
comprehensive portfolio of solutions. Our E365 subscriptions are charged to
accounts primarily based upon daily usage. The daily usage fee includes a term
license component, SELECT maintenance and support, hosting, and Success
Blueprints, which are designed to achieve business outcomes through more
efficient and effective use of our software. E365 subscriptions can contain
quarterly usage floors or collars. Alternatively, ELS provides access for a
prepaid fee, which is based on the account's usage of software in the preceding
year, to effectively create a fee­certain consumption­based arrangement. ELS
contain a term license component, SELECT maintenance and support, and
performance consulting days. The E365 and ELS offerings both contain a distinct
term license component. E365 revenues are recognized based upon usage incurred
by the account. ELS revenues are recognized as the distinct performance
obligations are satisfied.

SELECT subscriptions. We provide prepaid annual recurring subscriptions that
accompanies a new or previously purchased perpetual license. SELECT provides
accounts with benefits, including upgrades, comprehensive technical support,
pooled licensing benefits, annual portfolio balancing exchange rights, learning
benefits, certain Azure­based cloud collaboration services, mobility advantages,
and access to other available benefits. SELECT subscriptions revenues are
recognized as distinct performance obligations are satisfied.

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Term license subscriptions. We provide annual, quarterly, and monthly term
licenses for our software products. ATL subscriptions are generally prepaid
annually for named user access to specific products and include our Virtuoso
subscriptions sold via our Virtuosity eStore for practitioner licenses. Virtuoso
subscriptions are bundles with customizable training and expert consultation
administered through "keys" or credits. QTL subscriptions allow accounts to pay
quarterly in arrears for license usage that is beyond their contracted
quantities. MTL subscriptions are identical to QTL subscriptions, except for the
term of the license, and the manner in which they are monetized. MTL
subscriptions require a CSS, which is described below.

Visas are quarterly or annual term licenses enabling users to access specific
project or enterprise information and entitles users to certain functionality of
our ProjectWise and AssetWise systems. Our standard offerings are usage based
with monetization through our CSS program as described below. Annual, quarterly,
and monthly term licenses revenues are recognized as the distinct performance
obligations for each are satisfied. Billings in advance are recorded as Deferred
revenues in the consolidated balance sheets. QTL, MTL, and Visas subscriptions
are recognized based upon usage incurred by the account.

CSS is a program designed to streamline the procurement, administration, and
payment process. The program requires an estimation of annual usage for CSS
eligible offerings and a deposit of funds in advance Actual consumption is
monitored and invoiced against the deposit on a calendar quarter basis. CSS
balances not utilized for eligible products or services may roll over to future
periods or are refundable. Paid and unconsumed CSS balances are recorded in
Accruals and other current liabilities in the consolidated balance sheets.
Software and services consumed under CSS are recognized pursuant to the
applicable revenue recognition guidance for the respective software or service
and classified as subscriptions or services based on their respective nature.

Perpetual licenses


Perpetual licenses may be sold with or without attaching a SELECT subscription.
Historically, attachment and retention of the SELECT subscription has been high
given the benefits of the SELECT subscription discussed above. Perpetual
licenses revenues are recognized upon delivery of the license to the user.

Services


We provide professional services, including training, implementation,
configuration, customization, and strategic consulting services. We perform
projects on both a time and materials and a fixed fee basis. Certain of our
fixed­fee arrangements, including our Success Services offerings, are structured
as subscription­like, packaged offerings that are annually recurring in nature.
Success Services are standard service offerings that provide a level of
dedicated professional services above the standard technical support offered to
all accounts as part of their SELECT or enterprise agreement. Revenues are
recognized as services are performed.

Headcount-related costs


For the years ended December 31, 2022, 2021, and 2020, approximately 80% of our
aggregate cost of revenues, research and development, selling and marketing, and
general and administrative expenses were represented by what we refer to herein
as "headcount-related" costs. These costs primarily include salaries,
incentives, benefits, employment taxes, travel, and realignment of our
colleagues, and third­party personnel and related overhead. Our
headcount­related costs are variable in nature. We actively manage these costs
to align to our trending run rate of revenue performance, with the objective of
enhancing visibility and predictability of resulting operating profit margins.

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Cost of subscriptions, licenses, and services


Cost of subscriptions and licenses. Cost of subscriptions and licenses includes
salaries and other related costs, including the depreciation of property and
equipment and the amortization of capitalized software costs associated with
servicing software subscriptions, the amortization of intangible assets
associated with acquired software and technology, channel partner compensation
for providing sales coverage to subscribers, as well as cloud­related costs
incurred for servicing our accounts using cloud provisioned solutions and our
license administration platform.

Cost of services. Cost of services includes salaries for internal and
third­party personnel and related overhead costs, including depreciation of
property and equipment and amortization of capitalized software costs, for
providing training, implementation, configuration, and customization services to
accounts.

Operating expense (income)

Research and development. Research and development expenses, which are generally
expensed as incurred, primarily consist of personnel and related costs of our
research and development staff, including salaries, incentives, and benefits,
and costs of certain third­party contractors, as well as allocated overhead
costs. We expense software development costs, including costs to develop
software products or the software component of products to be sold, leased, or
marketed to external accounts, before technological feasibility is reached. In
general, technological feasibility is reached shortly before the release of such
products.

Under our Accelerated Commercial Development Program ("ACDP") (our structured
approach to an in­house business incubator function), we capitalize certain
development costs related to certain projects once technological feasibility is
established. Technological feasibility is established when a detailed program
design has been completed and documented; we have established that the necessary
skills, hardware, and software technology are available to produce the product;
and there are no unresolved high­risk development issues. Once the software is
ready for its intended use, amortization is recorded over the software's
estimated useful life (generally three years). Total costs capitalized under the
ACDP were $7,060, $6,608, and $7,809 for the years ended December 31, 2022,
2021, and 2020, respectively. Additionally, total ACDP related amortization
recorded in Costs of subscriptions and licenses was $6,626, $7,020, and $4,699
for the years ended December 31, 2022, 2021, and 2020, respectively.

Selling and marketing. Selling and marketing expenses include salaries,
benefits, bonuses, and stock­based compensation expense for our selling and
marketing colleagues, the expense of travel, entertainment, and training for
such personnel, online marketing, product marketing and other brand­building
activities, such as advertising, trade shows, and expositions, various sales and
promotional programs, and costs of computer equipment and facilities used in
selling and marketing activities. We anticipate that we will continue to make
strategic investments in our global business systems and methods to enhance
major account sales activities and to support our worldwide sales and marketing
strategies, and the business in general. We capitalize certain incremental costs
of obtaining a contract and recognize these expenses over the period of benefit
associated with these costs, resulting in a deferral of certain contract costs
each period. The contract costs are amortized based on the economic life of the
goods and services to which the contract costs relate. We apply a practical
expedient to expense costs as incurred for costs to obtain a contract with a
customer when the amortization period would have been one year or less. These
costs include our internal sales force compensation program and certain channel
partner sales incentive programs for which the annual compensation is
commensurate with annual sales activities.

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General and administrative. General and administrative expenses include
salaries, bonuses, benefits, and stock­based compensation expense for our
finance, human resources, and legal colleagues, the expense of travel,
entertainment, and training for such personnel, professional fees for legal and
accounting services, and costs of computer equipment and facilities used in
general and administrative activities. Following the completion of the IPO, we
continued to incur additional expenses as a result of operating as a public
company, including costs to comply with the rules and regulations applicable to
companies listed on a U.S. securities exchange and costs related to compliance
and reporting obligations pursuant to the rules and regulations of the SEC. In
addition, as a public company, we incur increased expenses in the areas of
insurance, investor relations, and professional services. As a result, we expect
the dollar amount of our general and administrative expenses to increase for the
foreseeable future. We expect, however, that our general and administrative
expenses will decrease as a percentage of our total revenues over time, although
the percentage may fluctuate from period to period depending on fluctuations in
our revenue and the timing and extent of our general and administrative
expenses.

Deferred compensation plan. In August 2021, our board of directors approved an
amendment to the DCP, which offered to certain active executives in the DCP a
one­time, short­term election to reallocate a limited portion of their DCP
holdings from phantom shares of the Company's Class B Common Stock into other
phantom investment funds. The offer to reallocate was subject to a proration
mechanism which adjusted the aggregate elections to a maximum of 1,500,000
phantom shares of the Company's Class B Common Stock. This one­time reallocation
opportunity was offered only to certain active executives (but not to Directors
or Bentley family members) in order to encourage retention, as otherwise these
executives could only have materially diversified their investments in Company
equity (primarily held in the DCP) by voluntarily terminating employment to
trigger DCP distributions. These executives in aggregate accordingly diversified
24% of their phantom shares of the Company's Class B Common Stock. While DCP
participants' investments in phantom shares remain equity classified, as they
will be settled in shares of Class B Common Stock upon eventual distribution,
the amendment and elections resulted in a change to liability classification for
the reallocated phantom investments, as they will be settled in cash upon
eventual distribution. As a result, during the year ended December 31, 2021, we
recognized a one­time compensation charge of $90,721 to Deferred compensation
plan expenses in the consolidated statement of operations to record the
reallocated deferred compensation plan liabilities at their fair value. Deferred
compensation plan liabilities are marked to market at the end of each reporting
period, with changes in the liabilities recorded as an expense (income) to
Deferred compensation plan in the consolidated statements of operations.

Amortization of purchased intangibles. Amortization of purchased intangibles
includes the amortization of acquired non­product related intangible assets,
primarily customer relationships, trademarks, and non­compete agreements
recorded in connection with completed acquisitions.

Expenses associated with initial public offering. Expenses associated with IPO
include certain non-recurring costs relating to our IPO, consisting of the
payment of underwriting discounts and commissions applicable to the sale of
shares by the selling stockholders, professional fees, and other expenses. We
completed our IPO on September 25, 2020. These fees were expensed in the period
incurred.

Interest expense, net

Interest expense, net primarily represents interest associated with the Credit
Facility, the 2026 Notes, the 2027 Notes, amortization and write­off of deferred
debt issuance costs, and interest income from our investments in money market
funds.

Other income (expense), net

Other income (expense), net primarily consists of foreign currency translation
results derived primarily from U.S. Dollar denominated cash and cash
equivalents, accounts receivable, and intercompany balances held by foreign
subsidiaries with non­U.S. Dollar functional currencies. Other income (expense),
net also includes the fair value valuation result of our interest rate swap,
payments related to our interest rate swap, the gain on the sale of 50% of our
interest in our aircraft recorded during the year ended December 31, 2022, gain
on extinguishment of debt, and changes in fair value of acquisition contingent
consideration.

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(Provision) benefit for income taxes

(Provision) benefit for income taxes includes the aggregate consolidated income
tax expense for U.S. domestic and foreign income taxes.

Loss from investments accounted for using the equity method, net of tax

Loss from investments accounted for using the equity method includes our
proportional share of loss in our joint ventures.

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Results of Operations:


Our selected consolidated statements of operations data for each of the periods
indicated are as follows:

                                                                             Year Ended December 31,
                                                                2022                   2021                   2020
Revenues:
Subscriptions                                             $     960,220          $     812,807          $     679,273
Perpetual licenses                                               43,377                 53,080                 57,382
Subscriptions and licenses                                    1,003,597                865,887                736,655
Services                                                         95,485                 99,159                 64,889
Total revenues                                                1,099,082                965,046                801,544
Cost of revenues:
Cost of subscriptions and licenses                              147,578                124,321                 95,803
Cost of services                                                 89,435                 92,218                 71,352
Total cost of revenues                                          237,013                216,539                167,155
Gross profit                                                    862,069                748,507                634,389
Operating expense (income):
Research and development                                        257,856                220,915                185,515
Selling and marketing                                           195,622                162,240                143,791
General and administrative                                      174,647                150,116                113,274
Deferred compensation plan                                      (15,782)                95,046                    177
Amortization of purchased intangibles                            41,114                 25,601                 15,352
Expenses associated with initial public offering                      -                      -                 26,130
Total operating expenses                                        653,457                653,918                484,239
Income from operations                                          208,612                 94,589                150,150
Interest expense, net                                           (34,635)               (11,221)                (6,780)
Other income, net                                                24,298                  9,961                 24,250
Income before income taxes                                      198,275                 93,329                167,620
(Provision) benefit for income taxes                            (21,283)                 3,448                (38,625)
Loss from investments accounted for using the
equity method, net of tax                                        (2,212)                (3,585)                (2,474)
Net income                                                      174,780                 93,192                126,521
Less: Net income attributable to participating
securities                                                          (42)                    (9)                  (234)
Net income attributable to Class A and
Class B common stockholders                               $     174,738          $      93,183          $     126,287
Per share information:
Net income per share, basic                               $        0.57          $        0.30          $        0.44
Net income per share, diluted                             $        0.55          $        0.30          $        0.42
Weighted average shares, basic                              309,226,677            305,711,345            289,863,272
Weighted average shares, diluted                            331,765,158            314,610,814            299,371,129


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In reporting period­over­period results, we calculate the effects of foreign
currency fluctuations and constant currency information by translating current
period results using prior period average foreign currency exchange rates. Our
definition of constant currency may differ from other companies reporting
similarly named measures, and these constant currency performance measures
should be viewed in addition to, and not as a substitute for, our operating
performance measures calculated in accordance with U.S. GAAP.

Comparison of the Years Ended December 31, 2022 and 2021


Revenues

                                                                                Comparison
                                           Year Ended                                           Constant
                                          December 31,                                          Currency
                                      2022            2021          Amount           %             %
    Subscriptions                 $   960,220      $ 812,807      $ 147,413        18.1  %       24.3  %
    Perpetual licenses                 43,377         53,080        

(9,703) (18.3 %) (12.1 %)

Subscriptions and licenses 1,003,597 865,887 137,710

       15.9  %       22.1  %
    Services                           95,485         99,159         (3,674)       (3.7  %)       0.4  %
    Total revenues                $ 1,099,082      $ 965,046      $ 134,036        13.9  %       19.8  %


The increase in total revenues for the year ended December 31, 2022 was
primarily driven by improvements in our business performance and the impact from
our platform acquisitions in subscriptions revenues, partially offset by the
overall negative foreign currency effects due to a stronger U.S. Dollar relative
to our other currencies. Our business performance excludes the impact of our
platform acquisitions and includes the impact from programmatic acquisitions,
which generally are immaterial, individually and in the aggregate.

•Subscriptions. For the year ended December 31, 2022, the increase in
subscriptions revenues was primarily driven by improvements in our business
performance of approximately $54,500, or approximately $101,700 on a constant
currency basis, and the impact from our platform acquisitions of approximately
$92,900, or approximately $95,800 on a constant currency basis.

For the year ended December 31, 2022, the acquisition impact relates to our
platform acquisitions of Seequent and Power Line Systems and is inclusive of
their respective organic performance.


The improvements in business performance, on a constant currency basis, were
primarily driven by expansion within our existing accounts, and growth of 2%
attributable to new accounts exclusive of platform acquisitions, most notability
smaller- and medium-sized accounts. Improvements in business performance for the
year ended December 31, 2022 were led by our structural and civil engineering
applications and our Enterprise Systems for project delivery.

•Perpetual licenses. For the year ended December 31, 2022, perpetual licenses
revenues were impacted by a reduction in business performance of approximately
$11,500, or approximately $8,300 on a constant currency basis, partially offset
by our Seequent platform acquisition of approximately $1,800, or approximately
$1,900 on a constant currency basis.

•Services. For the year ended December 31, 2022, services revenues were impacted
by our Seequent and Power Line Systems platform acquisitions by approximately
$1,300, or approximately $1,400 on a constant currency basis, partially offset
by a reduction in business performance of approximately $5,000, or approximately
$1,000 on a constant currency basis.

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For the year ended December 31, 2022, the reduction in business performance, on
a constant currency basis, was impacted by the ongoing transition of
historically classified services revenues into subscriptions revenues for
accounts converting to our E365 subscription offering with embedded Success
Services, partially offset by favorable contributions from Cohesive digital
integrator services of approximately $3,800, or approximately $6,300 on a
constant currency basis.

Revenues by Geographic Region

Revenue to external customers is attributed to individual countries based upon
the location of the customer. Revenues by geographic region are as follows:

                                                                          Comparison
                                     Year Ended                                          Constant
                                    December 31,                                         Currency
                                2022            2021          Amount           %            %
          Americas          $   584,794      $ 483,087      $ 101,707        21.1  %       22.1  %
          EMEA                  312,804        300,123         12,681         4.2  %       15.4  %
          APAC                  201,484        181,836         19,648        10.8  %       21.1  %
          Total revenues    $ 1,099,082      $ 965,046      $ 134,036        13.9  %       19.8  %


•Americas. For the year ended December 31, 2022, the increase in revenues from
the Americas was primarily driven by an increase in subscriptions revenues from
our Seequent and Power Line Systems platform acquisitions of approximately
$56,700, or approximately $57,200 on a constant currency basis, and improvements
in our business performance of approximately $43,300, or approximately $48,000
on a constant currency basis.

The improvements in business performance, on a constant currency basis, for the
year ended December 31, 2022 were primarily due to expansion of our
subscriptions revenues from existing accounts in the U.S.


•EMEA. For the year ended December 31, 2022, the increase in revenues from EMEA
was primarily driven by the impact of our acquisitions of approximately $20,700,
partially offset by a reduction in business performance of approximately $8,700.
On a constant currency basis, revenues from EMEA increased due to improvements
in our business performance of approximately $23,700 and the impact of our
acquisitions of approximately $21,800. The increase from acquisitions was
primarily due to an increase in subscriptions revenues from our Seequent and
Power Line Systems platform acquisitions.

The improvements in business performance, on a constant currency basis, for the
year ended December 31, 2022 were primarily due to expansion of our
subscriptions revenues from existing accounts in Central Europe, the U.K., the
Middle East, and Africa, partially offset by reductions in Russia.

•APAC. For the year ended December 31, 2022, the increase in revenues from APAC
was primarily driven by improvements in our business performance of
approximately $3,400, or approximately $20,700 on a constant currency basis, and
an increase in subscriptions revenues from our Seequent and Power Line Systems
platform acquisitions of approximately $15,500, or approximately $16,800 on a
constant currency basis.

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The improvements in business performance for the year ended December 31, 2022
were primarily due to expansion of our recurring subscriptions revenues of
approximately $13,600, or approximately $22,200 on a constant currency basis, in
India, Australia, and Southeast Asia, partially offset by reductions of
approximately $4,700, or approximately $3,700 on a constant currency basis, in
China resulting from a confluence of events comprised of continued geopolitical
challenges, the ongoing preference for locally developed, on premise software
versus cloud-deployed, and additional impacts from COVID­19, which may continue
for the foreseeable future.

Cost of Revenues

                                                                                    Comparison
                                                Year Ended                                         Constant
                                               December 31,                                        Currency
                                           2022           2021          Amount          %             %
 Cost of subscriptions and licenses     $ 147,578      $ 124,321      $ 23,257        18.7  %        24.5  %
 Cost of services                          89,435         92,218        (2,783)       (3.0  %)        2.3  %
 Total cost of revenues                 $ 237,013      $ 216,539      $ 20,474         9.5  %        15.1  %


Cost of subscriptions and licenses. For the year ended December 31, 2022, on a
constant currency basis, cost of subscriptions and licenses increased primarily
due to an increase in headcount­related costs of approximately $13,100, mainly
due to our platform acquisition of Seequent and annual salary adjustments, an
increase in channel partner compensation and royalties of approximately $5,500,
an increase in cloud­related costs of approximately $4,900, and an increase in
amortization expense for software and technology of approximately $4,700.

Cost of services. For the year ended December 31, 2022, on a constant currency
basis, cost of services increased primarily due to an increase in
headcount-related costs of approximately $3,600, mainly due to digital
integrator business acquisitions and annual salary adjustments, partially offset
by a decrease in facilities costs of approximately $1,100.

Operating Expense (Income)

                                                                                                  Comparison
                                                Year Ended                                                            Constant
                                               December 31,                                                           Currency
                                         2022                2021               Amount               %                    %
Research and development             $  257,856          $  220,915          $  36,941              16.7  %                22.1  %
Selling and marketing                   195,622             162,240             33,382              20.6  %                26.3  %
General and administrative              174,647             150,116             24,531              16.3  %                19.7  %
Deferred compensation plan              (15,782)             95,046           (110,828)              *                    *
Amortization of purchased
intangibles                              41,114              25,601             15,513              60.6  %                67.2  %

Total operating expenses             $  653,457          $  653,918          $    (461)             (0.1  %)                4.2  %




*Not meaningful

Research and development. For the year ended December 31, 2022, on a constant
currency basis, research and development expenses increased primarily due to an
increase in headcount-related costs of approximately $46,400. The increase in
headcount-related costs was primarily comprised of approximately $33,600 of
increases in salaries, mainly due to our platform acquisition of Seequent and
annual salary adjustments, as well as an increase in stock-based compensation
expense of approximately $8,100.

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Selling and marketing. For the year ended December 31, 2022, on a constant
currency basis, selling and marketing expenses increased primarily due to an
increase in headcount-related costs of approximately $34,200 and an increase in
promotional costs of approximately $6,700. The increase in headcount-related
costs was primarily comprised of an increase in salaries and variable
compensation costs of approximately $25,800, mainly due to our platform
acquisition of Seequent and annual salary adjustments, an increase in
travel-related costs of approximately $5,100, and an increase in stock-based
compensation expense of approximately $3,300.

General and administrative. For the year ended December 31, 2022, on a constant
currency basis, general and administrative expenses increased primarily due to
an increase in headcount-related costs of approximately $31,000 and an increase
in facilities costs of approximately $3,300. The increase in headcount-related
costs was primarily comprised of an increase in salaries costs of approximately
$17,400, mainly due to our platform acquisition of Seequent and annual salary
adjustments, and an increase in stock­based compensation expense of
approximately $14,300. Partially offsetting these increases were lower
acquisition expenses of approximately $8,600, primarily due to expenses of
$9,804 related to the acquisition of Power Line Systems for the year ended
December 31, 2022 as compared to expenses of $16,557 related to the acquisition
of Seequent for the year ended December 31, 2021.

Deferred compensation plan. For the year ended December 31, 2022, deferred
compensation plan income was $15,782, which was attributable to the marked to
market impact on deferred compensation plan liability balances
period-over-period. For the year ended December 31, 2021, deferred compensation
plan expense was $95,046. This amount was primarily attributable to a one­time
compensation charge of $90,721 as discussed in "-Key Factors Impacting
Comparability and Performance," and the marked to market impact on deferred
compensation plan liability balances period-over-period.

Amortization of purchased intangibles. For the year ended December 31, 2022, on
a constant currency basis, amortization of purchased intangibles increased
primarily due to amortization from recently acquired purchased intangibles.


Interest Expense, Net

                                                     Year Ended
                                                    December 31,
                                                             2022           2021
                  Interest expense                        $ (35,056)     $ (11,527)
                  Interest income                               421            306
                  Interest expense, net                   $ (34,635)     $ (11,221)


                                                                           Year Ended
                                                                          December 31,
                                                                                   2022                2021
Revolving loan facility                                                        $  (15,798)         $   (3,448)
Term loans                                                                         (7,413)               (117)
Convertible senior notes, coupon interest                                          (3,064)             (1,899)
Amortization and write-off of deferred debt issuance costs                         (7,291)             (5,955)
Other, net                                                                         (1,069)                198
Interest expense, net                                                          $  (34,635)         $  (11,221)


For the year ended December 31, 2022, interest expense, net increased primarily
due to a higher outstanding average balance combined with a higher average
interest rate under the revolving loan facility, and interest expense on the
term loan, which we entered into on December 22, 2021.

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Other Income, Net

                                                                       Year Ended
                                                                      December 31,
                                                                    2022         2021
  Gain (loss) from:
  Change in fair value of interest rate swap                     $ 27,083      $ 9,770

  Foreign exchange (1)                                             (9,901)         827
  Sale of aircraft                                                  2,029            -

  Change in fair value of acquisition contingent consideration      1,427         (550)
  Payments related to interest rate swap                            1,947       (1,270)
  Other income, net                                                 1,713        1,184
  Total other income, net                                        $ 24,298      $ 9,961




(1)Foreign exchange (loss) gain is primarily attributable to foreign currency
translation derived mainly from U.S. Dollar denominated cash and cash
equivalents, account receivables, customer deposits, and intercompany balances
held by foreign subsidiaries. Intercompany finance transactions primarily
denominated in U.S. Dollars resulted in unrealized foreign exchange losses of
$7,369 and $779 for the years ended December 31, 2022 and 2021, respectively.

Provision (Benefit) for Income Taxes

                                                             Year Ended
                                                            December 31,
                                                                    2022           2021
           Income before income taxes                           $ 198,275       $ 93,329
           Provision (benefit) for income taxes                 $  21,283       $ (3,448)
           Effective tax rate                                        10.7  %        (3.7) %


For the year ended December 31, 2022, the effective tax rate was higher as
compared to the year ended December 31, 2021, primarily due to the 2021
effective tax rate impact, net of officer compensation limitation provisions,
related to the 2021 compensation charge of $90,721 to Deferred compensation plan
expenses to record reallocated deferred compensation plan liabilities at fair
value. For the years ended December 31, 2022 and 2021, we recognized tax
benefits of $20,501 and $14,890, respectively, associated with windfall tax
benefits from stock­based compensation, net of the impact from officer
compensation limitation provisions.

Net Income

                                                 Year Ended
                                                December 31,
                                                         2022           2021
                       Net income                     $ 174,780      $ 93,192


For the year ended December 31, 2022, net income increased by $81,588, or 87.5%,
compared to the year ended December 31, 2021. Net income as a percentage of
total revenues was 15.9% and 9.7% for the year ended December 31, 2022 and 2021,
respectively. The changes are due to the factors described above.

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Adjusted EBITDA and Adjusted Net Income

                                 Year Ended
                                December 31,
                                         2022           2021
Adjusted EBITDA                       $ 366,440      $ 324,948
Adjusted Net Income                   $ 274,518      $ 267,892


For the year ended December 31, 2022, Adjusted EBITDA increased by $41,492
compared to the year ended December 31, 2021. For the years ended December 31,
2022 and 2021, Adjusted EBITDA as a percentage of total revenues was 33.3% and
33.7%, respectively.

For the year ended December 31, 2022, Adjusted Net Income increased by $6,626
compared to the year ended December 31, 2021. For the years ended December 31,
2022 and 2021, Adjusted Net Income as a percentage of total revenues was 25.0%
and 27.8%, respectively.

For additional information, including the limitations of using non­GAAP
financial measures, and reconciliations of the non­GAAP financial measures to
the most directly comparable financial measures stated in accordance with
U.S. GAAP, see the section titled “-Non­GAAP Financial Measures.”

Comparison of the Years Ended December 31, 2021 and 2020

Refer to Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations in our 2021 Annual Report on Form 10­K.

Revenues

                                                                          Comparison
                                      Year Ended                                          Constant
                                     December 31,                                         Currency
                                 2021           2020          Amount           %             %
Subscriptions                 $ 812,807      $ 679,273      $ 133,534        19.7  %       17.6  %
Perpetual licenses               53,080         57,382         (4,302)       (7.5  %)      (8.9  %)
Subscriptions and licenses      865,887        736,655        129,232        17.5  %       15.6  %
Services                         99,159         64,889         34,270        52.8  %       48.6  %
Total revenues                $ 965,046      $ 801,544      $ 163,502        20.4  %       18.2  %

Revenues by Geographic Region

Revenue from external customers is attributed to individual countries based upon
the location of the customer. Revenues by geographic region are as follows:

                                                              Comparison
                          Year Ended                                         Constant
                         December 31,                                        Currency
                     2021           2020          Amount           %            %
Americas          $ 483,087      $ 395,746      $  87,341        22.1  %       21.4  %
EMEA                300,123        254,036         46,087        18.1  %       14.2  %
APAC                181,836        151,762         30,074        19.8  %       16.8  %
Total revenues    $ 965,046      $ 801,544      $ 163,502        20.4  %       18.2  %


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Cost of Revenues

                                                                                  Comparison
                                               Year Ended                                        Constant
                                              December 31,                                       Currency
                                          2021           2020          Amount          %            %
Cost of subscriptions and licenses     $ 124,321      $  95,803      $ 28,518        29.8  %       27.3  %
Cost of services                          92,218         71,352        20,866        29.2  %       24.4  %
Total cost of revenues                 $ 216,539      $ 167,155      $ 49,384        29.5  %       26.1  %


Operating Expenses

                                                                                                   Comparison
                                                 Year Ended                                                           Constant
                                                December 31,                                                          Currency
                                          2021                2020               Amount               %                   %
Research and development              $  220,915          $  185,515          $  35,400              19.1  %               16.5  %
Selling and marketing                    162,240             143,791             18,449              12.8  %               10.1  %
General and administrative               150,116             113,274             36,842              32.5  %               31.1  %
Deferred compensation plan                95,046                 177             94,869               *                   *
Amortization of purchased intangibles     25,601              15,352             10,249              66.8  %               61.3  %
Expenses associated with initial
public offering                                -              26,130            (26,130)              *                   *
Total operating expenses              $  653,918          $  484,239          $ 169,679              35.0  %               32.8  %




*Not meaningful

Interest Expense, Net

                               Year Ended
                              December 31,
                           2021           2020
Interest expense        $ (11,527)     $ (7,217)
Interest income               306           437
Interest expense, net   $ (11,221)     $ (6,780)


                                                                      Year Ended
                                                                     December 31,
                                                                  2021           2020
Revolving loan facility                                        $  (3,448)     $ (5,680)
Term loans                                                          (117)   

(502)

Convertible senior notes, coupon interest                         (1,899)   

Amortization and write-off of deferred debt issuance costs (5,955)

      (985)
Other, net                                                           198           387
Interest expense, net                                          $ (11,221)     $ (6,780)


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Other Income, Net

                                                                     Year Ended
                                                                    December 31,
                                                                 2021          2020
Gain (loss) from:
Change in fair value of interest rate swap                     $ 9,770      $    347
Foreign exchange (1)                                               827      

22,919

Change in fair value of acquisition contingent consideration (550)

1,340

Payments related to interest rate swap                          (1,270)         (696)
Other income, net                                                1,184           340
Total other income, net                                        $ 9,961      $ 24,250




(1)Foreign exchange gain is primarily attributable to foreign currency
translation derived mainly from U.S. Dollar denominated cash and cash
equivalents, account receivables, customer deposits, and intercompany balances
held by foreign subsidiaries. Intercompany finance transactions primarily
denominated in U.S. Dollars resulted in unrealized foreign exchange (losses)
gains of $(779) and $22,310 for the years ended December 31, 2021 and 2020,
respectively.

(Benefit) Provision for Income Taxes

                                                           Year Ended
                                                          December 31,
                                                      2021            2020
            Income before income taxes             $ 93,329       $ 167,620
            (Benefit) provision for income taxes   $ (3,448)      $  38,625
            Effective tax rate                         (3.7) %         23.0  %


Net Income

                      Year Ended
                     December 31,
                  2021          2020
Net income     $ 93,192      $ 126,521

Adjusted EBITDA and Adjusted Net Income

                              Year Ended
                             December 31,
                         2021           2020
Adjusted EBITDA       $ 324,948      $ 266,376
Adjusted Net Income   $ 267,892      $ 193,334

For additional information, including the limitations of using non­GAAP
financial measures, and reconciliations of the non­GAAP financial measures to
the most directly comparable financial measures stated in accordance with
U.S. GAAP, see the section titled “-Non­GAAP Financial Measures.”

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Liquidity and Capital Resources:


Our primary source of operating cash is from the sale of subscriptions,
perpetual licenses, and services. Our primary use of cash is payment of our
operating costs, which consist primarily of headcount­related costs. In addition
to operating expenses, we also use cash to service our debt obligations, to pay
quarterly dividends, to repurchase our Class B Common Stock and subordinated
indebtedness (discussed further below), and for capital expenditures in support
of our operations. We also use cash to fund our acquisitions of software assets
and businesses, and other investment activities, including our iTwin Ventures
initiative for which, over a period of approximately 5 years, we expect to
invest up to $100 million of corporate venture capital funding for seed, early,
and growth stage technology companies with promising and emerging opportunities
for infrastructure digital twin solutions strategically relevant to our
business. In connection with the acquisition of Power Line Systems in January
2022, we used available cash and borrowings under our Credit Facility to fund
the transaction. In connection with the acquisition of Seequent in June 2021, we
used available cash, including a portion of the net proceeds from the 2026
Notes, and borrowings under our Credit Facility to fund the cash component of
the transaction. As described further below, we used $25,875 of the net proceeds
from the sale of the 2027 Notes to pay the premiums of the capped call options,
and $536,062 to repay outstanding indebtedness under the Credit Facility and to
pay related fees and expenses. We used $25,530 of the net proceeds from the sale
of the 2026 Notes to pay the premiums of the capped call options, and
approximately $250,500 to repay outstanding indebtedness under the Credit
Facility and to pay related fees and expenses. We used the remainder of the net
proceeds from the sale of the 2026 Notes for general corporate purposes and
towards funding certain acquisitions, including Seequent.

On May 11, 2022, we announced that our board of directors approved the
Repurchase Program authorizing us to repurchase up to $200,000 of our Class B
Common Stock through June 30, 2024. On December 14, 2022, our board of directors
amended the Repurchase Program to allow us also to repurchase its outstanding
convertible senior notes. This additional authorization did not increase the
overall dollar limit of the Repurchase Program. The shares and notes proposed to
be acquired in the Repurchase Program may be repurchased from time to time in
open market transactions, through privately negotiated transactions, or by other
means in accordance with federal securities laws. We intend to fund repurchases
from available working capital and cash provided by operating activities. The
timing, as well as the number and value of shares and/or notes repurchased under
the Repurchase Program, will be determined at our discretion and will depend on
a variety of factors, including management's assessment of the intrinsic value
of our shares, the market price of our Class B Common Stock and outstanding
notes, general market and economic conditions, available liquidity, compliance
with our debt and other agreements, and applicable legal requirements. The exact
number of shares and/or notes to be repurchased by us is not guaranteed, and the
Repurchase Program may be suspended, modified, or discontinued at any time
without prior notice. For the year ended December 31, 2022, we repurchased
896,126 shares for $28,250, and $2,170 aggregate principal amount of our
outstanding 2026 Notes for $1,998.

Additionally, during the second, third, and fourth quarters of 2022, we
exercised our right to require that certain equity awardees receive gross
quantities of shares of our Class B Common Stock, most meaningfully for the
issuance of shares in connection with our Executive Bonus Plan incentive
compensation and distributions from the DCP, and promptly reimburse to us the
cash required for their tax withholding amounts. Historically, these shares were
issuable on a net basis, holding back shares in consideration of remitting
withholding taxes on behalf of equity awardees, thereby requiring us to remit
cash for the tax withholdings. We will continue to evaluate whether share awards
will be required to be received by awardees on a gross basis, or if net
settlement may be elected by awardees.

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Our cash and cash equivalent balances are concentrated in a few locations around
the world, with substantial amounts held outside of the U.S. As of December 31,
2022 and 2021, 95% and 48%, respectively, of our total cash and cash equivalents
were located outside of the U.S. During the year ended December 31, 2022, we
repatriated $150,000 of undistributed previously taxed earnings generated by our
foreign subsidiaries to the U.S. The repatriations were used to fund the
acquisition of Power Line Systems. We have provided for any applicable income
taxes associated with current year distributions, as well as any earnings that
are expected to be distributed in the future, in the calculation of the income
tax provision. No additional provision has been made for U.S. and non-U.S.
income taxes on the undistributed earnings of subsidiaries as that cash is
expected to be indefinitely reinvested. We expect to meet our U.S. liquidity
needs through ongoing cash flows or external borrowings including available
liquidity under the Credit Facility. We regularly review our capital structure
and consider a variety of potential financing alternatives and planning
strategies to ensure that we have the proper liquidity available in the
locations in which it is needed and to fund our operations and growth
investments with cash that has not been permanently reinvested outside the U.S.

We believe that existing cash and cash equivalent balances, together with cash
generated from operations, and liquidity under the Credit Facility, will be
sufficient to meet our domestic and international working capital and capital
expenditure requirements through the next twelve months. However, our future
capital requirements may be materially different than those currently planned in
our budgeting and forecasting activities and depend on many factors, including
our strategy of regularly acquiring and integrating specialized infrastructure
engineering software businesses, our rate of revenue growth, the timing and
extent of spending on research and development, the expansion of our sales and
marketing activities, the timing of new product introductions, market acceptance
of our products, competitive factors, our discretionary payments of dividends or
repurchases of our Class B Common Stock, currency fluctuations, and overall
economic conditions, globally. To the extent that current and anticipated future
sources of liquidity are insufficient to fund our future business activities and
requirements, we may be required to seek additional equity or debt financing.
The sale of additional equity would result in additional dilution to our
stockholders, while the incurrence of debt financing, including convertible
debt, would result in debt service obligations. Such debt instruments also could
introduce covenants that might restrict our operations. We cannot provide
assurance that we could obtain additional financing on favorable terms or at
all.

Cash and cash equivalents

We consider all highly liquid investments with an original maturity of three
months or less at the date of purchase to be cash equivalents. Our cash and cash
equivalents consisted of cash held in checking accounts and money market funds
maintained at various financial institutions. Our domestic and foreign holdings
of cash and cash equivalents are as follows:

                                                                   December 

31,

                                                                2022        

2021

    Cash and cash equivalents held domestically              $  3,883      

$ 170,267

Cash and cash equivalents held by foreign subsidiaries 67,801

159,070

    Total cash and cash equivalents                          $ 71,684      

$ 329,337



The amount of cash and cash equivalents held by foreign subsidiaries is subject
to translation adjustments caused by changes in foreign currency exchange rates
as of the end of each respective reporting period, the offset to which is
recorded in Accumulated other comprehensive loss on our consolidated balance
sheets.

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Bank Credit Facility


We are party to a Credit Agreement dated December 19, 2017, (as amended from
time to time) which provides for an $850,000 senior secured revolving loan
facility that matures on November 15, 2025. Debt issuance costs are amortized to
interest expense through the maturity date.

When we amended the Credit Facility on January 25, 2021, to increase the senior
secured revolving loan facility and extend the maturity date, we performed an
extinguishment versus modification assessment on a lender­by­lender basis
resulting in the write­off of unamortized debt issuance costs of $353 and the
capitalization of fees paid to lenders and third parties of $3,577.

The Credit Facility also provides up to $50,000 of letters of credit and other
borrowings subject to availability, including an $85,000 U.S. Dollar swingline
sub­facility and a $200,000 incremental "accordion" sub­facility. We had $150 of
letters of credit and surety bonds outstanding as of December 31, 2022 and 2021.
As of December 31, 2022 and 2021, we had $504,253 and $849,850, respectively,
available under the Credit Facility.

Under the Credit Facility, we may make either Euro currency or non­Euro currency
interest rate elections. Interest on the Euro currency borrowings bear a base
interest rate of LIBOR plus a spread ranging from 125 basis points ("bps") to
225 bps as determined by our net leverage ratio. Under the non­Euro currency
elections, Credit Facility borrowings bear a base interest rate of the highest
of (i) the prime rate, (ii) the overnight bank funding effective rate plus
50 bps, or (iii) LIBOR plus 100 bps, plus a spread ranging from 25 bps to
125 bps as determined by our net leverage ratio. In addition, a commitment fee
for the unused Credit Facility ranges from 20 bps to 30 bps as determined by our
net leverage ratio.

Borrowings under the Credit Facility are guaranteed by all of our material first
tier domestic subsidiaries and are secured by a first priority security interest
in substantially all of our and the guarantors' U.S. assets and 65% of the stock
of their directly owned foreign subsidiaries.

The agreement governing the Credit Facility contains customary positive and
negative covenants, including restrictions on our ability to pay dividends and
make other restricted payments, as well as events of default, including, without
limitation, payment defaults, breaches of representations and warranties,
covenants defaults, cross-defaults to certain other indebtedness in excess of
$50,000, certain events of bankruptcy and insolvency, judgment defaults in
excess of $10,000, failure of any security document supporting the Credit
Facility to be in full force and effect, and a change of control. The Credit
Facility also contains customary financial covenants, including maximum net
leverage ratios. As of December 31, 2022 and 2021, we were in compliance with
all covenants in our Credit Facility.

Voluntary prepayments of amounts outstanding under the Credit Facility, in whole
or in part, are permitted at any time, so long as we give notice as required by
the Credit Facility. However, if prepayment is made with respect to a
LIBOR­based loan and the prepayment is made on a date other than an interest
payment date, we must pay customary breakage costs.

Term Loans. On December 22, 2021, we amended the Credit Facility to provide for
a $200,000 senior secured term loan with a maturity of November 15, 2025 (the
"2021 Term Loan") and included certain other conforming amendments. The 2021
Term Loan requires principal repayment at the end of each calendar quarter.
Beginning with March 31, 2022 and ending with December 31, 2023, we are required
to repay $1,250 per quarter. Beginning with March 31, 2024 and ending with the
last such date prior to the maturity date, we are required to repay $2,500 per
quarter. We incurred $540 of debt issuance costs related to the 2021 Term Loan.
We used borrowings under the 2021 Term Loan to pay down borrowings under the
swingline sub­facility and revolving loan facility under the Credit Facility.

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Under the 2021 Term Loan, we may make either Euro currency or non-Euro currency
interest rate elections. Interest on the Euro currency borrowings bear a base
interest rate of LIBOR, plus a spread ranging from 100 bps to 200 bps as
determined by our net leverage ratio. Under the non-Euro currency elections, the
2021 Term Loan bears a base interest rate of the highest of (i) the prime rate,
(ii) the overnight bank funding effective rate plus 50 bps, or (iii) LIBOR plus
100 bps, plus a spread ranging from 0 bps to 100 bps as determined by our net
leverage ratio.

Prior to the IPO, on September 2, 2020, we amended the Credit Facility to incur
a term loan of $125,000 (the "2020 Term Loan") with a maturity of December 18,
2022. We used the proceeds from the 2020 Term Loan and borrowings under the
revolving loan facility under the Credit Facility to pay a special dividend
declared by our board of directors on August 28, 2020. We incurred $432 of debt
issuance costs related to the 2020 Term Loan. In November 2020, we used a
portion of the net proceeds from our follow­on public offering to repay the 2020
Term Loan. See Notes 10 and 13 to our consolidated financial statements included
in Part II, Item 8 of this Annual Report on Form 10­K.

Bank Credit Facility Interest. The revolving loan facility and term loans
weighted average interest rate was 3.84%, 2.03%, and 1.92% for the years ended
December 31, 2022, 2021, and 2020, respectively.


Interest rate risk associated with the Credit Facility is managed through an
interest rate swap which we executed on March 31, 2020. The interest rate swap
has an effective date of April 2, 2020 and a termination date of April 2, 2030.
Under the terms of the interest rate swap, we fixed our LIBOR borrowing rate at
0.73% on a notional amount of $200,000.

Convertible Senior Notes


2027 Notes. On June 28, 2021, we completed a private offering of $575,000 of
0.375% convertible senior notes due 2027. The 2027 Notes were issued pursuant to
an indenture, dated as of June 28, 2021, between the Company and Wilmington
Trust, National Association, as trustee (the "2027 Trustee") (the "2027
Indenture"). Interest will accrue from June 28, 2021 and will be payable
semi­annually in arrears in cash on January 1 and July 1 of each year, with the
first payment due on January 1, 2022. The 2027 Notes will mature on July 1,
2027, unless earlier converted, redeemed or repurchased. We incurred $15,065 of
expenses in connection with the 2027 Notes offering consisting of the payment of
initial purchasers' discounts and commissions, professional fees, and other
expenses ("transaction costs"). We used $25,875 of the net proceeds from the
sale of the 2027 Notes to pay the premiums of the capped call options described
further below, and $536,062 to repay outstanding indebtedness under the Credit
Facility and to pay related fees and expenses.

Prior to April 1, 2027, the 2027 Notes will be convertible at the option of the
holder only under the following circumstances: (1) during any calendar quarter
(and only during such quarter) commencing after the calendar quarter ending on
September 30, 2021, if the last reported sale price per share of our Class B
Common Stock exceeds 130% of the conversion price for each of at least
20 trading days, whether or not consecutive, during the 30 consecutive trading
days ending on, and including, the last trading day of the immediately preceding
calendar quarter; (2) during the five consecutive business days immediately
after any ten consecutive trading day period (such ten consecutive trading day
period, the "measurement period") in which the trading price per $1 principal
amount of 2027 Notes for each trading day of the measurement period was less
than 98% of the product of the last reported sale price per share of our Class B
Common Stock on such trading day and the conversion rate on such trading day;
(3) upon the occurrence of certain corporate events or distributions on our
Class B Common Stock, as described in the 2027 Indenture; and (4) if we call the
2027 Notes for redemption. On or after April 1, 2027 until 5:00 p.m., New York
City time, on the second scheduled trading day immediately before the maturity
date, the 2027 Notes will be convertible at the option of the holder at any
time.

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We will settle conversions by paying or delivering, as applicable, cash, shares
of our Class B Common Stock or a combination of cash and shares of our Class B
Common Stock, at our election, based on the applicable conversion rate. The
initial conversion rate is 12.0153 shares of our Class B Common Stock per
$1 principal amount of 2027 Notes, which represents an initial conversion price
of approximately $83.23 per share, and is subject to adjustment as described in
the 2027 Indenture. If a "make-whole fundamental change" (as defined in the 2027
Indenture) occurs, then we will, in certain circumstances, increase the
conversion rate for a specified period of time.

We will have the option to redeem the 2027 Notes in whole or in part at any time
on or after July 5, 2024 and on or before the 40th scheduled trading day
immediately before the maturity date if the last reported sale price per share
of our Class B common stock exceeds 130% of the conversion price on (1) each of
at least 20 trading days, whether or not consecutive, during any 30 consecutive
trading days ending on, and including, the trading day immediately before the
date we send the related redemption notice; and (2) the trading day immediately
before the date we send such notice. The redemption price will be equal to the
principal amount of the 2027 Notes to be redeemed, plus accrued and unpaid
interest, if any, to, but excluding, the redemption date.

Upon a fundamental change (as defined in the 2027 Indenture), holders may,
subject to certain exceptions, require us to purchase their 2027 Notes in whole
or in part for cash at a price equal to the principal amount of the 2027 Notes
to be purchased, plus accrued and unpaid interest, if any, to, but excluding,
the fundamental change repurchase date (as defined in the 2027 Indenture). In
addition, upon a Make­Whole Fundamental Change (as defined in the 2027
Indenture), we will, under certain circumstances, increase the applicable
conversion rate for a holder that elects to convert its 2027 Notes in connection
with such Make­Whole Fundamental Change. No adjustment to the conversion rate
will be made if the stock price in such Make­Whole Fundamental Change is either
less than $61.65 per share or greater than $325.00 per share. We will not
increase the conversion rate to an amount that exceeds 16.2206 shares per $1
principal amount of 2027 Notes, subject to adjustment. The 2027 Indenture also
contains a customary merger covenant.

Under the 2027 Indenture, the 2027 Notes may be accelerated upon the occurrence
of certain customary events of default. If certain bankruptcy and
insolvency­related events of default with respect to us occur, the principal of,
and accrued and unpaid interest on, all of the then outstanding 2027 Notes shall
automatically become due and payable. If any other event of default occurs and
is continuing, the 2027 Trustee by notice to us, or the holders of the
2027 Notes of at least 25% in principal amount of the outstanding 2027 Notes by
notice to us and the 2027 Trustee, may declare the principal of, and accrued and
unpaid interest on, all of the then outstanding 2027 Notes to be due and
payable. Notwithstanding the foregoing, the 2027 Indenture provides that, to the
extent we elect, the sole remedy for an event of default relating to certain
failures by us to comply with reporting covenant in the 2027 Indenture consists
exclusively of the right to receive additional interest on the 2027 Notes.

The 2027 Notes were accounted for as debt, with no bifurcation of the embedded
conversion feature. Transaction costs were recorded as a direct deduction from
the related debt liability in the consolidated balance sheets and are amortized
to interest expense over the term of the 2027 Notes. The effective interest rate
for the 2027 Notes is 0.864%.

As of December 31, 2022, none of the conditions of the 2027 Notes to early
convert has been met.


The 2027 Notes are our senior, unsecured obligations that rank senior in right
of payment to our future indebtedness that is expressly subordinated to the
2027 Notes, rank equally in right of payment with our existing and future senior
unsecured indebtedness that is not so subordinated (including our 2026 Notes),
effectively subordinated to our existing and future secured indebtedness
(including obligations under our senior secured credit facilities), to the
extent of the value of the collateral securing such indebtedness, and
structurally subordinated to all existing and future indebtedness and other
liabilities (including trade payables and preferred equity (to the extent we are
not a holder thereof)) of our subsidiaries. The 2027 Notes contain both
affirmative and negative covenants. As of December 31, 2022 and 2021, we were in
compliance with all covenants in the 2027 Notes.

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Capped Call Options. In connection with the pricing of the 2027 Notes, we
entered into capped call options with certain of the initial purchasers or their
respective affiliates and certain other financial institutions. We incurred $50
of expenses in connection with the capped call options. The capped call options
are expected to reduce potential dilution to our Class B Common Stock upon any
conversion of 2027 Notes and/or offset any cash payments we are required to make
in excess of the principal amount of converted notes, as the case may be, with
such reduction and/or offset subject to a cap. The cap price of the capped call
options is initially $95.5575 per share, which represents a premium of 55% above
the last reported sale price per share of our Class B Common Stock on the Nasdaq
Global Select Market on June 23, 2021 and is subject to customary adjustments
under the terms of the capped call options.

The capped call options were entered into in conjunction with the issuance of
the 2027 Notes, however, they are legally separate agreements that can be
separately exercised, with the receipt of shares under the capped call options
having no effect on the 2027 Notes, and are legally detachable. As the capped
call options are both legally detachable and separately exercisable from the
2027 Notes, we account for the capped call options separately from the
2027 Notes. The capped call options are indexed to our own common stock and
classified in stockholders' equity. As such, the premiums paid for the capped
call options have been included as a net reduction to Additional paid-in capital
in the consolidated balance sheet.

2026 Notes. On January 26, 2021, we completed a private offering of $690,000 of
0.125% convertible senior notes due 2026. The 2026 Notes were issued pursuant to
an indenture, dated as of January 26, 2021, between the Company and Wilmington
Trust, National Association, as trustee (the "2026 Trustee") (the "2026
Indenture"). Interest will accrue from January 26, 2021 and will be payable
semi­annually in arrears in cash on January 15 and July 15 of each year, with
the first payment due on July 15, 2021. The 2026 Notes will mature on
January 15, 2026, unless earlier converted, redeemed or repurchased. We incurred
$18,055 of expenses in connection with the 2026 Notes offering consisting of
transaction costs. We used $25,530 of the net proceeds from the sale of the
2026 Notes to pay the premiums of the capped call options described further
below, and approximately $250,500 to repay outstanding indebtedness under the
Credit Facility and to pay related fees and expenses. We used the remainder of
the net proceeds from the sale of the 2026 Notes for general corporate purposes
and towards funding certain acquisitions, including Seequent.

During the fourth quarter of 2022, we paid $1,998 in cash to repurchase $2,170
aggregate principal amount of our outstanding 2026 Notes through open market
transactions resulting in an insignificant gain, which was recorded in Other
income, net in the consolidated statement of operations for the year ended
December 31, 2022. The 2026 Notes were repurchased under our Repurchase Program
authorization.

Prior to October 15, 2025, the 2026 Notes will be convertible at the option of
the holder only under the following circumstances: (1) during any calendar
quarter (and only during such quarter) commencing after the calendar quarter
ending on June 30, 2021, if the last reported sale price per share of our
Class B Common Stock exceeds 130% of the conversion price for each of at least
20 trading days, whether or not consecutive, during the 30 consecutive trading
days ending on, and including, the last trading day of the immediately preceding
calendar quarter; (2) during the five consecutive business days immediately
after any ten consecutive trading day period (such ten consecutive trading day
period, the "measurement period") in which the trading price per $1 principal
amount of 2026 Notes for each trading day of the measurement period was less
than 98% of the product of the last reported sale price per share of our Class B
Common Stock on such trading day and the conversion rate on such trading day;
(3) upon the occurrence of certain corporate events or distributions on our
Class B Common Stock, as described in the 2026 Indenture; and (4) if we call the
2026 Notes for redemption. On or after October 15, 2025 until 5:00 p.m., New
York City time, on the second scheduled trading day immediately before the
maturity date, the 2026 Notes will be convertible at the option of the holder at
any time.

We will settle conversions by paying or delivering, as applicable, cash, shares
of our Class B Common Stock or a combination of cash and shares of our Class B
Common Stock, at our election, based on the applicable conversion rate. The
initial conversion rate is 15.5925 shares of our Class B Common Stock per
$1 principal amount of 2026 Notes, which represents an initial conversion price
of approximately $64.13 per share, and is subject to adjustment as described in
the 2026 Indenture. If a "make-whole fundamental change" (as defined in the 2026
Indenture) occurs, then we will, in certain circumstances, increase the
conversion rate for a specified period of time.

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We will have the option to redeem the 2026 Notes in whole or in part at any time
on or after January 20, 2024 and on or before the 40th scheduled trading day
immediately before the maturity date if the last reported sale price per share
of our Class B common stock exceeds 130% of the conversion price on (1) each of
at least 20 trading days, whether or not consecutive, during any 30 consecutive
trading days ending on, and including, the trading day immediately before the
date we send the related redemption notice; and (2) the trading day immediately
before the date we send such notice. The redemption price will be equal to the
principal amount of the 2026 Notes to be redeemed, plus accrued and unpaid
interest, if any, to, but excluding, the redemption date.

Upon a fundamental change (as defined in the 2026 Indenture), holders may,
subject to certain exceptions, require us to purchase their 2026 Notes in whole
or in part for cash at a price equal to the principal amount of the 2026 Notes
to be purchased, plus accrued and unpaid interest, if any, to, but excluding,
the fundamental change repurchase date (as defined in the 2026 Indenture). In
addition, upon a Make­Whole Fundamental Change (as defined in the 2026
Indenture), we will, under certain circumstances, increase the applicable
conversion rate for a holder that elects to convert its 2026 Notes in connection
with such Make­Whole Fundamental Change. No adjustment to the conversion rate
will be made if the stock price in such Make­Whole Fundamental Change is either
less than $44.23 per share or greater than $210.00 per share. We will not
increase the conversion rate to an amount that exceeds 22.6090 shares per $1
principal amount of 2026 Notes, subject to adjustment. The 2026 Indenture also
contains a customary merger covenant.

Under the 2026 Indenture, the 2026 Notes may be accelerated upon the occurrence
of certain customary events of default. If certain bankruptcy and
insolvency­related events of default with respect to us occur, the principal of,
and accrued and unpaid interest on, all of the then outstanding 2026 Notes shall
automatically become due and payable. If any other event of default occurs and
is continuing, the 2026 Trustee by notice to us, or the holders of the
2026 Notes of at least 25% in principal amount of the outstanding 2026 Notes by
notice to us and the 2026 Trustee, may declare the principal of, and accrued and
unpaid interest on, all of the then outstanding 2026 Notes to be due and
payable. Notwithstanding the foregoing, the 2026 Indenture provides that, to the
extent we elect, the sole remedy for an event of default relating to certain
failures by us to comply with reporting covenant in the 2026 Indenture consists
exclusively of the right to receive additional interest on the 2026 Notes.

The 2026 Notes were accounted for as debt, with no bifurcation of the embedded
conversion feature. Transaction costs were recorded as a direct deduction from
the related debt liability in the consolidated balance sheets and are amortized
to interest expense over the term of the 2026 Notes. The effective interest rate
for the 2026 Notes is 0.658%.

As of December 31, 2022, none of the conditions of the 2026 Notes to early
convert has been met.


The 2026 Notes are our senior, unsecured obligations that rank senior in right
of payment to our future indebtedness that is expressly subordinated to the
2026 Notes, rank equally in right of payment with our existing and future senior
unsecured indebtedness that is not so subordinated (including our 2027 Notes,
see the section titled "-2027 Notes" below), effectively subordinated to our
existing and future secured indebtedness (including obligations under our senior
secured credit facilities), to the extent of the value of the collateral
securing such indebtedness, and structurally subordinated to all existing and
future indebtedness and other liabilities (including trade payables and
preferred equity (to the extent we are not a holder thereof)) of our
subsidiaries. The 2026 Notes contain both affirmative and negative covenants. As
of December 31, 2022 and 2021, we were in compliance with all covenants in the
2026 Notes.

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Capped Call Options. In connection with the pricing of the 2026 Notes, we
entered into capped call options with certain of the initial purchasers or their
respective affiliates and certain other financial institutions. We incurred $150
of expenses in connection with the capped call options. The capped call options
are expected to reduce potential dilution to our Class B Common Stock upon any
conversion of 2026 Notes and/or offset any cash payments we are required to make
in excess of the principal amount of converted notes, as the case may be, with
such reduction and/or offset subject to a cap. The cap price of the capped call
options is initially $72.9795 per share, which represents a premium of 65% above
the last reported sale price per share of our Class B Common Stock on the Nasdaq
Global Select Market on January 21, 2021 and is subject to customary adjustments
under the terms of the capped call options.

The capped call options were entered into in conjunction with the issuance of
the 2026 Notes, however, they are legally separate agreements that can be
separately exercised, with the receipt of shares under the capped call options
having no effect on the 2026 Notes, and are legally detachable. As the capped
call options are both legally detachable and separately exercisable from the
2026 Notes, we account for the capped call options separately from the
2026 Notes. The capped call options are indexed to our own common stock and
classified in stockholders' equity. As such, the premiums paid for the capped
call options have been included as a net reduction to Additional paid-in capital
in the consolidated balance sheet.

Comparison of the Year Ended December 31, 2022 and 2021


Our cash flow activities for the years ended December 31, 2022 and 2021 consist
of the following:

                                                   Year Ended December 31,
                                                    2022                 2021
        Net Cash Provided By (Used In):
        Operating activities                $     274,324           $   

288,024

        Investing activities                     (770,127)            

(1,056,603)

        Financing activities                      243,034               
982,582


Operating activities

Net cash provided by operating activities was $274,324 for the year ended
December 31, 2022. Compared to the prior year, net cash provided by operating
activities was lower by $13,700 due to a net decrease in non­cash adjustments of
$64,090 and a net decrease in net cash flows from the change in operating assets
and liabilities of $31,198, partially offset by an increase in net income of
$81,588. Both the increase in net income and the net decrease in non­cash
adjustments were impacted by the one­time, non­cash compensation charge of
$90,721 to Deferred compensation plan expenses during the year ended
December 31, 2021 to record reallocated deferred compensation plan liabilities
at fair value as previously discussed. The net decrease in cash flows from the
change in operating assets and liabilities was primarily due to the timing of
renewals and associated billings of certain annual contracts, and increased
interest payments.

For the year ended December 31, 2021, net cash provided by operating activities
was $288,024 due to net income of $93,192 increased by $178,726 of non­cash
adjustments and $16,106 from changes in operating assets and liabilities.

Investing activities

Net cash used in investing activities was $770,127 for the year ended
December 31, 2022 primarily due to $743,007 in acquisition related payments, net
of cash acquired, to complete six acquisitions.


For the year ended December 31, 2021, net cash used in investing activities was
$1,056,603 primarily due to $1,034,983 in acquisition related payments, net of
cash acquired, to complete 13 acquisitions.

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Financing activities

Net cash provided by financing activities was $243,034 for the year ended
December 31, 2022 primarily due to an increase in net borrowings under the
Credit Facility of $340,598, partially offset by net payments for shares
acquired of $71,811, including shares repurchased under the Repurchase Program,
and payments of dividends of $34,493.


For the year ended December 31, 2021, net cash provided by financing activities
was $982,582 primarily due to the net proceeds from the convertible senior notes
of $1,233,377, partially offset by net payments for shares acquired of $120,539
and the purchase of capped call options of $51,605.

Contractual Obligations and Other Commitments:


As of December 31, 2022, our future contractual obligations were related to debt
(see Note 10), leases (see Note 8), purchase obligations (see Note 18), deferred
compensation plan liabilities (see Note 12), and contingent and non­contingent
consideration from acquisitions (see Note 4). For information about those
obligations, see the above referenced notes to our consolidated financial
statements included in Part II, Item 8 of this Annual Report on Form 10­K, which
are incorporated by reference into this section. As of December 31, 2022, our
purchase obligations were $14,981, which is expected to be paid within one year.
Purchase obligations include the non­cancelable future cash purchase commitment
for services related to the provisioning of our hosted software solutions. Our
purchase obligations are in addition to amounts included in current liabilities
and prepaid expenses in our consolidated balance sheet.

Critical Accounting Policies and Estimates:


Our consolidated financial statements are prepared in conformity with U.S. GAAP.
In preparing our consolidated financial statements, we make assumptions,
judgments, and estimates that can have a significant impact on amounts reported
in the consolidated financial statements. We base our assumptions, judgments,
and estimates on historical experience and various other factors that we believe
to be reasonable under the circumstances. Actual results could differ materially
from these estimates under different assumptions or conditions. We regularly
reevaluate our assumptions, judgments, and estimates. Our significant accounting
policies are described in Note 1 to our consolidated financial statements
included in Part II, Item 8 of this Annual Report on Form 10­K.

An accounting policy is deemed to be critical if it requires an accounting
estimate to be made based on assumptions about matters that are highly uncertain
at the time the estimate is made, if different estimates reasonably could have
been used, or if changes in the estimate that are reasonably possible could
materially impact the financial statements. We believe that the following
critical accounting policies affect the more significant judgments and estimates
used in the preparation of our consolidated financial statements.

Revenue recognition. For a full description of our revenue accounting policy,
see Note 1 to our consolidated financial statements included in Part II, Item 8
of this Annual Report on Form 10­K. We generate revenues from subscriptions,
perpetual licenses, and services.

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Our contracts with customers may include promises to transfer licenses
(perpetual or term­based), maintenance, and services to a user. Judgment is
required to determine if the promises are separate performance obligations, and
if so, the allocation of the transaction price to each performance obligation.
When an arrangement includes multiple performance obligations which are
concurrently delivered and have the same pattern of transfer to the customer, we
account for those performance obligations as a single performance obligation.
For contracts with more than one performance obligation, the transaction price
is allocated among the performance obligations in an amount that depicts the
relative SSP of each obligation. Judgment is required to determine the SSP for
each distinct performance obligation. In instances where SSP is not directly
observable, such as when we do not sell the product or service separately, we
determine the SSP using information that may include market conditions and other
observable inputs. We use a range of amounts to estimate SSP when we sell each
of the products and services separately and need to determine whether there is a
discount that should be allocated based on the relative SSP of the various
products and services.

Our SELECT agreement provides users with perpetual licenses a right to exchange
software for other eligible perpetual licenses on an annual basis upon renewal.
We refer to this option as portfolio balancing and concluded that the portfolio
balancing feature represents a material right resulting in the deferral of the
associated revenue. Judgment is required to estimate the percentage of users who
may elect to portfolio balance and considers inputs such as historical user
elections. This feature is available once per term and must be exercised prior
to the respective renewal term. We recognize the associated revenue upon
election or when the portfolio balancing right expires. This right is included
in the initial and subsequent renewal terms and we reestablish the revenue
deferral for the material right upon the beginning of the renewal term.
Portfolio balancing exchange rights are included in Deferred revenues in the
consolidated balance sheets.

Business combinations. We allocate the fair value of the consideration
transferred to the assets acquired and liabilities assumed, including
trademarks, customer relationships, in­process research and development, and
acquired software and technology, based on their estimated fair values at the
acquisition date. Any residual purchase price is recorded as goodwill. The
purchase price allocation requires us to make significant estimates and
assumptions, especially at the acquisition date, with respect to intangible
assets.

Although we believe the assumptions and estimates we have made are reasonable,
they are based in part on historical experience and information obtained from
the management of the acquired companies and are inherently uncertain. Examples
of critical estimates used in valuing certain of the intangible assets we have
acquired or may acquire in the future include but are not limited to:

•future expected cash flows from total revenues and acquired developed
technologies;

•the acquired company’s trade name and customer relationships as well as
assumptions about the period of time the acquired trade name and customer
relationships will continue to be used in our product portfolio;

•expected costs to develop the in-process research and development into
commercially viable software and estimated cash flows from the projects when
completed; and

•discount rates used to determine the present value of estimated future cash
flows.


These estimates are inherently uncertain and unpredictable, and if different
estimates were used the purchase price for the acquisition could be allocated to
the acquired assets and liabilities differently from the allocation that we have
made. In addition, unanticipated events and circumstances may occur, which may
affect the accuracy or validity of such estimates, and, if such events occur, we
may be required to record a charge against the value ascribed to an acquired
asset or an increase in the amounts recorded for assumed liabilities.

Goodwill and other intangible assets. Intangible assets arise from acquisitions
and principally consist of goodwill, trademarks, customer relationships,
in­process research and development, and acquired software and technology.
Intangible assets, other than goodwill and in­process research and development,
are amortized on a straight­line basis over their estimated useful lives, which
range from three to ten years.

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Goodwill consists of the excess of cost over the fair value of net assets
acquired in business combinations. Goodwill is not amortized but instead is
tested annually for impairment on October 1, or more frequently if events occur
or circumstances change that would more likely than not reduce its fair value
below its carrying amount. We allocate goodwill to reporting units on a relative
fair value basis.

In testing for goodwill impairment, we may first qualitatively assess whether it
is more likely than not (a likelihood of more than 50 percent) that a goodwill
impairment exists. If it is determined that a quantitative assessment is
required, we will recognize goodwill impairment as the difference between the
carrying amount of the reporting unit and it's fair value, but not to exceed the
carrying amount of goodwill within the reporting unit. There was no impairment
of goodwill as a result of our annual impairment assessments conducted for the
years ended December 31, 2022, 2021, and 2020.

Income taxes. We account for income taxes under the asset and liability method,
which requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in the
consolidated financial statements. Under this method, deferred tax assets and
liabilities are determined based on net operating loss carryforwards, credit
carryforwards, and temporary differences between the financial statement and tax
basis of assets and liabilities using enacted tax rates in effect for the year
in which the items are expected to reverse. The effect of a change in tax rates
on deferred tax assets and liabilities is recognized in income in the period of
the enactment date.

We perform a quarterly assessment of the recoverability of the net deferred tax
assets. We consider all available evidence, both positive and negative, in
determining whether all or a portion of a deferred tax asset is more likely than
not to be realized. In the event we determine that all or a portion of the
deferred tax assets is not more likely than not to be realized, an adjustment to
the valuation allowance would be recorded that would increase the provision for
income taxes. To the extent that the realization of a deferred tax asset is
based upon forecasted future earnings, our judgment regarding future
profitability may change due to future market conditions and other factors.
Assumptions about future taxable income require significant judgment and, while
these assumptions rely heavily on estimates, such estimates are consistent with
the plans we are using to manage the underlying business. Any change in future
profitability may require material adjustments to these net deferred tax assets,
resulting in a reduction in net income in the period when such determination is
made. Additionally, future changes in tax laws and rates, including
administrative or regulatory guidance, could affect recorded deferred tax assets
and liabilities. Any adjustments to these estimates will generally be recorded
as an income tax expense or benefit in the period the adjustment is determined.

We are subject to income taxes in the U.S. and in numerous foreign
jurisdictions. The calculation of our tax liabilities often involves dealing
with uncertainties in the application of complex tax laws and regulations in a
multitude of jurisdictions across our global operations. There are many
transactions and calculations about which the ultimate tax outcome is uncertain.
A benefit from an uncertain tax position may be recognized when it is more
likely than not that the position will be sustained based upon the technical
merits of the position. This may include expected resolutions upon examination,
any related appeals, or through a litigation processes. As a result, our
calculations involve estimates by management. Due to the complexity of some of
these uncertainties, the ultimate resolution may result in a payment,
potentially including interest and penalties, that is materially different from
our current estimates of the unrecognized tax benefit liabilities. These
differences, along with any related interest and penalties, will generally be
reflected as increases or decreases to income tax expense in the period in which
new information becomes available. We review the tax reserves as circumstances
warrant and adjust the reserves as events occur that affect our potential
liability for additional taxes. We follow the applicable guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure, and transition with respect to uncertain tax positions. We
recognize interest and penalties related to income taxes within the (Provision)
benefit for income taxes line in the consolidated statements of operations.
Accrued interest and penalties are included within the related tax liability
line in the consolidated balance sheets.

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Fair value of common stock prior to IPO. We were a privately held company with
no active public market of our common stock prior to our IPO. Therefore, the
estimated fair value of the common stock underlying our stock­based awards
granted prior to our IPO was determined by our board of directors, with input
from management and contemporaneous third­party valuations. We believe that our
board of directors had the relevant experience and expertise to determine the
fair value of our common stock prior to our IPO.

Prior to the IPO, and given the absence of a public trading market for our
common stock, and in accordance with the American Institute of Certified Public
Accountants practice guide, Valuation of Privately-Held-Company Equity
Securities Issued as Compensation, our board of directors exercised reasonable
judgment and considered numerous objective and subjective factors to determine
the best estimate of the fair value of our common stock, including:

•contemporaneous independent valuations performed by an unrelated third-party
valuation specialist;

•the nature of our business and its history;

•our operating and financial performance and forecast;

•present value of estimated future cash flows;

•the likelihood of achieving a liquidity event, such as an initial public
offering, listing, or sale of our Company, given prevailing market condition and
the nature and history of our business;

•any adjustment necessary to recognize a lack of marketability for our common
stock;

•the market performance of comparable publicly traded companies; and

•the U.S. and global capital market conditions.


In valuing our common stock, our board of directors determined the equity value
of our business generally using the income approach and the market comparable
approach valuation methods.

The income approach estimates value based on the expectation of future cash
flows that a company will generate such as cash earnings, cost savings, tax
deductions, and proceeds from disposition. These future cash flows are
discounted to their present values using a discount rate derived from an
analysis of the cost of capital of comparable publicly traded companies in our
industry or similar lines of business as of each valuation date and is adjusted
to reflect the risks inherent in our cash flows.

The market comparable approach estimates value based on a comparison of the
Company to comparable public companies in a similar line of business. To
determine our peer group of companies, we considered public enterprises with
similar operations and selected those that are similar to our size, stage of
life cycle, and financial leverage. From the comparable companies, a
representative market value multiple is determined and applied to our results of
operations to estimate the value of the Company.

Application of these approaches involved the use of estimates, judgments, and
assumptions that are highly complex and subjective, such as those regarding our
expected future cash flows, cost savings and expenses, discount rates, market
multiples, the selection of comparable companies, and the probability of
possible future events.

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Off-Balance Sheet Arrangements:

We do not have any off­balance sheet arrangements, as defined by applicable SEC
regulations.

Recent Accounting Pronouncements:

For information regarding recent accounting guidance and the impact of this
guidance on our consolidated financial statements, see Note 2 to our
consolidated financial statements included in Part II, Item 8 of this Annual
Report on Form 10­K.


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