BENTLEY SYSTEMS, INCORPORATED The following discussion should be read in conjunction with our unaudited consolidated financial statements and notes thereto appearing in Part I, Item 1 of this Quarterly Report on Form 10Q and with our audited consolidated financial statements and notes thereto included in Part II, Item 8 of our 2020 Annual Report on Form 10K on file with theUnited States Securities and Exchange Commission ("SEC"). 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 II, Item 1A. Risk Factors of this Quarterly Report on Form 10Q. 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 are a leading global provider of software for infrastructure engineering, enabling the work of civil, structural, geotechnical, and plant engineering practitioners, their project delivery enterprises, and owneroperators of infrastructure assets. We were founded in 1984 by the Bentley brothers and onSeptember 25, 2020 , we completed our initial public offering ("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, distributed project teams, from offices to the field, and across computing form factors, including desktops, onpremises servers, cloudnative services, mobile devices, and web browsers. We deliver our solutions via onpremise, cloud, and hybrid environments. Our users engineer, construct, and operate projects and assets across the following infrastructure sectors: •public works (including roads, rail, airports, ports, and water and wastewater networks)/utilities (including electric, gas, water, and communications). We estimate that this sector represents 51% of the net infrastructure asset value of the global top 500 infrastructure owners based on the 2020 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; •industrial (including discrete and process manufacturing, power generation, and water treatment plants)/resources (including oil and gas, mining, and offshore). We estimate that this sector represents 37% of the global top 500 infrastructure owners' net infrastructure asset value; and •commercial/facilities (including office buildings, hospitals, and campuses). We estimate that this sector represents 12% of the global top 500 infrastructure owners' net infrastructure asset value. We offer solutions for enterprises and professionals across the infrastructure lifecycle. Our Project Delivery and Asset and Network Performance solutions are systems 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 Design Integration and Digital Cities solutions are primarily desktop applications and cloudprovisioned solutions for professional practitioners and workgroups. 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. 47 -------------------------------------------------------------------------------- We bring our offerings to market primarily through direct sales channels that generated approximately 92% of our 2020 revenues. Our sources of revenue growth, in order of magnitude, come from the recurrence of existing subscriptions revenues, additional revenue and growth from existing accounts using the same products, additional revenue and growth from existing accounts using new products, and growth from new accounts. For the year endedDecember 31, 2020 , subscriptions represented 85% of our revenues, and together with certain professional services revenues that are recurring in nature and represented 2% of our revenues, bring the proportion of our recurring revenues to 87% of total revenues. The remaining 13% of our revenues were generated from the sale of perpetual licenses and the delivery of nonrecurring professional services. We have a highlydiversified account base, with our largest account representing no more than 2.5% of total revenues in 2020. Our 2020 revenues were also diversified by account type, size, and geography. Additionally, we believe that we have a loyal account base, with 80% of our 2020 revenues from organizations that have been our accounts for over ten years. Between 2000 and 2020, our revenues had an approximately 8% compound annual growth rate. 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 longer term 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 below table, with further descriptions following the table: [[Image Removed: bsy-20210930_g1.jpg]] 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; 48 -------------------------------------------------------------------------------- •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. Enterprise Subscriptions. Our Enterprise subscription offerings provide our largest accounts with complete and unlimited global access to our comprehensive portfolio of solutions. •Enterprise License Subscriptions ("ELS"). Our ELS offering provides access to our comprehensive portfolio of solutions for a fixed annual fee. Subsequent annual renewals are based on the account's usage of software in the preceding year, effectively resulting in an annual consumptionbased arrangement. The majority of our ELS subscribers were historically SELECT subscribers that have grown into a position to take full advantage of our ELS offering. •Enterprise 365 ("E365") Subscriptions. Under our E365 subscription, participating accounts have unrestricted access to our comprehensive software portfolio, similar to ELS, however they are charged based upon daily usage. The daily usage fee also includes a term license component, SELECT maintenance and support, hosting, and Success Plan services, which are designed to achieve business outcomes through more efficient and effective use of our software. The E365 subscription offering was introduced in 2018. We are prioritizing efforts to transition ELS subscribers to E365 subscriptions, primarily to simplify pricing, more closely align consumption to monetization, and to establish Success Plan services as recurring to ensure better business outcomes for our users. To the extent we succeed in transitioning subscribers to E365, we recognize a greater proportion of our revenues on a quarterly basis rather than substantially upfront. See the section titled "-Key Factors Impacting Comparability and Performance." 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 newly introduced Practitioner Licenses. 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 and Passports. Visas and Passports 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 Passport provides desktop, web, and mobile application access to project information and certain functions, and aVisa provides similar access, plus added functionality depending upon the product to which theVisa is aligned. While certain legacy arrangements are supported, our standard offering requires Visas and Passports to be fulfilled and contracted via a CSS, which is discussed below. 49 -------------------------------------------------------------------------------- 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 and Passport consumption, and any Success Plan 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. Professional Services We offer professional services, including training, implementation, configuration, customization, and strategic consulting services for all types of projects as requested by our accounts. We perform projects on both a time and materials and a fixed fee basis. We also offer our services using contractual structures based on (i) delivery of the services in the form of subscriptionlike, packaged offerings that are annually recurring in nature; and (ii) delivery of our growing portfolio of Success Plans in standard offerings that offer a level of subscription service over and above the standard technical support offered to all accounts as part of their SELECT or Enterprise agreement. Over time, we expect professional services revenues using subscription and subscriptionlike contractual structures to make up a greater proportion of our professional services revenues. 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. Twelve Months Ended September 30, 2021 2020 Last twelve-months recurring revenues$ 786,074 $
682,712
Constant Currency:
Annualized recurring revenues ("ARR") growth rate 26 % 9 %
Account retention rate 98 % 98 % (1)
Recurring revenues dollar-based net retention rate 106 % 110 % (1)
(1)On January 1, 2019 , we adopted ASU No. 201409, Revenue from Contracts with
Customers, and related amendments ("Topic 606"), which superseded the guidance
provided by Accounting Standards Codification ("ASC") 985605, Software-Revenue
Recognition, and Topic 60525, Revenue Recognition, Multiple-Element
Arrangements. We refer to ASC 985605 and Topic 60525 collectively as
"Topic 605." Prior to the year ended December 31, 2020 , the account retention
rate and recurring revenues dollarbased net retention rate were calculated
using revenues recognized pursuant to Topic 605 for all periods in order to
enhance comparability during our transition to Topic 606 as we did not have all
information that was necessary to calculate account retention rate pursuant to
Topic 606 for earlier periods. For further information on the impact upon
adoption of Topic 606 as of January 1, 2019 , see Note 3 to our audited
consolidated financial statements included in Part II, Item 8 of our 2020 Annual
Report on Form 10K on file with the SEC . For further information on the
comparability of recurring revenues recognized under Topic 606 versus Topic 605,
see the section titled "-Key Factors Impacting Comparability and Performance"
included in Part II, Item 7 of our 2020 Annual Report on Form 10K on file with
the SEC .
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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
professional 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 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
September 30, 2021 compared to the last twelvemonths of the preceding
twelvemonth period increased by $103,362 . This increase was primarily due to
growth in ARR, which is primarily the result of growth in our recurring revenues
dollarbased net retention rate, as well as additional recurring revenues
resulting from new accounts and acquisitions. For the twelve months ended
September 30, 2021 , 86% 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 accounting
principles generally accepted in the United States of America ("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 is defined as the sum of the annualized value
of our portfolio of contracts that produce recurring revenue 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. 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 37% and 31% as of September 30, 2021 and 2020,
respectively. Within our consumptionmeasured ARR, the continuous uptake of our
E365 subscription offering has introduced daily consumptionmeasured ARR,
representing 28% of total ARR as of September 30, 2021 . ARR is inclusive of the
ARR of acquired companies as of the date they are acquired. We believe that ARR
and ARR growth are important metrics 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. Our ARR as of September 30, 2021 was $903,845 , calculated using
the spot foreign exchange rates as of September 30, 2021 .
Our ARR growth rate was favorably impacted from the Seequent acquisition by 13%
for the twelve months ended September 30, 2021 .
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. 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 86% of our total revenues for the twelve months
ended September 30, 2021 , this metric helps explain our revenue performance 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.
Three Months Ended Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
Adjusted EBITDA $ 84,468 $ 73,655 $ 236,778 $ 188,996
Adjusted Net Income 56,289 51,424 194,971 140,502
Adjusted EBITDA. We define Adjusted EBITDA as net (loss) 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 investment accounted for using the equity method, net of tax.
Adjusted Net Income. We define Adjusted Net Income as net (loss) income adjusted
for the following: amortization of purchased intangibles and developed
technologies, 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 (loss) income, and (income) loss from
investment accounted for using the equity method, net of tax. The tax effect of
adjustments to net (loss) income is based on the estimated marginal effective
tax rates in the jurisdictions impacted by such adjustments.
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. During the third
quarter of 2021, we modified our definitions of Adjusted EBITDA and Adjusted Net
Income to adjust for expense (income) relating to deferred compensation plan
liabilities and amounts for all periods herein reflect application of the
modified definition.
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Adjusted EBITDA and Adjusted Net Income should not be considered as alternatives
to net (loss) 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 (loss) income to Adjusted EBITDA:
Three Months Ended Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
Net (loss) income $ (50,128) $ 5,844 $ 51,788 $ 74,589
Interest expense, net 3,836 1,934 8,608 4,450
Provision (benefit) for income taxes 4,223 10,705 (6,165) 22,145
Depreciation and amortization (1) 16,666 9,172 35,946 25,836
Stock-based compensation (3) 11,588 19,548 32,186 22,760
Deferred compensation plan (4) 88,965 50 89,327 (115)
Acquisition expenses (5) 7,697 3,489 31,897 8,498
Realignment expenses (6) - 9,943 - 10,012
Expenses associated with IPO (7) - 26,130 - 26,130
Other expense (income), net (8) 957 (13,741) (9,748) (6,756)
Loss from investment accounted for using the
equity method, net of tax 664 581 2,939 1,447
Adjusted EBITDA $ 84,468 $ 73,655 $ 236,778 $ 188,996 Reconciliation of net (loss) income to Adjusted Net Income:
Three Months Ended Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
Net (loss) income $ (50,128) $ 5,844 $ 51,788 $ 74,589
Non-GAAP adjustments, prior to income taxes:
Amortization of purchased intangibles and
developed technologies (2) 11,539 5,236 22,003 14,694
Stock-based compensation (3) 11,588 19,548 32,186 22,760
Deferred compensation plan (4) 88,965 50 89,327 (115)
Acquisition expenses (5) 7,697 3,489 31,897 8,498
Realignment expenses (6) - 9,943 - 10,012
Expenses associated with IPO (7) - 26,130 - 26,130
Other expense (income), net (8) 957 (13,741) (9,748) (6,756)
Total non-GAAP adjustments, prior to income taxes 120,746
50,655 165,665 75,223 Income tax effect of non-GAAP adjustments (14,993) (5,656) (25,421) (10,757) Loss from investment accounted for using the equity method, net of tax 664 581 2,939 1,447 Adjusted Net Income$ 56,289 $ 51,424 $ 194,971 $ 140,502
Further explanation of certain of our adjustments in arriving at Adjusted EBITDA and Adjusted Net Income are as follows:
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(1)Depreciation and amortization. Depreciation and amortization includes
amortization of $1,958 and $1,167 for the three months ended September 30, 2021
and 2020, respectively, $5,430 and $3,189 for the nine months ended
September 30, 2021 and 2020, respectively, related to certain projects under our
Accelerated Commercial Development Program ("ACDP").
(2)Amortization of purchased intangibles and developed technologies.
Amortization of purchased intangibles varies in amount and frequency and is
significantly impacted by the timing and size of our acquisitions. Amortization
of acquisition related developed technologies under our ACDP was $92 and $102
for the three months ended September 30, 2021 and 2020, respectively, $283 and
$284 for the nine months ended September 30, 2021 and 2020, respectively.
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 and developed technologies contributed to our revenues
earned during the periods presented and will also contribute to our revenues in
future periods. Amortization of purchased intangible assets and developed
technologies will recur in future periods.
(3)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 varying available
valuation methodologies, subjective assumptions and the variety of award types
that companies can use under ASC 718, Compensation-Stock Compensation, 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.
(4)Deferred compensation plan. In August 2021 , our Board of Directors approved
an amendment to the Company's unfunded Nonqualified Deferred Compensation Plan,
as amended and restated, effective as of September 22, 2020 (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 DCP 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 three and nine months ended September 30, 2021 , the
Company recognized a onetime compensation charge of $90,721 to Deferred
compensation plan expenses in the consolidated statements 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 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.
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(5)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. Also included in our
acquisition expenses are retention incentives paid to executives of the acquired
companies, as well as adjustments related to deferred revenue from acquired
companies. 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. Acquired deferred
revenue is recorded on the opening balance sheet at an amount that typically is
lower than historical carrying value. The adjustment to acquired deferred
revenue has no impact on our business or cash flow, but it does reduce reported
U.S. GAAP revenue in the periods following an acquisition. For the three and
nine months ended September 30, 2021 , $389 and $16,285 , respectively, of our
acquisition expenses related to the acquisition of Seequent Holdings Limited
("Seequent").
(6)Realignment expenses. These expenses are 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
recognize costs related to termination benefits for colleagues whose positions
were eliminated. We exclude these charges 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.
(7)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.
(8)Other expense (income), net. Primarily consists of foreign exchange losses
(gains) of $2,446 and $(12,830) for the three months ended September 30, 2021
and 2020, respectively, and $248 and $(8,567) for the nine months ended
September 30, 2021 and 2020, respectively. The foreign exchange losses (gains)
derive primarily from U.S. Dollar denominated cash and cash equivalents,
accounts receivable, and intercompany balances held by foreign subsidiaries. The
gains and losses from such translations are included in Other expense (income),
net in the consolidated statements of operations. Intercompany finance
transactions denominated in U.S. Dollars resulted in unrealized foreign exchange
losses (gains) of $2,741 and $(12,284) for the three months ended September 30,
2021 and 2020, respectively, and $1,298 and $(10,519) for the nine months ended
September 30, 2021 and 2020, respectively. These U.S. Dollar denominated
balances are being translated into their functional currencies at the rates in
effect at the balance sheet date and are fully eliminated in consolidation. For
the three months ended September 30, 2021 and 2020, other expense (income), net
also includes a gain from the change in fair value of our interest rate swap of
$1,463 and $809 , respectively. For the nine months ended September 30, 2021 ,
other expense (income), net includes a gain from the change in fair value of our
interest rate swap of $(9,198) . For the nine months ended September 30, 2020 ,
other expense (income), net includes a loss from the change in fair value of our
interest rate swap of $3,365 , partially offset by a gain from the change in fair
value of acquisition contingent consideration of $1,340 . We exclude these
charges because they are not reflective of 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.
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Key Factors Impacting Comparability and Performance:
Highlights for the nine months ended September 30, 2021 . 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
for the nine months ended September 30, 2021 were impacted by the following:
•On June 17, 2021 , we completed the acquisition of Seequent, a leader in
software for geological and geophysical modeling, geotechnical stability, and
cloud services for geodata management and collaboration, for approximately
$910,997 in cash, net of cash acquired, plus 3,141,342 shares of our Class B
Common Stock. For the nine months ended September 30, 2021 , we incurred $16,285
of expenses related to the acquisition of Seequent;
•On June 28, 2021 , we completed a private offering of $575,000 of 0.375%
convertible senior notes due 2027 (the "2027 Notes"). We incurred $15,065 of
expenses in connection with the 2027 Notes offering consisting of transaction
costs. Transaction costs were recorded as a direct deduction from the related
debt liability in the consolidated balance sheet and are amortized to interest
expense using the effective interest method over the term of the 2027 Notes;
•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. 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. We paid premiums of $25,875 in connection with
the capped call options. The capped call options are indexed to our 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;
•On January 26, 2021 , we completed a private offering of $690,000 of 0.125%
convertible senior notes due 2026 (the "2026 Notes"). We incurred $18,055 of
expenses in connection with the 2026 Notes offering consisting of the payment of
initial purchasers' discounts and commissions, professional fees, and other
expenses ("transaction costs"). Transaction costs were recorded as a direct
deduction from the related debt liability in the consolidated balance sheet and
are amortized to interest expense using the effective interest method over the
term of the 2026 Notes;
•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. 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. We paid premiums of $25,530 in connection with
the capped call options. The capped call options are indexed to our 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;
•On January 25, 2021 , we entered into the Second Amendment to the Amended and
Restated Credit Agreement dated December 19, 2017 , which increased the senior
secured revolving loan facility from $500,000 to $850,000 and extended the
maturity date from December 18, 2022 to November 15, 2025 (the "Credit
Facility"). 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 . Debt issuance costs are amortized to interest expense through the
maturity date of November 15, 2025 ;
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•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 DCP 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 three and nine months ended September 30, 2021 , the
Company recognized a onetime compensation charge of $90,721 to Deferred
compensation plan expenses in the consolidated statements 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;
•Effective as of the beginning of the fourth quarter of 2020, participants in
the Bentley Systems , Incorporated Bonus Pool Plan, as amended and restated,
effective as of September 22, 2020 (the "Bonus Plan") may elect to receive any
portion, or all, of such participants' nondeferred incentive bonus in the form
of shares of fully vested Class B Common Stock instead of cash payments and
subject to a combined quarterly limit of $7,500 . For the nine months ended
September 30, 2021 , we recorded $17,181 of stockbased compensation expense
related to this plan;
•Effective September 22, 2020 , our Board and stockholders adopted and approved
the Bentley Systems , Incorporated Global Employee Stock Purchase Plan
(the "ESPP"). The ESPP has been implemented by means of consecutive offering
periods, with the first offering period commencing on the first trading day on
or after January 1, 2021 and ending on the last trading day on or before
June 30, 2021 . For the nine months ended September 30, 2021 , we recorded $1,416
of stockbased compensation expense related to this plan.
Impact of foreign currency. A portion of our revenues and operating expenses
were derived from outside the United States and as such, were denominated in
various foreign currencies, including most significantly: Euros, British Pounds,
Australian Dollars, Canadian Dollars, and Chinese Yuan Renminbi. Our financial
results are therefore affected by changes in foreign currency rates. In 2020,
43% of our revenues were denominated in various foreign currencies.
Correspondingly, in 2020, 47% of our 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 period to period comparisons and
enhance the understanding of our results and evaluation of our performance. In
reporting period to 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.
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Acquisitions. Historically, we have enhanced our business with acquisitions of
businesses, software solutions, and technologies. Going forward, we plan to
selectively acquire adjacent software solutions that can be sold broadly across
our account base, as well as to acquire new technologies that we can leverage
across our existing software solution portfolio. We completed 12 and four
acquisitions for the nine months ended September 30, 2021 and 2020,
respectively.
Impact of COVID19. As described in our 2020 Form 10-K, in response to the
COVID-19 pandemic, we implemented a number of initiatives to ensure the safety
of our colleagues and enable them to move to a work from home environment
seamlessly and continue working effectively. We continue to monitor the global
situation, with the health and safety of our colleagues and users as a top
priority. Currently, the majority of our workforce remains remote due to
COVID-19.
Our business model is such that we have experienced minimal disruption to our
ability to deliver our solutions to accounts. The COVID19 pandemic has had a
modest impact on the usage of our solutions by our users. Throughout 2020 and
the nine months ended September 30, 2021 , usage rates fluctuated modestly when
compared to the corresponding periods in the prior year. Usage declines have had
a minimal impact on our recurring revenues, which are comprised primarily of
longer term contracts where shortterm usage rate declines do not adversely
impact revenues. However, to the extent declines in usage have also occurred
within our recurring revenue contracts with shorter term resets, as is the case
with our E365 contracts, the usage declines have modestly impacted revenues. Our
revenues from professional services have also been impacted as certain accounts
have delayed new projects. Overall, while our rate of growth has been impacted,
our revenues have continued to grow given the mission critical nature of our
solutions.
As a precaution in the COVID-19 environment, we have and continue to actively
manage our spending. Actions taken during 2020 included efforts to minimize
colleague travel, and to reduce and recharacterize promotional spending with a
shift to virtual events. Although compensation levels and incentive plan payouts
have returned to normal for 2021, during 2020, our actions also included
curtailment in variable compensation plans to align to COVID-19 pandemic related
uncertainties. These actions have resulted in substantial cost savings during
the pandemic, which are unlikely to be fully sustainable prospectively.
For further discussion of the potential impact of COVID-19 on our business, see
Part II, Item IA. Risk Factors of this Quarterly Report on Form 10-Q.
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 professional
services.
Subscriptions
SELECT subscriptions: We provide annual recurring subscriptions that accounts
can elect to add to 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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Enterprise subscriptions: We provide Enterprise subscription offerings that
provides our largest accounts with complete and unlimited global access to our
comprehensive portfolio of solutions. ELS provides access for a prepaid annual
fee. Our E365 subscription, which was introduced during the fourth quarter of
2018, provides unrestricted access to our comprehensive software portfolio,
similar to ELS, however is charged based upon daily usage. E365 subscriptions
can contain quarterly usage floors or collars as accounts transition to the
usage model or for accounts within the public sector. The daily usage fee also
includes a term license component, SELECT maintenance and support, hosting, and
Success Plan services, which are designed to achieve business outcomes through
more efficient and effective use of our software. The ELS and E365 offerings
both contain a distinct term license component. ELS revenue is recognized as the
distinct performance obligations are satisfied. E365 revenue is recognized based
upon usage incurred by the account.
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. QTL subscriptions allow
accounts to pay quarterly in arrears for licenses usage that is beyond their
SELECT 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 and Passports are quarterly or annual term licenses enabling accounts to
access specific project or enterprise information and entitles our users to
certain functionality of our ProjectWise and AssetWise systems. Our standard
offerings are usage based with monetization through our CSS program. 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, Visas and
Passports 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. Our recent and
preferred contractual structures for delivering professional services include
(i) delivery of services in the form of subscriptionlike, packaged offerings
that are annually recurring in nature, and (ii) delivery of our growing
portfolio of Success Plans. Success Plans are standard offerings that offer a
level of subscription service above the standard technical support offered to
all accounts as part of their SELECT or Enterprise agreement. Revenues are
recognized as services are performed.
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Headcount-related costs
For the year ended December 31, 2020 , 80% of our aggregate cost of revenues,
research and development, selling and marketing, and general and administrative
costs were represented by what we refer to herein as "headcount-related" costs.
These costs include the salary costs of our colleagues (our employees) and the
corresponding incentives, benefits, employment taxes, travelrelated costs, and
realignment costs. 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.
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, for providing training, implementation, configuration,
and customization services to accounts, amortization of capitalized software
costs, and related outofpocket expenses incurred.
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, benefits, bonuses,
stockbased compensation, 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. Technological feasibility is typically reached shortly before the
release of such products and as a result, development costs that meet the
criteria for capitalization were not material for the periods presented.
We capitalize certain development costs related to certain projects under our
ACDP (our structured approach to an inhouse business incubator function) 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 $1,617 and $1,922 for
the three months ended September 30, 2021 and 2020, respectively, and $4,266 and
$6,182 for the nine months ended September 30, 2021 and 2020, respectively.
Additionally, total ACDP related amortization recorded in Costs of subscriptions
and licenses was $1,958 and $1,167 for the three months ended September 30, 2021
and 2020, respectively, and $5,430 and $3,189 for the nine months ended
September 30, 2021 and 2020, respectively.
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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.
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
expect to continue 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 expect to 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 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
DCP 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 three and nine months ended
September 30, 2021 , the Company recognized a onetime compensation charge of
$90,721 to Deferred compensation plan expenses in the consolidated statements 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 IPO. 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.
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Interest expense, net. Interest expense, net primarily represents interest
associated with the Credit Facility, amortization 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 and changes in fair value of acquisition
contingent consideration.
(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 investment accounted for using the equity method, net of tax. Loss
from investment accounted for using the equity method includes our proportional
share of loss in a joint venture.
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Results of Operations:
The following table sets forth selected consolidated statements of operations
data for each of the periods indicated:
Three Months Ended Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
Revenues:
Subscriptions $ 212,227 $ 173,174 $ 585,804 $ 501,011
Perpetual licenses 11,866 12,827 33,373 36,020
Subscriptions and licenses 224,093 186,001 619,177 537,031
Services 24,387 16,996 74,239 44,946
Total revenues 248,480 202,997 693,416 581,977
Cost of revenues:
Cost of subscriptions and licenses 31,056 23,338 89,882 66,466
Cost of services 23,176 19,290 67,090 50,126
Total cost of revenues 54,232 42,628 156,972 116,592
Gross profit 194,248 160,369 536,444 465,385
Operating expense (income):
Research and development 57,334 50,217 157,913 139,570
Selling and marketing 44,392 41,824 114,846 107,551
General and administrative 35,329 32,956 110,233 85,390
Deferred compensation plan 88,965 50 89,327 (115)
Amortization of purchased intangibles 8,676 3,869 16,703 10,984
Expenses associated with initial public
offering - 26,130 - 26,130
Total operating expenses 234,696 155,046 489,022 369,510
(Loss) income from operations (40,448) 5,323 47,422 95,875
Interest expense, net (3,836) (1,934) (8,608) (4,450)
Other (expense) income, net (957) 13,741 9,748 6,756
(Loss) income before income taxes (45,241) 17,130 48,562 98,181
(Provision) benefit for income taxes (4,223) (10,705) 6,165 (22,145)
Loss from investment accounted for
using the equity method, net of tax (664) (581) (2,939) (1,447)
Net (loss) income (50,128) 5,844 51,788 74,589
Less: Net (loss) income attributable to
participating securities (3) (4) (6) (4)
Net (loss) income attributable to
Class A and Class B common stockholders $ (50,131) $
5,840
$ (0.16) $
0.02
0.02
308,195,379 289,318,391 305,119,985 287,063,892
Weighted average shares, diluted 308,195,379 299,634,961 314,658,136 297,251,349
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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 Three and Nine Months Ended September 30, 2021 and 2020
Revenues
Comparison
Three Months Ended Constant
September 30, Currency
2021 2020 Amount % %
Revenues:
Subscriptions $ 212,227 $ 173,174 $ 39,053 22.6 % 20.8 %
Perpetual licenses 11,866 12,827 (961) (7.5) % (9.1) %
Subscriptions and licenses 224,093 186,001 38,092 20.5 % 18.8 %
Services 24,387 16,996 7,391 43.5 % 40.5 %
Total revenues $ 248,480 $ 202,997 $ 45,483 22.4 % 20.6 %
Comparison
Nine Months Ended Constant
September 30, Currency
2021 2020 Amount % %
Revenues:
Subscriptions $ 585,804 $ 501,011 $ 84,793 16.9 % 13.5 %
Perpetual licenses 33,373 36,020 (2,647) (7.3) % (11.0) %
Subscriptions and licenses 619,177 537,031 82,146 15.3 % 11.9 %
Services 74,239 44,946 29,293 65.2 % 59.3 %
Total revenues $ 693,416 $ 581,977 $ 111,439 19.1 % 15.6 %
Total revenues increased by $45,483 , or 22.4%, to $248,480 for the three months
ended September 30, 2021 and by $111,439 , or 19.1%, to $693,416 for the nine
months ended September 30, 2021 . This increase was primarily driven by
improvements in our business performance and the impact from acquisitions in
subscriptions revenues, the impact from acquisitions in services revenues, and
the overall positive foreign currency effects due to a weaker U.S. Dollar
relative to our other functional currencies. We define business performance as
our organic growth results inclusive of the impact from certain programmatic
acquisitions, which generally are immaterial, individually and in the aggregate.
On a constant currency basis, our revenues increased by 20.6% and 15.6% for the
three and nine months ended September 30, 2021 , respectively, as compared to the
prior periods.
•Subscriptions. For the three months ended September 30, 2021 , subscriptions
revenues increased by $39,053 , or 22.6%, as compared to the three months ended
September 30, 2020 . This increase was driven primarily by $19,149 related to our
acquisition of Seequent, improvements in our business performance, and the
positive foreign currency effects due to a weaker U.S. Dollar relative to our
other functional currencies. On a constant currency basis, our subscriptions
revenues increased by 20.8% for the three months ended September 30, 2021 as
compared to the three months ended September 30, 2020 .
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For the nine months ended September 30, 2021 , subscriptions revenues increased
by $84,793 , or 16.9%, as compared to the nine months ended September 30, 2020 .
This increase was driven primarily by improvements in our business performance,
$23,001 related to our acquisition of Seequent, and the positive foreign
currency effects due to a weaker U.S. Dollar relative to our other functional
currencies. On a constant currency basis, our subscriptions revenues increased
by 13.5% for the nine months ended September 30, 2021 as compared to the nine
months ended September 30, 2020 .
Our growth in subscriptions was primarily due to expansion within our existing
accounts, growth of 3% attributable to new accounts, most notability small and
medium sized accounts, and the acquisition of Seequent. The improvements in
business performance for the three and nine months ended September 30, 2021 was
led by our ProjectWise, Asset and Network Performance, civil design, and
geotechnical products. For the three and nine months ended September 30, 2021 ,
the impact of the Seequent acquisition includes organic growth within their
existing accounts compared to the prior periods.
•Perpetual licenses. For the three months ended September 30, 2021 , perpetual
licenses revenues decreased by $961 , or 7.5%, as compared to the three months
ended September 30, 2020 . This decrease was driven by a reduction in our
business performance, partially offset by the impact of acquisitions and the
positive foreign currency effects due to a weaker U.S. Dollar relative to our
other functional currencies. On a constant currency basis, our perpetual
licenses revenues decreased by 9.1% for the three months ended September 30,
2021 as compared to the three months ended September 30, 2020 .
For the nine months ended September 30, 2021 , perpetual licenses revenues
decreased by $2,647 , or 7.3%, as compared to the nine months ended September 30,
2020 . This decrease was driven by a reduction in our business performance,
partially offset by the impact of acquisitions and the positive foreign currency
effects due to a weaker U.S. Dollar relative to our other functional currencies.
On a constant currency basis, our perpetual licenses revenues decreased by 11.0%
for the nine months ended September 30, 2021 as compared to the nine months
ended September 30, 2020 .
We believe some of the decrease in perpetual licenses business performance for
the three and nine months ended September 30, 2021 is because accounts delayed
purchase decisions due to COVID19 or shifted spend to subscription solutions.
•Services. For the three months ended September 30, 2021 , services revenues
increased by $7,391 , or 43.5%, as compared to the three months ended
September 30, 2020 . This increase was driven primarily by the impact of
acquisitions of $6,496 , as well as the positive foreign currency effects due to
a weaker U.S. Dollar relative to our other functional currencies. On a constant
currency basis, our services revenues increased by 40.5% for the three months
ended September 30, 2021 as compared to the three months ended September 30,
2020 .
For the nine months ended September 30, 2021 , services revenues increased by
$29,293 , or 65.2%, as compared to the nine months ended September 30, 2020 . This
increase was driven primarily by the impact of acquisitions of $25,626 , as well
as the positive foreign currency effects due to a weaker U.S. Dollar relative to
our other functional currencies. On a constant currency basis, our services
revenues increased by 59.3% for the nine months ended September 30, 2021 as
compared to the nine months ended September 30, 2020 .
For the three and nine months ended September 30, 2021 , the acquisition impact
is attributable to several digital integrator businesses acquired throughout
2020 and 2021. Business performance continued to be impacted by COVID19 related
delays in new projects and the redeployment of some services colleagues to
support Success Plan services of our E365 subscription offering.
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Revenues by Geographic Area
Revenues are allocated to individual countries based upon the location of users.
Revenues by geographic area are as follows:
Comparison
Three Months Ended Constant
September 30, Currency
2021 2020 Amount % %
Revenues by geographic area:
Americas $ 126,583 $ 102,104 $ 24,479 24.0 % 22.8 %
Europe , the Middle East , and Africa
("EMEA") 75,982 63,335 12,647 20.0 % 17.1 %
Asia-Pacific ("APAC") 45,915 37,558 8,357 22.3 % 20.4 %
Total revenues by geographic area $ 248,480 $ 202,997 $ 45,483 22.4 % 20.6 %
Comparison
Nine Months Ended Constant
September 30, Currency
2021 2020 Amount % %Revenues by geographic area:
Americas$ 347,753 $ 287,942 $ 59,811 20.8 % 19.8 % EMEA 218,845 184,913 33,932 18.4 % 11.6 % APAC 126,818 109,122 17,696 16.2 % 10.9 %
Total revenues by geographic area
•Americas. For the three months endedSeptember 30, 2021 , revenues from theAmericas increased by$24,479 , or 24.0%, as compared to the three months endedSeptember 30, 2020 . This increase was driven primarily by improvements in our business performance in subscriptions revenues and the impact from acquisitions in subscriptions and services revenues. On a constant currency basis, our revenues from theAmericas increased by 22.8% for the three months endedSeptember 30, 2021 as compared to the three months endedSeptember 30, 2020 . For the nine months endedSeptember 30, 2021 , revenues from theAmericas increased by$59,811 , or 20.8%, as compared to the nine months endedSeptember 30, 2020 . This increase was driven primarily by improvements in our business performance in subscriptions revenues and the impact from acquisitions in subscriptions and services revenues. On a constant currency basis, our revenues from theAmericas increased by 19.8% for the nine months endedSeptember 30, 2021 as compared to the nine months endedSeptember 30, 2020 . The constant currency growth in theAmericas primarily reflects growth in recurring subscriptions revenues from our existing accounts inthe United States , the impact of the Seequent acquisition, and growth in services revenues inthe United States andCanada from the acquisition of digital integrator businesses. •EMEA. For the three months endedSeptember 30, 2021 , revenues from EMEA increased by$12,647 , or 20.0%, as compared to the three months endedSeptember 30, 2020 . On a constant currency basis, our revenues from EMEA increased by 17.1% for the three months endedSeptember 30, 2021 as compared to the three months endedSeptember 30, 2020 . The positive foreign currency effects were due to a weakerU.S. Dollar relative to our other functional currencies. 66 -------------------------------------------------------------------------------- For the nine months endedSeptember 30, 2021 , revenues from EMEA increased by$33,932 , or 18.4%, as compared to the nine months endedSeptember 30, 2020 . On a constant currency basis, our revenues from EMEA increased by 11.6% for the nine months endedSeptember 30, 2021 as compared to the nine months endedSeptember 30, 2020 . The positive foreign currency effects were due to a weakerU.S. Dollar relative to our other functional currencies. The constant currency growth primarily reflects growth in services revenues from the 2020 acquisitions of two digital integrator businesses inEurope . Constant currency growth also includes modest business growth in subscriptions revenues inEurope . •APAC. For the three months endedSeptember 30, 2021 , revenues from APAC increased by$8,357 , or 22.3%, as compared to the three months endedSeptember 30, 2020 . This increase was driven by improvements in our business performance in subscriptions revenues, the impact of the Seequent acquisition, and the positive foreign currency effects due to a weakerU.S. Dollar relative to our other functional currencies. On a constant currency basis, our revenues from APAC increased by 20.4% for the three months endedSeptember 30, 2021 as compared to the three months endedSeptember 30, 2020 . For the nine months endedSeptember 30, 2021 , revenues from APAC increased by$17,696 , or 16.2%, as compared to the nine months endedSeptember 30, 2020 . This increase was driven by improvements in our business performance in subscriptions revenues, the impact of the Seequent acquisition, and the positive foreign currency effects due to a weakerU.S. Dollar relative to our other functional currencies. On a constant currency basis, our revenues from APAC increased by 10.9% for the nine months endedSeptember 30, 2021 as compared to the nine months endedSeptember 30, 2020 . The constant currency growth was primarily due to expansion of our recurring subscriptions revenues inIndia for the three months endedSeptember 30, 2021 and inChina for the nine months endedSeptember 30, 2021 . Cost of Revenues Comparison Three Months Ended Constant September 30, Currency 2021 2020 Amount % % Cost of subscriptions and licenses$ 31,056 $ 23,338 $ 7,718 33.1 % 31.2 % Cost of services 23,176 19,290 3,886 20.1 % 16.5 % Total cost of revenues$ 54,232 $ 42,628 $ 11,604 27.2 % 24.5 % Comparison Nine Months Ended Constant September 30, Currency 2021 2020 Amount % % Cost of subscriptions and licenses$ 89,882 $ 66,466 $ 23,416 35.2 % 31.4 % Cost of services 67,090 50,126 16,964 33.8 % 27.2 % Total cost of revenues$ 156,972 $ 116,592 $ 40,380 34.6 % 29.6 % For the three months endedSeptember 30, 2021 , cost of revenues increased by$11,604 , or 27.2%, to$54,232 . This increase was driven by an increase in both cost of subscriptions and licenses and cost of services relative to the prior period. On a constant currency basis, total cost of revenues increased by 24.5% for the three months endedSeptember 30, 2021 as compared to the three months endedSeptember 30, 2020 . 67 -------------------------------------------------------------------------------- For the nine months endedSeptember 30, 2021 , cost of revenues increased by$40,380 , or 34.6%, to$156,972 . This increase was driven by an increase in both cost of subscriptions and licenses and cost of services relative to the prior period. On a constant currency basis, total cost of revenues increased by 29.6% for the nine months endedSeptember 30, 2021 as compared to the nine months endedSeptember 30, 2020 . For the three months endedSeptember 30, 2021 , cost of subscriptions and licenses increased 33.1%, or 31.2% in constant currency, as compared to the three months endedSeptember 30, 2020 . On a constant currency basis, this increase was substantially due to an increase in headcountrelated costs of approximately$4,400 , primarily driven by the redeployment of certain colleagues to our User Success team in support of success services available to accounts under programs such as our E365 subscription offering, and an increase in amortization expense for software and technology of approximately$2,200 . For the nine months endedSeptember 30, 2021 , cost of subscriptions and licenses increased 35.2%, or 31.4% in constant currency, as compared to the nine months endedSeptember 30, 2020 . On a constant currency basis, this increase was substantially due to an increase in headcountrelated costs of approximately$13,500 , primarily driven by the redeployment of certain colleagues to our User Success team in support of success services available to accounts under programs such as our E365 subscription offering, and an increase in amortization expense for software and technology of approximately$3,400 . For the three months endedSeptember 30, 2021 , cost of services increased by 20.1%, or 16.5% in constant currency, as compared to the three months endedSeptember 30, 2020 . On a constant currency basis, this increase was substantially due to an increase in headcountrelated costs of approximately$2,800 . The approximate$2,800 increase in headcount-related costs was primarily comprised of an increase in salaries and variable compensation costs of approximately$6,700 , primarily driven by our digital integrator acquisitions, partially offset by a decrease in stockbased compensation expense of approximately$2,400 and the realignment costs from the 2020 program of approximately$1,500 . For the nine months endedSeptember 30, 2021 , cost of services increased by 33.8%, or 27.2% in constant currency, as compared to the nine months endedSeptember 30, 2020 . On a constant currency basis, this increase was substantially due to an increase in headcountrelated costs of approximately$12,100 . The approximate$12,100 increase in headcount-related costs was primarily comprised of an increase in salaries and variable compensation costs of approximately$15,700 , primarily driven by our digital integrator acquisitions, partially offset by a decrease in stockbased compensation expense of approximately$2,100 and the realignment costs from the 2020 program of approximately$1,500 . Operating Expense (Income) Comparison Three Months Ended Constant September 30, Currency 2021 2020 Amount % % Research and development$ 57,334 $ 50,217 $ 7,117 14.2 % 11.3 % Selling and marketing 44,392 41,824 2,568 6.1 % 5.3 % General and administrative 35,329 32,956 2,373 7.2 % 5.2 % Deferred compensation plan 88,965 50 88,915 * * Amortization of purchased intangibles 8,676 3,869 4,807 124.2 % 116.2 % Expenses associated with initial public offering - 26,130 (26,130) * * Total operating expenses$ 234,696 $ 155,046 $ 79,650 51.4 % 49.6 % *Not meaningful 68
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Comparison
Nine Months Ended Constant
September 30, Currency
2021 2020 Amount % %
Research and development $ 157,913 $ 139,570 $ 18,343 13.1 % 9.6 %
Selling and marketing 114,846 107,551 7,295 6.8 % 2.9 %
General and administrative 110,233 85,390 24,843 29.1 % 27.0 %
Deferred compensation plan 89,327 (115) 89,442 * *
Amortization of purchased intangibles 16,703 10,984 5,719 52.1 % 44.4 %
Expenses associated with initial
public offering - 26,130 (26,130) * *
Total operating expenses $ 489,022 $ 369,510 $ 119,512 32.3 % 29.2 %
*Not meaningful
Research and development. For the three months ended September 30, 2021 ,
research and development expenses increased 14.2%, or 11.3% in constant
currency, as compared to the three months ended September 30, 2020 . On a
constant currency basis, this increase was primarily due to an increase in
headcount-related costs of approximately $5,000 . The approximate $5,000 increase
in headcount-related costs was primarily comprised of an increase in salaries
and variable compensation costs of approximately $13,100 , primarily due to
annual salary adjustments in 2021 combined with lower variable compensation
costs in the prior period due to COVID19. Offsetting this increase is several
components, the first component being a decrease of approximately $5,500 in
Bonus Plan related cash compensation due to the change in our Bonus Plan (see
Note 11 to our unaudited consolidated financial statements included in Part I,
Item 1 of this Quarterly Report on Form 10Q), which allows participants within
certain limitations to elect share delivery instead of cash compensation for
their non-deferred incentive bonuses. In the comparative period, non-deferred
incentive bonuses earned under the Bonus Plan were paid in cash. The other
components of the offsetting decrease in headcount-related costs are a decrease
in stockbased compensation expense of approximately $1,800 and the realignment
costs from the 2020 program of approximately $800 .
For the nine months ended September 30, 2021 , research and development expenses
increased 13.1%, or 9.6% in constant currency, as compared to the nine months
ended September 30, 2020 . On a constant currency basis, this increase was
primarily due to an increase in headcount-related costs of approximately
$13,100 . The approximate $13,100 increase in headcount-related costs was
primarily comprised of an increase in salaries and variable compensation costs
of approximately $22,900 , primarily due to annual salary adjustments in 2021
combined with lower variable compensation costs in the prior period due to
COVID19, and an increase in stockbased compensation expense of approximately
$5,800 . Partially offsetting these increases in headcount-related costs is a
decrease of approximately $14,700 in Bonus Plan related cash compensation due to
the change in our Bonus Plan as described above and the realignment costs from
the 2020 program of approximately $900 .
Selling and marketing. For the three months ended September 30, 2021 , selling
and marketing expenses increased 6.1%, or 5.3% in constant currency, as compared
to the three months ended September 30, 2020 . On a constant currency basis, this
increase was primarily due to an increase in promotional costs of approximately
$1,000 and an increase in headcount-related costs of approximately $900 . The
approximate $900 increase headcount-related costs was primarily comprised of an
increase in salaries and variable compensation costs of approximately $9,700 ,
primarily due to annual salary adjustments in 2021 combined with lower variable
compensation costs in the prior period due to COVID19, substantially offset by
the realignment costs from the 2020 program of approximately $5,200 and a
decrease in stockbased compensation expense of approximately $3,600 .
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For the nine months ended September 30, 2021 , selling and marketing expenses
increased 6.8%, or 2.9% in constant currency, as compared to the nine months
ended September 30, 2020 . On a constant currency basis, this increase was
primarily due to an increase in headcount-related costs of approximately $1,900
and an increase in promotional costs of approximately $1,100 . The approximate
$1,900 increase in headcount-related costs was primarily comprised of an
increase in salaries and variable compensation costs of approximately $9,300 ,
primarily due to annual salary adjustments in 2021 combined with lower variable
compensation costs in the prior period due to COVID19, partially offset by the
realignment costs from the 2020 program of approximately $5,200 and a decrease
in stockbased compensation expense of approximately $2,200 .
General and administrative. For the three months ended September 30, 2021 ,
general and administrative expenses increased 7.2%, or 5.2% in constant
currency, as compared to the three months ended September 30, 2020 . On a
constant currency basis, this increase was primarily due to an increase in costs
of computer equipment and facilities of approximately $2,000 , primarily
attributable to our recent acquisitions, partially offset by a decrease in
headcount-related costs of approximately $700 . The approximate $700 decrease in
headcount-related costs was primarily comprised of a decrease of approximately
$3,800 in Bonus Plan related cash compensation due to the change in our Bonus
Plan as described above and the realignment costs from the 2020 program of
approximately $2,300 . Partially offsetting these decreases in headcount-related
costs is an increase in salaries and variable compensation costs of
approximately $4,100 , primarily due to annual salary adjustments in 2021
combined with lower variable compensation costs in the prior period due to
COVID19, and an increase in stockbased compensation expense of approximately
$1,300 .
For the nine months ended September 30, 2021 , general and administrative
expenses increased 29.1%, or 27.0% in constant currency, as compared to the nine
months ended September 30, 2020 . On a constant currency basis, this increase was
primarily due to an increase in acquisition and integration costs and other
corporate initiatives of approximately $15,400 , primarily due to expenses
related to the acquisition of Seequent, and an increase in headcount-related
costs of approximately $5,200 . The approximate $5,200 increase in
headcount-related costs was primarily comprised of an increase in salaries and
variable compensation costs of approximately $7,300 , primarily due to annual
salary adjustments in 2021 combined with lower variable compensation costs in
the prior period due to COVID19, and an increase in stockbased compensation
expense of approximately $9,500 . Partially offsetting these increases in
headcount-related costs is a decrease of approximately $9,300 in Bonus Plan
related cash compensation due to the change in our Bonus Plan as described above
and the realignment costs from the 2020 program of approximately $2,300 .
Deferred compensation plan. For the three months ended September 30, 2021 ,
deferred compensation plan expenses increased by $88,915 as compared to the
three months ended September 30, 2020 . For the nine months ended September 30,
2021 , deferred compensation plan expenses increased by $89,442 as compared to
the nine months ended September 30, 2020 . These increases were primarily
attributable to a onetime $90,721 compensation charge recognized during the
three and nine months ended September 30, 2021 as discussed further below.
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 DCP 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 three and nine months ended September 30, 2021 , the
Company recognized a onetime compensation charge of $90,721 to Deferred
compensation plan expenses in the consolidated statements of operations to
record the reallocated deferred compensation plan liabilities at their fair
value.
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Amortization of purchased intangibles. For the three months ended September 30,
2021 , amortization of purchased intangibles increased by 124.2%, or 116.2% in
constant currency, as compared to the three months ended September 30, 2020 . On
a constant currency basis, this increase was primarily attributable to
amortization from recently acquired purchased intangibles.
For the nine months ended September 30, 2021 , amortization of purchased
intangibles increased by 52.1%, or 44.4% in constant currency, as compared to
the nine months ended September 30, 2020 . On a constant currency basis, this
increase was primarily attributable to amortization from recently acquired
purchased intangibles.
Expenses associated with initial public offering. For the three and nine months
ended September 30, 2020 , 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
Three Months Ended Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
Interest expense $ (3,861) $ (1,975) $ (8,844) $ (4,821)
Interest income 25 41 236 371
Interest expense, net $ (3,836) $ (1,934) $ (8,608) $ (4,450)
Three Months Ended Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
Bank credit facility $ (911) $ (1,519) $ (2,490) $ (3,953)
Interest rate swap (325) (288) (942) (398)
Convertible senior notes, coupon interest (772) - (1,155) -
Amortization and write-off of deferred debt
issuance costs (1,789) (153) (4,160) (430)
Other, net (39) 26 139 331
Interest expense, net $ (3,836) $ (1,934) $ (8,608) $ (4,450)
For the three months ended September 30, 2021 , interest expense, net increased
from the three months ended September 30, 2020 primarily due to the increase in
amortization and writeoff of deferred debt issuance costs in connection with
the Second Amendment to the Credit Facility and the convertible senior notes,
partially offset by a lower outstanding average balance under the Credit
Facility.
For the nine months ended September 30, 2021 , interest expense, net increased
from the nine months ended September 30, 2020 primarily due to the increase in
amortization and writeoff of deferred debt issuance costs in connection with
the Second Amendment to the Credit Facility and the convertible senior notes,
partially offset by a lower outstanding average balance under the Credit
Facility.
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Other (Expense) Income, Net
Three Months Ended Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
Foreign exchange (loss) gain
(248)
Other income (expense), net 1,489 911 9,996 (1,811)
Total other (expense) income, net
9,748
For the three months endedSeptember 30, 2021 and 2020, total other (expense) income, net consists of foreign exchange (losses) gains of$(2,446) and$12,830 , respectively, and$(248) and$8,567 for the nine months endedSeptember 30, 2021 and 2020, respectively. The foreign exchange (losses) gains derives primarily fromU.S. Dollar denominated cash and cash equivalents, accounts receivable, and intercompany balances held by foreign subsidiaries. For the three months endedSeptember 30, 2021 and 2020, intercompany finance transactions denominated inU.S. Dollars resulted in unrealized foreign exchange (losses) gains of$(2,741) and$12,284 , respectively, and$(1,298) and$10,519 for the nine months endedSeptember 30, 2021 and 2020, respectively. For the three months endedSeptember 30, 2021 and 2020, other income (expense), net includes a gain from the change in fair value of our interest rate swap of$1,463 and$809 , respectively. For the nine months endedSeptember 30, 2021 , other income (expense), net includes a gain from the change in fair value of our interest rate swap of$9,198 . For the nine months endedSeptember 30, 2020 , other income (expense), net includes a loss from the change in fair value of our interest rate swap of$3,365 , partially offset by a gain from the change in fair value of acquisition contingent consideration of$1,340 . Provision (Benefit) for Income Taxes The income tax provisions for the three months endedSeptember 30, 2021 and 2020 were based on the estimated annual effective income tax rates adjusted for discrete items occurring during the periods presented. For the three months endedSeptember 30, 2021 and 2020, we recognized an aggregate consolidated income tax expense of$4,223 and$10,705 , respectively, forU.S. domestic and foreign income taxes. For the three months endedSeptember 30, 2021 and 2020, we recorded a discrete tax benefit of$6,724 and$3,826 , respectively, associated with stockbased compensation. The effective income tax rate was (9.3)% on Loss before income taxes of$45,241 for the three months endedSeptember 30, 2021 , as compared to the effective income tax rate of 62.5% on Income before income taxes of$17,130 for the three months endedSeptember 30, 2020 . For the three months endedSeptember 30, 2021 , we recognized a onetime compensation charge of$90,721 to Deferred compensation plan expensesto record its reallocated deferred compensation plan liabilities at fair value. The effective income tax rate of (9.3)% for the three months endedSeptember 30, 2021 was primarily due to the loss before income taxes resulting from this onetime compensation charge, combined with a significant reduction in associated tax benefits due to officer compensation limitation provisions relating to this charge. The effective income tax rate of 62.5% for the three months endedSeptember 30, 2020 was primarily due to officer compensation limitation provisions resulting from our IPO, which went effective during the three months endedSeptember 30, 2020 , and the nondeductibility of expenses associated with our IPO, partially offset by discrete windfall tax benefits from stockbased compensation. The income tax provisions for the nine months endedSeptember 30, 2021 and 2020 were based on the estimated annual effective income tax rates adjusted for discrete items occurring during the periods presented. For the nine months endedSeptember 30, 2021 and 2020, we recognized an aggregate consolidated income tax (benefit) expense of$(6,165) and$22,145 , respectively, forU.S. domestic and foreign income taxes. For the nine months endedSeptember 30, 2021 and 2020, we recorded a discrete tax benefit of$55,102 and$10,511 , respectively, associated with stockbased compensation. The effective income tax rate of (12.7)% on Income before income taxes of$48,562 for the nine months endedSeptember 30, 2021 was lower than the effective income tax rate of 22.6% on Income before income taxes of$98,181 for the nine months endedSeptember 30, 2020 primarily due to discrete windfall tax benefits from stockbased compensation, partially offset by the impact from officer compensation limitation provisions. 72 --------------------------------------------------------------------------------
Net (Loss) Income
Three Months Ended Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
Net (loss) income $ (50,128) $ 5,844 $ 51,788 $ 74,589
For the three months ended September 30, 2021 , we had a net loss of $50,128
compared to net income of 5,844 for the three months ended September 30, 2020 .
For the nine months ended September 30, 2021 , net income decreased by $22,801
compared to the nine months ended September 30, 2020 . The changes are due to the
factors stated above.
Adjusted EBITDA and Adjusted Net Income
Three Months Ended Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
Adjusted EBITDA $ 84,468 $ 73,655 $ 236,778 $ 188,996
Adjusted Net Income $ 56,289 $ 51,424 $ 194,971 $ 140,502
For the three and nine months ended September 30, 2021 , Adjusted EBITDA
increased by $10,813 and $47,782 compared to the three and nine months ended
September 30, 2020 , respectively. For the three months ended September 30, 2021
and 2020, Adjusted EBITDA as a percentage of revenue was 34.0% and 36.3%,
respectively. For the nine months ended September 30, 2021 and 2020, Adjusted
EBITDA as a percentage of revenue was 34.1% and 32.5%, respectively.
For the three months ended September 30, 2021 , Adjusted Net Income increased by
$4,865 compared to three months ended September 30, 2020 . For the nine months
ended September 30, 2021 , Adjusted Net Income increased by $54,469 compared to
the nine months ended September 30, 2020 . For the three months ended
September 30, 2021 and 2020, Adjusted Net Income as a percentage of revenue was
22.7% and 25.3%, respectively. For the nine months ended September 30, 2021 and
2020, Adjusted Net Income as a percentage of revenue was 28.1% and 24.1%,
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."
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Liquidity and Capital Resources:
Our primary source of cash is generated from the delivery of subscriptions,
perpetual licenses, and services. Our primary use of cash is payment of our
operating costs, which consist primarily of colleague-related expenses, such as
compensation and benefits, as well as general operating expenses for marketing,
facilities, and overhead costs. In addition to operating expenses, we also use
cash to fund growth initiatives, which include acquisitions of software assets
and businesses. In connection with the acquisition of Seequent in June 2021 , we
used readily 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.
Our cash and cash equivalent balances are concentrated in a few locations around
the world, with substantial amounts held outside of the United States . As of
September 30, 2021 and December 31, 2020 , 94% of our total cash and cash
equivalents were located outside of the United States . We intend to continue to
permanently reinvest these funds outside of the United States and current plans
do not demonstrate a need to repatriate them to fund our U.S. operations. We
expect to meet our U.S. liquidity needs through ongoing cash flows or external
borrowings including available liquidity under the Credit Facility described
below. 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 United States .
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 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, currency fluctuations, market acceptance of our
products, competitive factors, 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.
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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. The following table presents our
foreign and domestic holdings of cash and cash equivalents:
September 30, December 31,
2021 2020
Cash and cash equivalents:
Held domestically $ 8,589 $ 7,861
Held by foreign subsidiaries 147,166 114,145
Total cash and cash equivalents $ 155,755 $ 122,006
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.
Bank Credit Facility
On January 25, 2021 , we entered into the Second Amendment to the Amended and
Restated Credit Agreement dated December 19, 2017 , which increased the senior
secured revolving loan facility from $500,000 to $850,000 and extended the
maturity date from December 18, 2022 to November 15, 2025 . In connection with
the Second Amendment, certain lenders exited the Credit Facility. 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 . Debt
issuance costs are amortized to interest expense through the maturity date of
November 15, 2025 .
On June 22, 2021 , we entered into the Third Amendment to the Credit Facility,
which increased the aggregate amount of approved convertible debt to permit the
issuance and sale of additional convertible senior notes. See the section titled
"-Convertible Senior Notes-2027 Notes" below.
In addition to the senior secured revolving loan facility, the Credit Facility
also provides up to $50,000 of letters of credit and other incremental
borrowings subject to availability, including a $85,000 multicurrency
swingline subfacility and a $200,000 incremental "accordion" subfacility. We
had $150 of letters of credit and surety bonds outstanding as of September 30,
2021 and December 31, 2020 . As of September 30, 2021 and December 31, 2020 , we
had $781,996 and $253,850 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 the London Interbank Offered Rate ("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
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 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 Credit Facility contains both
affirmative and negative covenants, including maximum leverage ratios. As of
September 30, 2021 and December 31, 2020 , we were in compliance with all
covenants in our Credit Facility debt agreements.
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Interest rate risk associated with the Credit Facility is managed through an
interest rate swap which we executed on March 31, 2020 . The swap has an
effective date of April 2, 2020 and a termination date of April 2, 2030 . Under
the terms of the swap, we fixed our LIBOR borrowing rate at 0.73% on a notional
amount of $200,000 . The interest rate swap is not designated as a hedging
instrument for accounting purposes. We account for the swap as either an asset
or a liability in the consolidated balance sheets and carry the derivative at
fair value. Gains and losses from the change in fair value are recognized in
Other income (expense), net, in the consolidated statements of operations. As of
September 30, 2021 and December 31, 2020 , we recorded a swap related asset at
fair value of $9,545 and $347 , respectively, in Other assets in the consolidated
balance sheets.
The weighted average interest rate under the Credit Facility was 2.33% and 1.59%
for the three months ended September 30, 2021 and 2020, respectively, and 2.02%
and 1.92% for the nine months ended September 30, 2021 and 2020, respectively.
The agreement governing the Credit Facility contains customary 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.
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.
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 transaction
costs. As of September 30, 2021 , $375 of the transaction costs were recorded in
Accounts payable in the consolidated balance sheet. 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.
We early adopted ASU No. 202006, Debt-Debt with Conversion and Other Options
(Subtopic 47020) and Derivatives and Hedging-Contracts in Entity's Own Equity
(Subtopic 81540): Accounting for Convertible Instruments and Contracts in an
Entity's Own Equity ("ASU 202006") as of January 1, 2021 and concluded the
2027 Notes will be 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 sheet and are amortized
to interest expense using the effective interest method over the term of the
2027 Notes. The effective interest rate for the 2027 Notes is 0.864%.
As of September 30, 2021 , 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 September 30, 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, which were recorded in
Accounts payable in the consolidated balance sheet as of September 30, 2021 . 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.
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.
As previously mentioned, we early adopted ASU 202006 as of January 1, 2021 and
concluded the 2026 Notes will be 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 sheet and
are amortized to interest expense using the effective interest method over the
term of the 2026 Notes. The effective interest rate for the 2026 Notes is
0.658%.
As of September 30, 2021 , 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 September 30, 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 Nine Months Ended September 30, 2021 and 2020
The following table summarizes our cash flow activities for the nine months
ended September 30, 2021 and 2020:
Nine Months Ended September 30,
2021 2020
Net Cash Provided By (Used In):
Operating activities $ 207,417 $ 176,025
Investing activities (1,047,847) (88,808)
Financing activities 869,649 (70,130)
Operating activities
Net cash provided by operating activities was $207,417 for the nine months ended
September 30, 2021 . Compared to the same period in the prior year, net cash from
operating activities was higher by $31,392 due to a net increase in net cash
flows from the change in operating assets and liabilities of $56,312 , partially
offset by a decrease in net income of $22,801 and a net decrease in noncash
adjustments of $2,119 . The net increase in cash flows from the change in
operating assets and liabilities was primarily due to the increase in deferred
compensation plan liabilities (as previously described above), the changes in
accounts receivable due to timing of collections from customers, and an increase
in prepaid income taxes.
For the nine months ended September 30, 2020 , net cash provided by operating
activities was $176,025 due to net income of $74,589 increased by $51,600 of
noncash adjustments and $49,836 from changes in operating assets and
liabilities.
Investing activities
Net cash used in investing activities was $1,047,847 for the nine months ended
September 30, 2021 , primarily due to $11,152 related to purchases of property
and equipment and investment in capitalized software and $1,033,695 in
acquisition related payments, net of cash acquired.
For the nine months ended September 30, 2020 , net cash used in investing
activities was $88,808 , primarily due to $13,533 related to purchases of
property and equipment and investment in capitalized software and $68,920 in
acquisition related payments, net of cash acquired.
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Financing activities
Net cash provided by financing activities was $869,649 for the nine months ended
September 30, 2021 . Compared to the prior year comparative period, net cash
provided by financing activities increased by $939,779 , primarily due to the net
proceeds from the convertible senior notes of $1,233,377 and a decrease in
payments for dividends of $387,776 , partially offset by a decrease in net
borrowings of $534,395 under the Credit Facility, the purchase of capped call
options of $51,555 , and an increase in net payments for shares acquired of
$38,830 .
For the nine months ended September 30, 2020 , net cash used in financing
activities was $70,130 , primarily due to payments of dividends of $412,852 ,
partially offset by an increase in net borrowings $356,250 .
Contractual Obligations and Other Commitments:
As noted above, on January 26, 2021 , we completed the 2026 Notes private
offering, and on June 28, 2021 , we completed the 2027 Notes private offering.
See Note 10 to our unaudited consolidated financial statements included in
Part I, Item 1 of this Quarterly Report on Form 10Q. As a result of a net
increase in longterm debt, our obligation for interest on longterm debt will
also increase.
Also as noted above, 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
DCP phantom investment funds. 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. See Note 12 to our
unaudited consolidated financial statements included in Part I, Item 1 of this
Quarterly Report on Form 10Q.
There have been no other material changes to our contractual obligations and
other commitments as disclosed in Part II, Item 7 Management's Discussion and
Analysis of Financial Condition and Results of Operations in our 2020 Annual
Report on Form 10K on file with the SEC .
Emerging Growth Company:
Section 107 of the U.S. Tax Cuts and Jobs Act (the "JOBS Act") provides that an
"emerging growth company" can use the extended transition period provided in
Section 7(a)(2)(B) of the Securities Act, as amended by Section 102(b)(1) of the
JOBS Act, for complying with new or revised accounting standards. This permits
an "emerging growth company" to delay the adoption of new or revised accounting
standards that have different effective dates for public and private companies
until those standards would otherwise apply to private companies. We have
elected to use the extended transition period provided in Section 7(a)(2)(B) for
complying with new or revised accounting standards that have different effective
dates for public and private companies until the earlier of the date we (i) are
no longer an "emerging growth company" or (ii) affirmatively and irrevocably opt
out of the extended transition period provided in Section 7(a)(2)(B). As a
result, our consolidated financial statements may not be comparable to those of
companies that comply with public company effective dates. We expect that we
will no longer qualify as an emerging growth company as of December 31, 2021 .
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