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 theU.S. 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 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. 38 -------------------------------------------------------------------------------- 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 subscription 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-20210331_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; 39 -------------------------------------------------------------------------------- •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. 40 -------------------------------------------------------------------------------- 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 March 31, 2021 2020 Last twelve-months recurring revenues$ 716,902 $
647,596
Constant Currency:
Annualized recurring revenues ("ARR") growth rate 10 % 10 %
Account retention rate 98 % 98 % (1) Recurring revenues dollar-based net retention rate 107 % 109 % (1)
(1)OnJanuary 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 endedDecember 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 ofJanuary 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 theSEC . 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 theSEC . 41 -------------------------------------------------------------------------------- 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 endedMarch 31, 2021 compared to the last twelvemonths of the preceding twelvemonth period increased by$69,306 . The increase was primarily due to growth in ARR, which is primarily the result of consistent performance in our account retention rate and in our recurring revenues dollarbased net retention rate, as well as additional recurring revenues resulting from new accounts and acquisitions. For the twelve months endedMarch 31, 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 inthe 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 38% and 25% as ofMarch 31, 2021 and 2020, respectively. Within our consumptionmeasured ARR, the continuous uptake of our E365 subscription offering has introduced daily consumptionmeasured ARR, representing 27% of total ARR as ofMarch 31, 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 account retention rate and our recurring revenues dollarbased net retention rate, is a leading indicator of revenue growth. Our ARR as ofMarch 31, 2021 was$760,212 , calculated using the spot foreign exchange rates as ofMarch 31, 2021 . Our ARR growth rate was favorably impacted from acquisitions by 1% and 2% for the twelve months endedMarch 31, 2021 and 2020, respectively. 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. 42 -------------------------------------------------------------------------------- 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 endedMarch 31, 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 withU.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 2021 2020 Adjusted EBITDA$ 82,809 $ 57,931 Adjusted Net Income$ 64,004 $ 43,156 Adjusted EBITDA. We define Adjusted EBITDA as net income adjusted for interest expense, net, provision (benefit) for income taxes, depreciation and amortization, stockbased compensation, acquisition expenses, realignment expenses, other nonoperating (income) and 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 income adjusted for the following: amortization of purchased intangibles and developed technologies, stockbased compensation, acquisition expenses, realignment expenses, other nonoperating income and expense, net, the tax effect of the above adjustments to net income, nonrecurring income tax expense and benefit, and (income) loss from investment accounted for using the equity method, net of tax. The tax effect of adjustments to net 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 withU.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 withU.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. Adjusted EBITDA and Adjusted Net Income should not be considered as alternatives to net income, operating income, or any other performance measures derived in accordance withU.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 underU.S. GAAP. 43 --------------------------------------------------------------------------------
Reconciliation of net income to Adjusted EBITDA:
Three Months Ended
March 31,
2021 2020
Net income $ 57,006 $ 29,669
Interest expense, net 2,319 1,388
Provision (benefit) for income taxes 10,358 7,176
Depreciation and amortization (1) 8,993 8,050
Stock-based compensation (3) 8,913 1,653
Acquisition expenses (4) 9,256 2,275
Realignment expenses (5) - (8)
Other (income) expense, net (6) (14,482) 7,390
Loss from investment accounted for using the equity method, net of
tax 446 338
Adjusted EBITDA $ 82,809 $ 57,931 Reconciliation of net income to Adjusted Net Income:
Three Months Ended
March 31,
2021 2020
Net income $ 57,006 $ 29,669
Non-GAAP adjustments, prior to income taxes:
Amortization of purchased intangibles and developed technologies
(2) 4,683 4,539
Stock-based compensation (3) 8,913 1,653
Acquisition expenses (4) 9,256 2,275
Realignment expenses (5) - (8)
Other (income) expense, net (6) (14,482) 7,390
Total non-GAAP adjustments, prior to income taxes 8,370 15,849
Income tax effect of non-GAAP adjustments (1,818) (2,700)
Loss from investment accounted for using the equity method, net of
tax 446 338
Adjusted Net Income $ 64,004 $ 43,156
Further explanation of certain of our adjustments in arriving at Adjusted EBITDA
and Adjusted Net Income are as follows:
(1)Depreciation and amortization. Depreciation and amortization includes
amortization of $1,687 and $964 for the three months ended March 31, 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 $94 and $90 for
the three months ended March 31, 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.
44
--------------------------------------------------------------------------------
(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)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 months
ended March 31, 2021 , $6,716 of our acquisition expenses related to entering
into a definitive agreement to acquire Seequent Holdings Limited ("Seequent").
See the section titled "-Subsequent Events After March 31, 2021 ."
(5)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.
(6)Other (income) expense, net. Primarily consists of foreign exchange (gains)
losses of $(792) and $8,781 for the three months ended March 31, 2021 and 2020,
respectively. The foreign exchange (gains) losses 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 income (expense), net in the
consolidated statements of operations. Intercompany finance transactions
denominated in U.S. Dollars resulted in unrealized foreign exchange (gains)
losses of $(480) and $6,777 for the three months ended March 31, 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. Other (income) expense, net also includes
a gain from the change in fair value of our interest rate swap of $13,661 for
the three months ended March 31, 2021 . For the three months ended March 31,
2020 , other (income) expense, net also includes a gain from the change in fair
value of acquisition contingent consideration of $1,390 . 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.
45
--------------------------------------------------------------------------------
Key Factors Impacting Comparability and Performance:
Highlights for the three months ended March 31, 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 three months ended March 31, 2021 were impacted by the following:
•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 ;
•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 March 11, 2021 , we entered into a definitive agreement to acquire Seequent,
a leader in software for geological and geophysical modeling, geotechnical
stability, and cloud services for geodata management and collaboration, for
approximately $900,000 in cash, net of cash acquired and subject to customary
adjustments, including for working capital, plus 3,141,361 shares of our Class B
Common Stock. The transaction is subject to customary closing conditions,
including regulatory approvals, and is expected to close during the second
quarter of 2021. We expect to use 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. For the three months ended
March 31, 2021 , we incurred $6,716 of expenses related to entering into the
definitive agreement to acquire Seequent;
•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 three months ended
March 31, 2021 , we recorded $6,124 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 will be 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 three months ended March 31, 2021 , we recorded $449 of
stockbased compensation expense related to this plan; and
46
--------------------------------------------------------------------------------
•The COVID19 pandemic has had a modest impact on the usage of our solutions by
our users. Throughout 2020 and for the three months ended March 31, 2021 , usage
rates as compared to comparable periods in the prior year have fluctuated
between modest decreases to modest increases. 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
perpetual licenses and professional services have also been impacted as certain
accounts have shifted spend to subscription solutions or 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 actively managed our spending. Actions included
efforts to minimize employee 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.
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.
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 three and one
acquisitions for the three months ended March 31, 2021 and 2020, respectively.
Impact of COVID19. In March 2020 , the World Health Organization declared a
global pandemic related to the rapidly growing outbreak of the disease COVID19,
caused by a novel strain of coronavirus, SARSCoV2. The COVID19 outbreak and
certain preventative or protective actions that governments, businesses, and
individuals have taken in respect of COVID19 have resulted in global business
disruptions.
47
--------------------------------------------------------------------------------
In response to the COVID19 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. These initiatives
included providing our colleagues with necessary equipment, making certain that
all colleagues had means of video and audio communications online, and
guaranteeing that our network bandwidth was sufficient. Our business model is
such that we had minimal disruption to our ability to deliver our solutions to
accounts, and we believe we did not have any significant loss of productivity
during this transition. Almost all of our colleagues have been working from home
since March 16, 2020 , with a minority of our colleagues working in our office
environments on a voluntary basis and abiding by appropriate distancing and
sanitary regulations for their region. We communicated regularly and provided
ondemand learning and support to our colleagues throughout the transition
period. During 2020, we periodically surveyed our colleagues and a majority of
our colleagues reported confidence in the decisions that Bentley leadership is
making regarding employee wellbeing and safety during this pandemic, and a
majority of our colleagues believe that Bentley's response to and communication
regarding COVID19 has been timely and helpful.
The impact of the pandemic on our financial performance has been modest; our
revenues have continued to grow given the mission critical nature of our
solutions. When compared to levels from the same periods in 2019, our accounts'
usage of our applications was down slightly for the months of March and April
2020 , showed improvement to be nearly equivalent to past usage during May and
June 2020 , modestly declined slightly for the months of July through November
2020 , and improved to reflect slight usage growth during December 2020 relative
to the same period in the prior year. The patterns of modest usage decline
initially were observed to follow the geographic spread of the pandemic, but
then evolved to follow capital projects within sectors. The modest fluctuations
in usage had limited impact on our recurring revenues, which are comprised
primarily of longer term contracts. 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, notably in those accounts also exposed to capital projects in the
industrial and resources sectors, and to a lesser extent, commercial and
facilities sectors. The growth of our revenues from perpetual licenses and
professional services has been impacted as selected accounts have shifted spend
to subscription solutions or delayed new projects. In compared the three months
ended March 31, 2021 to the same period in 2020, our accounts' usage of our
applications was approximately flat, but trending upward.
During 2020, we were quick to find ways to support our accounts and users,
including the launch of a "Bentley Has Your Back" campaign to help our accounts
take full advantage of their Bentley software. This campaign included producing
over 50 selfhelp documents, 20 webinars, and several messages guiding users on
various topics including how Bentley's solutions should be configured when
working with limited bandwidth, how to use a SmartTV as a monitor, and how to
leverage specific offerings such as ProjectWise to facilitate collaboration in
their own businesses in remote working environments. This guidance and
assistance was well received by accounts and we believe helped maximize usage
during the pandemic.
We have also taken measures to reduce selected operating expenses, including
various costs associated with travel and facilities.
Our business benefits from a resilient business model backed by industry
tailwinds and a strong financial profile. We believe that significant public and
private investment will continue to drive spend for infrastructure globally,
which will continue to drive demand for our solutions. Additionally, we do not
have any material account concentration; no single account or group of
affiliated accounts represented more than 2.5% of our revenues for the year
ended December 31, 2020 . As of March 31, 2021 , we had $569,536 of cash and cash
equivalents, and $849,850 was available under our Credit Facility.
48
--------------------------------------------------------------------------------
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.
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.
49
--------------------------------------------------------------------------------
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.
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, and travelrelated 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 deployed hosted 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 expenses
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.
50
--------------------------------------------------------------------------------
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 $1,043 and $2,484 for
the three months ended March 31, 2021 and 2020, respectively. Additionally,
total ACDP related amortization recorded in Costs of subscriptions and licenses
was $1,687 and $964 for the three months ended March 31, 2021 and 2020,
respectively.
Selling and marketing. Selling and marketing expenses include salaries,
benefits, bonuses, and stockbased compensation expense for our selling and
marketing colleagues, the expense of travel, entertainment, and training for
such personnel, online marketing, product marketing and other brandbuilding
activities, such as advertising, trade shows, and expositions, various sales and
promotional programs, and costs of computer equipment and facilities used in
selling and marketing activities. We anticipate that we will continue to make
strategic investments in our global business systems and methods to enhance
major account sales activities and to support our worldwide sales and marketing
strategies, and the business in general. We capitalize certain incremental costs
of obtaining a contract and recognize these expenses over the period of benefit
associated with these costs, resulting in a deferral of certain contract costs
each period. The contract costs are amortized based on the economic life of the
goods and services to which the contract costs relate. We apply a practical
expedient to expense costs as incurred for costs to obtain a contract with a
customer when the amortization period would have been one year or less. These
costs include our internal sales force compensation program and certain channel
partner sales incentive programs for which the annual compensation is
commensurate with annual sales activities.
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.
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.
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.
(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.
51
--------------------------------------------------------------------------------
Results of operations:
The following table sets forth selected consolidated statements of operations
data for each of the periods indicated:
Three Months Ended
March 31,
2021 2020
Revenues:
Subscriptions $ 188,125 $ 170,182
Perpetual licenses 10,116 10,814
Subscriptions and licenses 198,241 180,996
Services 23,764 13,694
Total revenues 222,005 194,690
Cost of revenues:
Cost of subscriptions and licenses 28,945 21,327
Cost of services 20,344 15,932
Total cost of revenues 49,289 37,259
Gross profit 172,716 157,431
Operating expenses:
Research and development 47,803 45,135
Selling and marketing 32,440 36,095
General and administrative 33,388 26,804
Amortization of purchased intangibles 3,438 3,436
Expenses associated with initial public offering - -
Total operating expenses 117,069 111,470
Income from operations 55,647 45,961
Interest expense, net (2,319) (1,388)
Other income (expense), net 14,482 (7,390)
Income before income taxes 67,810 37,183
Provision for income taxes (10,358) (7,176)
Loss from investment accounted for using the equity method, net of tax
(446) (338)
Net income 57,006 29,669
Less: Net income attributable to participating securities - -
Net income attributable to Class A and Class B common stockholders
$ 57,006 $ 29,669 Per share information: Net income per share, basic$ 0.19 $ 0.10 Net income per share, diluted$ 0.18 $ 0.10 Weighted average shares, basic 302,583,452 285,486,972 Weighted average shares, diluted 321,736,649 292,378,627 52 -------------------------------------------------------------------------------- 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 withU.S. GAAP. Comparison of the Three Months EndedMarch 31, 2021 and 2020 Revenues Comparison Three Months Ended Constant March 31, Currency 2021 2020 Amount % % Revenues: Subscriptions$ 188,125 $ 170,182 $ 17,943 10.5 % 6.1 % Perpetual licenses 10,116 10,814 (698) (6.5) % (11.3) % Subscriptions and licenses 198,241 180,996 17,245 9.5 % 5.1 % Services 23,764 13,694 10,070 73.5 % 66.3 % Total revenues$ 222,005 $ 194,690 $ 27,315 14.0 % 9.4 % Total revenues increased by$27,315 , or 14.0%, to$222,005 for the three months endedMarch 31, 2021 . This increase was primarily driven by improvements in our organic performance in subscription revenues, the impact from acquisitions in services revenues, and the overall positive foreign currency effects due to a weakerU.S. Dollar relative to our other functional currencies. On a constant currency basis, our revenues increased by 9.4% for the three months endedMarch 31, 2021 as compared to the three months endedMarch 31, 2020 . •Subscriptions. For the three months endedMarch 31, 2021 , subscriptions revenues increased by$17,943 , or 10.5%, as compared to the three months endedMarch 31, 2020 . This increase was driven primarily by improvements in our organic performance and the positive foreign currency effects due to a weakerU.S. Dollar relative to our other functional currencies. On a constant currency basis, our subscriptions revenues increased by 6.1% for the three months endedMarch 31, 2021 as compared to the three months endedMarch 31, 2020 . Our growth in subscriptions is primarily due to expansion within our existing accounts and growth of 3% attributable to new accounts, most notability small and medium sized accounts. Our organic performance expansion for the three months endedMarch 31, 2021 was led by our ProjectWise, Asset and Network Performance, civil design, and geotechnical products. •Perpetual licenses. For the three months endedMarch 31, 2021 , perpetual licenses revenues decreased by$698 , or 6.5%, as compared to the three months endedMarch 31, 2020 . This decrease was driven by a reduction in our organic performance and partially offset by the impact of positive foreign currency effects due to a weakerU.S. Dollar relative to our other functional currencies. On a constant currency basis, our perpetual licenses revenues decreased by 11.3% for the three months endedMarch 31, 2021 as compared to the three months endedMarch 31, 2020 . We observed a decrease in perpetual licenses organic performance for the three months endedMarch 31, 2021 as certain accounts delayed purchase decisions due to COVID19 or shifted spend to subscription solutions. 53 -------------------------------------------------------------------------------- •Services. For the three months endedMarch 31, 2021 , services revenues increased by$10,070 , or 73.5%, as compared to the three months endedMarch 31, 2020 . This increase was driven primarily by the impact from acquisitions of$9,868 , as well as the positive foreign currency effects due to a weakerU.S. Dollar relative to our other functional currencies. On a constant currency basis, our services revenues increased by 66.3% for the three months endedMarch 31, 2021 as compared to the three months endedMarch 31, 2020 . For the three months endedMarch 31, 2021 , the acquisition impact is related to several digital integrator businesses acquired throughout 2020. Organic performance continued to be impacted by COVID19 related delays in new projects and the partial redeployment of our services colleagues to support Success Plan services of our E365 subscription offering. Revenues by Geographic Area Revenues are allocated to individual countries based upon the location of the users. Revenues by geographic area are as follows: Comparison Three Months Ended Constant March 31, Currency 2021 2020 Amount % % Revenues by geographic area: Americas$ 108,862 $ 97,900 $ 10,962 11.2 % 10.1 % EMEA 73,848 62,114 11,734 18.9 % 10.3 % APAC 39,295 34,676 4,619 13.3 % 5.8 % Total revenues by geographic area$ 222,005 $ 194,690 $ 27,315
14.0 % 9.4 %
•Americas. For the three months endedMarch 31, 2021 , revenues from theAmericas increased by$10,962 , or 11.2%, as compared to the three months endedMarch 31, 2020 . This increase was driven primarily by improvements in our organic performance, the impact from acquisitions 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 theAmericas increased by 10.1% for the three months endedMarch 31, 2021 as compared to the three months endedMarch 31, 2020 . The constant currency growth in theAmericas primarily reflects growth in recurring subscription revenues from our existing accounts inthe United States , and growth in services revenues resulting from the acquisition of a digital integrator business inthe United States in 2020. •EMEA. For the three months endedMarch 31, 2021 , revenues from EMEA increased by$11,734 , or 18.9%, as compared to the three months endedMarch 31, 2020 . On a constant currency basis, our revenues from EMEA increased by 10.3% for the three months endedMarch 31, 2021 as compared to the three months endedMarch 31, 2020 . The positive foreign currency effects were due to a weakerU.S. Dollar relative to our other functional currencies. The constant currency growth includes modest organic growth in subscription revenues led byRussia , with a notable partially offsetting reduction in theMiddle East . Constant currency growth more prominently reflects growth in services revenues from the 2020 acquisitions of two digital integrator businesses inEurope . 54 -------------------------------------------------------------------------------- •APAC. For the three months endedMarch 31, 2021 , revenues from APAC increased by$4,619 , or 13.3%, as compared to the three months endedMarch 31, 2020 . This increase was driven by improvements in our organic performance and the positive foreign currency effects due to a weakerU.S. Dollar relative to our other functional currencies. On a constant currency basis, our revenues from APAC increased by 5.8% for the three months endedMarch 31, 2021 as compared to the three months endedMarch 31, 2020 . For the three months endedMarch 31, 2021 , the constant currency growth was primarily due to expansion of our recurring subscription revenues from accounts inChina . Cost of Revenues Comparison Three Months Ended Constant March 31, Currency 2021 2020 Amount % % Cost of subscriptions and licenses$ 28,945 $ 21,327 $ 7,618 35.7 % 31.2 % Cost of services 20,344 15,932 4,412 27.7 % 21.4 % Total cost of revenues$ 49,289 $ 37,259 $ 12,030 32.3 % 27.0 % For the three months endedMarch 31, 2021 , cost of revenues increased by$12,030 , or 32.3%, to$49,289 . 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 27.0% for the three months endedMarch 31, 2021 as compared to the three months endedMarch 31, 2020 . For the three months endedMarch 31, 2021 , cost of subscriptions and licenses increased 35.7%, or 31.2% in constant currency, as compared to the three months endedMarch 31, 2020 . On a constant currency basis, this increase was primarily due to an increase in headcountrelated costs of approximately$4,600 . For the three months endedMarch 31, 2021 , cost of services increased by 27.7%, or 21.4% in constant currency, as compared to the three months endedMarch 31, 2020 . On a constant currency basis, the increase was primarily due to an increase in headcountrelated costs of approximately$3,100 . 55 --------------------------------------------------------------------------------
Operating Expenses
Comparison
Three Months Ended Constant
March 31, Currency
2021 2020 Amount % %
Research and development $ 47,803 $ 45,135 $ 2,668 5.9 % 2.4 %
Selling and marketing 32,440 36,095 (3,655) (10.1) % (13.5) %
General and administrative 33,388 26,804 6,584 24.6 % 23.1 %
Amortization of purchased intangibles 3,438 3,436 2 0.1 % (5.3) %
Total operating expenses $ 117,069 $ 111,470 $ 5,599 5.0 % 2.0 %
Research and development. For the three months endedMarch 31, 2021 , research and development expenses increased 5.9%, or 2.4% in constant currency, as compared to the three months endedMarch 31, 2020 . On a constant currency basis, the increase was primarily due to an increase in stockbased compensation expense of approximately$3,300 and an increase in headcount-related costs, excluding stockbased compensation expense, of approximately$2,600 , partially offset by a decrease in Bonus Plan related cash compensation of approximately$4,400 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. Selling and marketing. For the three months endedMarch 31, 2021 , selling and marketing expenses decreased 10.1%, or 13.5% in constant currency, as compared to the three months endedMarch 31, 2020 . On a constant currency basis, this decrease was primarily due to a decrease in headcount-related costs of approximately$3,500 due to COVID19 related modification to employee travel and a reduction in variable compensation expenses. General and administrative. For the three months endedMarch 31, 2021 , general and administrative expenses increased 24.6%, or 23.1% in constant currency, as compared to the three months endedMarch 31, 2020 . On a constant currency basis, the increase was primarily due to an increase in stockbased compensation expense of approximately$3,800 and an increase in acquisition and integration costs and other corporate initiatives of$5,500 , primarily due to expenses related to entering into the definitive agreement to acquire Seequent, partially offset by a decrease in headcount-related costs, excluding stockbased compensation expense, of approximately$500 and a decrease of approximately$2,300 in Bonus Plan related cash compensation due to the change in our Bonus Plan as described above. Amortization of purchased intangibles. For the three months endedMarch 31, 2021 , amortization of purchased intangibles increased by 0.1%, but decreased by 5.3% in constant currency, as compared to the three months endedMarch 31, 2020 . On a constant currency basis, the decrease was primarily attributable to previously acquired purchased intangibles which continue to become fully amortized, partially offset by amortization from recently acquired purchased intangibles. 56 --------------------------------------------------------------------------------
Interest Expense, Net
Three Months Ended
March 31,
2021 2020
Interest expense $ (2,401) $ (1,690)
Interest income 82 302
Interest expense, net $ (2,319) $ (1,388)
Three Months Ended
March 31,
2021 2020
Bank credit facility $ (729) $ (1,540)
Interest rate swap (301) -
2026 Notes (154) -Amortization and write-off of deferred debt issuance costs (1,229)
(138)
Other, net 94 290
Interest expense, net $ (2,319) $ (1,388)
For the three months ended March 31, 2021 , interest expense, net increased from
the three months ended March 31, 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, to a lesser extent, interest
expense related to the interest rate swap, partially offset by a lower
outstanding average balance under the Credit Facility.
Other Income (Expense), Net
Three Months Ended
March 31,
2021 2020
Foreign exchange gain (loss)
13,690 1,391
Total other income (expense), net
For the three months endedMarch 31, 2021 and 2020, other income (expense), net consists of foreign exchange gain (loss) of$792 and$(8,781) , respectively. The foreign exchange gain (loss) derives primarily fromU.S. Dollar denominated cash and cash equivalents, accounts receivable, and intercompany balances held by foreign subsidiaries. For the three months endedMarch 31, 2021 and 2020, intercompany finance transactions denominated inU.S. Dollars resulted in unrealized foreign exchange gains (losses) of$480 and$(6,777) , respectively. For the three months endedMarch 31, 2021 , other income (expense), net includes a gain from the change in fair value of our interest rate swap of$13,661 . For the three months endedMarch 31, 2020 , other income (expense), net includes a gain from the change in fair value of acquisition contingent consideration. 57 -------------------------------------------------------------------------------- (Provision) Benefit for Income Taxes The income tax provisions for the three months endedMarch 31, 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 endedMarch 31, 2021 and 2020, we recognized an aggregate consolidated income tax expense of$10,358 and$7,176 , respectively, forU.S. domestic and foreign income taxes. For the three months endedMarch 31, 2021 and 2020, we recorded a discrete tax benefit of$7,485 and$1,142 , respectively, associated with stockbased compensation. The effective income tax rate of 15.3% for the three months endedMarch 31, 2021 was lower than the effective income tax rate of 19.3% for the three months endedMarch 31, 2020 primarily due to the tax benefit associated with stockbased compensation, partially offset by the impact from officer compensation limitation provisions. Net Income Three Months Ended March 31, 2021 2020 Net income$ 57,006 $ 29,669 For the three months endedMarch 31, 2021 , net income increased by$27,337 , or 92.1%, compared to the three months endedMarch 31, 2020 . The changes are due to the factors stated above. Adjusted EBITDA and Adjusted Net Income Three Months Ended March 31, 2021 2020 Adjusted EBITDA$ 82,809 $ 57,931 Adjusted Net Income$ 64,004 $ 43,156 For the three months endedMarch 31, 2021 , Adjusted EBITDA increased by$24,878 compared to the three months endedMarch 31, 2020 . For the three months endedMarch 31, 2021 and 2020, Adjusted EBITDA as a percentage of revenue was 37.3% and 29.8%, respectively. For the three months endedMarch 31, 2021 , Adjusted Net Income increased by$20,848 compared to the three months endedMarch 31, 2020 . For the three months endedMarch 31, 2021 and 2020, Adjusted Net Income as a percentage of revenue was 28.8% and 22.2%, 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 withU.S. GAAP, see the section titled "-NonGAAP Financial Measures." 58 -------------------------------------------------------------------------------- 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. Our cash and cash equivalent balances are concentrated in a few locations around the world, with substantial amounts held outside ofthe United States . As ofMarch 31, 2021 andDecember 31, 2020 , 25% and 94%, respectively, of our total cash and cash equivalents were located outside ofthe United States . Under theU.S. Tax Cuts and Jobs Act (the "JOBS Act"), we are subject toU.S. taxes for the deemed repatriation of certain cash balances held by foreign corporations. We intend to continue to permanently reinvest these funds outside ofthe United States and current plans do not demonstrate a need to repatriate them to fund ourU.S. operations. We expect to meet ourU.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 outsidethe 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 assure you that we could obtain additional financing on favorable terms or at all. Cash and cash equivalents. We consider all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash equivalents. Our cash and cash equivalents consisted of cash held in checking accounts and money market funds maintained at various financial institutions. The following table presents our foreign and domestic holdings of cash and cash equivalents: March 31, 2021 2020 Cash and cash equivalents: Held domestically$ 426,853 $ 7,861
Held by foreign subsidiaries 142,683 114,145
Total cash and cash equivalents
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.
59
--------------------------------------------------------------------------------
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 .
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 March 31, 2021
and December 31, 2020 . As of March 31, 2021 and December 31, 2020 , we had
$849,850 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 is at the
onemonth 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
March 31, 2021 and December 31, 2020 , we were in compliance with all covenants
in our Credit Facility debt agreements.
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 on the consolidated balance sheet 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
March 31, 2021 and December 31, 2020 , we recorded a swap related asset at fair
value of $14,011 and $347 , respectively, in Other assets in the consolidated
balance sheets.
The weighted average interest rate under the Credit Facility was 1.90% and 2.59%
for the three months ended March 31, 2021 and 2020, respectively. Interest
expense recognized for the Credit Facility was $729 and $1,540 for the three
months ended March 31, 2021 and 2020, respectively. In addition, we recorded
amortization of deferred debt issuance costs for the Credit Facility in interest
expense of $575 and $138 for the three months ended March 31, 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.
60
--------------------------------------------------------------------------------
Convertible Notes. On January 26, 2021 , we completed a private offering of
$690,000 of 0.125% convertible senior notes due 2026. 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 the payment 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 intend to use the remainder of the net proceeds from the
sale of the 2026 Notes for general corporate purposes and towards funding the
acquisition of Seequent. See the section titled "-Subsequent Events After
March 31, 2021 " below.
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 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 Indenture. If a "make-whole fundamental change" (as defined in the
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 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 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 Indenture). In addition,
upon a MakeWhole Fundamental Change (as defined in the 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 Indenture also contains a customary
merger covenant.
61
--------------------------------------------------------------------------------
Under the 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 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 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 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 Indenture consists exclusively of
the right to receive additional interest on the 2026 Notes.
As of March 31, 2021 , none of the conditions of the 2026 Notes to early convert
have 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 future senior unsecured
indebtedness that is not so subordinated, 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 March 31, 2021 , we were in compliance with all covenants in the 2026 Notes.
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 $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.
Comparison of the Three Months Ended March 31, 2021 and 2020
The following table summarizes our cash flow activities for the three months
ended March 31, 2021 and 2020:
Three Months Ended March 31,
2021 2020
Net Cash Provided By (Used In):
Operating activities $ 132,798 $ 72,612
Investing activities (60,630) (45,243)
Financing activities 372,137 (85,888)
Operating activities
62-------------------------------------------------------------------------------- Net cash provided by operating activities was$132,798 for the three months endedMarch 31, 2021 . Compared to the same period in the prior year, net cash from operating activities was higher by$60,186 due to an increase in net income of$27,337 and an increase in net cash flows from the change in operating assets and liabilities of$42,715 . The net increase in cash flows from changes in operating assets and liabilities was primarily due to an increase in accounts payable, accruals and other liabilities primarily related to the increase in CSS deposits. Partially offsetting these increases in net cash provided by operating activities was a net decrease in noncash adjustments of$9,866 primarily related to a gain from the change in fair value of our interest rate swap and an increase related to foreign currency remeasurement gains, partially offset by an increase in stockbased compensation expense. For the three months endedMarch 31, 2020 , net cash provided by operating activities was$72,612 due to net income of$29,669 increased by$17,936 of noncash adjustments and$25,007 from changes in operating assets and liabilities. Investing activities Net cash used in investing activities was$60,630 for the three months endedMarch 31, 2021 , primarily due to$2,655 related to purchases of property and equipment and investment in capitalized software and$57,975 in acquisition related payments, net of cash acquired. For the three months endedMarch 31, 2020 , net cash used in investing activities was$45,243 , primarily due to$4,500 related to purchases of property and equipment and investment in capitalized software and$39,329 in acquisition related payments, net of cash acquired. Financing activities Net cash provided by financing activities was$372,137 for the three months endedMarch 31, 2021 . Compared to the prior year comparative period, net cash provided by financing activities increased by$458,025 , primarily due to the net proceeds from the 2026 Notes of$672,750 , partially offset by a decrease in net borrowings of$171,282 under the Credit Facility, the purchase of capped call options of$25,530 , payments of debt issuance costs of$3,777 , and an increase in net payments for shares acquired of$14,845 . For the three months endedMarch 31, 2020 , net cash used in financing activities was$85,888 , primarily due to net payments under the Credit Facility of$74,718 , payments of dividends of$7,802 , and net payments for shares acquired of$3,918 . Subsequent Events AfterMarch 31, 2021 Acquisitions. InApril 2021 , we completed two acquisitions and entered into a definitive agreement to acquire a third company totaling approximately$54,200 in cash, net of cash acquired and subject to customary adjustments, including for working capital. The third acquisition is expected to close duringMay 2021 . The acquisitions are not expected to be material to our consolidated statements of operations and financial position. OnMarch 11, 2021 , we entered into a definitive agreement to acquire Seequent, a leader in software for geological and geophysical modeling, geotechnical stability, and cloud services for geodata management and collaboration, for approximately$900,000 in cash, net of cash acquired and subject to customary adjustments, including for working capital, plus 3,141,361 shares of our Class B Common Stock. The transaction is subject to customary closing conditions, including regulatory approvals, and is expected to close during the second quarter of 2021. We expect to use 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. For the three months endedMarch 31, 2021 , we incurred$6,716 of expenses related to entering into the definitive agreement to acquire Seequent. 63 -------------------------------------------------------------------------------- Contractual Obligations and Other Commitments: As noted above, onJanuary 26, 2021 , we completed the 2026 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. As noted above, subsequent toMarch 31, 2021 and through the filing date of this Quarterly Report on Form 10Q, we committed approximately$954,200 in cash, net of cash acquired and subject to customary adjustments, including for working capital, plus 3,141,361 shares of our Class B Common Stock for four acquisitions. See Note 4 to our unaudited consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10Q. We expect to use 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 these transactions. 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 theSEC . Emerging Growth Company: Section 107 of 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 ofDecember 31, 2021 . Item 3. Quantitative and Qualitative Disclosures About Market Risk There have been no significant changes in our market risk exposure as described in Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk in our 2020 Annual Report on Form 10K on file with theSEC other than the following: Interest rate risk. The fair value of our 2026 Notes is subject to interest rate risk, market risk, and other factors due to the conversion feature. The capped call that was entered into concurrently with the issuance of our 2026 Notes were completed to reduce the potential dilution from the conversion of the 2026 Notes. The fair value of the 2026 Notes will generally increase as interest rates fall and decrease as interest rates rise. In addition, the fair value of the 2026 Notes will generally increase as our Class B Common Stock price increases and will generally decrease as the common stock price declines. The interest and market value changes affect the fair value of the 2026 Notes, but do not impact our financial position, results of operations, or cash flows due to the fixed nature of the debt obligation. The Second Amendment to the Credit Facility did not change our Interest rate risk disclosure related to the Credit Facility included in Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk in our 2020 Annual Report on Form 10K on file with theSEC . 64
--------------------------------------------------------------------------------
© Edgar Online, source
