BENTLEY SYSTEMS INC 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with our audited consolidated financial statements and notes thereto included in Part II, Item 8 of this Annual Report on Form 10‑K. In addition to historical information, this discussion contains forward‑looking statements that involve risks, uncertainties, and assumptions that could cause actual results to differ materially from management’s expectations. Factors that could cause such differences are set forth in Part I, Item 1A. Risk Factors of this Annual Report on Form 10‑K. Refer to Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2022 Annual Report on Form 10‑K for management’s discussion and analysis of financial condition and results of operations for the year ended December 31, 2022 compared to the year ended December 31, 2021. During the fourth quarter of 2023, we changed our definitions of constant currency and constant currency growth rates. In reporting period‑over‑period results, we calculate the effects of foreign currency fluctuations and constant currency information by translating current period results on a transactional basis to our reporting currency using prior period average foreign currency exchange rates in which the transactions occurred. Our prior definition of constant currency calculated the effects of foreign currency fluctuations and constant currency information by translating current period results of our subsidiaries from their functional currencies to our reporting currency by using prior period average foreign currency exchange rates in reporting period‑over‑period results. Prior period amounts have been revised to conform to the current period presentation using the updated constant currency and constant currency growth rates definitions. We are providing what our constant currency and constant currency growth rates results would have been pursuant to the prior definition for the applicable periods so that investors and potential investors that have analyzed these non-GAAP financial measures historically using our prior definitions can compare our historical results to our current results with respect to these non-GAAP financial measures using the prior definitions. Refer to the section titled “Non‑GAAP Financial measures” for reconciliations of constant currency non‑GAAP financial measures and their most directly comparable GAAP financial measures under the current and prior definitions. 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. Minor differences in totals and percentage calculations may exist due to rounding. Overview: Bentley Systems is the infrastructure engineering software company. Our purpose is to advance the world’s infrastructure for better quality of life. We empower people to design, build, and operate better and more resilient infrastructure through the adoption of our intelligent digital twin solutions. We manage our business globally within one reportable segment, the development and marketing of computer software and related services, which is consistent with how our chief operating decision maker (“CODM”) reviews and manages our business. Executive Summary: • Total revenues were $1,228,413 for the year ended December 31, 2023, up 11.8% or 11.9% on a constant currency basis (1) compared to the prior year; • Subscriptions revenues were $1,080,307 for the year ended December 31, 2023, up 12.5% or 12.5% on a constant currency basis (1) compared to the prior year; • ARR (2) was $1,174,774 as of December 31, 2023, compared to $1,036,548 as of December 31, 2022, representing a constant currency ARR growth rate (2) of 12.5%; • Last twelve-month recurring revenues dollar-based net retention rate (2) was 109% as of the year ended December 31, 2023, compared to 110% as of December 31, 2022; 34 • Operating income was $230,542 for the year ended December 31, 2023, compared to $208,612 for the prior year; • Adjusted operating income inclusive of stock-based compensation expense (“Adjusted OI w/SBC”) (1) was $324,677 for the year ended December 31, 2023, compared to $273,929 for the prior year; and • Cash flow from operations was $416,696 for the year ended December 31, 2023, compared to $274,324 for the prior year. (1) Constant currency and Adjusted OI w/SBC are non‑GAAP financial measures. Refer to the “Non‑GAAP Financial Measures” section for additional information, including our definitions and our uses of constant currency and Adjusted OI w/SBC. (2) Refer to the “Key Business Metrics” section for additional information, including our definitions and our uses of ARR, ARR growth rate, and recurring revenues dollar-based net retention rate. (3) Adjusted OI w/SBC is a non‑GAAP financial measure. Refer to the “Non‑GAAP Financial Measures” section for additional information, including our definition and our use of Adjusted OI w/SBC. Results of Operations: Impact of Foreign Currency Our results of operations have been, and in the future will be, affected by changes in foreign currency exchange rates. For the years ended December 31, 2023, 2022, and 2021, approximately 35%, 36%, and 47%, respectively, of our total revenues and 45%, 46%, and 42%, respectively, of our total operating expenses were denominated in foreign currencies from outside the U.S. including most significantly: euros, British pounds, Canadian dollars, Australian dollars, Chinese yuan renminbi, and New Zealand dollars. Other than the natural hedge attributable to matching revenues and expenses in the same currencies, we do not currently hedge foreign currency exposure. 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‑over‑period comparisons and enhance the understanding of our results and evaluation of our performance. Refer to the “Non‑GAAP Financial Measures” section for additional information, including our definition and our use of constant currency. Revenues We generate revenues from subscriptions, perpetual licenses, and services. Our total revenues are diversified by account type, size, and geography. Our sources of revenue growth, excluding the impact from acquisitions, come from additional subscriptions revenues from existing accounts using the same products and represent the majority of our revenue growth, additional subscriptions revenues from existing accounts using new products, and subscriptions revenues from new accounts. We believe that we have a loyal account base, with over 70% of our total revenues for the years ended December 31, 2023, 2022, and 2021 generated from organizations that have been our accounts for over ten years. 35 In addition to our results of operations discussed below, the following is supplemental data of our revenues: Year Ended December 31, (as a percentage of total revenues) 2023 2022 2021 Revenues from: Direct sales channels 92 % 92 % 92 % Indirect channel partners 8 % 8 % 8 % Revenues from: Subscriptions 88 % 87 % 84 % Recurring services 1 % 2 % 2 % Total recurring revenues 89 % 89 % 86 % Perpetual licenses and other services 11 % 11 % 14 % Largest account represents no more than 2.0 % 2.0 % 2.5 % The volume, mix, and duration of contract types starting or renewing in any given period may have a material impact on revenue in the period, and as a result can impact the comparability of reported revenue period-over-period. Our subscriptions, perpetual licenses, and services offerings are recognized pursuant to applicable GAAP guidance. See Note 3 to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10‑K for additional information on our revenues. We believe that subscription revenues will continue to comprise a majority of our total revenues. Consolidated Revenues Current Definition of Constant Currency: % Change % Change 2022 to 2023 2021 to 2022 Constant Constant Year Ended December 31, Currency Currency 2023 2022 2021 % % (1) % % (1) Subscriptions $ 1,080,307 $ 960,220 $ 812,807 12.5 % 12.5 % 18.1 % 22.0 % Perpetual licenses 46,038 43,377 53,080 6.1 % 7.3 % (18.3 %) (14.1 %) Subscriptions and licenses 1,126,345 1,003,597 865,887 12.2 % 12.3 % 15.9 % 19.8 % Services 102,068 95,485 99,159 6.9 % 7.5 % (3.7 %) (0.1 %) Total revenues $ 1,228,413 $ 1,099,082 $ 965,046 11.8 % 11.9 % 13.9 % 17.7 % (1) Constant currency is a non‑GAAP financial measure. Refer to the “Non‑GAAP Financial Measures” section for additional information, including our current definition and our use of constant currency, and for a reconciliation of constant currency growth rates. 36 Prior Definition of Constant Currency: % Change % Change 2022 to 2023 2021 to 2022 Constant Constant Year Ended December 31, Currency Currency 2023 2022 2021 % % (1) % % (1) Subscriptions $ 1,080,307 $ 960,220 $ 812,807 12.5 % 11.7 % 18.1 % 24.3 % Perpetual licenses 46,038 43,377 53,080 6.1 % 5.9 % (18.3 %) (12.1 %) Subscriptions and licenses 1,126,345 1,003,597 865,887 12.2 % 11.4 % 15.9 % 22.1 % Services 102,068 95,485 99,159 6.9 % 7.5 % (3.7 %) 0.4 % Total revenues $ 1,228,413 $ 1,099,082 $ 965,046 11.8 % 11.1 % 13.9 % 19.8 % (1) Constant currency is a non‑GAAP financial measure. Refer to the “Non‑GAAP Financial Measures” section for additional information, including our prior definition and our use of constant currency, and for a reconciliation of constant currency growth rates. The increase in total revenues for the year ended December 31, 2023 was primarily driven by increases in subscriptions revenues, and to a lesser extent, services and perpetual licenses revenues. Subscriptions . For the year ended December 31, 2023, the increase in subscriptions revenues was primarily driven by improvements in our business performance of approximately $115,786 ($116,406 on a constant currency basis) and the impact of our platform acquisition of approximately $4,301 ($4,111 on a constant currency basis). Our business performance excludes the impact of our platform acquisitions and includes the impact from programmatic acquisitions, which generally are immaterial, individually and in the aggregate. The platform acquisition impact relates to our acquisition of PLS and is inclusive of PLS’ organic performance. The improvements in business performance were primarily driven by expansion from accounts with revenues in the prior period (“existing accounts”), and growth of 3% attributable to new accounts, most notably small- and medium-sized accounts. Improvements in business performance for the year ended December 31, 2023 were led by our engineering applications, geoprofessional applications, and our Bentley Infrastructure Cloud for project delivery. Perpetual licenses . For the year ended December 31, 2023, the increase in perpetual licenses revenues was primarily driven by improvements in business performance of approximately $2,661 ($3,181 on a constant currency basis). Services. For the year ended December 31, 2023, the increase in services revenues was primarily driven by improvements in our business performance of approximately $6,583 ($7,138 on a constant currency basis). For the year ended December 31, 2023, the improvements in business performance were primarily driven by contributions from Cohesive digital integrator services of approximately $8,684 ($8,834 on a constant currency basis). 37 Revenues by Geographic Region Revenue from external customers is attributed to individual countries based upon the location of the customer. Current Definition of Constant Currency: % Change % Change 2022 to 2023 2021 to 2022 Constant Constant Year Ended December 31, Currency Currency 2023 2022 2021 % % (1) % % (1) Americas $ 650,926 $ 584,794 $ 483,087 11.3 % 11.4 % 21.1 % 21.2 % EMEA 353,550 312,804 300,123 13.0 % 12.1 % 4.2 % 12.9 % APAC 223,937 201,484 181,836 11.1 % 13.0 % 10.8 % 16.3 % Total revenues $ 1,228,413 $ 1,099,082 $ 965,046 11.8 % 11.9 % 13.9 % 17.7 % (1) Constant currency is a non-GAAP financial measure. Refer to the “Non-GAAP Financial Measures” section for additional information, including our current definition and our use of constant currency, and for a reconciliation of constant currency growth rates. Prior Definition of Constant Currency: % Change % Change 2022 to 2023 2021 to 2022 Constant Constant Year Ended December 31, Currency Currency 2023 2022 2021 % % (1) % % (1) Americas $ 650,926 $ 584,794 $ 483,087 11.3 % 11.0 % 21.1 % 22.1 % EMEA 353,550 312,804 300,123 13.0 % 11.1 % 4.2 % 15.4 % APAC 223,937 201,484 181,836 11.1 % 11.2 % 10.8 % 21.1 % Total revenues $ 1,228,413 $ 1,099,082 $ 965,046 11.8 % 11.1 % 13.9 % 19.8 % (1) Constant currency is a non-GAAP financial measure. Refer to the “Non-GAAP Financial Measures” section for additional information, including our prior definition and our use of constant currency, and for a reconciliation of constant currency growth rates. Americas . For the year ended December 31, 2023, the increase in revenues from the Americas was primarily driven by improvements in our business performance of approximately $62,442 ($63,450 on a constant currency basis) and the impact from our platform acquisition of approximately $3,690 ($3,237 on a constant currency basis). The improvements in business performance for the year ended December 31, 2023 were primarily due to expansion of our subscriptions revenues from existing accounts in the U.S. EMEA . For the year ended December 31, 2023, the increase in revenues from EMEA was primarily driven by improvements in our business performance of approximately $40,297 ($37,345 on a constant currency basis). The improvements in business performance for the year ended December 31, 2023 were primarily due to expansion of our subscriptions revenues from existing accounts in the United Kingdom (“U.K.”), and the Middle East and Africa, partially offset by reductions in Russia due to exiting our operations beginning in the second quarter of 2022. APAC. For the year ended December 31, 2023, the increase in revenues from APAC was primarily driven by improvements in our business performance of approximately $22,291 ($25,930 on a constant currency basis). 38 The improvements in business performance for the year ended December 31, 2023 were primarily due to expansion of our subscriptions revenues from existing accounts in India, Australia, and Southeast Asia, partially offset by declines in China. Total revenues in China for the year ended December 31, 2023 increased as compared to the same period in the prior year, primarily due to expansion of our perpetual licenses revenues. The future results in China remain uncertain as a result of continued geopolitical challenges, the obstacles there to cloud‑deployed software, and the financial timing impact of the preference there for license sales, rather than subscriptions. Cost of Revenues and Operating Expense (Income) Headcount-Related Costs For the years ended December 31, 2023, 2022, and 2021, approximately 80% of our aggregate cost of revenues, research and development, selling and marketing, and general and administrative expenses were represented by what we refer to herein as “headcount‑related” costs. These costs primarily include salaries, benefits, bonuses, stock‑based compensation expense, employment taxes, travel, training, and realignment of our colleagues, and third‑party personnel expenses and related overhead. Our headcount‑related 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. During the fourth quarter of 2023, the Company approved a strategic realignment program to better serve our accounts and to better align resources with the strategy of the business, including reinvestment in go-to-market functions, as well as in AI product development. The realignment program resulted in realignment costs of $12,579, which represent termination benefits for colleagues whose roles were impacted (less than five percent of total headcount). See Note 21 to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10‑K for additional information. The realignment program activities have been broadly implemented across our various businesses with the intention that substantially all actions, including payment of the termination benefits, will be fully completed by mid‑2024. The impact of the realignment program on headcount-related costs for the year ended December 31, 2023 is included in our discussion below. Cost of Revenues Current Definition of Constant Currency: % Change % Change 2022 to 2023 2021 to 2022 Constant Constant Year Ended December 31, Currency Currency 2023 2022 2021 % % (1) % % (1) Cost of subscriptions and licenses $ 169,406 $ 147,578 $ 124,321 14.8 % 15.1 % 18.7 % 22.2 % Cost of services 96,677 89,435 92,218 8.1 % 9.0 % (3.0 %) 2.0 % Total cost of revenues $ 266,083 $ 237,013 $ 216,539 12.3 % 12.8 % 9.5 % 13.6 % (1) Constant currency is a non-GAAP financial measure. Refer to the “Non-GAAP Financial Measures” section for additional information, including our current definition and our use of constant currency, and for a reconciliation of constant currency growth rates. 39 Prior Definition of Constant Currency: % Change % Change 2022 to 2023 2021 to 2022 Constant Constant Year Ended December 31, Currency Currency 2023 2022 2021 % % (1) % % (1) Cost of subscriptions and licenses $ 169,406 $ 147,578 $ 124,321 14.8 % 14.7 % 18.7 % 24.5 % Cost of services 96,677 89,435 92,218 8.1 % 9.0 % (3.0 %) 2.3 % Total cost of revenues $ 266,083 $ 237,013 $ 216,539 12.3 % 12.5 % 9.5 % 15.1 % (1) Constant currency is a non-GAAP financial measure. Refer to the “Non-GAAP Financial Measures” section for additional information, including our prior definition and our use of constant currency, and for a reconciliation of constant currency growth rates. Cost of subscriptions and licenses . Cost of subscriptions and licenses expenses primarily include headcount‑related costs, as well as depreciation of property and equipment and amortization of capitalized software costs associated with servicing software subscriptions, amortization of intangible assets associated with acquired software and technology, channel partner compensation for providing sales coverage to users, as well as cloud‑related costs incurred for servicing our accounts using cloud provisioned solutions and our license administration platform. For the year ended December 31, 2023, on a constant currency basis, cost of subscriptions and licenses increased primarily due to an increase in headcount‑related costs of approximately $14,407, mainly due to an increase in headcount and annual compensation costs, and an increase in cloud‑related costs of approximately $4,949. Cost of services. Cost of services expenses primarily include headcount‑related costs, as well as depreciation of property and equipment and amortization of capitalized software costs, used for providing training, implementation, configuration, and customization services to accounts. For the year ended December 31, 2023, on a constant currency basis, cost of services increased primarily due to an increase in headcount‑related costs of approximately $7,991, mainly due to third‑party personnel costs, and to a lesser extent, increases in headcount and annual compensation costs, partially offset by lower acquisition-related retention incentives. 40 Operating Expense (Income) Current Definition of Constant Currency: % Change % Change 2022 to 2023 2021 to 2022 Constant Constant Year Ended December 31, Currency Currency 2023 2022 2021 % % (1) % % (1) Research and development $ 274,619 $ 257,856 $ 220,915 6.5 % 7.5 % 16.7 % 21.8 % Selling and marketing 224,336 195,622 162,240 14.7 % 14.9 % 20.6 % 25.8 % General and administrative 180,738 174,647 150,116 3.5 % 3.6 % 16.3 % 19.1 % Deferred compensation plan 13,580 (15,782) 95,046 NM NM NM NM Amortization of purchased intangibles 38,515 41,114 25,601 (6.3 %) (6.3 %) 60.6 % 67.5 % Total operating expenses $ 731,788 $ 653,457 $ 653,918 12.0 % 12.5 % (0.1 %) 3.8 % Percentage changes that are considered not meaningful are denoted with NM. (1) Constant currency is a non-GAAP financial measure. Refer to the “Non-GAAP Financial Measures” section for additional information, including our current definition and our use of constant currency, and for a reconciliation of constant currency growth rates. Prior Definition of Constant Currency: % Change % Change 2022 to 2023 2021 to 2022 Constant Constant Year Ended December 31, Currency Currency 2023 2022 2021 % % (1) % % (1) Research and development $ 274,619 $ 257,856 $ 220,915 6.5 % 7.5 % 16.7 % 22.1 % Selling and marketing 224,336 195,622 162,240 14.7 % 15.0 % 20.6 % 26.3 % General and administrative 180,738 174,647 150,116 3.5 % 3.5 % 16.3 % 19.7 % Deferred compensation plan 13,580 (15,782) 95,046 NM NM NM NM Amortization of purchased intangibles 38,515 41,114 25,601 (6.3 %) (6.1 %) 60.6 % 67.2 % Total operating expenses $ 731,788 $ 653,457 $ 653,918 12.0 % 12.5 % (0.1 %) 4.2 % Percentage changes that are considered not meaningful are denoted with NM. (1) Constant currency is a non-GAAP financial measure. Refer to the “Non-GAAP Financial Measures” section for additional information, including our prior definition and our use of constant currency, and for a reconciliation of constant currency growth rates. Research and development. Research and development expenses primarily include headcount‑related costs, as well as 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, which is generally shortly before the release of such products. 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 based on a cost‑benefit analysis of acquiring available technology in the marketplace versus developing our own solutions. We anticipate that we will 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. 41 For the year ended December 31, 2023, on a constant currency basis, research and development expenses increased primarily due to an increase in headcount‑related costs of approximately $18,730, mainly due to an increase in annual compensation costs and headcount, and to a lesser extent, realignment expenses, partially offset by a decrease in stock‑based compensation expense primarily related to the April 2023 retirement of founder and former Chief Technology Officer, Keith Bentley. The retirement of Mr. Bentley contributed to a deceleration of research and development expenses growth during 2023. Selling and marketing. Selling and marketing expenses primarily include headcount‑related costs, as well as the expense of online marketing, product marketing and other brand‑building activities, such as advertising, trade shows, and expositions, and various sales and promotional programs. 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. For the year ended December 31, 2023, on a constant currency basis, selling and marketing expenses increased primarily due to an increase in headcount‑related costs of approximately $27,584, mainly due to an increase in headcount and annual compensation costs, and to a lesser extent, realignment expenses. General and administrative . General and administrative expenses primarily include headcount‑related costs for our finance, human resources, and legal functions, as well as professional fees for legal and accounting services. General and administrative expenses also include acquisition costs, which consist of costs related to legal, accounting, valuation, insurance, and other consulting and transaction fees. Additionally, acquisition costs will drive fluctuations in general and administrative expenses depending on the timing of business combinations. For the year ended December 31, 2023, on a constant currency basis, general and administrative expenses increased primarily due to an increase in headcount‑related costs of approximately $18,248, mainly due to an increase in headcount and annual compensation costs, and to a lesser extent, third‑party personnel costs. Partially offsetting these increases were lower non‑income related taxes of approximately $6,001 and lower acquisition expenses of approximately $5,777. Deferred compensation plan . Deferred compensation plan reflects the expense (income) recorded related to changes in deferred compensation plan liabilities, which are marked to market at the end of each reporting period. For the year ended December 31, 2023, deferred compensation plan expense (income) was attributable to the marked to market impact on deferred compensation plan liability balances period over period. Amortization of purchased intangibles. Amortization of purchased intangibles includes the amortization of acquired non‑product related intangible assets, primarily customer relationships, trademarks, and non‑compete agreements recorded in connection with completed acquisitions. For the year ended December 31, 2023, on a constant currency basis, amortization of purchased intangibles decreased primarily due to previously acquired intangible assets that continue to become fully amortized and lower acquisition activity as compared to the prior year. 42 Interest Expense, Net % Change Year Ended December 31, 2022 2021 2023 2022 2021 to 2023 to 2022 Interest expense $ (41,331) $ (35,056) $ (11,527) 17.9 % NM Interest income 1,538 421 306 NM 37.6 % Interest expense, net $ (39,793) $ (34,635) $ (11,221) 14.9 % NM Percentage changes that are considered not meaningful are denoted with NM. Interest expense, net primarily represents interest associated with the Credit Facility, the 2026 Notes, the 2027 Notes, amortization and write‑off of deferred debt issuance costs, and interest income from our investments in money market funds. The majority of our debt is protected from rising interest rates, through either very low fixed coupon interest on our convertible notes or our $200,000 interest rate swap, which expires in 2030. For the year ended December 31, 2023, interest expense, net increased primarily due to a higher weighted average interest rate on borrowings under the Credit Facility, partially offset by lower weighted average debt outstanding. Other (Expense) Income, Net Year Ended December 31, 2023 2022 2021 (Loss) gain from: Change in fair value of interest rate swap $ (5,038) $ 27,083 $ 9,770 Foreign exchange (1) 2,497 (9,901) 827 Sale of aircraft — 2,029 — Change in fair value of acquisition contingent consideration — 1,427 (550) Receipts (payments) related to interest rate swap 8,803 1,947 (1,270) Other (expense) income, net (2) (13,484) 1,713 1,184 Total other (expense) income, net $ (7,222) $ 24,298 $ 9,961 (1) Foreign exchange gain (loss) is primarily attributable to foreign currency translation derived mainly from U.S. dollar denominated cash and cash equivalents, account receivables, customer deposits, and intercompany balances held by foreign subsidiaries. Intercompany finance transactions primarily denominated in U.S. dollars resulted in unrealized foreign exchange gains (losses) of $3,163, $(7,369), and $(779) for the years ended December 31, 2023, 2022, and 2021, respectively. (2) Other (expense) income, net includes investment impairment and other charges of $(16,988), partially offset by gains on investments of $2,360 for the year ended December 31, 2023. 43 (Benefit) Provision for Income Taxes Year Ended December 31, 2023 2022 2021 Income before income taxes $ 183,527 $ 198,275 $ 93,329 (Benefit) provision for income taxes $ (143,241) $ 21,283 $ (3,448) Effective tax rate (78.0) % 10.7 % (3.7) % (Benefit) provision for income taxes includes the aggregate consolidated income tax expense for U.S. domestic and foreign income taxes. For the year ended December 31, 2023, the effective tax rate was lower as compared to the year ended December 31, 2022 primarily due to the discrete tax benefit recognized as a result of the internal legal entity restructuring described below. The benefit of the internal legal entity restructuring was partially offset by an increase in the effective tax rate impact of the Global Intangible Low‑Taxed Income (“GILTI”) inclusion due to the mandatory capitalization of research and development expenses for U.S. tax purposes and a decrease in discrete tax benefits related to stock-based compensation, net of the impact from officer compensation limitation provisions, recognized during the current year. For the years ended December 31, 2023 and 2022, we recorded discrete tax benefits of $14,648 and $20,501, respectively, associated with windfall tax benefits from stock‑based compensation, net of the impact from officer compensation limitation provisions. During the fourth quarter of 2023, we recognized a net discrete income tax benefit of $170,784 attributable to internal legal entity restructuring and related intra-entity transactions as part of our continuing efforts to align intellectual property ownership with our business operating model. These transactions resulted in the recognition of deferred tax benefits arising from the net increase in deferred tax assets related to intangibles and goodwill of $171,622. The deferred tax assets represent the undiscounted future anticipated cash tax impacts of basis differences, which are expected to be realized through tax amortization over the next 13 years. See Note 16 to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10‑K for additional information. Key Business Metrics: In addition to our results of operations discussed above, we believe the following presentation of key business metrics provides additional useful information to investors regarding our results of operations. To the extent material, we disclose below the additional purposes, if any, for which our management uses these key business metrics. Our key business metrics may vary significantly from period to period for reasons unrelated to our operating performance and may differ from similarly titled measures presented by other companies. December 31, 2023 2022 2021 ARR $ 1,174,774 $ 1,036,548 $ 921,218 Last twelve-months recurring revenues $ 1,096,677 $ 978,024 $ 834,150 Twelve-months ended constant currency (1) : ARR growth rate 12.5 % 15 % 26 % Account retention rate 98 % 98 % 98 % Recurring revenues dollar-based net retention rate 109 % 110 % 109 % (1) Constant currency is a non-GAAP financial measure. Refer to the “Non-GAAP Financial Measures” section for additional information, including our definition and our use of constant currency. 44 Recurring Revenues Recurring revenues are the basis for our other revenue-related key business metrics. We believe this measure is useful in evaluating our ability to consistently retain and grow our revenues within our existing accounts. Recurring revenues are 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. ARR ARR is a key business metric that we believe is useful in evaluating the scale and growth of our business as well as to assist in the evaluation of underlying trends in our business. Furthermore, we believe ARR, considered in connection with our last twelve‑month recurring revenues dollar‑based net retention rate, is a leading indicator of revenue growth. ARR is defined as the sum of the annualized value of our portfolio of contracts that produce recurring revenues as of the last day of the reporting period, and the annualized value of the last three months of recognized revenues for our contractually recurring consumption‑based software subscriptions with consumption measurement durations of less than one year, calculated using the spot foreign currency exchange rates. We believe that the last three months of recognized revenues, on an annualized basis, for our recurring software subscriptions with consumption measurement period durations of less than one year is a reasonable estimate of the annual revenues, given our consistently high retention rate and stability of usage under such subscriptions. ARR resulting from the annualization of recurring contracts with consumption measurement durations of less than one year, as a percentage of total ARR, was 47%, 43%, and 38% as of December 31, 2023, 2022, and 2021, respectively, with our E365 subscription offering representing 41%, 35%, and 29% of total ARR as of December 31, 2023, 2022, and 2021, respectively. In March 2022, in response to the Russia‑Ukraine war, we announced a pause of sales in Russia and Belarus, in addition to our strict compliance with applicable sanctions, regimes, and other regulatory restrictions on business activities in those countries. As a result of the conflict, we deemed our overall business recurrence in the affected countries to have been reduced by approximately 50%, and accordingly, reduced our related ARR by $5,190 as of March 31, 2022. During the second quarter of 2022, the marked shifts in the Russian business environment and economic outlook led us to conclude it was no longer viable for us to continue operations in Russia. Accordingly, we made the decision to wind down business and exit the Russian market, which resulted in a further reduction in our ARR by $6,000. Constant currency ARR growth rate is the growth rate of ARR measured on a constant currency basis. We believe that ARR growth is an important metric indicating the scale and growth of our business. Our ARR growth rate was favorably impacted by the ARR onboarding from our platform acquisition of PLS by 2.5% for the year ended December 31, 2022. Last Twelve‑Months Recurring Revenues Last twelve‑month recurring revenues is a key business metric that we believe is useful in evaluating our ability to consistently retain and grow our recurring revenues. We believe that we will continue to experience favorable growth in recurring revenues primarily due to our strong account retention and recurring revenues dollar‑based net retention rates, as well as the addition of new accounts with recurring revenues. Last twelve‑months recurring revenues is calculated as recurring revenues recognized over the preceding twelve‑month period. 45 The last twelve‑months recurring revenues for the periods ended December 31, 2023, 2022, and 2021 compared to the last twelve‑months of the comparative twelve‑month period increased by $118,653, $143,874, and $137,488, respectively. This increase was primarily due to growth in ARR, which is primarily the result of growing our recurring revenues within our existing accounts as expressed in our recurring revenues dollar‑based net retention rate, as well as additional recurring revenues resulting from new accounts and acquisitions, including the favorable impact from our platform acquisitions of PLS and Seequent. For the twelve months ended December 31, 2023, 2022, and 2021, 89%, 89%, and 86%, respectively, of our revenues were recurring revenues. Account Retention Rate Account retention rate is a key business metric that we believe is useful in evaluating the long‑term 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 long‑term relationships with our accounts. Account retention rate for any given twelve-month period is calculated using the average foreign 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. Recurring Revenues Dollar‑Based Net Retention Rate Recurring revenues dollar‑based net retention rate is a key business metric that we believe is useful in evaluating our ability to consistently retain and grow our recurring revenues. Recurring revenues dollar‑based net retention rate is calculated, using the average exchange rates for the prior period, as follows: the recurring revenues for the current period, including any growth or reductions from existing accounts, but excluding recurring revenues from any new accounts added during the current period, divided by the total recurring revenues from all accounts during the prior period. A period is defined as any trailing twelve months. Related to our platform acquisitions, recurring revenues into new accounts will be captured as existing accounts starting with the second anniversary of the acquisition when such data conforms to the calculation methodology. This may cause variability in the comparison. Given that recurring revenues represented 89%, 89%, and 86% of our total revenues for the twelve months ended December 31, 2023, 2022, and 2021, respectively, this metric helps explain our revenue performance as primarily growth from existing accounts. Non-GAAP Financial Measures: In addition to our results determined in accordance with GAAP discussed above, we believe the following presentation of financial measures not in accordance with GAAP provides useful information to investors regarding our results of operations. To the extent material, we disclose below the additional purposes, if any, for which our management uses these non‑GAAP financial measures and provide reconciliations between these non‑GAAP financial measures and their most directly comparable GAAP financial measures. Non‑GAAP financial information should be considered in addition to, not as a substitute for, or in isolation from, the financial information prepared in accordance with GAAP, including operating income, or other measures of performance. Our non‑GAAP financial measures may vary significantly from period to period for reasons unrelated to our operating performance and may differ from similarly titled measures presented by other companies. Adjusted OI w/SBC Adjusted OI w/SBC is a non-GAAP financial measure and is used to measure the operational strength and performance of our business, as well as to assist in the evaluation of underlying trends in our business. 46 Adjusted OI w/SBC is our primary performance measure, which excludes certain expenses and charges, including the non-cash amortization expense resulting from the acquisition of intangible assets, as we believe these may not be indicative of our core business operating results. We intentionally include stock-based compensation expense in this measure as we believe it better captures the economic costs of our business. Management uses this non-GAAP financial measure to understand and compare operating results across accounting periods, for internal budgeting and forecasting purposes, to evaluate financial performance, and in our comparison of our financial results to those of other companies. It is also a significant performance measure in certain of our executive incentive compensation programs. Adjusted OI w/SBC is defined as operating income adjusted for the following: amortization of purchased intangibles, expense (income) relating to deferred compensation plan liabilities, acquisition expenses, and realignment expenses (income), for the respective periods. Adjusted Operating Income Adjusted operating income is a non-GAAP financial measure that we believe is useful to investors in making comparisons to other companies, although this measure may not be directly comparable to similar measures used by other companies. Adjusted operating income is defined as operating income adjusted for the following: amortization of purchased intangibles, expense (income) relating to deferred compensation plan liabilities, acquisition expenses, realignment expenses (income), and stock‑based compensation expense, for the respective periods. Reconciliation of operating income to Adjusted OI w/SBC and to Adjusted operating income: Year Ended December 31, 2023 2022 2021 Operating income $ 230,542 $ 208,612 $ 94,589 Amortization of purchased intangibles (1) 51,219 53,592 34,001 Deferred compensation plan (2) 13,580 (15,782) 95,046 Acquisition expenses (3) 17,866 25,398 34,368 Realignment expenses (4) 11,470 2,109 — Adjusted OI w/SBC 324,677 273,929 258,004 Stock-based compensation expense (5) 71,470 74,566 48,152 Adjusted operating income $ 396,147 $ 348,495 $ 306,156 Further explanation of certain of our adjustments in arriving at Adjusted OI w/SBC and Adjusted operating income are as follows: (1) Amortization of purchased intangibles . Amortization of purchased intangibles varies in amount and frequency and is significantly impacted by the timing and size of our acquisitions. Management finds it useful to exclude these non‑cash charges from our operating expenses to assist in budgeting, planning, and forecasting future periods. The use of intangible assets contributed to our revenues earned during the periods presented and will also contribute to our revenues in future periods. Amortization of purchased intangible assets will recur in future periods. (2) Deferred compensation plan . We exclude Deferred compensation plan expense (income) when we evaluate our continuing operational performance because it is not reflective of our ongoing business and results of operation. We believe it is useful for investors to understand the effects of this item on our total operating expenses. Deferred compensation plan liabilities are marked to market at the end of each reporting period, with changes in the liabilities recorded as an expense (income) to Deferred compensation plan in the consolidated statements of operations. 47 (3) Acquisition expenses . We incur expenses for professional services rendered in connection with business combinations, which are included in our GAAP presentation of general and administrative expense (see Note 4 to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10‑K). Also included in our acquisition expenses are retention incentives paid to executives of the 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. For the year ended December 31, 2022, $9,804 of our acquisition expenses related to our platform acquisition of PLS. For the year ended December 31, 2021, $16,557 and $1,644 of our acquisition expenses related to our platform acquisitions of Seequent and PLS, respectively. (4) Realignment expenses . We exclude these charges and subsequent adjustments to our estimates when we evaluate our continuing operational performance because they are not reflective of our ongoing business and results of operations. We believe it is useful for investors to understand the effects of these items on our total operating expenses. For the year ended December 31, 2023, Realignment expenses were primarily associated with a strategic realignment program to better serve our accounts and to better align resources with the strategy of the business during the fourth quarter of 2023. In connection with these actions, we recognized $12,579 of realignment costs related to termination benefits for colleagues whose roles were impacted (see Note 21 to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10‑K). Partially offsetting these costs was income associated with the continued wind down of our Russian entities. For the year ended December 31, 2022, Realignment expenses were comprised of asset impairments and termination benefits as a result of our decision to wind down business and exit the Russian market beginning in the second quarter of 2022. (5) Stock‑based compensation expense . We exclude non-cash stock‑based compensation expenses from certain of our non‑GAAP measures because we believe this is useful to investors in making comparisons to other companies. Constant Currency Constant currency and constant currency growth rates are non-GAAP financial measures that present our results of operations excluding the estimated effects of foreign currency exchange rate fluctuations. A significant amount of our operations is conducted in foreign currencies. As a result, the comparability of the financial results reported in U.S. dollars is affected by changes in foreign currency exchange rates. We use constant currency and constant currency growth rates to evaluate the underlying performance of the business, and we believe it is helpful for investors to present operating results on a comparable basis period over period to evaluate its underlying performance. During the fourth quarter of 2023, we changed our definitions of constant currency and constant currency growth rates. In reporting period‑over‑period results, we calculate the effects of foreign currency fluctuations and constant currency information by translating current period results on a transactional basis to our reporting currency using prior period average foreign currency exchange rates in which the transactions occurred. Our prior definition of constant currency calculated the effects of foreign currency fluctuations and constant currency information by translating current period results of our subsidiaries from their functional currencies to our reporting currency by using prior period average foreign currency exchange rates in reporting period‑over‑period results. We made this modification in order to better align with how we manage the business, to better reflect our performance during a reporting period, and to make the effects of foreign currency fluctuations and constant currency information more easily comparable on a period‑over‑period basis. Prior period amounts have been revised to conform to the current period presentation using the updated constant currency and constant currency growth rates definition. We are providing what our constant currency and constant currency growth rates results would have been pursuant to the prior definition for the applicable periods so that investors and potential investors that have analyzed these non-GAAP financial measures historically using our prior definitions can compare our historical results to our current results with respect to these non-GAAP financial measures using the prior definitions. Reconciliations of constant currency non‑GAAP financial measures and their most directly comparable GAAP financial measures under the current and prior definitions are included below. 48 Reconciliation of consolidated revenues to consolidated revenues in constant currency: Current definition: Constant Currency % Change 2022 to 2023: Year Ended December 31, 2023 Year Ended December 31, 2022 Actual Impact of Foreign Exchange at 2022 Rates Constant Currency Actual Impact of Foreign Exchange at 2022 Rates Constant Currency Subscriptions $ 1,080,307 $ 1,239 $ 1,081,546 $ 960,220 $ 809 $ 961,029 Perpetual licenses 46,038 563 46,601 43,377 43 43,420 Subscriptions and licenses 1,126,345 1,802 1,128,147 1,003,597 852 1,004,449 Services 102,068 684 102,752 95,485 129 95,614 Total revenues $ 1,228,413 $ 2,486 $ 1,230,899 $ 1,099,082 $ 981 $ 1,100,063 Constant Currency % Change 2021 to 2022: Year Ended December 31, 2022 Year Ended December 31, 2021 Actual Impact of Foreign Exchange at 2021 Rates Constant Currency Actual Impact of Foreign Exchange at 2021 Rates Constant Currency Subscriptions $ 960,220 $ 31,064 $ 991,284 $ 812,807 $ (19) $ 812,788 Perpetual licenses 43,377 2,220 45,597 53,080 (2) 53,078 Subscriptions and licenses 1,003,597 33,284 1,036,881 865,887 (21) 865,866 Services 95,485 3,545 99,030 99,159 (11) 99,148 Total revenues $ 1,099,082 $ 36,829 $ 1,135,911 $ 965,046 $ (32) $ 965,014 Prior definition: Year Ended December 31, 2023 Year Ended December 31, 2022 Actual Impact of Foreign Exchange Constant Currency Actual Impact of Foreign Exchange Constant Currency Subscriptions $ 1,080,307 $ (8,095) $ 1,072,212 $ 960,220 $ 50,030 $ 1,010,250 Perpetual licenses 46,038 (107) 45,931 43,377 3,269 46,646 Subscriptions and licenses 1,126,345 (8,202) 1,118,143 1,003,597 53,299 1,056,896 Services 102,068 538 102,606 95,485 4,102 99,587 Total revenues $ 1,228,413 $ (7,664) $ 1,220,749 $ 1,099,082 $ 57,401 $ 1,156,483 49 Reconciliation of revenues by geographic region to revenues by geographic region in constant currency: Current definition: Constant Currency % Change 2022 to 2023: Year Ended December 31, 2023 Year Ended December 31, 2022 Actual Impact of Foreign Exchange at 2022 Rates Constant Currency Actual Impact of Foreign Exchange at 2022 Rates Constant Currency Americas $ 650,926 $ 242 $ 651,168 $ 584,794 $ (313) $ 584,481 EMEA 353,550 (2,841) 350,709 312,804 151 312,955 APAC 223,937 5,085 229,022 201,484 1,143 202,627 Total revenues $ 1,228,413 $ 2,486 $ 1,230,899 $ 1,099,082 $ 981 $ 1,100,063 Constant Currency % Change 2021 to 2022: Year Ended December 31, 2022 Year Ended December 31, 2021 Actual Impact of Foreign Exchange at 2021 Rates Constant Currency Actual Impact of Foreign Exchange at 2021 Rates Constant Currency Americas $ 584,794 $ 860 $ 585,654 $ 483,087 $ 115 $ 483,202 EMEA 312,804 25,696 338,500 300,123 (348) 299,775 APAC 201,484 10,273 211,757 181,836 201 182,037 Total revenues $ 1,099,082 $ 36,829 $ 1,135,911 $ 965,046 $ (32) $ 965,014 Prior definition: Year Ended December 31, 2023 Year Ended December 31, 2022 Actual Impact of Foreign Exchange Constant Currency Actual Impact of Foreign Exchange Constant Currency Americas $ 650,926 $ (1,594) $ 649,332 $ 584,794 $ 5,218 $ 590,012 EMEA 353,550 (6,099) 347,451 312,804 33,524 346,328 APAC 223,937 29 223,966 201,484 18,659 220,143 Total revenues $ 1,228,413 $ (7,664) $ 1,220,749 $ 1,099,082 $ 57,401 $ 1,156,483 50 Reconciliation of cost of revenues to cost of revenues in constant currency: Current definition: Constant Currency % Change 2022 to 2023: Year Ended December 31, 2023 Year Ended December 31, 2022 Actual Impact of Foreign Exchange at 2022 Rates Constant Currency Actual Impact of Foreign Exchange at 2022 Rates Constant Currency Cost of subscriptions and licenses $ 169,406 $ 382 $ 169,788 $ 147,578 $ (45) $ 147,533 Cost of services 96,677 772 97,449 89,435 (53) 89,382 Total cost of revenues $ 266,083 $ 1,154 $ 267,237 $ 237,013 $ (98) $ 236,915 Constant Currency % Change 2021 to 2022: Year Ended December 31, 2022 Year Ended December 31, 2021 Actual Impact of Foreign Exchange at 2021 Rates Constant Currency Actual Impact of Foreign Exchange at 2021 Rates Constant Currency Cost of subscriptions and licenses $ 147,578 $ 4,246 $ 151,824 $ 124,321 $ (47) $ 124,274 Cost of services 89,435 4,635 94,070 92,218 (9) 92,209 Total cost of revenues $ 237,013 $ 8,881 $ 245,894 $ 216,539 $ (56) $ 216,483 Prior definition: Year Ended December 31, 2023 Year Ended December 31, 2022 Actual Impact of Foreign Exchange Constant Currency Actual Impact of Foreign Exchange Constant Currency Cost of subscriptions and licenses $ 169,406 $ (149) $ 169,257 $ 147,578 $ 7,253 $ 154,831 Cost of services 96,677 823 97,500 89,435 4,932 94,367 Total cost of revenues $ 266,083 $ 674 $ 266,757 $ 237,013 $ 12,185 $ 249,198 51 Reconciliation of operating expense (income) to operating expense (income) in constant currency: Current definition: Constant Currency % Change 2022 to 2023: Year Ended December 31, 2023 Year Ended December 31, 2022 Actual Impact of Foreign Exchange at 2022 Rates Constant Currency Actual Impact of Foreign Exchange at 2022 Rates Constant Currency Research and development $ 274,619 $ 2,592 $ 277,211 $ 257,856 $ (36) $ 257,820 Selling and marketing 224,336 427 224,763 195,622 (48) 195,574 General and administrative 180,738 182 180,920 174,647 (6) 174,641 Deferred compensation plan 13,580 — 13,580 (15,782) — (15,782) Amortization of purchased intangibles 38,515 88 38,603 41,114 68 41,182 Total operating expenses $ 731,788 $ 3,289 $ 735,077 $ 653,457 $ (22) $ 653,435 Constant Currency % Change 2021 to 2022: Year Ended December 31, 2022 Year Ended December 31, 2021 Actual Impact of Foreign Exchange at 2021 Rates Constant Currency Actual Impact of Foreign Exchange at 2021 Rates Constant Currency Research and development $ 257,856 $ 11,118 $ 268,974 $ 220,915 $ (15) $ 220,900 Selling and marketing 195,622 8,407 204,029 162,240 (9) 162,231 General and administrative 174,647 4,190 178,837 150,116 (8) 150,108 Deferred compensation plan (15,782) — (15,782) 95,046 — 95,046 Amortization of purchased intangibles 41,114 1,758 42,872 25,601 — 25,601 Total operating expenses $ 653,457 $ 25,473 $ 678,930 $ 653,918 $ (32) $ 653,886 Prior definition: Year Ended December 31, 2023 Year Ended December 31, 2022 Actual Impact of Foreign Exchange Constant Currency Actual Impact of Foreign Exchange Constant Currency Research and development $ 274,619 $ 2,491 $ 277,110 $ 257,856 $ 11,791 $ 269,647 Selling and marketing 224,336 615 224,951 195,622 9,274 204,896 General and administrative 180,738 (11) 180,727 174,647 4,979 179,626 Deferred compensation plan 13,580 — 13,580 (15,782) — (15,782) Amortization of purchased intangibles 38,515 95 38,610 41,114 1,680 42,794 Total operating expenses $ 731,788 $ 3,190 $ 734,978 $ 653,457 $ 27,724 $ 681,181 52 Liquidity and Capital Resources: Cash and Cash Equivalents December 31, 2023 2022 Cash and cash equivalents held domestically $ 3,693 $ 3,883 Cash and cash equivalents held by foreign subsidiaries 64,719 67,801 Total cash and cash equivalents $ 68,412 $ 71,684 Our primary source of operating cash is from the sale of our subscriptions, perpetual licenses, and services. Our primary use of cash is payment of our operating costs, which consist mainly of headcount‑related costs. In addition to operating expenses, we also use cash to service our debt obligations, to pay quarterly dividends, to repurchase our Class B common stock and convertible debt, and for capital expenditures in support of our operations. We also use cash to fund our acquisitions of software assets and businesses, and other investment activities, including our iTwin Ventures initiative which makes seed, early, and growth stage investments in technology companies with promising and emerging opportunities for infrastructure digital twin solutions potentially relevant to our business. During the years ended December 31, 2023 and 2022, we made cash repatriations to the U.S. of approximately $93,000 and $150,000, respectively, from earnings generated by our foreign subsidiaries. In 2023, the repatriations were used to supplement our domestic working capital requirements and to pay down our Credit Facility. In 2022, the repatriations, along with available cash and borrowings under our Credit Facility, were used to fund the acquisition of PLS in January 2022. We believe that cash generated from operations, together with existing cash and cash equivalent balances, and external borrowings including available liquidity under the Credit Facility, will be sufficient to meet our domestic and international working capital and capital expenditure requirements. We regularly review our capital structure and consider a variety of potential financing alternatives and planning strategies to ensure that we have the proper liquidity available in the locations in which it is needed and to fund our operations and growth investments with cash that has not been permanently reinvested outside the U.S. Our future capital requirements may be materially different than those currently planned in our budgeting and forecasting activities and depend on many factors, including our strategy of regularly acquiring and integrating specialized infrastructure engineering software businesses, our rate of revenue growth, the timing and extent of spending on research and development, the expansion of our sales and marketing activities, the timing of new product introductions, market acceptance of our products, competitive factors, our discretionary payments of dividends or repurchases of our Class B common stock and convertible debt, fund of our purchase commitments, currency fluctuations, and overall economic conditions, globally. To the extent that current and anticipated future sources of liquidity are insufficient to fund our future business activities and requirements, we may be required to seek additional equity or debt financing. The sale of additional equity would result in additional dilution to our stockholders, while the incurrence of additional debt financing, including convertible debt, would result in additional debt service obligations. Such debt instruments also could introduce new or modified covenants that might restrict our operations and/or our ability to pay dividends, consummate acquisitions, or otherwise pursue our business strategies. We cannot provide assurance that we could obtain additional financing on favorable terms or at all. 53 Cash Flow Activity Year Ended December 31, 2023 2022 2021 Net cash provided by (used in): Operating activities $ 416,696 $ 274,324 $ 288,024 Investing activities (60,504) (770,127) (1,056,603) Financing activities (359,074) 243,034 982,582 Operating Activities For the year ended December 31, 2023, compared to the prior year, net cash provided by operating activities was higher by $142,372 due to an increase in net income of $152,007 and an increase in net cash flows from the change in operating assets and liabilities of $112,542, partially offset by a net decrease in non‑cash adjustments of $122,177. Both the increase in net income and the net decrease in non‑cash adjustments were impacted by the fourth quarter of 2023 internal legal entity restructuring and related intra-entity transactions as part of our continuing efforts to align intellectual property ownership with our business operating model. The net impact of the internal legal entity restructuring was a net discrete tax benefit of $170,784. See Note 16 to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10‑K for additional information. The increase in cash flows from the change in operating assets and liabilities was primarily due to changes in accounts receivable period over period due to timing of collections from customers, higher CSS deposits, and an increase in deferred revenues period over period. In addition, we expect cash payments of approximately $12,500 for termination benefits to colleagues in connection with our fourth quarter of 2023 strategic realignment program by mid-2024. See Note 21 to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10‑K for additional information related to realignment costs. Investing Activities Net cash used in investing activities was lower by $709,623 for the year ended December 31, 2023, compared to the prior year, primarily due to lower acquisition related payments, as three acquisitions were completed in 2023 compared to six acquisitions, including our platform acquisition of PLS for $695,968 in 2022. Financing Activities Net cash used in financing activities was $359,074 for the year ended December 31, 2023, as compared to net cash provided by financing activities of $243,034 for the year ended December 31, 2022, primarily due to the net paydown of the Credit Facility of $258,569 in 2023 as compared to an increase in net borrowings under the Credit Facility of $340,598 in 2022. Payments for shares acquired were lower during the year ended December 31, 2023 by $12,874, as compared to the prior year. The year ended December 31, 2022 payments for shares acquired includes $28,250 of share repurchases under the BSY Stock Repurchase Program (the “Repurchase Program”), whereas no repurchases were made under the Repurchase Program during 2023. Refer to the section titled “Stock Repurchases” below for further detail. Payments of dividends were higher during the year ended December 31, 2023 by $24,263 as compared to the prior year, primarily due to an increase in our quarterly dividend per share to $0.05 from $0.03. 54 Long-Term Debt December 31, 2023 2022 Current portion of long-term debt $ 10,000 $ 5,000 Long-term debt 1,518,403 1,775,696 Total debt $ 1,528,403 $ 1,780,696 As of December 31, 2023, we had $757,822 available under the Credit Facility. We were in compliance with all covenants in its Credit Facility, the 2026 Notes, and the 2027 Notes as of December 31, 2023. Any failure to comply with such covenants under the Credit Facility would prevent us from being able to borrow additional funds under the Credit Facility, and, as with any failure to comply with such covenants under the 2026 Notes and the 2027 Notes, could constitute a default that may cause all amounts outstanding to become due and immediately payable in full. Our Credit Facility, 2026 Notes, and 2027 Notes are described in Note 10 to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10‑K. Stock Repurchases BSY Stock Repurchase Program Our Board of Directors has authorized us to repurchase up to $200,000 of our Class B common stock and/or outstanding convertible senior notes through June 30, 2024 under the Repurchase Program. We may use available working capital and cash provided by operations to make repurchases. For the year ended December 31, 2023, we did not repurchase shares under the Repurchase Program. For the year ended December 31, 2022, we repurchased 896,126 shares for $28,250, and $2,170 aggregate principal amount of our outstanding 2026 Notes for $1,998. The timing, as well as the number and value of shares and/or notes repurchased under the Repurchase Program, will be determined at our discretion and will depend on a variety of factors, including our assessment of the intrinsic value of our shares, the market price of our Class B common stock and outstanding notes, general market and economic conditions, available liquidity, compliance with our debt and other agreements, and applicable legal requirements. Withholding Taxes on Certain Equity Awards We have the right to require that certain equity awardees receive gross or net quantities of shares of our Class B Common Stock, including in connection with share issuances under the amended and restated Bentley Systems, Incorporated Bonus Pool Plan (the “Bonus Plan”) and distributions from the DCP. In the case of a gross issuance or distribution, an awardee is required to reimburse promptly to us the cash required for his or her tax withholding amounts. Conversely, under a net issuance or distribution, shares are withheld in consideration of remitting withholding taxes on behalf of an equity awardee, thereby requiring us to remit cash for the tax withholdings. During the year ended December 31, 2023, we allowed impacted equity awardees the option to receive net quantities of shares of our Class B common stock during the first, second, and third quarters, but exercised our right to require that these awardees receive gross quantities of our Class B common stock during the fourth quarter. During the year ended December 31, 2022, we permitted impacted awardees to elect to receive net quantities of shares of our Class B common stock in the first quarter, but exercised our right to require that these awardees receive gross quantities of our Class B common stock during the second, third, and fourth quarters. We will continue to evaluate whether share awards will be required to be received by awardees on a gross basis, or if net settlement may be elected by awardees. 55 Dividend Payments The declaration and payment of dividends is within the discretion of our Board of Directors. We paid quarterly dividends of $0.05 per share of common stock during the year ended December 31, 2023 and $0.03 per share of common stock during the year ended December 31, 2022. While we intend to continue paying quarterly dividends, any future determination will be subject to the discretion of our Board of Directors and will be dependent on a number of factors, including our results of operations, capital requirements, restrictions under Delaware law, and overall financial condition, as well as any other factors our Board of Directors considers relevant. In addition, the terms of the agreement governing the Credit Facility limit the amount of dividends we can pay. Contractual Obligations and Other Commitments: The following table summarizes our most significant contractual obligations as of December 31, 2023: Total Short-Term Long-Term Debt Obligations (1) $ 1,544,858 $ 10,000 $ 1,534,858 Purchase Obligations 127,000 50,000 77,000 DCP Obligations 90,536 2,355 88,181 (1) Amounts represent the face value of debt and exclude interest payments. Our largest contractual obligations relate to our outstanding debt, which include convertible notes due in 2026 and 2027. We typically fund and expect to continue to fund debt maturities and interest payments with cash flows generated from operations, existing cash and cash equivalents, or proceeds from additional financing. If an early conversion notice is received, we have the option to pay cash, deliver shares of our Class B common stock, or a combination thereof. See Note 10 to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10‑K for additional information on our debt obligations. We have non‑cancelable future cash purchase commitments for services related to the provisioning of our hosted software solutions and for other software costs. Our purchase obligations are in addition to amounts included in our consolidated balance sheets. We have funded and expect to continue to be able to fund our purchase obligations with cash flows generated from operations or existing cash and cash equivalents. See Note 18 to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10‑K for additional information on our purchase obligations. Our DCP obligations represent DCP participants’ holdings in phantom investment funds, which are classified as liabilities as they will be settled in cash upon eventual distribution. We have funded and expect to continue to be able to fund our DCP obligations with cash flows generated from operations or existing cash and cash equivalents. See Note 12 to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10‑K for additional information on our DCP obligations. Our other future contractual obligations were related to leases (see Note 8), and contingent and non‑contingent consideration from acquisitions (see Note 4). For information about those obligations, see the above referenced notes to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10‑K. Critical Accounting Estimates: The preparation of our consolidated financial statements in conformity with GAAP requires us to make estimates that affect the reported amounts of assets, liabilities, revenue and expenses, and the related disclosure of contingent assets and contingent liabilities. We base our judgments on our historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making estimates about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. 56 Revenue Recognition Our contracts with customers may include promises to transfer licenses (perpetual or term‑based), maintenance, and services to a user. Judgment is required to determine if the promises are separate performance obligations, and if so, the allocation of the transaction price to each performance obligation. When an arrangement includes multiple performance obligations which are concurrently delivered and have the same pattern of transfer to the customer, we account for those performance obligations as a single performance obligation. For contracts with more than one performance obligation, the transaction price is allocated among the performance obligations in an amount that depicts the relative standalone selling price (“SSP”) of each obligation. Judgment is required to determine the SSP for each distinct performance obligation. In instances where SSP is not directly observable, such as when we do not sell the product or service separately, we determine the SSP using information that may include market conditions and other observable inputs. We use a range of amounts to estimate SSP when we sell each of the products and services separately and need to determine whether there is a discount that should be allocated based on the relative SSP of the various products and services. Our SELECT agreement provides users with perpetual licenses a right to exchange software for other eligible perpetual licenses on an annual basis upon renewal. We refer to this option as portfolio balancing and concluded that the portfolio balancing feature represents a material right resulting in the deferral of the associated revenue. Judgment is required to estimate the percentage of users who may elect to portfolio balance and considers inputs such as historical user elections. This feature is available once per term and must be exercised prior to the respective renewal term. We recognize the associated revenue upon election or when the portfolio balancing right expires. This right is included in the initial and subsequent renewal terms and we reestablish the revenue deferral for the material right upon the beginning of the renewal term. Portfolio balancing exchange rights are included in Deferred revenues in the consolidated balance sheets. Business Combinations We allocate the fair value of the consideration transferred to the assets acquired and liabilities assumed, including trademarks, customer relationships, in‑process research and development, and acquired software and technology, based on their estimated fair values at the acquisition date. Any residual purchase price is recorded as goodwill. The purchase price allocation requires us to make significant estimates and assumptions, especially at the acquisition date, with respect to intangible assets. Although we believe the assumptions and estimates we have made are reasonable, they are based in part on historical experience and information obtained from the management of the acquired companies and are inherently uncertain. Examples of critical estimates used in valuing certain of the intangible assets we have acquired or may acquire in the future include but are not limited to: • future expected cash flows from total revenues and acquired developed technologies; • the acquired company’s trade name and customer relationships as well as assumptions about the period of time the acquired trade name and customer relationships will continue to be used in our product portfolio; • expected costs to develop the in-process research and development into commercially viable software and estimated cash flows from the projects when completed; and • discount rates used to determine the present value of estimated future cash flows. These estimates are inherently uncertain and unpredictable, and if different estimates were used the purchase price for the acquisition could be allocated to the acquired assets and liabilities differently from the allocation that we have made. In addition, unanticipated events and circumstances may occur, which may affect the accuracy or validity of such estimates, and, if such events occur, we may be required to record a charge against the value ascribed to an acquired asset or an increase in the amounts recorded for assumed liabilities. 57 Goodwill and Other Intangible Assets Intangible assets arise from acquisitions and principally consist of goodwill, trademarks, customer relationships, in‑process research and development, and acquired software and technology. Intangible assets, other than goodwill and in‑process research and development, are amortized on a straight‑line basis over their estimated useful lives, which range from three to ten years. Goodwill consists of the excess of cost over the fair value of net assets acquired in business combinations. Goodwill is not amortized but instead is tested annually for impairment on October 1, or more frequently if events occur or circumstances change that would more likely than not reduce its fair value below its carrying amount. We allocate goodwill to reporting units on a relative fair value basis. In testing for goodwill impairment, we may first qualitatively assess whether it is more likely than not (a likelihood of more than 50 percent) that a goodwill impairment exists. If it is determined that a quantitative assessment is required and the carrying amount exceeds its fair value, we will recognize goodwill impairment in the amount in which the carrying amount of the reporting unit exceeds its fair value, but not to exceed the carrying amount of goodwill within the reporting unit. There was no impairment of goodwill as a result of our annual impairment assessments conducted for the years ended December 31, 2023, 2022, or 2021. Income Taxes We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements. Under this method, deferred tax assets and liabilities are determined based on net operating loss (“NOL”) carryforwards, credit carryforwards, and temporary differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the items are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period of the enactment date. We perform a quarterly assessment of the recoverability of the net deferred tax assets. We consider all available evidence, both positive and negative, in determining whether all or a portion of a deferred tax asset is more likely than not to be realized. In the event we determine that all or a portion of the deferred tax assets is not more likely than not to be realized, an adjustment to the valuation allowance would be recorded that would increase the provision for income taxes. To the extent that the realization of a deferred tax asset is based upon forecasted future earnings, our judgment regarding future profitability may change due to future market conditions and other factors. Assumptions about future taxable income require significant judgment and, while these assumptions rely heavily on estimates, such estimates are consistent with the plans we are using to manage the underlying business. Any change in future profitability may require material adjustments to these net deferred tax assets, resulting in a reduction in net income in the period when such determination is made. Additionally, future changes in tax laws and rates, including administrative or regulatory guidance, could affect recorded deferred tax assets and liabilities. Any adjustments to these estimates will generally be recorded as an income tax expense or benefit in the period the adjustment is determined. 58 We are subject to income taxes in the U.S. and in numerous foreign jurisdictions. The calculation of our tax liabilities often involves dealing with uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions across our global operations. There are many transactions and calculations about which the ultimate tax outcome is uncertain. A benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained based upon the technical merits of the position. This may include expected resolutions upon examination, any related appeals, or through a litigation processes. As a result, our calculations involve estimates by management. Due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment, potentially including interest and penalties, that is materially different from our current estimates of the unrecognized tax benefit liabilities. These differences, along with any related interest and penalties, will generally be reflected as increases or decreases to income tax expense in the period in which new information becomes available. We review the tax reserves as circumstances warrant and adjust the reserves as events occur that affect our potential liability for additional taxes. We follow the applicable guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition with respect to uncertain tax positions. We recognize interest and penalties related to income taxes within the ( Provision) benefit for income taxes line in the consolidated statements of operations. Accrued interest and penalties are included within the related tax liability line in the consolidated balance sheets.