BENTLEY SYSTEMS INC - Annual Report: 2023 (Form 10-K)

(1)Of the total shares issued at closing, shares are subject to forfeiture if post‑closing employment service conditions are not met and accordingly were recorded as stock‑based compensation expense over the related forfeiture period of .

(2)A fair value adjustment of $ was applied to the stock consideration due to restrictions on the transfer of securities.

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of the goodwill recorded relating to the 2023 acquisitions will be deductible for income tax purposes.

Unaudited Pro Forma Financial Information

Had the acquisition of Seequent been made at the beginning of 2020, unaudited pro forma total revenues for the year ended December 31, 2021 would have been $. Net income, net income per share, basic, and net income per share, diluted for the year ended December 31, 2021 would not have been materially different than the amounts reported primarily due to the pro forma adjustments to reflect the amortization of purchased intangibles and the cost to finance the transaction, net of the related tax effects.

The unaudited pro forma financial information is for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of 2020. The unaudited pro forma financial information combines the historical results of the Company, the adjusted historical results of Seequent considering the date the Company completed the acquisition of Seequent, and the effects of the pro forma adjustments described above.

Note 5:

$ Building and improvements Computer equipment and software Furniture, fixtures, and equipment Aircraft Other Property and equipment, at cost Less: Accumulated depreciation()()Total property and equipment, net$ $

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, $, and $, respectively.

Property and equipment are recorded at cost less accumulated depreciation. Depreciation is calculated using the straight‑line method over the estimated useful lives of the assets. Leasehold improvements are depreciated over the shorter of the estimated useful life of the leasehold improvements or the lease term. Land is not depreciated. Depreciation for equipment commences once it is placed in service, and depreciation for buildings and leasehold improvements commences once they are ready for their intended use.

yearsComputer equipment and softwareyearsFurniture, fixtures, and equipmentyearsAircraftyearsAutomobilesyears

Cost of maintenance and repairs is charged to expense as incurred. Upon retirement or other disposition, the cost of the asset and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in the consolidated statements of operations.

The Company evaluates the recoverability of property and equipment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable. If circumstances require an asset to be tested for possible impairment, the Company first compares the undiscounted cash flows expected to be generated by that asset to its carrying value. If the carrying value of the asset is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value exceeds its fair value. impairment of property and equipment occurred for the years ended December 31, 2023, 2022, and 2021.

Related Party Equipment Sale

In January 2022, the Audit Committee of the Company’s Board of Directors authorized the Company to sell % of its interest in the Company’s aircraft at fair market value to an entity controlled by the Company’s Chief Executive Officer. The transaction was completed on February 1, 2022 for $ and resulted in a gain of $, which was recorded in Other (expense) income, net in the consolidated statements of operations for the year ended December 31, 2022 (see Note 20). Subsequent to the transaction, ongoing operating and fixed costs of the aircraft are shared on a proportional use basis subject to a cost-sharing agreement. Such costs were not material during the years ended December 31, 2023 and 2022. The Company determined this transaction was with a related party.

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Note 6:

Acquisitions Foreign currency translation adjustments()Other adjustments()Balance, December 31, 2022 Acquisitions Foreign currency translation adjustments Other adjustments Balance, December 31, 2023$

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. The Company allocates goodwill to reporting units on a relative fair value basis.

In testing for goodwill impairment, the Company 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, the Company 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 impairment of goodwill as a result of the Company’s annual impairment assessments conducted for the years ended December 31, 2023, 2022, or 2021.

- years$ $()$ $ $()$ Customer relationships

- years

() () Trademarks

- years

() () Non-compete agreements

years

() () Total scheduled maturities of long-term debt$

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Note 11:

% of the Company’s adjusted MROI, subject to approval by the Sustainability Committee of the Company’s Board of Directors, with payments made to plan participants based on each such participant’s allocated interest in the bonus pool. The plan permits the deduction of certain holdback amounts from the plan’s pool, from which amounts can then be allocated to fund items including equity and/or cash incentive compensation for non‑plan participants and participant charitable contributions.

On November 2, 2022, the Sustainability Committee of the Company’s Board of Directors approved an amendment to the Bonus Plan such that with respect to fiscal year 2022, one‑third of the Company’s Chief Investment Officer’s allocated percentage interest will be multiplied by a coefficient derived from the performance of the Company’s BSY Investments group (the Company’s executive team focused on portfolio development, mergers and acquisitions, venture capital investing, digital integrator business activities, and various incubating and accelerating business activities). This coefficient is generally determined by calculating the annual increase (or decrease) in value of the BSY Investments portfolio, taking into account applicable fees and an annual hurdle rate, in all cases, as approved by the Company’s non-employee directors. The Company’s Chief Investment Officer retired effective March 31, 2023 and received one Bonus Plan payout during 2023 in respect to the 2022 fiscal year under the amended allocated percentage interest.

A participant may defer any portion, or all, of such participant’s incentive bonus payable pursuant to the Bonus Plan into the DCP (see Note 12). The Bonus Plan provides, in part, that a participant may elect to receive any portion, or all, of such participant’s non‑deferred incentive bonus in the form of shares of fully vested Class B common stock issued under the Bentley Systems, Incorporated 2020 Omnibus Incentive Plan (the “2020 Incentive Award Plan”), subject to the limitation described below. The Company records the election of non‑deferred incentive bonus in the form of shares of fully vested Class B common stock as stock‑based compensation expense in the consolidated statements of operations (see Note 15). Such election must be made prior to the start of the applicable calendar quarter for which the incentive bonus is to be paid, and the number of shares of Class B common stock payable in respect of such elected amount is calculated using a volume-weighted average price of the Company’s Class B common stock for the period commencing on the th trading day prior to the end of the applicable calendar quarter and ending on the th trading day following the end of the applicable calendar quarter. Notwithstanding participants’ elections to receive shares of fully vested Class B common stock in respect of their non‑deferred incentive bonus payments, if, in any calendar quarter, the aggregate U.S. dollar value of shares of fully vested Class B common stock payable in respect of the non‑deferred incentive bonuses exceeds $, the portion of each participant’s non‑deferred incentive bonus payable in shares of fully vested Class B common stock will be reduced pro rata such that the $ limit is not exceeded, and, for each affected participant, the amount of such reduction will be payable in cash.

For the years ended December 31, 2023, 2022, and 2021, the incentive compensation, including cash payments, election to receive shares of fully vested Class B common stock, and deferred compensation to plan participants, recognized under this plan (net of all applicable holdbacks) was $, $, and $, respectively.

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Note 12:

shares of Class B common stock reserved for issuance. As of December 31, 2023, shares of Class B common stock available for future issuance under the DCP were .

In August 2021, the Company’s Board of Directors approved an amendment to the DCP, which offered to certain active executives in the DCP a one‑time, short‑term election to reallocate a limited portion of their DCP holdings from phantom shares of the Company’s Class B common stock into other phantom investment funds. The offer to reallocate was subject to a proration mechanism which adjusted the aggregate elections to a maximum of phantom shares of the Company’s Class B common stock. This resulted in a reduction of shares in both the basic and diluted count of Company shares.

While DCP participants’ investments in phantom shares remain equity classified, as they will be settled in shares of Class B common stock upon eventual distribution, the amendment and elections resulted in a change to liability classification for the reallocated phantom investments, as they will be settled in cash upon eventual distribution. As a result, during the year ended December 31, 2021, the Company reclassified cumulative compensation cost of $ from Additional paid-in capital to Accruals and other current liabilities or Deferred compensation plan liabilities in the consolidated balance sheets and recognized a compensation charge of $ to Deferred compensation plan expenses in the consolidated statements of operations to record the reallocated deferred compensation plan liabilities at their fair value of $.

DCP participants’ holdings in phantom investment funds are classified as liabilities in either Accruals and other current liabilities or Deferred compensation plan liabilities in the consolidated balance sheets as they will be settled in cash upon eventual distribution. The 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.

Deferred compensation plan expense (income) was $, $(), and $ for the years ended December 31, 2023, 2022, and 2021, respectively.

For the years ended December 31, 2023, 2022, and 2021, DCP elective participant deferrals were $, $, and $, respectively. discretionary contributions were made to the DCP during the years ended December 31, 2023, 2022, and 2021. As of December 31, 2023 and 2022, phantom shares of the Company’s Class B common stock issuable by the DCP were and , respectively.

$ Deferred compensation plan liabilities Total DCP liabilities$ $

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%, up to a maximum of % of qualified cash compensation for each eligible participating colleague. For the year ended December 31, 2021, the Company matched %, up to a maximum of % of qualified cash compensation for each eligible participating colleague. The Company’s matching contributions to the 401(k) Plan were $, $, and $, for the years ended December 31, 2023, 2022, and 2021, respectively.

The Company also maintains various retirement benefit plans (primarily defined contribution plans) for colleagues of its international subsidiaries. The Company’s contributions to these plans were $, $, and $, for the years ended December 31, 2023, 2022, and 2021, respectively.

Note 13:

shares of preferred stock. Preferred stock has rights, preferences, and privileges which may be designated from time to time by the Company’s Board of Directors.

Common Stock Authorized and Selected Terms

The Company’s amended and restated Certificate of Incorporation authorizes the Company to issue up to shares of Class A common stock and up to shares of Class B common stock.

The rights of the holders of Class A common stock and Class B common stock are identical, except with respect to voting and conversion rights. Each share of Class B common stock is entitled to vote per share, while each share of Class A common stock is entitled to votes per share and is convertible at any time into one share of Class B common stock. Class A common stock will automatically convert into Class B common stock upon certain transfers, and its votes per share will be reduced to in the event none of the Bentleys (Barry J. Bentley, Gregory S. Bentley, Keith A. Bentley, Raymond B. Bentley, and Richard P. Bentley, collectively) serves as a Company director or executive officer. Class A common stock also will automatically convert into shares of Class B common stock upon the affirmative vote of at least % of the then outstanding shares of Class A common stock or such time that the Bentley family (the Bentleys, certain other family members and trusts and other entities controlled by or primarily for the benefit of the Bentleys and their families, collectively) directly or indirectly, own less than % of the issued and outstanding Class B common stock on a fully-diluted basis (assuming the conversion of all issued and outstanding Class A common stock).

For the year ended December 31, 2023, shares of Class A common stock were converted to Class B common stock.

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of the Company’s Class B common stock through June 30, 2024. On December 14, 2022, the Company’s Board of Directors amended the Repurchase Program to allow the Company also to repurchase its outstanding convertible senior notes. This additional authorization did not increase the overall dollar limit of the Repurchase Program. The shares and notes proposed to be acquired in the Repurchase Program may be repurchased from time to time in open market transactions, through privately negotiated transactions, or by other means in accordance with federal securities laws. The Company intends to fund repurchases from available working capital and cash provided by operating activities. The timing, as well as the number and value of shares and/or notes repurchased under the Repurchase Program, will be determined by the Company at its discretion and will depend on a variety of factors, including management’s assessment of the intrinsic value of the Company’s shares, the market price of the Company’s Class B common stock and outstanding notes, general market and economic conditions, available liquidity, compliance with the Company’s debt and other agreements, and applicable legal requirements. The exact number of shares and/or notes to be repurchased by the Company is not guaranteed, and the Repurchase Program may be suspended, modified, or discontinued at any time without prior notice. The Company did repurchase shares under the Repurchase Program for the year ended December 31, 2023. For the year ended December 31, 2022, the Company repurchased shares for $, and $ aggregate principal amount of our outstanding 2026 Notes for $ (see Note 10) under the Repurchase Program. As of December 31, 2023, $ was available under the Company’s Board of Directors authorization for future repurchases of Class B common stock and/or outstanding convertible senior notes under the Repurchase Program.

Common Stock Issuances, Sales, and Repurchases

On June 17, 2021, the Company issued shares of the Company’s Class B common stock pursuant to the acquisition of Seequent (see Note 4).

The Company has a Class B Common Stock Purchase Agreement with a strategic investor (the “Common Stock Purchase Agreement”), pursuant to which the investor acquired the maximum purchase amount of $ of the Company’s Class B common stock. The Common Stock Purchase Agreement grants to the strategic investor certain informational and protective rights, including, for so long as the Company remains party to a long-term strategic collaboration agreement with the investor the right to participate in any sale process the Company may undertake. The Common Stock Purchase Agreement expires in 2030.

For the year ended December 31, 2023, the Company issued shares of Class B common stock to colleagues who exercised their stock options, net of shares withheld at exercise to pay for the cost of the stock options, as well as for $ of applicable income tax withholdings. The Company received $ in proceeds from the exercise of stock options.

For the year ended December 31, 2022, the Company issued shares of Class B common stock to colleagues who exercised their stock options, net of shares withheld at exercise to pay for the cost of the stock options, as well as for $ of applicable income tax withholdings. The Company received $ in proceeds from the exercise of stock options.

For the year ended December 31, 2021, the Company issued shares of Class B common stock to colleagues who exercised their stock options, net of shares withheld at exercise to pay for the cost of the stock options, as well as for $ of applicable income tax withholdings. The Company received $ in proceeds from the exercise of stock options.

For the year ended December 31, 2022, the Company issued shares of Class B common stock related to the exercise of acquisition options (see Note 15), net of shares withheld at exercise to pay for the cost of the options. The Company did receive any proceeds from the exercise of these options.

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, , and shares of Class B common stock, respectively, in connection with Bonus Plan incentive compensation, net of shares withheld. Of the total shares awarded for the year ended December 31, 2023, shares were sold back to the Company in the same period to pay for applicable income tax withholdings of $. Of the total shares awarded for the year ended December 31, 2022, shares were sold back to the Company in the same period to pay for applicable income tax withholdings of $. Of the total shares awarded for the year ended December 31, 2021, shares were sold back to the Company in the same period to pay for applicable income tax withholdings of $.

For the years ended December 31, 2023, 2022, and 2021, the Company issued , , and shares of Class B common stock, respectively, to DCP participants in connection with distributions from the plan. The distribution in shares for the year ended December 31, 2023 totaled shares of which shares were sold back to the Company in the same period to pay for applicable income tax withholdings of $. The distribution in shares for the year ended December 31, 2022 totaled shares of which shares were sold back to the Company in the same period to pay for applicable income tax withholdings of $. The distribution in shares for the year ended December 31, 2021 totaled shares of which shares were sold back to the Company in the same period to pay for applicable income tax withholdings of $.

Dividends

$ Third quarter Second quarter First quarter Total$ $ 2022:Fourth quarter$ $ Third quarter Second quarter First quarter Total$ $ 2021:Fourth quarter$ $ Third quarter Second quarter First quarter Total$ $

Dividends Declared Subsequent to December 31, 2023

In February 2024, our Board of Directors approved cash dividends of $ per share payable on March 28, 2024 to all stockholders of record of Class A and Class B common stock as of the close of business on March 20, 2024.

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% of their eligible compensation toward the purchase of the Company’s Class B common stock at a discounted price, up to a maximum of $ per year and subject to any other plan limitations. The ESPP has shares of Class B common stock reserved for issuance.

Unless otherwise determined by the Board of Directors, the ESPP has been implemented by means of consecutive offering periods, which will run from January 1st (or the first trading day thereafter) through June 30th (or the first trading day prior to such date), and from July 1st (or the first trading day thereafter) through December 31st (or the first trading day prior to such date). The purchase price per share at which shares of Class B common stock are sold in an offering period under the ESPP will be equal to the lesser of % of the fair market value of a share of Class B common stock (i) on the first trading day of the offering period, or (ii) on the purchase date (i.e., the last trading day of the offering period).

During the year ended December 31, 2023, colleagues who elected to participate in the ESPP purchased a total of shares of Class B common stock, net of shares withheld, resulting in cash proceeds to the Company of $. Of the total shares purchased, shares were sold back to the Company to pay for applicable income tax withholdings of $. During the year ended December 31, 2022, colleagues who elected to participate in the ESPP purchased a total of shares of Class B common stock, net of shares withheld, resulting in cash proceeds to the Company of $. Of the total shares purchased, shares were sold back to the Company to pay for applicable income tax withholdings of $. During the year ended December 31, 2021, colleagues who elected to participate in the ESPP purchased a total of shares of Class B common stock, net of shares withheld, resulting in cash proceeds to the Company of $. Of the total shares purchased, shares were sold back to the Company to pay for applicable income tax withholdings of $. As of December 31, 2023 and 2022, $ and $ of ESPP withholdings via colleague payroll deduction were recorded in Accruals and other current liabilities in the consolidated balance sheets, respectively. As of December 31, 2023, shares of Class B common stock available for future issuance under the ESPP were .

Note 14:

)$()$()

Other comprehensive (loss) income, before taxes

() ()Tax expense ()()

Other comprehensive (loss) income, net of taxes

() ()Balance, December 31, 2021()()()

Other comprehensive income, before taxes

Tax expense ()()

Other comprehensive income, net of taxes

Balance, December 31, 2022()()()

Other comprehensive income, before taxes

Tax expense ()()

Other comprehensive income (loss), net of taxes

() Balance, December 31, 2023$()$()$()

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Note 15:

$ $ Bonus Plan expense (see Note 11) ESPP expense (see Note 13) Stock grants expense Stock option expense

DCP elective participant deferrals expense (1) (see Note 12)

Total stock-based compensation expense (2)

$ $ $

(1)DCP elective participant deferrals expense excludes deferred incentive bonus payable pursuant to the Bonus Plan.

(2)As of December 31, 2023 and 2022, $ and $ remained in Accruals and other current liabilities in the consolidated balance sheets, respectively.

Total stock‑based compensation expense is included in the consolidated statements of operations as follows:


	Year Ended December 31,
	2023	2022	2021
Cost of subscriptions and licenses	$	$	$
Cost of services
Research and development
Selling and marketing
General and administrative
Total stock-based compensation expense	$	$	$

Stock‑based compensation expense is measured at the grant date fair value of the award and is recognized ratably over the requisite service period, which is generally the vesting period. Specifically for performance‑based RSUs, stock‑based compensation expense is measured at the grant date fair value of the award and is recognized ratably over the requisite service period based on the number of awards expected to vest at each reporting date. The Company accounts for forfeitures of equity awards as those forfeitures occur.

The fair value of the common stock during periods prior to the IPO was determined by the Board of Directors at each award grant date based upon a variety of factors, including the results obtained from independent third‑party valuations, the Company’s financial condition, and historical financial performance.

Restricted Stock and RSUs

Under the equity incentive plans, the Company may grant both time‑based and performance‑based shares of restricted Class B common stock and RSUs to eligible colleagues. Time‑based awards generally vest ratably on each of the first four anniversaries of the grant date. Performance‑based awards vesting is determined by the achievement of certain business growth targets, which include growth in ARR, as well as actual bookings for perpetual licenses and non‑recurring services. Performance targets are generally set for performance periods of to . The fair value of restricted stock and RSUs is determined by the product of the number of shares granted and the Company’s common stock price on the grant date.

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(3)

(4)

$ $ Granted

(1)

(5)

Vested()()() Forfeited and canceled()()() Unvested, December 31, 2023

(2)

$ $

(1)For the year ended December 31, 2023, the Company only granted RSUs.

(2)Includes RSUs which are expected to be settled in cash.

(3)Includes time‑based RSUs granted during the three months ended March 31, 2022 to certain officers and key employees, which cliff vest on January 31, 2025.

(4)Primarily relates to the 2022 annual performance period, except for performance‑based RSUs granted during the year ended December 31, 2022 with extraordinary terms, which are described below.

(5)Primarily relates to the 2023 annual performance period, except for additional shares earned based on the achievement of 2022 performance goals for performance‑based RSUs granted during the year ended December 31, 2022.

During the year ended December 31, 2022, the Company granted performance‑based RSUs to certain officers and key employees, which vest subject to the achievement of certain performance goals over a three‑year performance period (the “Performance Period”). For each year of the Performance Period, one‑third of the performance‑based RSUs will be subject to a cliff, whereby no vesting of that portion will occur unless the Company’s applicable margin metrics (which, for 2022, was Adjusted EBITDA margin and for 2023 and 2024, will be Adjusted OI w/SBC margin, excluding the impact of foreign currency exchange fluctuations) also equals or exceeds the relevant target level for such year. Provided that the applicable margin targets are met, the total number of performance‑based RSUs that will vest is determined by the achievement of growth targets, which include growth in ARR, as well as actual bookings for perpetual licenses and non‑recurring services. Final actual vesting will be determined on January 31, 2025. The 2023 Adjusted OI w/SBC margin target, excluding the impact of foreign currency exchange fluctuations, and the 2022 Adjusted EBITDA margin target for the performance-based RSUs were met.

In 2016, the Company granted RSUs subject to performance‑based vesting as determined by the achievement of certain business growth targets. Certain colleagues elected to defer delivery of such shares upon vesting. During the years ended December 31, 2023, 2022, and 2021, , , and shares, respectively, were delivered to colleagues, and , , and additional shares, respectively, were earned as a result of dividends. As of December 31, 2023, 2022, and 2021, , , and shares, respectively, of these vested and deferred RSUs remained outstanding.

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, $, and $ for the years ended December 31, 2023, 2022, and 2021, respectively.

For the years ended December 31, 2023, 2022, and 2021, restricted stock and RSUs were issued net of , , and shares, respectively, which were sold back to the Company to settle applicable income tax withholdings of $, $, and $, respectively.

As of December 31, 2023, there was $ of unrecognized compensation expense related to unvested time‑based restricted stock and RSUs, which is expected to be recognized over a weighted average period of approximately years. As of December 31, 2023, there was $ of unrecognized compensation expense related to unvested performance‑based RSUs, which is expected to be recognized over a weighted average period of approximately years.

Stock Grants

Under the equity incentive plans, the Company may grant unrestricted, fully vested shares of Class B common stock. The fair value of stock grants is determined by the product of the number of fully vested Class B common stock granted and the Company’s common stock price on the grant date. The total expense related to stock grants is recognized on the grant date as the issued awards are fully vested.

For the years ended December 31, 2023, 2022, and 2021, the Company granted , , and fully vested shares of Class B common stock, respectively.

Stock Options

The fair value of each stock option award was estimated on the date of grant using the Black‑Scholes option pricing model. Stock options generally vest ratably on each of the first four anniversaries of the grant date. The Company did grant stock options during the years ended December 31, 2023, 2022, and 2021.

$ Exercised() Forfeited and expired() Outstanding, December 31, 2023 $ $ Exercisable, December 31, 2023 $ $

For the years ended December 31, 2023, 2022, and 2021, the Company received cash proceeds of $, $, and $, respectively, related to the exercise of stock options. The total intrinsic value of stock options exercised for the years ended December 31, 2023, 2022, and 2021 was $, $, and $, respectively.

As of December 31, 2023, there was remaining unrecognized compensation expense related to unvested stock options.

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shares of Class B common stock. As of December 31, 2020, the Company fully recognized the stock‑based compensation expense associated with these options. During the year ended December 31, 2022, options were exercised. acquisition options remain outstanding as of December 31, 2022.

ESPP

The ESPP is considered a compensatory plan as it provides eligible colleagues an option to purchase shares of the Company’s Class B common stock for % of the lower of the price of the first day of the offering period or the last day of the offering period (i.e., the purchase date).

The fair value of each purchase right under the ESPP was calculated as the sum of its components, which includes the discount, a call option, and a put option. The call and put options were valued using the Black‑Scholes option pricing model. Stock‑based compensation expense is recognized ratably over the respective offering period.

Equity Incentive Plans

The Company’s 2020 Incentive Award Plan provides for the granting of stock, stock options, restricted stock, RSUs, and other stock‑based or performance‑based awards to certain directors, officers, colleagues, consultants, and advisors of the Company, and terminates in September 2030. The 2020 Incentive Award Plan provides that shares of Class B common stock may be issued for equity awards. Equity awards that are expired, canceled, forfeited, or terminated for any reason will be available for future grant under the 2020 Incentive Award Plan. As of December 31, 2023, equity awards available for future grants under the 2020 Incentive Award Plan were .

The Company also has equity awards outstanding under the 2015 Equity Incentive Plan, which terminates in November 2024. Following the completion of the IPO, no further awards may be granted under the 2015 Equity Incentive Plan.

Note 16:

$ $()International

Income before income taxes

$ $ $

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)$()$ State()() Foreign()()()()()()Deferred:Federal State Foreign

Benefit (provision) for income taxes

$ $()$ % % %State and local income taxes, net of federal benefit() ()Stock-based compensation()()()Non-deductible officer compensation Tax credits()()()Withholding taxes Foreign tax rate differential()()()Net tax on foreign earnings (GILTI/FDII) Transaction costs() Tax impact of internal legal entity restructuring() Other ()()Effective income tax rate( %) %( %)

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 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, the Company recorded discrete tax benefits of $ and $, respectively, associated with windfall tax benefits from stock‑based compensation, net of the impact from officer compensation limitation provisions.

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attributable to internal legal entity restructuring and related intra-entity transactions as part of its continuing efforts to align intellectual property ownership with the Company’s 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 $. 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 years.

For the year ended December 31, 2022, the effective tax rate was higher as compared to the year ended December 31, 2021, primarily due to the 2021 effective tax rate impact, net of officer compensation limitation provisions, related to the 2021 compensation charge of $ to Deferred compensation plan expenses to record reallocated deferred compensation plan liabilities at fair value (see Note 12). For the years ended December 31, 2022 and 2021, the Company recorded discrete tax benefits of $ and $, respectively, associated with windfall tax benefits from stock‑based compensation, net of the impact from officer compensation limitation provisions.

The U.S. Tax Cuts and Jobs Act (the “JOBS Act”) requires certain GILTI earned by a controlled foreign corporation (“CFC”) to be included in the gross income of the CFC’s U.S. shareholder. The Company has elected the “period cost method” and treats taxes due on future U.S. inclusions in taxable income related to GILTI as a current‑period expense when incurred. The JOBS Act allows a U.S. corporation a deduction equal to a certain percentage of its foreign‑derived intangible income (“FDII”).

NOL and credit carryforwards

Intangible assets including goodwill Convertible debt and 163(j) limitation Lease liabilities Other accruals not currently deductible Allowance for doubtful accounts Deferred revenues Other Total deferred tax assets Less: Valuation allowance()()Net deferred tax assets Deferred tax liabilities:Intangible assets including goodwill ()Operating lease right-of-use assets()()Prepaid expenses()()Unrealized gains and losses()()Property and equipment()()Total deferred tax liabilities()()Net deferred tax assets (liabilities)$ $

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2034U.S. Federal research and development credits 2039U.S. Federal foreign tax credits 2028U.S. State NOL 2036U.S. State research and development credits 2030U.K. NOL IndefiniteU.K. research and development credits IndefiniteCanadian research and development credit 2030

As of December 31, 2023 and 2022, the Company has a valuation allowance recorded against net deferred tax assets related to NOLs and tax attributes in certain jurisdictions of $ and $, respectively. During the year ended December 31, 2023, the Company decreased the valuation allowance by $, which was primarily related to the partial utilization of U.S. capital loss carryforwards. A valuation allowance is required when it is more likely than not that all or a portion of deferred tax assets will not be realized. The Company assesses the available positive and negative evidence to estimate whether the existing deferred tax assets will be realized.

We have provided for any applicable income taxes associated with current year distributions, as well as any earnings that are expected to be distributed in the future, in the calculation of the income tax provision. No additional provision has been made for U.S. and non‑U.S. income taxes on the undistributed earnings of subsidiaries that are expected to be indefinitely reinvested. As of December 31, 2023, certain subsidiaries had approximately $ of cumulative undistributed earnings that have been deemed permanently reinvested. A liability could arise if our intention to indefinitely reinvest such earnings were to change and amounts are distributed by such subsidiaries or if such subsidiaries are ultimately disposed. The potential tax implications of unremitted earnings are driven by the facts at the time of the distribution. It is not practicable to estimate the additional income taxes related to indefinitely reinvested earnings or the basis differences related to investments in subsidiaries.

$ $ Increases for tax positions of prior years Decreases for tax positions of prior years()()()Increases for tax positions related to the current year Decreases relating to settlements with taxing authorities () Reductions as a result of lapse of the statute of limitations()()()Gross unrecognized tax benefits, end of year$ $ $

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, $, and $, respectively, of which $, $, and $, respectively, would impact the Company’s effective tax rate if recognized. Interest expense and penalties related to unrecognized tax benefits included in the Benefit (provision) for income taxes was $, $, $() for the years ended December 31, 2023, 2022, and 2021, respectively. The cumulative accrued interest and penalties related to unrecognized tax benefits were $, $, and $ as of December 31, 2023, 2022, and 2021, respectively.

The Company is subject to income tax in the U.S. (federal and state) and numerous foreign jurisdictions. Significant judgment is required in evaluating the Company’s tax positions and determining the provision for income taxes. During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. The Company establishes reserves for tax‑related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due. These reserves are established when the Company believes that certain positions might be challenged despite its belief that the Company’s tax return positions are fully supportable. The tax benefit recognized is based on the largest amount that is greater than 50 percent likely of being realized upon ultimate settlement. The Company adjusts these reserves in light of changing facts and circumstances, such as the outcome of tax audits. The Provision for income taxes in the consolidated statements of operations includes the impact of reserve provisions and changes to reserves that are considered appropriate. The Company records accrued interest and/or penalties, where applicable, related to unrecognized tax benefits as part of the Benefit (provision) for income taxes in the consolidated statements of operations. The Company records the amount of uncertain taxes expected to be paid in the next 12 months as a current liability and records the remaining amount in Other liabilities in the consolidated balance sheets.

The Company is currently under audit in the U.K. for years 2018 through 2021. The Company is also under audit in the Netherlands for years 2018 through 2021. In addition, the Company is under audit in various other foreign taxing jurisdictions that are not material to the consolidated financial statements. The Company’s U.S. consolidated federal income tax returns for years 2020 through 2023 may be subject to examination by the Internal Revenue Service. The Company also may be subject to examination by other significant jurisdictions, including the Irish Revenue Commissioners for Irish tax purposes for years 2019 through 2023 and by the Inland Revenue Department for New Zealand Tax purposes for years 2018 through 2023.

In December 2021, the Organization for Economic Co-operation and Development (“OECD”) adopted model rules to implement a global minimum corporate tax of 15% for companies with global revenues and profits above certain thresholds (referred to as “Pillar 2”). The OECD has continued to issue administrative guidance and interpretations regarding the Pillar 2 rules. A number of E.U. and G20 member nations, including locations where the Company currently has operations, are at various stages in the process of enacting tax legislation to incorporate aspects of the Pillar 2 rules. For countries that have adopted the model rules, certain aspects of the Pillar 2 rules will be effective in 2024, while other aspects are expected to become effective in 2025. Due to the uncertainty regarding which countries will enact Pillar 2 legislation and in what form the legislation will be adopted, as well as uncertainty regarding the timing of individual country legislative action and the underlying complexity of the rules, we are still assessing the impact, if any, of the Pillar 2 legislation on the Company.

Note 17:

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The Company considers these valuation inputs to be Level 2 inputs in the fair value hierarchy. As of December 31, 2023, the estimated fair value of the 2026 Notes and 2027 Notes was $ and $, respectively. As of December 31, 2022, the estimated fair value of the 2026 Notes and 2027 Notes was $ and $, respectively.

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$ $ $

Interest rate swap (2)

Total assets$ $ $ $ Liabilities:

Deferred compensation plan liabilities (3)

$ $ $ $

Cash-settled equity awards (4)

Total liabilities$ $ $ $

December 31, 2022

Level 1

Level 2

Level 3

Total

Assets:

Money market funds (1)

Interest rate swap (2)

Total assets

Liabilities:

Acquisition contingent consideration (4)

Deferred compensation plan liabilities (3)

Cash-settled equity awards (4)

Total liabilities

(1)Included in Cash and cash equivalents in the consolidated balance sheets.

(2)Included in Other assets in the consolidated balance sheets.

(3)Included in Deferred compensation plan liabilities, except for current liabilities of $ and $ as of December 31, 2023 and 2022, respectively, which are included in Accruals and other current liabilities in the consolidated balance sheets.

(4)Included in Accruals and other current liabilities in the consolidated balance sheets.

$ Payments()()Addition Change in fair value ()Foreign currency translation adjustments ()Balance, end of year$ $

The Company did not have any transfers between levels within the fair value hierarchy.

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Note 18:

of non‑cancelable future cash purchase commitments for services related to cloud provisioning of the Company’s software solutions and for other software costs. As of December 31, 2023, total non‑cancelable future cash purchase commitments were $, of which the Company expects $ to be paid over the next 12 months and $ to be paid through September 2028. The Company expects to fully consume its contractual commitments in the ordinary course of operations.

Litigation

From time to time, the Company is involved in certain legal actions arising in the ordinary course of business. In management’s opinion, based upon the advice of counsel, the outcome of such actions is not expected to have a material adverse effect on the Company’s future financial position, results of operations, or cash flows.

Note 19:

$ EMEA

APAC (2)

Total long-lived assets$ $

(1)Americas includes the U.S., Canada, and Latin America, including the Caribbean.

(2)The change in balances period over period was due to an internal legal entity restructuring executed by the Company during the fourth quarter of 2023 (see Note 16).

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Note 20:

)$ $

Foreign exchange (1)

() Sale of aircraft (see Note 5) Change in fair value of acquisition contingent consideration (see Note 17) ()

Receipts (payments) related to interest rate swap

()

Other (expense) income, net (2)

()

Total other (expense) income, net

$()$ $

(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 $, $(), and $() for the years ended December 31, 2023, 2022, and 2021, respectively.

(2)Other (expense) income, net includes investment impairment and other charges of $(), partially offset by gains on investments of $ for the year ended December 31, 2023 (see Note 7).

Note 21:

for the year ended December 31, 2023 related to the aforementioned program, which represents termination benefits for colleagues whose roles were impacted. The 2023 Program activities have been broadly implemented across the Company’s various businesses with the intention that substantially all actions, including payment of the termination benefits, will be fully completed by mid‑2024. Cost of services Total cost of revenues Operating expenses:Research and development Selling and marketing General and administrative Total operating expenses Total realignment costs$

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Realignment costs Payments()

Adjustments (1)

Balance, December 31, 2023$

(1)Adjustments includes foreign currency translation.

Note 22:

, , and participating securities outstanding, respectively.

Undistributed net income allocated to participating securities are subtracted from net income in determining basic net income attributable to common stockholders. Basic net income per share is computed by dividing basic net income attributable to common stockholders by the weighted average number of shares, inclusive of undistributed shares held in the DCP as phantom shares of the Company’s Class B common stock.

For the Company’s diluted net income per share numerator, interest expense, net of tax, attributable to the assumed conversion of the convertible senior notes is added back to basic net income attributable to common stockholders. For the Company’s diluted net income per share denominator, the basic weighted average number of shares is adjusted for the effect of dilutive securities, including awards under the Company’s equity compensation plans and ESPP, and for the dilutive effect of the assumed conversion of the convertible senior notes. Diluted net income per share attributable to common stockholders is computed by dividing diluted net income attributable to common stockholders by the weighted average number of fully diluted common shares.

Except with respect to voting and conversion, the rights of the holders of the Company’s Class A common stock and the Company’s Class B common stock are identical. Each class of shares has the same rights to dividends and allocation of income (loss) and, therefore, net income per share would not differ under the two‑class method.

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$ $

Less: Net income attributable to participating securities

()()()

Net income attributable to Class A and Class B common stockholders, basic

Add: Interest expense, net of tax, attributable to assumed conversion of convertible senior notes

Net income attributable to Class A and Class B common stockholders, diluted

$ $ $ Denominator:Weighted average shares, basic Dilutive effect of stock options, restricted stock, and RSUs Dilutive effect of ESPP Dilutive effect of assumed conversion of convertible senior notes Weighted average shares, diluted

Net income per share, basic

$ $ $

Net income per share, diluted

$ $ $ Convertible senior notes Total anti-dilutive securities

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BENTLEY SYSTEMS INC - Annual Report: 2023 (Form 10-K)

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