Financial News

Bentley Systems Announces Operating Results for the First Quarter of 2023

Bentley Systems, Incorporated (Nasdaq: BSY) (“Bentley Systems” or the “Company”), the infrastructure engineering software company, today announced operating results for its first quarter ended March 31, 2023.

First Quarter 2023 Financial Results

  • Total revenues were $314.4 million, up 14.1% or 17.1% on a constant currency basis, year-over-year;
  • Subscriptions revenues were $277.8 million, up 15.2% or 18.0% on a constant currency basis, year-over-year;
  • Annualized Recurring Revenues (“ARR”) was $1,071.0 million as of March 31, 2023, representing a constant currency ARR growth rate of 13% from March 31, 2022;
  • Last twelve-month recurring revenues dollar-based net retention rate was 110%, compared to 108% for the same period last year;
  • Operating income margin was 20.9%, compared to 20.5% for the same period last year;
  • Adjusted operating income inclusive of stock-based compensation expense (“Adjusted OI w/SBC”) margin was 28.8%, compared to 28.4% for the same period last year;
  • Net income per diluted share was $0.14, compared to $0.18 for the same period last year;
  • Adjusted net income per diluted share (“Adjusted EPS”) was $0.25, consistent with the same period last year; and
  • Cash flow from operations was $176.2 million, compared to $101.7 million for the same period last year.

CEO Greg Bentley said, “Our robust operating results for 23Q1 continue to demonstrate the resilience of our end-markets, the predictability of our accretive business model, and the consistency of our execution. Most notably, ARR growth (year-over-year business performance, in constant currency) accelerated to 13%. Among infrastructure sectors, the trends were consistent with the previous quarter, with very strong growth in resources, strong growth in public works / utilities, solid growth in industrial, and commercial / facilities flat. Application consumption seasonally regained growth momentum, and our E365 and Virtuosity initiatives continue their upward inflection.

For the most part regions performed as expected, with continued strong growth in India and continued solid growth in Europe, as well as solid growth in the Americas. In China this first quarter was better than in recent years, but our strategic shift there towards more localized indirect go-to-market structure, and to on-premise perpetual licenses, will lead to an increasing ARR headwind.

In sum, our strong start to 2023 serves to enhance confidence in our annual financial outlook.”

CFO Werner Andre said, “We believe our 2023 financial outlook is appropriately balanced between our favorable business momentum and a cautious approach towards China and the commercial / facilities sector, due to geopolitical and macro uncertainties. In our initial quarter with this as a key profitability metric, we met our expectations for Adjusted operating income inclusive of stock-based compensation expense margin. Moreover, 22Q4 timing shortfalls in our operating cash flows were fully offset in early 2023, resulting in 23Q1 being a strong cash flow quarter. However, given the current interest rate and tax environment, on a trailing twelve-month basis we anticipate cash flow from operations at an approximately 80% conversion rate from Adjusted EBITDA, consistent with prior guidance.”

Recent Financial Developments

For the three months ended March 31, 2023, to offset dilution from stock-based compensation, we spent approximately $20.9 million on de-facto share repurchases associated mainly with deferred compensation plan distributions.

Operating Results Call Details

Bentley Systems will host a live Zoom video webinar on May 9, 2023 at 8:15 a.m. Eastern time to discuss operating results for its first quarter ended March 31, 2023.

Those wishing to participate should access the live Zoom video webinar of the event through a direct registration link at https://us06web.zoom.us/webinar/register/WN_OZ8XitGTQ5mR60Ty0Xrc_g. Alternatively, the event can be accessed from the Events & Presentations page on Bentley Systems’ Investor Relations website at https://investors.bentley.com. In addition, a replay and transcript will be available after the conclusion of the live event on Bentley Systems’ Investor Relations website for one year.

Non-GAAP Financial Measures

In this operating results press release, we sometimes refer to financial measures that are not presented in accordance with U.S. generally accepted accounting principles (“GAAP”). Certain of these measures are considered non-GAAP financial measures under the United States Securities and Exchange Commission (“SEC”) regulations; those rules require the supplemental explanations and reconciliations that are in Bentley Systems Form 8-K (Quarterly Earnings Release) furnished to the SEC.

Forward-Looking Statements

This press release includes forward-looking statements regarding the future results of operations and financial position, business strategy, and plans and objectives for future operations of Bentley Systems, Incorporated (the “Company,” “we,” “us,” and words of similar import). All such statements contained in this press release, other than statements of historical facts, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations, projections, and assumptions about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, and there are a significant number of factors that could cause actual results to differ materially from statements made in this press release including: adverse changes in global economic and/or political conditions; the impact of current and future sanctions, embargoes and other similar laws at the state and/or federal level that impose restrictions on our counterparties or upon our ability to operate our business within the subject jurisdictions; political, economic, regulatory and public health and safety risks and uncertainties in the countries and regions in which we operate; failure to retain personnel necessary for the operation of our business or those that we acquire; changes in the industries in which our accounts operate; the competitive environment in which we operate; the quality of our products; our ability to develop and market new products to address our accounts’ rapidly changing technological needs; changes in capital markets and our ability to access financing on terms satisfactory to us or at all; our ability to integrate acquired businesses successfully; and our ability to identify and consummate future investments on terms satisfactory to us or at all.

Further information on potential factors that could affect the financial results of the Company are included in the Company’s Form 10-K and subsequent Form 10-Qs, which are on file with the SEC. The Company disclaims any obligation to update the forward-looking statements provided to reflect events that occur or circumstances that exist after the date on which they were made.

About Bentley Systems

Bentley Systems (Nasdaq: BSY) is the infrastructure engineering software company. We provide innovative software to advance the world’s infrastructure – sustaining both the global economy and environment. Our industry-leading software solutions are used by professionals, and organizations of every size, for the design, construction, and operations of roads and bridges, rail and transit, water and wastewater, public works and utilities, buildings and campuses, mining, and industrial facilities. Our offerings, powered by the iTwin Platform for infrastructure digital twins, include MicroStation and Bentley Open applications for modeling and simulation, Seequent’s software for geoprofessionals, and Bentley Infrastructure Cloud encompassing ProjectWise for project delivery, SYNCHRO for construction management, and AssetWise for asset operations. Bentley Systems’ 5,000 colleagues generate annual revenues of more than $1 billion in 194 countries.

www.bentley.com

© 2023 Bentley Systems, Incorporated. Bentley, the Bentley logo, AssetWise, Bentley Infrastructure Cloud, Bentley Open, iTwin, MicroStation, ProjectWise, Seequent, SYNCHRO, and Virtuosity, are either registered or unregistered trademarks or service marks of Bentley Systems, Incorporated or one of its direct or indirect wholly owned subsidiaries. All other brands and product names are trademarks of their respective owners.

BENTLEY SYSTEMS, INCORPORATED

Consolidated Balance Sheets

(in thousands)

(unaudited)

 

 

March 31, 2023

 

December 31, 2022

Assets

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

 

$

93,567

 

 

$

71,684

 

Accounts receivable

 

 

285,192

 

 

 

296,376

 

Allowance for doubtful accounts

 

 

(8,036

)

 

 

(9,303

)

Prepaid income taxes

 

 

21,169

 

 

 

18,406

 

Prepaid and other current assets

 

 

39,849

 

 

 

38,732

 

Total current assets

 

 

431,741

 

 

 

415,895

 

Property and equipment, net

 

 

33,038

 

 

 

32,251

 

Operating lease right-of-use assets

 

 

38,946

 

 

 

40,249

 

Intangible assets, net

 

 

283,969

 

 

 

292,271

 

Goodwill

 

 

2,247,797

 

 

 

2,237,184

 

Investments

 

 

32,010

 

 

 

22,270

 

Deferred income taxes

 

 

52,484

 

 

 

52,636

 

Other assets

 

 

68,037

 

 

 

72,249

 

Total assets

 

$

3,188,022

 

 

$

3,165,005

 

Liabilities and Stockholders’ Equity

 

 

 

 

Current liabilities:

 

 

 

 

Accounts payable

 

$

28,781

 

 

$

15,176

 

Accruals and other current liabilities

 

 

420,935

 

 

 

362,048

 

Deferred revenues

 

 

234,775

 

 

 

226,955

 

Operating lease liabilities

 

 

14,147

 

 

 

14,672

 

Income taxes payable

 

 

14,862

 

 

 

4,507

 

Current portion of long-term debt

 

 

6,250

 

 

 

5,000

 

Total current liabilities

 

 

719,750

 

 

 

628,358

 

Long-term debt

 

 

1,668,781

 

 

 

1,775,696

 

Deferred compensation plan liabilities

 

 

80,674

 

 

 

77,014

 

Long-term operating lease liabilities

 

 

26,651

 

 

 

27,670

 

Deferred revenues

 

 

15,972

 

 

 

16,118

 

Deferred income taxes

 

 

46,564

 

 

 

51,235

 

Income taxes payable

 

 

8,127

 

 

 

8,105

 

Other liabilities

 

 

7,313

 

 

 

7,355

 

Total liabilities

 

 

2,573,832

 

 

 

2,591,551

 

Stockholders’ equity:

 

 

 

 

Common stock

 

 

2,915

 

 

 

2,890

 

Additional paid-in capital

 

 

1,060,842

 

 

 

1,030,466

 

Accumulated other comprehensive loss

 

 

(89,374

)

 

 

(89,740

)

Accumulated deficit

 

 

(360,897

)

 

 

(370,866

)

Non-controlling interest

 

 

704

 

 

 

704

 

Total stockholders’ equity

 

 

614,190

 

 

 

573,454

 

Total liabilities and stockholders’ equity

 

$

3,188,022

 

 

$

3,165,005

 

BENTLEY SYSTEMS, INCORPORATED

Consolidated Statements of Operations

(in thousands, except share and per share data)

(unaudited)

 

 

Three Months Ended

 

 

March 31,

 

 

2023

 

2022

Revenues:

 

 

 

 

Subscriptions

 

$

277,845

 

 

$

241,233

 

Perpetual licenses

 

 

9,547

 

 

 

10,205

 

Subscriptions and licenses

 

 

287,392

 

 

 

251,438

 

Services

 

 

27,019

 

 

 

24,079

 

Total revenues

 

 

314,411

 

 

 

275,517

 

Cost of revenues:

 

 

 

 

Cost of subscriptions and licenses

 

 

40,931

 

 

 

33,727

 

Cost of services

 

 

26,253

 

 

 

22,058

 

Total cost of revenues

 

 

67,184

 

 

 

55,785

 

Gross profit

 

 

247,227

 

 

 

219,732

 

Operating expense (income):

 

 

 

 

Research and development

 

 

67,800

 

 

 

61,273

 

Selling and marketing

 

 

52,141

 

 

 

45,945

 

General and administrative

 

 

46,807

 

 

 

51,154

 

Deferred compensation plan

 

 

4,146

 

 

 

(5,138

)

Amortization of purchased intangibles

 

 

10,548

 

 

 

9,906

 

Total operating expenses

 

 

181,442

 

 

 

163,140

 

Income from operations

 

 

65,785

 

 

 

56,592

 

Interest expense, net

 

 

(11,092

)

 

 

(6,748

)

Other income, net

 

 

289

 

 

 

10,347

 

Income before income taxes

 

 

54,982

 

 

 

60,191

 

Provision for income taxes

 

 

(9,492

)

 

 

(3,231

)

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

 

 

 

 

 

(572

)

Net income

 

$

45,490

 

 

$

56,388

 

Per share information:

 

 

 

 

Net income per share, basic

 

$

0.15

 

 

$

0.18

 

Net income per share, diluted

 

$

0.14

 

 

$

0.18

 

Weighted average shares, basic

 

 

310,758,802

 

 

 

307,969,672

 

Weighted average shares, diluted

 

 

331,251,884

 

 

 

331,330,256

 

BENTLEY SYSTEMS, INCORPORATED

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

 

Three Months Ended

 

 

March 31,

 

 

2023

 

2022

Cash flows from operating activities:

 

 

 

 

Net income

 

$

45,490

 

 

$

56,388

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

Depreciation and amortization

 

 

18,057

 

 

 

17,212

 

Deferred income taxes

 

 

(4,178

)

 

 

9,042

 

Stock-based compensation expense

 

 

19,484

 

 

 

15,099

 

Deferred compensation plan

 

 

4,146

 

 

 

(5,138

)

Amortization of deferred debt issuance costs

 

 

1,823

 

 

 

1,778

 

Change in fair value of derivative

 

 

4,489

 

 

 

(12,084

)

Foreign currency remeasurement loss

 

 

1,018

 

 

 

1,677

 

Other non-cash items, net

 

 

(4,411

)

 

 

(114

)

Changes in assets and liabilities, net of effect from acquisitions:

 

 

 

 

Accounts receivable

 

 

15,420

 

 

 

8,691

 

Prepaid and other assets

 

 

12,137

 

 

 

5,718

 

Accounts payable, accruals, and other liabilities

 

 

53,127

 

 

 

26,791

 

Deferred revenues

 

 

1,942

 

 

 

(12,515

)

Income taxes payable, net of prepaid income taxes

 

 

7,679

 

 

 

(10,814

)

Net cash provided by operating activities

 

 

176,223

 

 

 

101,731

 

Cash flows from investing activities:

 

 

 

 

Purchases of property and equipment and investment in capitalized software

 

 

(4,284

)

 

 

(4,176

)

Proceeds from sale of aircraft

 

 

 

 

 

2,380

 

Acquisitions, net of cash acquired

 

 

(10,299

)

 

 

(695,968

)

Purchases of investments

 

 

(6,178

)

 

 

(2,811

)

Net cash used in investing activities

 

 

(20,761

)

 

 

(700,575

)

Cash flows from financing activities:

 

 

 

 

Proceeds from credit facilities

 

 

117,139

 

 

 

563,912

 

Payments of credit facilities

 

 

(223,124

)

 

 

(123,696

)

Repayments from term loan

 

 

(1,250

)

 

 

(1,250

)

Payments of contingent and non-contingent consideration

 

 

(249

)

 

 

(2,721

)

Payments of dividends

 

 

(14,522

)

 

 

(8,528

)

Proceeds from stock purchases under employee stock purchase plan

 

 

4,557

 

 

 

4,611

 

Proceeds from exercise of stock options

 

 

4,202

 

 

 

2,768

 

Payments for shares acquired including shares withheld for taxes

 

 

(20,948

)

 

 

(35,117

)

Other financing activities

 

 

(46

)

 

 

(48

)

Net cash (used in) provided by financing activities

 

 

(134,241

)

 

 

399,931

 

Effect of exchange rate changes on cash and cash equivalents

 

 

662

 

 

 

(807

)

Increase (decrease) in cash and cash equivalents

 

 

21,883

 

 

 

(199,720

)

Cash and cash equivalents, beginning of year

 

 

71,684

 

 

 

329,337

 

Cash and cash equivalents, end of period

 

$

93,567

 

 

$

129,617

 

BENTLEY SYSTEMS, INCORPORATED

Reconciliation of GAAP to Non-GAAP Measures

(in thousands, except share and per share data)

(unaudited)

Reconciliation of operating income to Adjusted OI w/SBC and to Adjusted operating income:

 

 

Three Months Ended

 

 

March 31,

 

 

2023

 

2022

Operating income

 

$

65,785

 

 

$

56,592

 

Amortization of purchased intangibles

 

 

13,735

 

 

 

12,928

 

Deferred compensation plan

 

 

4,146

 

 

 

(5,138

)

Acquisition expenses

 

 

8,777

 

 

 

13,997

 

Realignment expenses (income)

 

 

(1,979

)

 

 

 

Adjusted OI w/SBC

 

 

90,464

 

 

 

78,379

 

Stock-based compensation expense

 

 

19,198

 

 

 

14,953

 

Adjusted operating income

 

$

109,662

 

 

$

93,332

 

Reconciliation of net income to Adjusted net income:

 

Three Months Ended

 

March 31,

 

2023

 

2022

 

$

 

EPS(1)

 

$

 

EPS(1)

Net income

$

45,490

 

 

$

0.14

 

 

$

56,388

 

 

$

0.18

 

Non-GAAP adjustments, prior to income taxes:

 

 

 

 

 

 

 

Amortization of purchased intangibles

 

13,735

 

 

 

0.04

 

 

 

12,928

 

 

 

0.04

 

Stock-based compensation expense

 

19,198

 

 

 

0.06

 

 

 

14,953

 

 

 

0.05

 

Deferred compensation plan

 

4,146

 

 

 

0.01

 

 

 

(5,138

)

 

 

(0.02

)

Acquisition expenses

 

8,777

 

 

 

0.03

 

 

 

13,997

 

 

 

0.04

 

Realignment expenses (income)

 

(1,979

)

 

 

(0.01

)

 

 

 

 

 

 

Other income, net

 

(289

)

 

 

 

 

 

(10,347

)

 

 

(0.03

)

Total non-GAAP adjustments, prior to income taxes

 

43,588

 

 

 

0.13

 

 

 

26,393

 

 

 

0.08

 

Income tax effect of non-GAAP adjustments

 

(7,389

)

 

 

(0.02

)

 

 

(3,577

)

 

 

(0.01

)

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

 

 

 

 

 

 

 

572

 

 

 

 

Adjusted net income(2)(3)

$

81,689

 

 

$

0.25

 

 

$

79,776

 

 

$

0.25

 

 

 

 

 

 

 

 

 

Adjusted weighted average shares, diluted

331,251,884

 

331,330,256

_____________________________

(1)

Adjusted EPS was computed independently for each reconciling item presented; therefore, the sum of Adjusted EPS for each line item may not equal total Adjusted EPS due to rounding.

(2)

Total Adjusted EPS for the three months ended March 31, 2022 has been corrected to reflect the dilutive effect of convertible senior notes.

(3)

Adjusted EPS numerator includes $1,717 and $1,695 for the three months ended March 31, 2023 and 2022, respectively, related to interest expense, net of tax, attributable to the convertible senior notes using the if-converted method.

Reconciliation of cash flow from operations to Adjusted EBITDA:

 

Three Months Ended

 

March 31,

 

2023

 

2022

Cash flow from operations

$

176,223

 

 

$

101,731

 

Cash interest

 

10,473

 

 

 

5,296

 

Cash taxes

 

6,033

 

 

 

5,968

 

Cash deferred compensation plan distributions

 

421

 

 

 

 

Cash acquisition expenses

 

11,053

 

 

 

17,466

 

Changes in operating assets and liabilities

 

(88,299

)

 

 

(33,139

)

Other(1)

 

(1,920

)

 

 

294

 

Adjusted EBITDA

$

113,984

 

 

$

97,616

 

_____________________________

(1)

Includes (receipts) payments related to interest rate swap.

Explanation of Non-GAAP and Other Financial Measures

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. We have operations outside the United States that are conducted in local 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.

In reporting period-over-period results, we calculate the effects of foreign currency fluctuations and constant currency information by translating current period results using prior period average foreign currency exchange rates.

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 from accounts with revenues in the prior period (“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.

Annualized recurring revenues (“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 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.

Constant currency ARR growth rate is the growth rate of ARR measured on a constant currency basis. Constant currency ARR growth rate from business performance excludes the ARR onboarding of our platform acquisitions and includes the impact from the ARR onboarding of programmatic acquisitions, which generally are immaterial, individually and in the aggregate. We believe these ARR growth rates are important metrics indicating the scale and growth of our business.

Last twelve-month recurring revenues dollar-based net retention rate

Last twelve-month 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.

Last twelve-month 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.

Adjusted operating income inclusive of stock-based compensation expense (“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.

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 the Company’s 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 OI w/SBC margin is calculated by dividing Adjusted OI w/SBC by total revenues.

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.

Adjusted net income and Adjusted EPS

Adjusted net income and Adjusted EPS are non-GAAP financial measures presenting the earnings generated by our ongoing operations that we believe is useful to investors in making meaningful comparisons to other companies, although these measures may not be directly comparable to similar measures used by other companies, and period-over-period comparisons.

Adjusted net income is defined as net income adjusted for the following: amortization of purchased intangibles, stock-based compensation expense, expense (income) relating to deferred compensation plan liabilities, acquisition expenses, realignment expenses (income), other non-operating (income) expense, net, the tax effect of the above adjustments to net income, and (income) loss from investments accounted for using the equity method, net of tax, for the respective periods. The income tax effect of non-GAAP adjustments was determined using the applicable rates in the taxing jurisdictions in which income or expense occurred, and represent both current and deferred income tax expense or benefit based on the nature of the non-GAAP adjustments, including the tax effects of non-cash stock-based compensation expense.

Adjusted EPS is calculated as Adjusted net income, less net income attributable to participating securities, plus interest expense, net of tax, attributable to the convertible senior notes using the if-converted method, if applicable, (numerator) divided by Adjusted weighted average shares, diluted (denominator). Adjusted weighted average shares, diluted is calculated by adding incremental shares related to the dilutive effect of convertible senior notes using the if-converted method, if applicable, to weighted average shares, diluted.

Adjusted EBITDA

Adjusted EBITDA is our liquidity measure in the context of conversion of Adjusted EBITDA to cash flow from operations (i.e., the ratio of GAAP cash flow from operations to Adjusted EBITDA). We believe this non-GAAP financial measure provides a meaningful measure of liquidity and a useful basis for assessing our ability to repay debt, make strategic acquisitions and investments, and return capital to investors.

Adjusted EBITDA is defined as cash flow from operations adjusted for the following: cash interest, cash taxes, cash deferred compensation plan distributions, cash acquisition expenses, changes in operating assets and liabilities, and other cash items (such as those related to our interest rate swap). From time to time, we may exclude from Adjusted EBITDA the impact of certain cash receipts or payments that affect period-to-period comparability.

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