Bentley Systems Announces Second Quarter 2024 Results

EXTON, Pa.--(BUSINESS WIRE)--Bentley Systems, Incorporated (Nasdaq: BSY), the infrastructure engineering software company, today announced results for the quarter ended June 30, 2024.

Second Quarter 2024 Results

• Total revenues were $330.3 million, up 11.3% or 11.9% on a constant currency basis, year-over-year;
• Subscriptions revenues were $297.4 million, up 14.7% or 15.3% on a constant currency basis, year-over-year;
• Annualized Recurring Revenues (“ARR”) was $1,215.9 million as of June 30, 2024, compared to $1,105.9 million as of June 30, 2023, representing a constant currency ARR growth rate of 11%;
• Last twelve-month recurring revenues dollar-based net retention rate was 108%, compared to 110% for the same period last year;
• Operating income margin was 24.3%, compared to 18.0% 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 24.7% for the same period last year;
• Net income per diluted share was $0.22, compared to $0.15 for the same period last year;
• Adjusted net income per diluted share (“Adjusted EPS”) was $0.31, compared to $0.24 for the same period last year; and
• Cash flows from operations was $62.6 million, compared to $80.6 million for the same period last year.

Six Months Ended June 30, 2024 Results

• Total revenues were $668.1 million, up 9.3% or 9.5% on a constant currency basis, year-over-year;
• Subscriptions revenues were $604.5 million, up 12.6% or 12.7% on a constant currency basis, year-over-year;
• Operating income margin was 25.8%, compared to 19.5% for the same period last year;
• Adjusted OI w/SBC margin was 31.1%, compared to 26.8% for the same period last year;
• Net income per diluted share was $0.44, compared to $0.29 for the same period last year;
• Adjusted EPS was $0.62, compared to $0.49 for the same period last year; and
• Cash flows from operations was $267.6 million, compared to $256.8 million for the same period last year.

Executive Chair Greg Bentley said, “We are pleased to report broadly favorable operating results for 24Q2. Our confidence in sustaining commendable performance is reinforced by the enduring—and if anything, broadening— vitality of our infrastructure engineering end markets, met with BSY’s competitive advantages and reliably efficient execution. But to me, the long-term potential of initiatives being explored and developed under our new generation of executive leadership seems even more auspicious!”

CEO Nicholas Cumins said, “Our performance in 24Q2 and the first half provides a solid foundation for the full year, with very positive end-market and operational momentum. Our year-over-year ARR growth of 11% on a constant currency basis (11.5% excluding China) is consistent with the previous quarter. Public Works / Utilities and North America remained the main growth drivers, and we continued to add new small- and medium-sized accounts at a rapid pace, reflecting healthy market conditions.

The traction we are generating with our AI-based solutions for asset analytics is worth noting. AI is going to become a major driver of our business, to help owner-operators improve the performance of their assets and make infrastructure more resilient, as well as to help engineering services firms increase their productivity and bridge the widening engineering resources capacity gap.”

CFO Werner Andre said, “24Q2 financial performance positions us solidly within our annual outlook range for ARR growth, profitability, and operating cash flow. While our mainstay subscription revenues are exceeding expectations, year-over-year growth in total revenues is being impacted by the expected prevalence of lower non-recurring professional services for our Cohesive digital integrator. Continued strong margins and operating cash flows throughout the first half, net of dividends and stock repurchases, further enhanced our balance sheet and acquisition flexibility.”

Recent Developments

Effective July 1, 2024, Greg Bentley transitioned from Chief Executive Officer to Executive Chair of the Board of Directors and Nicholas Cumins was promoted from Chief Operating Officer to Chief Executive Officer.

Call Details

Bentley Systems will host a live Zoom video webinar on August 6, 2024 at 8:15 a.m. Eastern time to discuss results for its second quarter ended June 30, 2024.

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_y6GttyVAR8amDwrlXVo1DA#/registration. 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 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 condition, 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; failure to effectively manage succession; 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; the impact of changing or uncertain interest rates on us and on the industries we serve; our ability to integrate acquired businesses successfully; and our ability to identify and consummate future investments and/or acquisitions 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’ 5,200 colleagues generate annual revenues of more than $1 billion in 194 countries.

www.bentley.com

© 2024 Bentley Systems, Incorporated. Bentley, the Bentley logo, AssetWise, Bentley Infrastructure Cloud, Bentley Open, Cohesive, iTwin, MicroStation, ProjectWise, Seequent, and SYNCHRO 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)
	June 30, 2024			December 31, 2023
Assets
Current assets:
Cash and cash equivalents	$	51,278		$	68,412
Accounts receivable		282,918			302,501
Allowance for doubtful accounts		(9,099	)		(8,965	)
Prepaid income taxes		18,487			12,812
Prepaid and other current assets		43,101			44,797
Total current assets		386,685			419,557
Property and equipment, net		36,756			40,100
Operating lease right-of-use assets		34,868			38,476
Intangible assets, net		225,539			248,787
Goodwill		2,265,174			2,269,336
Investments		24,258			23,480
Deferred income taxes		206,259			212,831
Other assets		77,641			67,283
Total assets	$	3,257,180		$	3,319,850
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	23,901		$	18,094
Accruals and other current liabilities		500,007			457,348
Deferred revenues		236,624			253,785
Operating lease liabilities		11,429			11,645
Income taxes payable		13,817			9,491
Current portion of long-term debt		—			10,000
Total current liabilities		785,778			760,363
Long-term debt		1,334,618			1,518,403
Deferred compensation plan liabilities		91,172			88,181
Long-term operating lease liabilities		26,950			30,626
Deferred revenues		15,259			15,862
Deferred income taxes		11,899			9,718
Income taxes payable		3,615			7,337
Other liabilities		3,383			5,378
Total liabilities		2,272,674			2,435,868
Stockholders’ equity:
Common stock		2,997			2,963
Additional paid-in capital		1,176,630			1,127,234
Accumulated other comprehensive loss		(93,264	)		(84,987	)
Accumulated deficit		(102,561	)		(161,932	)
Non-controlling interest		704			704
Total stockholders’ equity		984,506			883,982
Total liabilities and stockholders’ equity	$	3,257,180		$	3,319,850

BENTLEY SYSTEMS, INCORPORATED Consolidated Statements of Operations (in thousands, except share and per share data) (unaudited)
	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2024			2023			2024			2023
Revenues:
Subscriptions	$	297,444		$	259,243		$	604,533		$	537,088
Perpetual licenses		10,863			11,718			20,375			21,265
Subscriptions and licenses		308,307			270,961			624,908			558,353
Services		22,030			25,788			43,192			52,807
Total revenues		330,337			296,749			668,100			611,160
Cost of revenues:
Cost of subscriptions and licenses		42,432			41,156			82,650			82,087
Cost of services		20,761			25,270			42,373			51,523
Total cost of revenues		63,193			66,426			125,023			133,610
Gross profit		267,144			230,323			543,077			477,550
Operating expenses:
Research and development		65,709			70,117			134,080			137,917
Selling and marketing		57,129			54,364			111,515			106,505
General and administrative		54,854			39,258			101,336			86,065
Deferred compensation plan		883			3,777			6,682			7,923
Amortization of purchased intangibles		8,392			9,502			17,356			20,050
Total operating expenses		186,967			177,018			370,969			358,460
Income from operations		80,177			53,305			172,108			119,090
Interest expense, net		(5,100	)		(9,484	)		(11,620	)		(20,576	)
Other income, net		2,280			965			9,417			1,254
Income before income taxes		77,357			44,786			169,905			99,768
(Provision) benefit for income taxes		(5,330	)		3,899			(27,577	)		(5,593	)
Equity in net income of investees, net of tax		19			—			28			—
Net income	$	72,046		$	48,685		$	142,356		$	94,175
Per share information:
Net income per share, basic	$	0.23		$	0.16		$	0.45		$	0.30
Net income per share, diluted	$	0.22		$	0.15		$	0.44		$	0.29
Weighted average shares, basic		314,980,580			311,914,602			314,660,906			311,366,371
Weighted average shares, diluted		333,780,984			332,352,725			333,725,315			331,831,973

BENTLEY SYSTEMS, INCORPORATED Consolidated Statements of Cash Flows (in thousands) (unaudited)
	Six Months Ended
	June 30,
	2024			2023
Cash flows from operating activities:
Net income	$	142,356		$	94,175
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		32,367			35,304
Deferred income taxes		8,666			(28,935	)
Stock-based compensation expense		41,759			37,588
Deferred compensation plan		6,682			7,923
Amortization of deferred debt issuance costs		3,750			3,646
Change in fair value of derivative		(2,361	)		663
Foreign currency remeasurement loss (gain)		502			(144	)
Other		(1,715	)		3,530
Changes in assets and liabilities, net of effect from acquisitions:
Accounts receivable		14,330			49,171
Prepaid and other assets		(585	)		(364	)
Accounts payable, accruals, and other liabilities		41,622			41,969
Deferred revenues		(14,888	)		(1,792	)
Income taxes payable, net of prepaid income taxes		(4,930	)		14,085
Net cash provided by operating activities		267,555			256,819
Cash flows from investing activities:
Purchases of property and equipment and investment in capitalized software		(6,689	)		(11,253	)
Acquisitions, net of cash acquired		(5,000	)		(10,299	)
Purchases of investments		(557	)		(8,200	)
Other		1,300			—
Net cash used in investing activities		(10,946	)		(29,752	)
Cash flows from financing activities:
Proceeds from credit facilities		51,724			288,387
Payments of credit facilities		(143,752	)		(432,739	)
Repayments of term loan		(105,000	)		(2,500	)
Payments of contingent and non-contingent consideration		(451	)		(2,860	)
Payments of dividends		(35,851	)		(29,224	)
Proceeds from stock purchases under employee stock purchase plan		5,560			4,557
Proceeds from exercise of stock options		4,007			9,700
Payments for shares acquired including shares withheld for taxes		(9,626	)		(51,202	)
Repurchases of Class B common stock under approved program		(37,515	)		—
Other		(95	)		(95	)
Net cash used in financing activities		(270,999	)		(215,976	)
Effect of exchange rate changes on cash and cash equivalents		(2,744	)		(59	)
(Decrease) increase in cash and cash equivalents		(17,134	)		11,032
Cash and cash equivalents, beginning of year		68,412			71,684
Cash and cash equivalents, end of period	$	51,278		$	82,716

BENTLEY SYSTEMS, INCORPORATED Reconciliation of GAAP to Non-GAAP Financial 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				Six Months Ended
	June 30,				June 30,
	2024		2023		2024		2023
Operating income	$	80,177	$	53,305	$	172,108	$	119,090
Amortization of purchased intangibles		11,521		12,625		23,711		26,360
Deferred compensation plan		883		3,777		6,682		7,923
Acquisition expenses		1,969		3,521		4,328		12,298
Realignment expenses (income)		743		29		809		(1,950	)
Adjusted OI w/SBC		95,293		73,257		207,638		163,721
Stock-based compensation expense		21,856		17,670		41,193		36,868
Adjusted operating income	$	117,149	$	90,927	$	248,831	$	200,589

Reconciliation of net income to Adjusted net income:

	Three Months Ended												Six Months Ended
	June 30,												June 30,
	2024						2023						2024						2023
	$			EPS^(1)			$			EPS^(1)			$			EPS^(1)			$			EPS^(1)
Net income	$	72,046		$	0.22		$	48,685		$	0.15		$	142,356		$	0.44		$	94,175		$	0.29
Non-GAAP adjustments, prior to income taxes:
Amortization of purchased intangibles		11,521			0.03			12,625			0.04			23,711			0.07			26,360			0.08
Stock-based compensation expense		21,856			0.07			17,670			0.05			41,193			0.12			36,868			0.11
Deferred compensation plan		883			—			3,777			0.01			6,682			0.02			7,923			0.02
Acquisition expenses		1,969			0.01			3,521			0.01			4,328			0.01			12,298			0.04
Realignment expenses (income)		743			—			29			—			809			—			(1,950	)		(0.01	)
Other income, net		(2,280	)		(0.01	)		(965	)		—			(9,417	)		(0.03	)		(1,254	)		—
Total non-GAAP adjustments, prior to income taxes		34,692			0.10			36,657			0.11			67,306			0.20			80,245			0.24
Income tax effect of non-GAAP adjustments		(4,844	)		(0.01	)		(6,608	)		(0.02	)		(4,844	)		(0.01	)		(13,997	)		(0.04	)
Equity in net income of investees, net of tax		(19	)		—			—			—			(28	)		—			—			—
Adjusted net income^(2)	$	101,875		$	0.31		$	78,734		$	0.24		$	204,790		$	0.62		$	160,423		$	0.49
Adjusted weighted average shares, diluted	333,780,984						332,352,725						333,725,315						331,831,973

_________________________________

(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)	Adjusted EPS numerator includes $1,717 and $1,723 for the three months ended June 30, 2024 and 2023, respectively, and $3,440 for the six months ended June 30, 2024 and 2023 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						Six Months Ended
	June 30,						June 30,
	2024			2023			2024			2023
Cash flow from operations	$	62,586		$	80,596		$	267,555		$	256,819
Cash interest		3,449			8,909			8,706			19,382
Cash taxes		11,304			11,966			22,847			17,999
Cash deferred compensation plan distributions		1,963			1,704			2,436			2,125
Cash acquisition expenses		1,935			4,237			3,742			15,290
Cash realignment costs		3,971			—			11,488			—
Changes in operating assets and liabilities		38,813			(9,699	)		(54,519	)		(97,998	)
Other^(1)		(2,411	)		(2,164	)		(4,768	)		(4,084	)
Adjusted EBITDA	$	121,610		$	95,549		$	257,487		$	209,533

_________________________________

(1)	Includes receipts related to interest rate swap.

Reconciliation of total revenues and subscriptions revenues to total revenues and subscriptions revenues in constant currency:

	Three Months Ended June 30, 2024						Three Months Ended June 30, 2023
	Actual		Impact of Foreign Exchange at 2023 Rates		Constant Currency		Actual		Impact of Foreign Exchange at 2023 Rates			Constant Currency
Total revenues	$	330,337	$	1,271	$	331,608	$	296,749	$	(354	)	$	296,395
Subscriptions revenues	$	297,444	$	1,077	$	298,521	$	259,243	$	(331	)	$	258,912

	Six Months Ended June 30, 2024						Six Months Ended June 30, 2023
	Actual		Impact of Foreign Exchange at 2023 Rates		Constant Currency		Actual		Impact of Foreign Exchange at 2023 Rates			Constant Currency
Total revenues	$	668,100	$	428	$	668,528	$	611,160	$	(479	)	$	610,681
Subscriptions revenues	$	604,533	$	316	$	604,849	$	537,088	$	(473	)	$	536,615

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. 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.

In reporting period‑over‑period results, except for ARR as discussed further below, we calculate the effects of foreign currency fluctuations and constant currency information by translating current and prior period results on a transactional basis to our reporting currency using prior period average foreign currency exchange rates in which the transactions occurred.

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 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.

Constant currency ARR growth rate is the growth rate of ARR measured on a constant currency basis. In reporting period‑over‑period ARR growth rates in constant currency, we calculate constant currency growth rates by translating current and prior period ARR on a transactional basis to our reporting currency using current year budget exchange rates. 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 equity in net (income) losses of investees, 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, cash realignment costs, 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.