Q1 2022 Bentley Systems Inc Earnings Call
Pan Bentley's VP of Investor Relations.
Webcast today, we are Bentley systems, Chief Executive Officer, Greg Bentley, Chief Financial Officer, Vernor, Andre Chief Operating Officer, Nicholas Cummins, and Chief Investment Officer, David Hollister before we begin allow me to provide a disclaimer regarding forward looking statements. This webcast, including the question and answer portion of the webcast.
May include forward looking statements related to the expected future results of our company and are therefore forward looking statements.
Our actual results may differ materially from our projections due to a number of risks and uncertainties. The risks and uncertainties that forward looking statements are subject to are described in our operating release and other SEC filings.
Today's remarks will also include references to non-GAAP financial measures additional information, including reconciliation between non-GAAP financial information to the GAAP financial information is provided in the press release and supplemental slide presentation.
This webcast will be available for replay on Bentley systems Investor Relations website at investors <unk> Bentley Dot com. After the presentation. We will then conclude with Q&A and with that let me introduce the CEO of Bentley systems, Greg Bentley.
Good morning, as the case may be and thanks to each of you for your interest.
Operating results presentation will fall are now standard sequence.
I will now briefly cover atone is business and we will be back after Nicholas for commentary about corporate development.
When we last man it was already March but much has happened in the world.
22, Q1 operating results signify <unk> overall resilience.
But with significant developments to remark upon which we will do briskly today.
This includes not only the war between Russia, and Ukraine, but also related effects that I term counteract globalism impacting our business as a U S company in China.
These developments and our responses to date will be covered today.
As to Russia by our Chief operating Officer, Nicolas Cummins based in Europe , and as to China by our Chief Investment Officer, David Hollister and colleague Chris look Chris was until this year of our territory executives for North Asia within which he helped grow greater China to reach 5% of our business and he is now heading.
Co localization initiatives for PSY investments.
Net of these 22 Q1 impacts in Russia and China.
And incremental to year over year constant currency <unk> growth of 15% from platform acquisitions Sequent in peril line systems. You will also hear shortly from head of CLS.
<unk>.
Our business performance year over year constant currency.
Growth was 12%.
Net recurring revenue retention also in constant currency for the trailing year was 108%.
I consider these operating results to does reflect some degree of ultra performance globally with respect to post pandemic seasonal expectations, when excluding China and Russia.
In light of this resilience, which will be the subject of my review of corporate development in a few minutes.
We haven't changed our general expectations since in March we provided our financial outlook for the full year 2022.
This slide which has become a fixture since the second half of 2020 as a reminder of the recurrent drag on our business from the industrial portion of the industrial resources infrastructure sector.
So it's great to report now that industrial usage has finally turned around in the right direction, although still far from the pre pandemic levels against which our directional colors I benchmarked.
You will likely have heard plausible arguments that industrial Capex is now being kickstarted, even in western countries by new imperatives for energy security.
We are now positioned resilient Li for immediate accretion in <unk> and revenue from these upticks in usage and application mix and.
And in 2020 to Q1, we continued our measured pace of account upgrades to <unk> hundred 65.
And especially to foster our growth through <unk> hundred 60, fives embedded success services.
After so long during which epc's bogged down with industrial Capex stagnation have significantly stifled overall <unk> hundred 65, ALR growth during 2000 <unk> Q1. They finally resumed some new business, although still at a slower rate than the mainstream of <unk> hundred 65 accounts.
Such continued EPC invigoration throughout 2022 would contribute an upward inflection from 2020 one's growth serving to offset the detrimental aspects of this year's geopolitical of peoples.
But you are actually creating opportunities for <unk>.
Turning from enterprise to SMB, which as we showed last quarter. It was more significant than ever in 2021 new business.
Virtualized City continued its rapid growth seasonally adjusted.
During 2020 to Q1.
60% of virtual <unk>, New business was in 600, plus new names for BS VI in.
In 2022 Q1, new names that is met by acquisition represented three percentage points within our 12% core <unk> growth a high watermark for us.
Our internal term new business measures, primarily AOR growth subject to some mildly ranging weightings across different commercial offerings as I have reviewed in the past all of our quota carriers and their territorial executive share new business incentives and new business is now the basis for our name.
<unk> team's annual and long term equity incentives.
So each quarter Nicholas will focus his operational perspectives on new business development by region and product brand over to Nicholas.
Thank you Greg.
From a real standpoint, our new business continued to accelerate in the middle East as.
As well as in Australia, and New Zealand as indicated in Q4.
Our new business also accelerated in India benefiting from renewed investment in infrastructure, including industrial and bounce back in southeast Asia in particular with engineering firms.
Our new business slowed down, notably in Europe from a year to year.
Mainly due to lower consumption growth in our E 365 accounts.
Reflecting the general economic conditions in the region impacting infrastructure investments with a shortage of labor raw construction material and increased energy costs.
We mentioned in March that Russia represented about 1% of our globally are.
We decided to pause marketing itself in Russia in light of the war in Ukraine, effectively halting or new business.
We also continue to strictly apply export controls on restrictions impacting our existing U R.
For instance, our oil and gas accounts are already under sanction representing 10% of our AUR in Russia.
We are expecting more sanctions and other restrictions to impact the remainder of where you are.
We have therefore decided to reduce our deemed recurring AOR substantially to reflect it and figured out where quantified.
David I will cover China in his section.
From a product standpoint, our new business accelerating and electric utility, especially with our recent acquisition of Pls and Spider for transmission and distribution.
As well as in water utilities with open flows our product line for water infrastructure.
Our new business also accelerated with open roads are design and modeling application for roads as.
As well is that our main simulation application for structural analysis.
A key pillar of our product strategy is to drive entering excellence the acquisition of Edina exemplifies this.
<unk> was founded and 986 by Dr. Klaus Youll get back to a world renowned professor at night.
We literally wrote the book on finite element analysis.
We are delighted to welcome to Bentley, Dr. Batty in a dream team of Phd with deep scientific and technical expertise.
Okay.
Historically <unk> has been primarily commercialize in a process and industrial analysis context.
However, it is highly regarded by infrastructure engineers as the industry standard to started the response of infrastructure in detail.
We see opportunity to leverage at dinner and the analysis workflows of infrastructure engineers.
I'll frame the possibility to extend almost every application engineering simulation portfolio with no linear analysis and advanced simulation capabilities.
I do know will help engineers analyzed with greater precision the impact that the banks than it used non linear otherwise extreme response and build infrastructure.
Such that Hurricane force winds storm serves earthquake last in extreme temperatures.
Thank you Greg.
Thank you Nicholas.
Moving now from new business I will focus this quarter's review of corporate development on the makeup of our the growth of which depends on new business.
While in 2020 to Q1, there turned out to be unanticipated developments, which setback certain territories significantly.
<unk> as a whole demonstrated resilience, which to me was fully satisfactory.
As other potential macro uncertainties seem to lose now.
I think it is timely to consider the extent to which our corporate developments over the past two plus years have improved not only our top line growth rates, but also our predictability and resilience.
During the last two years corresponding not only to our debut as a public company, but also to the pandemic.
Our initiatives to reinvest pandemic savings have and I think enduring Lee increased our growth rates of new business IRR and revenue, while adhering to our steadfast commitment to steady annual improvement in our normalized operating margins.
To start with enterprise new business compared to the pre pandemic early days of our 365 program for our largest accounts.
Today much more of our IRR resets are based on daily consumption.
Other than lagging annually.
However, during this period, we have also institutionalized collars on <unk> hundred 65 contracts to reasonably constrained <unk> volatility.
But most significantly through <unk> hundred 65 expansion, we can consistently and constantly benefit from the usage growth and application mix accretion, which are enterprise success blueprints for new workflows and going digital are advancing.
As I reviewed last quarter, we can now quantify the improved new business, an AOR growth rates, which result under <unk> hundred 65.
And as I showed earlier, we are steadily upgrading more mid sized enterprise accounts to <unk> hundred 65, as we add success force capacity with headroom for years of further momentum.
Next our other new focus since 2019 on the SMB segment also provides ongoing upside opportunities that don't depend on market growth.
In March we reported an independent market research, indicating then that in at least these large economies the number of infrastructure engineers in SMB firms actually exceeds those in engineering firms up enterprise scale.
Despite SMB being a much smaller portion of our own business.
As we have also reinvested pandemic era savings into SMB targeted virtuosity quota carriers and now towards their digital experience I believe we are now gaining market share in SMB and thus overall.
But beyond these initiatives since 2019 for faster growth in enterprise and SMB. There are other respects in which our cumulative corporate development half at the same time reinforced our resilience to macro level fluctuations.
Over the period since 2019, our business growth by geography has served to somewhat reduce our proportion of <unk> in Europe .
The subject of more pronounced economic concerns at present.
But in general across all geographies.
Behind the scene within the macro geographies in this breakdown <unk> mining and resource footprint has contributed diversification by being concentrated in relatively undeveloped mineral intensive areas.
Latin America, Western Canada Africa, Australia, and New Zealand.
Balancing infrastructure intensity and cities most significantly adds to diversification recall that we took to heart the lessons of the financial crisis, which sharply curtailed capex projects and since 2009, our major priority in R&D and portfolio development has been to complete our call.
Prehensile newness across the full infrastructure asset lifecycle by integrating support of maintenance and operations.
Setting the stage for evergreen infrastructure digital twins, uniquely spanning capex and opex through reality modeling and our <unk> platform cloud services.
Consider that our <unk> balance between Capex contractors, and Opex minded owner operators looked like this prior to the pandemic.
And the resulting industrial downturn.
Even in this.
Industrial infrastructure sector, Opex actually increased as a priority with owner operators needing to increase productivity of their existing assets, including through digital twins.
We are well positioned to take advantage by virtue of our increasingly strong leadership positions. According to arc advisory groups research and software and cloud services for infrastructure asset reliability.
And this contributed to our reporting in March.
That from 2019 to 2021, our run rate for the largest opex owner operators identify infrastructure 500 grew by 19% comp.
Compared to the 12% run rate growth for the largest and capex.
The Eni top design firms.
This <unk> emphasis on owner operators and Opex.
<unk> has helped to improve our balance in favor of owner operators, where all the value of infrastructure is generated.
And accordingly has increased the cyclical resilience of our business now.
Opex is arguably counter cyclical.
But in corporate development led by acquisitions. We have also since 2019 very significantly fortify our cyclical resilience with respect to infrastructure sectors.
The relative cyclical vulnerability of these sectors was confirmed during these last two years.
During which <unk>.
Industrial Slash resources has shown relatively the largest exposure to capex disruptions.
Followed by commercial slash facilities.
While public work slash utilities, as we have seen tends to verge on being counter cyclical given government fiscal policy commitments in the form of multi year infrastructure investment programs.
Fast forwarding to the present.
These diverging growth rates, and especially our platform acquisitions at <unk> plant in Tls have considerably improved our own cyclical resilience.
With somewhat less a proportion in the capex sensitive commercial slash facilities sector.
Significantly greater proportion in the more evergreen public works last utilities sector.
And with now a substantial proportion accelerated by the sequent acquisition in a newly delineated resources sector, comprising mining renewable energy and the subsurface environment.
As a result, the underlying core disciplines, including structural LNG or professional have lower volatility corresponding to this overall mix.
This leaves a much smaller.
Our proportion exposed to industrial Capex volatility, however, about half of our IRR and the industrial sector is for the more resilient.
Thanks.
And it now seems plausible that the capex rebound for energy security is likely to increase and endure foreseeably.
Finally, along with our IRR mix having.
<unk> become much more resilient than ever.
These two years of corporate development has positioned us much better than ever to take further advantage of the fastest growing opportunities for growing digital and infrastructure engineering, which I described in March <unk>.
As corresponding to the world.
D G priorities.
And that starts with mobility digital twins, consolidating our long standing leading competitive comprehensiveness and civil engineering and horizontal infrastructure and environmental digital twins anchored by our sequel platform acquisition, supplementing, our leading water and wastewater infrastructure.
<unk> momentum and with the power line systems platform acquisition, increasing our leading comprehensiveness for integrated networks across energy transmission substation distribution and communications for grid digital twins.
My premise is that we are performing better now because we had since 2019 improved through corporate development not only our important scale economics and competitive moat has the infrastructure engineering software company.
But also and especially we've improved the quality and hence resilience.
Of our IRR and new business.
Not only adds to IRR by infrastructure sector and discipline, but also to review has to AOR by consumption model.
And as to by geography.
And as to <unk> by account type.
Our 2022 Q1 operating results support my conclusion that these cumulative corporate development stage 2019 has increased our underlying intrinsic growth rate through enterprise user success in SMB penetration have improved our resilience to macro volatility.
And have accelerated our upside participation in the world consensus priorities for infrastructure engineering.
Limitless mobility environment and grid digital twin opportunities.
I think these corporate developments are already paying off.
As in 'twenty to Q1 for which were reporting strong operating result, after having absorbed and provided for unanticipated consequences of war.
Resulting in counter globalism.
And more pervasive economic concerns.
Despite our enthusiasm for this demonstrated resilience.
We are not going so far under the current circumstances have more unsecured visibility has to now increase our announced financial outlook for the year 2022.
And despite this year's inevitable gyrations in rates of inflation and FX.
I regard that are standing annual outlook should primarily be interpreted and relatively constant real or unit terms as economists would say abstracting from these noisy nominal fluctuations.
So now for an update as to our <unk> investments over to Chief investment Officer, David Hollister and colleagues.
But we will in turn hand over to Chief Financial Officer.
Andre and then your questions. Thanks.
Thank you Greg.
I will quickly review some topical highlights related to our <unk> investments activities.
On the topic of acquisitions, our year to date progress, notably includes Pls as a platform acquisition, which we'll discuss in some depth as well as Edina programmatic acquisition, we completed last month.
Nicolas has just shared why we're excited to add data to our portfolio.
As a textbook example of our programmatic acquisition strategy. It brings us relatively little historical revenue, but the tech and talent that we onboard call that accelerated R&D. If you will brings.
Brings us future commercial opportunity strengthens our product portfolio and deepens our account relationships.
I'd like to take a minute to talk about China.
Growth in Asia, including and in particular, China has been a priority growth strategy for us for many years.
While greater China still represents less than 5% of our revenues until recently our growth rate in China has been a positive outlier for us.
As you've heard on this call that star has lost a bit of shine and in fact, our revenue in China actually declined in the first quarter 2022 relative to the same quarter last year.
That said, we remain considerably invested in interested in infrastructure opportunities in China.
We've always been forthright about the challenges to succeeding in China, which can require customizing solutions are creating new solutions first and specifically for the Chinese market as.
As well as the preclusion from provisioning cloud solutions and challenges to navigating data residency restrictions and even a preference for accommodating commercial model and licensing uniqueness.
It is the case that we have enjoyed the most success in China, where we have adapted our solutions specifically for China tailored, our commercial model and accommodated more flexible licensing and provisioning.
Recently, chinas domestic policies are becoming increasingly challenging and youll hear more about that momentarily.
All of these considerations together have led us to incrementally approach some of our growth in China through joint ventures.
We've just announced the first of those where we are one third partner in a JV with three trusted channel partners, we call Beijing T. G G X.
Which will go to market with a China specific streamlined version of our project Wise design integration solution.
The economics for billing systems include technology royalties profit share in the JV and expected pull through synergies for other billing solutions.
I would now like to hear from Bruce Lu, who recently transitioned from his role as our top commercial executive in China, So now being our SVP, leading our acceleration initiatives in China.
Thank you Debbie.
Debbie.
China has been.
I have a few headwinds.
Hi, Steve.
Prices design institutes and E.
Core system.
Use software developed by local companies accomplish your models, including licensing and on premise versus cloud.
Similarly follow traditional practices.
I had the privilege of running vantage arena.
Okay.
And have seen the widespread adoption.
Our desktop applications project collaboration products, namely project wise through the year.
Use of partners working alongside our own sales team.
<unk> to seed the market, resulting in some of the largest projects in the world using the software.
Joe.
Express will tell me.
Which is.
Equivalent.
Tibet high speed rail design construction.
Thank you Sydney, Thank you Manav Shanghai facility.
Southern China.
Which one hour.
It's a political achievement in our industry.
The current state of the market.
The usage of locally produced softwood.
CT is domestically develop controllable autonomous.
In many cases Sasha.
A portion to great domestic solutions on main infrastructure projects with reliance of SCADA and subway project decreased by 20%.
Yes.
Yes.
Great for the JV with Treehouse, most trusted channel partners.
This solution project collaboration.
Wise, which is our design integration and.
Progress solution.
<unk>, which binds all of the applications along with party vendor apps.
Great. Thanks, Moshe project wise.
Cool.
Not only has the concerns of being of foreign software company.
Can expand the reach of our user base to include more Ngls.
This estimate of <unk> financial.
With that information.
All of this.
Engineers use other local products.
Such as Wechat building, which is the zoom or teams equivalent.
Thanks, Mike.
The JV will create integrations with these tools and services as part of the offering.
All pricing and licensing.
Also be control by the JV.
Now for local flexibility.
Localization of project wise.
Other of our technologies for the Chinese market.
Through joint ventures, with great new opportunities while simultaneously.
Patricia from customers looking for a low cost solution. Thank you. Thanks.
Thanks, Chris.
And now onto Pls, which has hit the ground running for us contributing quite favorably to our February and March results. Since the acquisition on January 31, and in fact is exceeding our expectations.
Since onboarding and the initial Pls IRR. It has grown impressively over just the two months through March 31, including into new names into developing geographies and with our new Pls grid solution.
We ended March with IRR growth over the prior year of 25% certainly that's a pace likely to at least deliver our previously provided guidance for pls contribution of $30 million in first year subscription revenue of which $27 million, we expect to occur in this calendar year 2022, given the closing on January 31.
Of course, it's only two months, but momentum is strong pls continues to generate a very high margin contribution, which we're reinvesting into beverage systems growth initiatives, including into our grid integration group strategies.
Before I turn this over to Werner for more on our results overall I'd like to share how pls is leveraging a receptive macro environment.
Integrating with Spider for distribution and accelerating growth, including internationally and who better to comment on this than auto Lynch. The longtime CEO of Pls and who now leads pls for Bentley systems.
The electric grid infrastructure is in the middle of a perfect storm.
Most infrastructure our electric grids are dated.
Far too many structures and our grids are more than 50 years old and are well past their life expectancies as evidenced by many and costly failures.
At the same time much of our grids were designed using archaic engineering practices that are no longer valid today.
We have a much better understanding now of how to properly design would tubular steel concrete fiberglass and lot of steel structures that are used in our grids.
Additionally, a climate change is punishing our grids with temperatures when ice and other modern meteorological events and those loadings were not anticipated in the original designs.
This is leading to failures in our grids and even relatively mild weather events concur.
Concurrently we are seeing a shift in generation sources from fossil fuels to renewable energy such as wind and solar these.
These are incremental demands in our grids, we can't mothball, a coal plant in Pennsylvania, and build a wind farm or solar farm and its exact place.
Finally, the general public's expectation of reliable always on electricity has increased all of these issues combined meaning that we are in the midst of Rewiring America. We are required to rebuild old infrastructure today is engineering practices and weather events, often known as storm hardening.
We have to add additional infrastructure to ship the generation from its new source to worthy electricity is needed we need to provide more reliable electricity and assured internet services over 93% of the electric outages in America, where on the distribution side of our grids, we have worked hard with.
The American Society of Civil Engineers over the past few decades in developing standards and practices that are being successfully deployed in the transmission industry.
We now need to apply the same standards and practices on the distribution side of our grids.
<unk> solutions, notably Pls for transmission and Spider for distribution are the perfect solution to this perfect storm for our electric grids are recently released Pls grid brings all of this together with grid wide analytics and digital twin solutions and this problem is not unique to just.
The U S. It's a <unk>.
Worldwide situation.
The combination of Pls and Spider together with <unk> global footprint and investment commitment made global expansion, a particularly attractive opportunity.
One final event, providing yet further opportunity.
The Federal Energy Regulatory Commission has just issued order 881, requiring transmission facility owners to consider seasonal and time of day changes on their line ratings.
<unk> is uniquely positioned to assist utilities and providing these mandated answers to FERC.
I believe we are now going to hear from Warner about that release numbers for the quarter.
Thank you David and good morning, everyone. We're off to a strong start into 2022, and we are very pleased with our CEO and results for the first quarter.
Starting on the revenue performance.
Our total revenues for the first quarter $275 5 million.
24% over the prior year.
Most of that growth comes from subscriptions, which now comprise approximately 88% of our revenues grew 28% 21 Q1.
The acquisition of secret equivalent systems onboard at 18% of coal.
Foreign currency headwinds offset 4% and therefore, our business performance inclusive of the organic performance of our brand from acquisitions.
14% of subscription growth.
<unk> currency basis.
Our perpetual license revenues, which now represent approximately 4% of October revenues were relatively flat in excellent firms and continues to reflect the preferences for subscription offerings.
Professional service revenues of approximately 9% of total revenues and increased by 3% over Q1 on a constant currency basis.
Within our services business, we see continued growth from our investment into the cohesive digital integrated businesses.
Partly offset by the shipment redeployment of our traditional and more episodic service business.
Recurring success services embedded in our 365 subscription offerings.
I'm presenting here on the right. The reminder of our full year 2022 revenue outlook as well.
Provided during our year end 2021 operating results call.
The range of $1 billion 110.
Two $1.140 billion, representing GAAP revenue growth of 15% to 18%.
Overall, our Q1 revenue performance was consistent with our expectations and our financial outlook. Most notable.
On a platform acquisition secret Mpls <unk> two months since acquisition, especially very strong business momentum and growth rates and solid contributions in new business and our business performance.
In March in response to the Russia, Ukraine anymore, we announced the suspension of new business in Russia, the levels, while the impact including sanctions.
Overall revenue performance during Q1 was minimal.
Reduced our related <unk> 5 million, representing an approximately 50% decrease in estimated returns of business in those countries as we do expect the corresponding impact on revenues in the remainder of 2022.
On the FX from our 2020 outlook is based on current exchange rates mainly issue in March.
While our Q1 revenue performance was negatively impacted by currency headwinds of about 4% such hack thinks they are already factored into our 2022 outlook.
Okay.
Moving on to recurring revenue components.
Our last 12 months recurring revenues increased by 24% and now comprise 87% of October revenues.
<unk> 2020, the Onboarding of <unk> and the Onboarding of Pls. During Q1 contributed about 13 percentage points of this improvement.
Our deep and long standing relationships with our accounts like improvement with over 90% account retention rate.
On a constant currency recurring revenue metric pension rate of 108%.
New accounts contributed three percentage points of our quarterly year over year recurring revenue growth, which is growth. In addition to the recurring revenue retention metrics.
On a constant currency basis, our AUR is up 27%.
Same property signed last year.
Ms before arms accounting for 12% of growth at 15% coming from the on boarding of our platform positions.
The unexpected AI attrition in Russia, which you mentioned before impacted our EBITDA growth rate by approximately five percentage points.
As we illustrated during our Q4 operating results call.
Growth rate in comparison to the rate of the previous year.
Impacted by pandemic induced sleep two.
2020.
Our GAAP operating income was 50 <unk> expense $6 million, that's 161 up 2% from 21 to one.
Turning to Q1 GAAP results reflect substantial incremental charges for acquisition expenses related to Pls.
Incremental amortization from purchased intangibles, primarily relating to our secret Mpls acquisition and incremental noncash stock based compensation, partially offset by a mark to market gain from the revaluation of our deferred compensation plan liabilities.
On the right.
The adjusted EBITDA metric normalizes production company.
You have via growth in our adjusted EBITDA of 18%.
This reflects an adjusted EBITDA margin of 35% economic and travel and promotional activities returning to normal levels. Our Q1 EBITDA margins will be in line with our expectations for the first quarter, which is typically a higher margin quarter for us due to opex seasonality.
With regards to Opex levels.
And we can take the Q1 charge of approximately $1 million to decrease car broken captured less since associated with our business in Russia.
And I do want to remind you of our.
Our seasonal pattern of expense allocation.
We concentrate our annual raises for colleagues to occur as on the progress of each year and since approximately 80% of our cost structure is people and related support costs annual rates significantly impact our operating expenses in Q2.
And four relative to Q1.
This was further compounded variable incentive compensation as Venezuela, large promotional and bank related costs, which are historically highest in the second half of the year.
Thanks, J b on track to deliver our 33% adjusted EBITDA margin targets for 2022, which reflects our commitment to an annual expansion of our adjusted operating margins of about 100 basis points normalized for unexpected pandemic savings occurred in 2020 and to a lesser extent in 2010.
Juan.
I'd also like to comment on our income tax rate, which is 5% for Q1 and benefited from significant discrete greenfield tax benefits primarily associated with distributions from all the corrupt compensation plan net of the impact from workers' compensation limitation provisions. Please.
These discrete tax benefits related to timing of distributions and also impacted by our share price at the time of distributions.
For the full year, we continue to expect the income tax rate closer to 15%.
Moving on to liquidity.
Our Q1, GAAP operating cash flows of $101 $7 million of strong representing a cash conversion ratio from adjusted EBITDA and we've been focusing and includes payment of acquisition related expenses of $10 million.
Our cash flows with the prior periods I want to remark. The dollar cash flows in 2000 <unk> strong.
As we remarked robust year with really strong cash flows were aided by significant increases in customer deposits on our <unk> hundred 65 subscription Cobra and associated program conversions and 21 Q1 is definitely unusual basis for comparison.
Similarly, our last 12 months operating cash flows of 267 million are facing a strong comparative basis.
Pounded by the fact that accelerated collections in 'twenty, one Q1 <unk>.
Solid and relatively lower collections in 2022.
These cash flows are also driven by payments of acquisition related expenses for our platform acquisition of $27 million.
And an increase in income tax payments inclusive of prepayments of $60 million.
Our business remains highly cash flow efficient.
And Rob this short term volatility due to timing and continue to expect the conversion ratio of adjusted EBITDA to operating cash flow <unk> and the 85% to 90% range.
Maryland.
Dominantly annual nature of our contractual relationships.
As we presented to the quarter.
With acquisition of <unk> systems at the end of January 2022, Alright, cash consideration of approximately $696 million net of cash at <unk>.
Crusade of future tax benefits from a tax deductible spec upping basis, which we present value of $90 million.
Use of available cash and borrowings on our bank credit facility to fund the transaction.
And so I told coupon, we spend approximately $35 million from the effects of share repurchases associated with stock based compensation and to offset the dilution from such compensation. However on the remainder of 2022 plan to significantly reduce our share repurchases. Thank you.
Mark our free cash flow.
Finally programmatic acquisitions to Delever.
With regards to capital allocation, our net senior leverage was one four times as of March spread across 2022 down from the one six times as of December 31, 2021, which I presented during our year end 2021 operating results call on the call.
Co product basis, and under consideration of pro forma adjustments.
The financing of the acquisition of Pls.
And including as investments, our 2026, and 2027 convertible notes, which proceeds were dedicated to find the right.
Creative platform acquisitions on a net debt leverage was four nine times as of the end of March.
Lastly, I want to point out that while interest rates are rising approximately 75% of all of that is protected from changes to interest rates. So we need a highly favorable coupon interest on our convertible debt.
Our 200 million interest rate swap, which contributed itself million mark to market mitigation fee some of our other income.
One two to one.
Understood and then.
No questions.
We'll start with Joe <unk> from Baird.
Okay.
Great Hi, everyone.
Is the right way to think about.
In the quarter, 12% was the organic business.