Bentley Systems, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Unaudited results are compared with the corresponding 2022 periods. Amounts below are in millions of dollars unless stated otherwise.
Business context
Bentley provides software and cloud services for infrastructure engineering, including tools for designing, building, and operating infrastructure. Its offerings are delivered on-premises, in cloud, and hybrid environments.
Financial performance
| Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 |
|---|---|---|---|---|
| Revenue | $306.6 | $268.3 | $917.8 | $812.1 |
| Gross profit | $241.9 | $209.1 | $719.5 | $637.5 |
| Operating income | $73.7 | $55.5 | $192.8 | $167.9 |
| Net income | $53.0 | $37.0 | $147.2 | $149.1 |
| Diluted EPS | $0.16 | $0.12 | $0.46 | $0.46 |
- Q3 revenue grew 14.3% reported (11.0% constant currency); subscriptions and licenses rose 15.5%. Nine-month revenue increased 13.0% (12.8% constant currency).
- Approximate Q3 gross, operating, and net margins were 78.9%, 24.0%, and 17.3%, respectively, versus 78.0%, 20.7%, and 13.8% a year earlier. Nine-month margins were approximately 78.4%, 21.0%, and 16.0%, respectively, versus 78.5%, 20.7%, and 18.4%.
- Q3 operating income rose 32.6%, while nine-month net income edged down 1.2%. Nine-month interest expense, net increased to $30.6 from $23.5, and the effective tax rate rose to 13.1% from 5.2%.
- Cash from operations was $329.6 for the first nine months, up from $238.2. Investing used $51.2, compared with $740.4 in 2022, when acquisitions included PLS. Financing used $280.0, primarily reflecting debt repayment, dividends, and share-related payments.
- Cash and equivalents were $67.0 at September 30, versus $71.7 at December 31, 2022. Total debt was $1,589.5, down from $1,780.7; debt less cash was approximately $1,522.5. The company had $696.4 available under its credit facility and reported compliance with debt covenants.
Changes, operating indicators, and unusual items
- Subscription growth was driven mainly by expansion within existing accounts, with new accounts contributing 3% growth. Enterprise subscriptions, including E365, and term-license subscriptions were key contributors. Growth was led by civil and structural engineering, geoprofessional applications, and project-delivery systems.
- ARR was $1,124.8, up from $983.7; constant-currency ARR growth was 12.5%, compared with 14% a year earlier. Account retention was 97% versus 99%, while recurring-revenue dollar-based net retention remained 110%. Recurring revenues represented 89% of revenue over the latest twelve months.
- Q3 other income included a $4.8 gain from the interest-rate swap and $2.3 of investment gains. Nine-month other income was lower year over year, including a $7.3 impairment of cost-method investments; 2022 had benefited from a larger swap fair-value gain and the aircraft sale.
- Management cited higher borrowing costs: the weighted-average credit-facility rate was 7.44% in Q3 versus 4.34% in Q3 2022. The credit facility and swap were amended to reference SOFR in 2023.
- The company declared dividends of $0.05 per share in each 2023 quarter, versus $0.03 per share in 2022. It made no repurchases under its authorized program during the first nine months of 2023; $169.8 remained authorized for future repurchases of shares and/or notes.
Outlook, risks, and contingencies
- The filing provides no specific revenue or earnings guidance. Management stated that cash, operating cash generation, and credit-facility availability should be sufficient for working capital and capital expenditures over the next 12 months.
- Management noted that future funding needs depend on growth, acquisitions, R&D and sales investment, dividends or repurchases, currency movements, and broader economic conditions; additional financing may not be available on favorable terms.
- Risks highlighted include foreign-exchange exposure, higher variable interest rates, geopolitical and cloud-software obstacles in China, and the timing effects of Chinese customers’ preference for licenses over subscriptions. Account retention was reduced by about 1% due to the Russia exit.
- The company had approximately $137.0 of non-cancelable future purchase commitments outstanding, primarily for cloud provisioning and software costs. Management did not expect ordinary-course legal proceedings to have a material adverse effect and reported no material litigation pending.
- Disclosure controls were assessed as effective at a reasonable-assurance level; management reported no material change in internal control over financial reporting during the quarter.
Investor verification priorities
- Track whether subscription growth and ARR remain strong, and whether account retention recovers from 97%.
- Assess the effect of higher interest rates, debt maturities in 2025–2027, and the company’s capacity to sustain dividends and reduce debt.
- Review cash-flow drivers, particularly customer deposits and collections, and compare operating cash generation with share-based payments and capital allocation.
- Evaluate the sustainability of reported earnings given investment impairments and gains, swap fair-value movements, foreign exchange, and the rising tax rate.
- Monitor China and other regional risks, cloud-provisioning commitments, and the potential financing implications of future acquisitions.