Bentley Systems, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Unaudited consolidated results; dollar amounts below are in millions unless stated otherwise. Bentley provides infrastructure engineering software and related services, primarily through recurring subscriptions.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $248.5 | $203.0 | $693.4 | $582.0 |
| Gross profit | $194.2 | $160.4 | $536.4 | $465.4 |
| Operating income (loss) | $(40.4) | $5.3 | $47.4 | $95.9 |
| Net income (loss) | $(50.1) | $5.8 | $51.8 | $74.6 |
| Diluted EPS | $(0.16) | $0.02 | $0.16 | $0.25 |
| Adjusted EBITDA (non-GAAP) | $84.5 | $73.7 | $236.8 | $189.0 |
- Revenue and mix: Revenue grew 22.4% in Q3 and 19.1% for the nine months; constant-currency growth was 20.6% and 15.6%, respectively. Subscription revenue rose 22.6% in Q3 and 16.9% year to date, while perpetual license revenue declined 7.5% and 7.3%. Services revenue increased 43.5% and 65.2%, substantially reflecting acquisitions.
- Margins: Gross margin was approximately 78.2% in Q3 versus 79.0% a year earlier, and 77.4% for nine months versus 79.9%. Q3 operating loss included a $90.7 million deferred compensation charge; the filing reports no operating margin adjustment in GAAP results. Adjusted EBITDA margin was 34.0% in Q3 versus 36.3%, and 34.1% year to date versus 32.5%.
- Cash flow: Nine-month operating cash flow was $207.4 million versus $176.0 million. Investing used $1,047.8 million, including $1,033.7 million for acquisitions, net of cash acquired. Financing provided $869.6 million, primarily reflecting convertible-note proceeds. Cash increased $33.7 million to $155.8 million.
- Liquidity and debt: Current assets were $400.1 million and current liabilities $549.4 million at quarter-end. The company had $781.996 million available under its $850 million revolving credit facility and was in compliance with debt covenants. Long-term debt was $1,302.8 million, including $690 million principal of 0.125% notes due 2026, $575 million principal of 0.375% notes due 2027, and $67.9 million drawn on the revolver. Cash was $147.2 million held by foreign subsidiaries and $8.6 million domestically.
- Recurring-business indicators: ARR was $903.8 million, with 26% constant-currency growth; management said Seequent contributed 13 percentage points to the growth rate. Last-twelve-month recurring revenue was $786.1 million; recurring revenue was 86% of total revenue. Account retention was 98%, while recurring-revenue dollar-based net retention declined to 106% from 110%.
Material changes and unusual items
- Completed the Seequent acquisition in June for approximately $911.0 million cash, net of cash acquired, plus 3.14 million Class B shares. The company completed 12 acquisitions in the first nine months; purchase accounting remained provisional. Acquisitions substantially increased goodwill and intangible assets.
- Issued $690 million of 2026 convertible notes and $575 million of 2027 convertible notes. Proceeds funded acquisitions and general corporate purposes and repaid revolving debt; capped-call options were purchased to reduce potential dilution, subject to their caps.
- A deferred compensation plan amendment let certain executives reallocate phantom shares into cash-settled investment funds. The reclassification produced a one-time $90.7 million compensation expense and increased deferred compensation liabilities. This was the principal driver of the Q3 GAAP operating and net losses. Management excludes the item from its non-GAAP measures.
- Nine-month GAAP net income fell despite revenue growth, reflecting the deferred compensation charge, acquisition-related costs and amortization, among other factors. The 2020 comparison also included $26.1 million of IPO costs and a $392.5 million special dividend; 2021 dividends were $0.03 per share each quarter.
- Foreign-currency translation reduced nine-month comprehensive income by $55.7 million. Currency movements also affected reported revenue and other income; the company does not generally hedge foreign-currency exposure.
Outlook, commentary, and risks
- The filing provides no numerical revenue or earnings guidance. Management said existing cash, operating cash generation, and available credit should meet working-capital and capital-expenditure needs for the next 12 months, while noting that future financing needs depend on growth, investment, currency, market acceptance, competition, and economic conditions.
- Management described COVID-19 disruption to delivery as minimal, but said usage declines modestly affected shorter-reset subscriptions such as E365, some customers delayed professional-services projects, and perpetual license purchases weakened amid delays and shifts to subscriptions. It noted pandemic-era cost savings may not be fully sustainable.
- Risks include acquisition integration and completion of provisional purchase accounting; debt service and potential conversion-related dilution; foreign-exchange exposure; customer usage and project delays; and the possibility that additional financing may be needed on terms that are unfavorable or unavailable. A $59.7 million non-cancelable cloud-provisioning commitment extends through May 2023.
- Management reported no material pending litigation and no material adverse effect expected from ordinary-course legal matters. Disclosure controls were deemed effective as of September 30, 2021.
Investor verification priorities
- Separate underlying subscription growth from Seequent and other acquisition contributions, foreign exchange, and changes in revenue-recognition timing.
- Assess the $90.7 million deferred compensation charge, related cash-settled liabilities, and the extent to which subsequent mark-to-market changes could affect GAAP earnings.
- Review acquisition integration, provisional purchase-price allocations, goodwill and intangible-asset balances, and continuing acquisition-related costs.
- Evaluate the convertible notes’ cash obligations, conversion terms, capped-call limits, and potential dilution alongside revolver availability and covenant headroom.
- Track ARR growth, net retention, usage-based subscription trends, and the sustainability of adjusted margins and operating cash flow, including the impact of deferred compensation liabilities on cash-flow comparisons.