Bentley Systems, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Unaudited consolidated results; comparisons are with the corresponding 2022 periods. Amounts below are in U.S. dollars unless stated otherwise.
Business context and performance
Bentley provides software and cloud services for infrastructure engineering and operations. Its offerings include subscription, perpetual-license, and professional-services revenue.
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $296.7 million | $268.3 million | $611.2 million | $543.8 million |
| Gross profit | $230.3 million | $208.6 million | $477.6 million | $428.3 million |
| Operating income | $53.3 million | $55.7 million | $119.1 million | $112.3 million |
| Net income | $48.7 million | $55.7 million | $94.2 million | $112.1 million |
| Diluted EPS | $0.15 | $0.17 | $0.29 | $0.35 |
| Gross margin | 77.6% | 77.7% | 78.1% | 78.8% |
| Operating margin | 18.0% | 20.8% | 19.5% | 20.7% |
| Net margin | 16.4% | 20.8% | 15.4% | 20.6% |
Q2 subscription revenue grew 11.7% year over year; total revenue rose 10.6% (10.1% on a constant-currency basis). For the first half, total revenue increased 12.4% (13.6% constant currency). Management attributed growth mainly to expansion in existing accounts; ARR was $1.106 billion, up 13% on a constant-currency basis. Account retention was 98%, and recurring-revenue dollar-based net retention was 110%. Recurring revenues represented 89% of revenue for the trailing twelve months.
Cash flow, liquidity, and debt
- First-half operating cash flow was $256.8 million, up from $168.7 million. The filing attributes the increase primarily to working-capital movements, including collections, customer deposits, payables, and tax-payment timing.
- Investing cash outflow was $29.8 million, compared with $724.0 million in the prior-year period, which included substantial acquisition spending. First-half 2023 investing included $10.3 million of net acquisition payments, $11.3 million for property, equipment, and capitalized software, and $8.2 million for investments.
- Financing cash outflow was $216.0 million, principally reflecting a $146.9 million net paydown of the credit facility, $51.2 million for shares acquired (including shares withheld for taxes), and $29.2 million of dividends. Cash increased by $11.0 million to $82.7 million.
- Total debt was $1.637 billion at June 30, down from $1.781 billion at year-end; cash was $82.7 million. The company had $648.6 million available under its revolving credit facility and reported compliance with debt covenants.
- Credit-facility borrowing rates were materially higher: the weighted-average rate was 6.89% for the first half, versus 2.62% in 2022. Net interest expense rose to $20.6 million from $14.4 million.
Material changes and unusual items
- Despite revenue growth, Q2 operating income declined 4.3% and net income declined 12.6%; first-half net income fell 16.0%. Higher operating expenses, interest costs, and lower other income contributed. Deferred-compensation plan expense also replaced prior-year income, reflecting mark-to-market movements.
- Other income included a $7.3 million impairment of cost-method investments in Q2 2023. First-half 2022 other income included a large favorable interest-rate-swap fair-value change and a gain on an aircraft sale, making the comparison less favorable in 2023.
- Q2 and first-half 2023 included income-tax benefits, while the six-month period had a $5.6 million tax provision versus a $1.4 million benefit in 2022. Management cited lower discrete tax benefits and the U.S. tax treatment of research and development costs as factors affecting the comparison.
- The company amended its credit agreement and interest-rate swap to replace LIBOR references with SOFR in June 2023. The swap remained undesignated as an accounting hedge.
- A $122.0 million non-cancelable cloud-provisioning services commitment was entered into in June 2023, with $118.9 million remaining at quarter-end; the company expects to consume it in ordinary operations.
Outlook, commentary, and risks
The filing provides no formal revenue or earnings guidance. Management stated that cash, operating cash generation, and credit-facility availability should be sufficient for working capital and capital expenditure needs over the next 12 months. It cautioned that future capital needs depend on growth, acquisitions, investment, discretionary dividends or repurchases, currency movements, and economic conditions.
Management highlighted uncertainty in China, including geopolitical challenges, obstacles to cloud-deployed software, and customer preference for locally developed solutions and license sales. Other relevant exposures include foreign-currency movements, higher variable borrowing costs, acquisition execution, and the company’s substantial debt and cloud-services commitments. Management reported no material change to previously disclosed risk factors, no material pending litigation believed likely to adversely affect the company, effective disclosure controls, and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether subscription growth, ARR growth, and retention metrics continue, and how much growth comes from existing customers versus new accounts or acquisitions.
- Whether expense growth and financing costs constrain GAAP operating and net-income growth despite rising revenue.
- Debt repayment, credit-facility availability, variable interest rates, covenant compliance, and the terms of the convertible notes.
- The performance and valuation of cost-method investments following the $7.3 million impairment, and the status of the cloud-provisioning commitment.
- China trends, foreign-exchange effects, and the distinction between GAAP results and management’s non-GAAP or constant-currency measures.