Bentley Systems, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021; amounts below are in U.S. dollars. Comparisons are with the corresponding 2020 periods.
Business context and reporting period
Bentley provides software and related services for infrastructure engineering, project delivery, and asset operations. Its revenue is predominantly recurring: management reported that recurring revenue was 86% of revenue for the twelve months ended June 30, 2021. The June-quarter results include Seequent only from its June 17 acquisition date.
Financial performance and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $222.9m | $184.3m | $444.9m | $379.0m |
| Gross profit / margin | $169.5m / 76.0% | $147.6m / 80.1% | $342.2m / 76.9% | $305.0m / 80.5% |
| Operating income / margin | $32.2m / 14.5% | $44.6m / 24.2% | $87.9m / 19.7% | $90.6m / 23.9% |
| Net income | $44.9m | $39.1m | $101.9m | $68.7m |
| Diluted EPS | $0.14 | $0.13 | $0.32 | $0.23 |
| Adjusted EBITDA (non-GAAP) | $69.1m | $57.6m | $151.9m | $115.5m |
- Revenue mix and growth: Q2 subscriptions rose 17.6% to $185.5m, while perpetual-license revenue fell 8.0% to $11.4m. Services rose 83.0% to $26.1m, largely reflecting acquisitions. Total revenue grew 21.0% reported and 16.5% in constant currency in Q2; first-half growth was 17.4% reported and 12.9% in constant currency.
- Profitability: Gross and operating margins declined year over year in both periods as cost of revenue and operating expenses grew faster than revenue. Q2 adjusted EBITDA margin was 31.0% versus 31.2%; first-half margin was 34.2% versus 30.5%.
- Cash flow: First-half operating cash flow was $149.0m, compared with $136.2m. Investing cash outflow was $1,008.0m, including $1,002.6m of acquisition payments, net of acquired cash. Financing cash inflow was $866.5m, principally reflecting convertible-note proceeds. Cash increased $9.1m to $131.2m.
- Debt and liquidity: Long-term debt was $1,269.8m at June 30, versus $246.0m at year-end; cash was $131.2m. Debt included $690m principal of 0.125% convertible notes due 2026, $575m principal of 0.375% convertible notes due 2027, and $36.4m outstanding on the revolving facility. The $850m facility had $813.5m available. The company reported covenant compliance and said cash, operating cash flow, and facility availability should cover requirements for the next twelve months.
- Recurring business metrics: ARR was $882.4m at June 30, up 23% in constant currency; management said Seequent contributed 13 percentage points to the twelve-month ARR growth rate. Account retention was 98%, and recurring-revenue dollar-based net retention was 106%.
Material changes versus the prior comparable period
- Seequent was acquired on June 17 for approximately $911.0m cash, net of acquired cash, plus 3.14m Class B shares. The company completed eight acquisitions in the first half; purchase accounting was still provisional. Goodwill rose to $1,593.7m from $581.2m at year-end.
- The company issued $690m of 2026 notes in January and $575m of 2027 notes in June, and amended its revolving facility, increasing capacity from $500m to $850m and extending maturity to November 2025.
- Q2 operating income decreased despite higher revenue, in part reflecting increased acquisition and integration costs, stock-based compensation, and personnel costs. First-half operating income was also slightly lower year over year.
- Q2 net income included a $20.7m income-tax benefit, including a $29.0m discrete benefit related to stock-based compensation. First-half tax benefit was $10.4m, including a $36.5m discrete stock-compensation benefit. These items materially affect comparisons of GAAP net income.
Outlook, management commentary, risks, and unusual items
- The filing provides no specific revenue, earnings, or margin guidance. Management expects available cash, operating cash flow, and revolving-credit liquidity to meet working-capital and capital-expenditure needs for at least twelve months.
- Management described COVID-19 disruption to solution delivery as minimal, but noted modest effects from usage fluctuations, shorter-reset E365 subscriptions, and delayed professional-services projects. Pandemic-related cost savings may not be fully sustainable.
- Foreign currency affected reported growth positively in the period. The company said it does not currently hedge foreign-currency exposure beyond the natural matching of revenue and expenses.
- Convertible notes carry potential conversion, repurchase, and dilution obligations; capped calls are intended to mitigate dilution or excess cash settlement only up to contractual caps. The credit facility is secured and contains leverage covenants.
- Other items to consider include $24.2m of first-half acquisition expenses, a $67.6m cloud-provisioning purchase commitment through May 2023, and provisional acquisition fair values. Management did not expect pending ordinary-course legal matters to have a material adverse effect and said it believed no material litigation was pending.
Most important facts for investors to verify
- How much of ARR and reported revenue growth is organic versus attributable to Seequent, other acquisitions, foreign exchange, and changes in subscription mix.
- Whether the decline in GAAP gross and operating margins persists after acquisition costs and elevated stock-based compensation, and how non-GAAP adjustments reconcile to GAAP results.
- The durability of net income growth given the substantial discrete stock-compensation tax benefits.
- Post-acquisition debt levels, cash generation, convertible-note terms and potential dilution, and continued compliance with credit-facility covenants.
- Whether COVID-related usage and project delays, foreign exchange exposure, and the company’s acquisition integration and provisional purchase accounting affect future results.