Bentley Systems, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited consolidated results, compared with Q1 2021. Amounts below are in U.S. dollars; financial-statement figures are converted from thousands to millions unless otherwise stated.
Business context and key financial results
Bentley provides software for infrastructure engineering and operations. Its revenue is predominantly recurring; management reported that recurring revenue represented 87% of revenue for the trailing 12 months ended March 31, 2022. Results include the January 2022 acquisition of Power Line Systems (PLS) and the ongoing impact of the 2021 Seequent acquisition.
| Metric | Q1 2022 | Q1 2021 | Change / context |
|---|---|---|---|
| Total revenue | $275.5m | $222.0m | +24.1%; +27.7% constant currency |
| Subscriptions | $241.2m | $188.1m | +28.2%; +32.0% constant currency |
| Gross profit / margin | $219.7m / 79.8% | $172.7m / 77.8% | Margin increased about 2.0 percentage points |
| Operating income / margin | $56.6m / 20.5% | $55.6m / 25.1% | Income nearly flat; margin declined |
| Net income | $56.4m | $57.0m | Down 1.1%; basic EPS $0.18 vs. $0.19 |
| Adjusted EBITDA (non-GAAP) | $97.6m | $83.0m | +17.6%; margin 35.4% vs. 37.4% |
| Adjusted net income (non-GAAP) | $79.6m | $64.1m | +24.1%; margin 28.9% in both periods |
| Operating cash flow | $101.7m | $132.8m | Down $31.1m |
| Cash and cash equivalents | $129.6m | $329.3m at Dec. 31, 2021 | Quarter-end balance |
| Debt, net carrying value | $1,876.5m | $1,436.0m at Dec. 31, 2021 | Includes $440.2m revolver borrowings |
Material changes and liquidity
- Revenue growth reflected approximately $42.7m of subscription-revenue contribution from acquisitions and approximately $17.5m from business performance, on a constant-currency basis. Management attributed organic performance principally to expansion in existing accounts and growth in smaller and mid-sized new accounts.
- Operating expenses rose 39.4% to $163.1m, including higher headcount and acquisition costs and a near-tripling of purchased-intangible amortization. Net income was also affected by higher interest expense, while the effective tax rate fell to 5.4% from 15.3%, largely due to discrete stock-compensation tax benefits.
- Investing cash outflow was $700.6m, primarily the $696.0m net cash cost of acquiring PLS. Financing cash inflow was $399.9m, including a $439.0m net increase in Credit Facility borrowings, partly offset by share-related payments and dividends. Cash decreased by $199.7m during the quarter.
- At March 31, the company had $409.6m available under its $850m revolving facility and reported compliance with debt covenants. Cash was $122.5m at foreign subsidiaries and $7.1m domestically. Management said existing cash, operating cash flow and available facility liquidity should meet requirements for the next 12 months.
Outlook, commentary and risks
- The filing provides no specific numerical revenue or earnings guidance. Management described continued investment in research and development and selective acquisitions as part of its growth strategy.
- ARR was $962.6m at March 31, and its constant-currency growth rate was 27%; management said acquisitions contributed 15% to ARR growth. Account retention was 98% and recurring-revenue dollar-based net retention was 108%.
- In response to the Russia-Ukraine war, Bentley paused sales in Russia and Belarus. It reduced ARR associated with affected countries by $5.2m after estimating business recurrence there had fallen about 50%.
- Foreign-currency exposure is meaningful: 47% of 2021 revenue was denominated in foreign currencies, and the company does not currently hedge foreign-currency exposure other than through natural matching of revenue and expenses. A stronger U.S. dollar reduced reported growth in Q1.
- PLS purchase accounting remains provisional. The acquisition added $618.4m of goodwill; final fair-value assessments may change the allocation. An April 2022 acquisition was completed and was not expected to be material.
- Other unusual items included a $12.1m fair-value gain on an interest-rate swap and a $2.0m gain from selling half of the company aircraft. The aircraft transaction was with an entity controlled by the CEO and was identified as a related-party transaction.
- The company disclosed a $41.9m non-cancelable cloud-provisioning purchase commitment through May 2023. Management did not expect pending ordinary-course legal matters to have a material adverse effect and said it believed no material litigation was pending.
Important facts for investors to verify
- How much of revenue and ARR growth is organic versus attributable to Seequent and PLS, and how acquisition integration affects margins and cash generation.
- The final PLS purchase-price allocation, goodwill and acquired-intangible estimates, and related amortization and acquisition costs.
- Debt and liquidity following the PLS acquisition, including revolver utilization, covenant headroom, and the geographic availability of cash.
- The sustainability of reported earnings and non-GAAP results given acquisition expenses, stock-based compensation, tax benefits, and volatile swap and other-income gains.
- Future effects of the Russia-Ukraine conflict, foreign-exchange movements, and the company’s exposure to unhedged currencies.