Bentley Systems, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Unaudited consolidated results; amounts below are in U.S. dollars unless noted. Financial statement amounts are in millions, converted from the filing’s thousands.
Business context and operating performance
Bentley provides software for infrastructure engineering and asset management, primarily through recurring subscriptions. Subscriptions represented about 86% of revenue in 2021. The quarter included the January 2022 acquisition of Power Line Systems (PLS); the prior-year comparison included Seequent, acquired in June 2021.
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $268.3 | $223.9 | $543.8 | $445.9 |
| Revenue growth, reported | 19.8% | — | 21.9% | — |
| Revenue growth, constant currency | 26.2% | — | 26.9% | — |
| Subscription revenue | $232.2 | $186.4 | $473.4 | $374.6 |
| Gross profit / margin | $208.6 / 77.7% | $170.5 / 76.1% | $428.3 / 78.8% | $343.2 / 77.0% |
| Operating income / margin | $55.7 / 20.8% | $33.2 / 14.8% | $112.3 / 20.7% | $88.9 / 19.9% |
| Net income | $55.7 | $45.6 | $112.1 | $102.6 |
| Diluted EPS | $0.17 | $0.14 | $0.35 | $0.32 |
| Adjusted EBITDA (non-GAAP) | $86.5 | $69.3 | $184.1 | $152.3 |
Cash flow, debt and liquidity
- Six-month operating cash flow was $168.7 million, versus $149.0 million a year earlier. Investing cash flow was $(724.0) million, including $714.2 million of net acquisition payments. Financing cash flow was $325.8 million.
- Cash and equivalents fell to $93.4 million at June 30, 2022, from $329.3 million at year-end 2021. Current assets were $355.5 million and current liabilities $591.4 million, a $235.9 million working-capital deficit.
- Debt had a net carrying value of $1.831 billion, compared with $1.436 billion at year-end; cash less debt was approximately $1.737 billion net debt. The increase principally reflects revolving-facility borrowing to fund acquisitions. The company reported $456.0 million available under its $850 million revolving facility and compliance with debt covenants.
- Net interest expense was $7.6 million for Q2 and $14.7 million for the first half, up from $2.5 million and $4.8 million, respectively. Management attributed the increase to higher facility borrowings and rates, the term loan, and convertible-note costs.
Material changes and management commentary
- Reported revenue grew more slowly than constant-currency revenue, reflecting the stronger U.S. dollar. Q2 subscription growth included approximately $31.7 million from acquisitions and $25.0 million from business performance on a constant-currency basis; first-half amounts were approximately $74.5 million and $41.3 million.
- Management cited expansion within existing accounts and new-account growth, particularly in smaller and midsize accounts. ARR was $971.9 million, up from $882.4 million a year earlier; constant-currency ARR growth was 14% versus 23%. Account retention was 98%, and recurring-revenue dollar-based net retention was 109% versus 106%.
- Services revenue declined 5.9% in Q2, partly because some services revenue shifted into E365 subscriptions with embedded Success Services. E365 usage-based subscriptions and the transition from ELS can change the timing of revenue recognition.
- Net income rose 22.0% in Q2 and 9.2% for the first half. First-half net-income margin declined to 20.6% from 23.0%. Income-tax benefits were affected by discrete stock-compensation tax benefits; the filing reports a 9.1% Q2 effective tax benefit rate and a 1.3% first-half benefit rate.
- Adjusted EBITDA margin was 32.2% in Q2 versus 31.0%, and 33.9% for the first half versus 34.2%. Adjusted net income was $73.8 million in Q2, down from $74.5 million, and $153.4 million for the first half, up from $138.6 million. These are non-GAAP measures and exclude specified expenses and other items.
Outlook, risks and unusual items
- The filing provides no numerical revenue or earnings guidance. Management said cash, operating cash generation and credit-facility availability should cover working-capital and capital-expenditure needs for the next 12 months, while noting future capital requirements depend on acquisitions, growth investments, economic conditions and other factors.
- Bentley decided to wind down and exit Russia amid changes in the business environment. It reduced ARR by $5.2 million in Q1 and a further $6.0 million in Q2; Q2 included Russian exit costs, including termination benefits and asset impairments. Management also paused sales in Russia and Belarus and cited compliance with applicable sanctions.
- Foreign exchange remains a material exposure: 47% of 2021 revenue and 42% of operating expenses were denominated in foreign currencies, and the company said it does not hedge this exposure beyond natural offsets. Q2 other income included a $7.4 million interest-rate-swap fair-value gain, partly offset by $4.7 million of foreign-exchange losses; the first-half totals included a $19.5 million swap gain and $7.8 million FX loss.
- The PLS acquisition cost $696.0 million net of acquired cash. Acquisition accounting remained provisional for two 2022 acquisitions; goodwill increased to $2.216 billion. The company also recorded a $2.0 million gain on the sale of half its aircraft interest to an entity controlled by its CEO, a related-party transaction.
- The board authorized up to $200 million of share repurchases through June 30, 2024; $13.2 million was spent in the first half. The company reported no material pending litigation and said ordinary-course legal matters were not expected to have a material adverse effect. It has a $33.2 million non-cancelable cloud-services purchase commitment through May 2023.
Important facts for investors to verify
- How much of reported and ARR growth reflects organic expansion versus PLS and Seequent, and how currency movements affect comparisons.
- Whether recurring-revenue retention, E365 usage and services-to-subscription transitions sustain growth without pressuring revenue timing or margins.
- Acquisition integration, provisional purchase accounting, goodwill and amortization, alongside the impact of acquisition funding on net debt and interest expense.
- Liquidity and refinancing capacity given the working-capital deficit, reduced cash balance, floating-rate facility exposure and planned repurchases.
- The financial effects of the Russia exit, foreign exchange, discrete tax benefits and fair-value movements, including the related-party aircraft transaction.