10-K: Bentley Systems 2023 Annual Report: Revenue Growth and Strategic Realignment

Bentley Systems reports an 11.8% increase in total revenue for 2023, driven by subscription growth and strategic initiatives.

Summary

• Bentley Systems' total revenue reached $1,228.4 million in 2023, an increase of 11.8% compared to the previous year.
• Subscription revenues grew by 12.5% to $1,080.3 million, making up 88% of total revenue.
• The company's Annual Recurring Revenue (ARR) was $1,174.8 million as of December 31, 2023, reflecting a 12.5% constant currency growth rate.
• The last twelve-month recurring revenues dollar-based net retention rate was 109%.
• Operating income for the year was $230.5 million, with adjusted operating income including stock-based compensation at $324.7 million.
• Cash flow from operations was $416.7 million for the year.
• A strategic realignment program was implemented in the fourth quarter of 2023, resulting in $12.6 million in realignment costs.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with strong revenue growth and strategic initiatives, but also acknowledges risks and challenges. The strategic realignment program and the company's focus on digital twins are positive indicators for future growth.

Positives

• Strong growth in subscription revenues, which now constitute 88% of total revenue.
• Consistent ARR growth, indicating a healthy recurring revenue base.
• Positive cash flow from operations, demonstrating the company's ability to generate cash.
• The company's strategic realignment program is expected to improve efficiency and better align resources with business strategy.
• The company has a loyal customer base, with over 70% of revenue generated from organizations that have been customers for over ten years.

Negatives

• The strategic realignment program resulted in $12.6 million in costs.
• The company experienced a decrease in revenue from Russia due to exiting the market.
• The company experienced a decrease in revenue from China.
• The company is exposed to fluctuations in currency exchange rates that could negatively impact financial results.

Risks

• Demand for software solutions is subject to volatility in the infrastructure sectors.
• The company is exposed to legal, regulatory, social, political, and economic risks of foreign operations.
• Fluctuations in currency exchange rates could negatively impact financial results.
• The company may not be able to increase the number of new subscription-based accounts or cause existing accounts to renew their subscriptions.
• Consolidation among accounts may result in a loss of business.
• The company may not be successful in managing acquisitions or investments.
• Quality problems, defects, errors, or vulnerabilities in software solutions could harm the company's reputation.
• The company may be unable to cross-sell its solutions.
• There are significant costs and restrictions associated with the repatriation of cash from non-U.S. operations.
• The company could be subject to loss or liability based on the actions of its channel partners.
• Interruptions in the availability of server systems or communications could harm the business.
• Security breaches could expose the company to a risk of loss of information, litigation, and possible liability.
• Failure to protect intellectual property rights could impair the company's ability to protect its proprietary technology and brand.
• Increasingly stringent and growing data protection and privacy laws may limit the use and adoption of the company's services.
• The company licenses third-party technologies and may be subject to claims that it infringes others' intellectual property rights.
• Recent and potential tariffs imposed by the U.S. government or a global trade war could increase the cost of products and services.
• The company is subject to legal proceedings and regulatory inquiries.
• Failure to comply with the U.S. Foreign Corrupt Practices Act (FCPA) and similar anti-bribery and anti-corruption laws could subject the company to penalties.
• The company is subject to governmental export and import controls that could impair its ability to compete in international markets.
• The company may face exposure to product or professional liability claims.
• The company's credit agreement contains restrictive covenants that may limit operating flexibility.
• The company may incur substantial additional debt, which could exacerbate existing risks.
• The company issued convertible notes that have rights senior to its Class B common stock.
• The dual class structure of the company's common stock concentrates voting control with the Bentley Control Group.
• Global economic and political conditions may negatively impact the company's business.
• Changes in existing financial accounting standards or practices, or taxation rules or practices may adversely affect the company's results of operations.
• The company is required to evaluate its internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002.
• If the company's goodwill or amortizable intangible assets become impaired, then the company could be required to record a significant charge to earnings.

Future Outlook

The company intends to continue paying quarterly dividends, subject to the discretion of the Board of Directors. The company also plans to continue to expand the reach of its E365 subscription within its enterprise accounts, invest in its Virtuosity business and estore, and catalyze the infrastructure digital twin ecosystem.

Management Comments

• The company's purpose is to advance the world's infrastructure for a better quality of life.
• The company empowers people to design, build, and operate better and more resilient infrastructure through the adoption of its intelligent digital twin solutions.
• The company's enduring commitment is to develop and support the most comprehensive portfolio of integrated software offerings across professional disciplines, project and asset lifecycles, infrastructure sectors, and geographies.

Industry Context

The company operates in the infrastructure engineering software market, which is highly competitive and subject to change. The company competes against large, global, publicly-traded companies and smaller, niche firms. The company believes that the growing adoption of infrastructure digital twins will serve to overcome the factors that have held back the digital advancement of infrastructure engineering and will facilitate the broader use of engineering data in the operation of infrastructure assets.

Comparison to Industry Standards

• Bentley Systems competes with companies like Autodesk, Trimble, Hexagon, AVEVA, Dassault Systèmes, Oracle, Aspen Technology, Esri, and General Electric.
• While no competitor offers a portfolio as comprehensive as Bentley's, they face strong competition in various infrastructure lifecycle phases and sectors.
• Bentley distinguishes itself through its commitment to integration and interoperability across the entire infrastructure lifecycle, flexible commercial models, and direct sales channels.
• The company's focus on digital twins and its comprehensive portfolio positions it well in the evolving infrastructure engineering software market.

Related Party Transactions

• In January 2022, the company sold 50% of its interest in its aircraft to an entity controlled by the company's Chief Executive Officer.

Stakeholder Impact

• Shareholders will benefit from the company's revenue growth and strategic initiatives.
• Employees may be impacted by the strategic realignment program.
• Customers will benefit from the company's continued investment in its software solutions.
• Suppliers and creditors will be impacted by the company's financial performance.

Next Steps

• The company will continue to expand the reach of its E365 subscription within its enterprise accounts.
• The company will continue to invest in its Virtuosity business and estore.
• The company will continue to catalyze the infrastructure digital twin ecosystem.

Key Dates

Keywords

infrastructure engineering software, digital twins, annual recurring revenue, ARR, subscription revenue, cloud services, software licensing, geoprofessional applications, Bentley Infrastructure Cloud, iTwin Platform