10-Q: Bentley Systems Reports 7.4% Revenue Increase in Q1 2024, Driven by Subscription Growth

Bentley Systems saw a 7.4% increase in total revenue in the first quarter of 2024, primarily driven by a 10.5% rise in subscription revenue.

Summary

• Bentley Systems reported a 7.4% increase in total revenue for the first quarter of 2024, reaching $337.76 million, compared to $314.41 million in the same period last year.
• Subscription revenues grew by 10.5% to $307.09 million, while perpetual licenses remained relatively flat at $9.51 million.
• Services revenue decreased by 21.7% to $21.16 million.
• The company's Annual Recurring Revenue (ARR) reached $1,186.46 million as of March 31, 2024, representing an 11% growth rate on a constant currency basis.
• The last twelve-month recurring revenues dollar-based net retention rate was 108%, slightly down from 110% in the previous year.
• Operating income increased to $91.93 million, compared to $65.79 million in the first quarter of 2023.
• Adjusted Operating Income with Stock-Based Compensation (Adjusted OI w/SBC) was $112.35 million, up from $90.46 million in the prior year.
• Cash flow from operations was $204.97 million, compared to $176.22 million in the same period last year.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with strong revenue growth, particularly in subscriptions, and improved profitability. While there are some challenges, the overall tone is optimistic and indicates a healthy business performance.

Positives

• Subscription revenue growth was strong, increasing by 10.5%.
• ARR showed a healthy 11% growth rate on a constant currency basis.
• Operating income and Adjusted OI w/SBC both saw significant year-over-year increases.
• Cash flow from operations improved compared to the same period last year.
• The company maintains a high account retention rate of 99%.

Negatives

• Services revenue declined by 21.7% year-over-year.
• The recurring revenues dollar-based net retention rate decreased slightly to 108% from 110% in the prior year.
• There was a decrease in revenue from China due to geopolitical challenges and a preference for license sales over subscriptions.

Risks

• The company faces risks related to foreign currency exchange rate fluctuations.
• Geopolitical challenges and the preference for license sales over subscriptions in China could impact future revenue.
• The company's debt covenants could restrict its ability to borrow additional funds or pay dividends.
• The company's future capital requirements may be materially different than those currently planned.
• The company is subject to various legal proceedings and claims which arise in the ordinary course of business.

Future Outlook

The company expects to continue to experience favorable growth in recurring revenues due to strong account retention and recurring revenues dollar-based net retention rates, as well as the addition of new accounts with recurring revenues. The company also expects to substantially pay the remainder of termination benefits to colleagues in connection with its 2023 Program by the end of the second quarter of 2024.

Management Comments

• The company's purpose is to advance the world's infrastructure for 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.
• Management uses Adjusted OI w/SBC to understand and compare operating results across accounting periods, for internal budgeting and forecasting purposes, to evaluate financial performance, and in comparison of financial results to those of other companies.

Industry Context

The company's focus on digital twin solutions aligns with the broader industry trend of leveraging technology to improve infrastructure design, construction, and operation. The growth in subscription revenue reflects the industry's shift towards software-as-a-service models.

Comparison to Industry Standards

• Bentley's ARR growth of 11% is a strong indicator of its recurring revenue base and is comparable to other software companies in the infrastructure and engineering space.
• The company's recurring revenue dollar-based net retention rate of 108% is a good result, although slightly down from the previous year, and is a key metric for SaaS businesses.
• The company's operating income growth is a positive sign of its operational efficiency and is comparable to other established software companies.
• The company's focus on digital twin technology is a differentiator in the market and is a key driver of its growth.

Stakeholder Impact

• Shareholders will benefit from the company's strong financial performance and share repurchase program.
• Employees will be impacted by the company's strategic realignment program.
• Customers will benefit from the company's continued investment in its software solutions.

Next Steps

• The company will continue to focus on growing its recurring revenue base.
• The company will continue to evaluate whether share awards will be required to be received by awardees on a gross basis, or if net settlement may be elected by awardees.
• The company expects to substantially pay the remainder of termination benefits to colleagues in connection with its 2023 Program by the end of the second quarter of 2024.

Key Dates

Keywords

subscriptions, ARR, recurring revenue, software, infrastructure, digital twin, licenses, Bentley Systems, financial results, operating income