10-Q: Bentley Systems Reports Strong Q3 Growth, Boosted by Subscriptions

Bentley Systems reported robust financial performance for the third quarter and first nine months of 2025, driven by significant growth in subscription revenues and improved operating income.

Summary

• Total revenues for the three months ended September 30, 2025, increased by 12.0% to $375,549 thousand, or 10.6% on a constant currency basis, compared to the same period in 2024.
• Total revenues for the nine months ended September 30, 2025, rose by 10.7% to $1,110,197 thousand, or 10.3% on a constant currency basis, compared to the same period in 2024.
• Subscriptions revenues grew by 13.5% to $344,293 thousand (12.1% constant currency) for the three months and 12.4% to $1,020,063 thousand (12.0% constant currency) for the nine months ended September 30, 2025.
• Annualized Recurring Revenue (ARR) reached $1,405,236 thousand as of September 30, 2025, representing a constant currency growth rate of 10.5% year-over-year.
• The last twelve-month recurring revenues dollar-based net retention rate remained strong at 109% as of September 30, 2025, consistent with the prior year.
• Operating income for the three months ended September 30, 2025, increased to $84,497 thousand from $68,630 thousand in the prior year.
• Operating income for the nine months ended September 30, 2025, increased to $284,111 thousand from $240,738 thousand in the prior year.
• Net income attributable to Bentley Systems for the three months ended September 30, 2025, was $57,373 thousand, up from $42,338 thousand in the prior year.
• Net income attributable to Bentley Systems for the nine months ended September 30, 2025, was $219,223 thousand, up from $184,694 thousand in the prior year.
• Diluted net income per share attributable to Bentley Systems stockholders was $0.18 for the three months and $0.67 for the nine months ended September 30, 2025, compared to $0.13 and $0.57 respectively in the prior year.
• Net cash provided by operating activities for the nine months ended September 30, 2025, was $396,876 thousand, an increase from $353,660 thousand in the prior year.
• The company repurchased 1,457,454 shares of Class B common stock for $65,029 thousand and $10,000 thousand aggregate principal amount of 2026 Notes for $9,797 thousand under its repurchase program during the nine months ended September 30, 2025.
• The company declared quarterly dividends of $0.07 per share in 2025, up from $0.06 per share in 2024.

Sentiment

Score: 8

Explanation: The filing indicates strong financial performance with double-digit revenue and subscription growth, improved profitability, robust ARR, and healthy cash flow. The company is actively managing its capital structure through share repurchases and debt reduction. While there are minor concerns regarding services revenue and geopolitical risks in China, the overall outlook and current results are very positive.

Positives

• Strong overall revenue growth of 12.0% (10.6% constant currency) for Q3 2025 and 10.7% (10.3% constant currency) for YTD 2025.
• Significant increase in subscription revenues, up 13.5% (12.1% constant currency) in Q3 and 12.4% (12.0% constant currency) YTD, indicating a healthy recurring revenue model.
• Consistent ARR growth rate of 10.5% on a constant currency basis, demonstrating continued business expansion.
• High recurring revenues dollar-based net retention rate of 109%, showing strong customer loyalty and expansion within existing accounts.
• Substantial increase in operating income for both the three and nine-month periods, reflecting improved operational efficiency.
• Net income attributable to Bentley Systems increased by 35.5% in Q3 and 18.7% YTD, indicating enhanced profitability.
• Diluted EPS increased from $0.13 to $0.18 in Q3 and from $0.57 to $0.67 YTD.
• Net cash provided by operating activities increased by $43,216 thousand for the nine months ended September 30, 2025, strengthening liquidity.
• Lower interest expense, net, due to reduced weighted average debt outstanding under credit facilities.
• Company repurchased Class B common stock and convertible senior notes, signaling confidence in intrinsic value and returning capital to shareholders.
• The One Big Beautiful Bill Act (OBBBA) is expected to have a favorable impact on cash paid for income taxes in 2025 and 2026, particularly from restoring immediate U.S. tax deductions for R&D expenses.
• The company is in compliance with all debt covenants under its Credit Facility and convertible notes.

Negatives

• Services revenues decreased by 1.5% (2.8% constant currency) for the three months and 8.8% (9.3% constant currency) for the nine months ended September 30, 2025, primarily due to weakness in Asset Performance Services.
• Perpetual licenses revenues were flat or slightly down, indicating a shift or stagnation in this revenue stream.
• The effective tax rate for the three months ended September 30, 2025, was higher at 31.4% compared to 28.1% in the prior year, primarily due to increased discrete tax expenses.
• The effective tax rate for the nine months ended September 30, 2025, was higher at 20.2% compared to 19.3% in the prior year, due to a decrease in discrete tax benefits.
• Geopolitical challenges and obstacles to cloud-deployed software in China continue to create uncertainty for future results in that region.

Risks

• Future results in China remain uncertain due to continued geopolitical challenges and obstacles to cloud-deployed software.
• The financial timing impact of the preference for license sales rather than subscriptions in China poses a risk to revenue recognition.
• The company operates in a very competitive and rapidly changing environment, with new risks emerging over time.
• Management cannot predict all risks or assess the impact of all factors that may cause actual results to differ materially from forward-looking statements.
• Failure to comply with debt covenants under the Credit Facility, 2026 Notes, and 2027 Notes could lead to default and immediate repayment obligations.
• Future capital requirements may differ from current plans due to factors like acquisition strategy, revenue growth rate, R&D spending, market acceptance, and competitive factors.
• The company may need to seek additional equity or debt financing if current liquidity sources are insufficient, potentially leading to stockholder dilution or new restrictive debt covenants.
• The declaration and payment of future dividends are at the discretion of the Board of Directors and subject to various factors, including financial condition and debt agreement limitations.
• The SEC's final rule on climate-related disclosures is currently stayed, creating uncertainty regarding future compliance requirements and potential impact on financial statements disclosures.

Future Outlook

Management expects continued favorable growth in recurring revenues due to strong account retention, recurring revenues dollar-based net retention rates, and the addition of new accounts. The One Big Beautiful Bill Act (OBBBA) is anticipated to favorably impact cash paid for income taxes in 2025 and 2026, primarily by restoring immediate U.S. tax deductions for domestic research and development expenses, though it is not expected to materially impact the full-year 2025 effective tax rate. The company will continue to monitor the impact of tariffs and other trade policies, as well as geopolitical challenges in China, which introduce uncertainty for future results in that region.

Management Comments

• Our purpose is to advance the world's infrastructure for better quality of life.
• We empower people to design, build, and operate better and more resilient infrastructure through the adoption of our intelligent digital twin solutions.
• We believe that the last three months of recognized revenues, on an annualized basis, for our recurring software subscriptions with consumption measurement period durations of less than one year is a reasonable estimate of the annual revenues, given our consistently high retention rate and stability of usage under such subscriptions.
• We believe that cash generated from operations, together with existing cash and cash equivalent balances, and external borrowings including available liquidity under the Credit Facility, will be sufficient to meet our domestic and international working capital and capital expenditure requirements.
• We regularly review our capital structure and consider a variety of potential financing alternatives and planning strategies to ensure that we have the proper liquidity available in the locations in which it is needed and to fund our operations and growth investments with cash that has not been permanently reinvested outside the U.S.
• We intend to continue paying quarterly dividends, but any future determination will be subject to the discretion of our Board of Directors and will be dependent on a number of factors.

Industry Context

Bentley Systems operates in the infrastructure engineering software industry, which is characterized by rapid change and competition. The company's focus on digital twin solutions aligns with broader industry trends towards digitalization and advanced modeling for infrastructure projects. Its strong subscription revenue growth and high retention rates suggest effective adaptation to market demands and a competitive edge in retaining and expanding its customer base. The mention of geopolitical challenges in China and obstacles to cloud-deployed software highlights regional market complexities that can impact global software providers.

Comparison to Industry Standards

• The recurring revenues dollar-based net retention rate of 109% is a strong indicator, often considered excellent in the SaaS industry, suggesting that existing customers are not only retained but are also increasing their spending with Bentley Systems. This compares favorably to many enterprise software companies that aim for 100-120% net retention.
• The constant currency ARR growth rate of 10.5% demonstrates solid, double-digit growth, which is competitive within the mature segments of the enterprise software market, particularly for a company of Bentley Systems' scale.
• The increase in operating income and net income, alongside revenue growth, indicates efficient management and cost control, which is a positive signal compared to industry peers that might prioritize growth at the expense of profitability.

Management Changes

Corporate Governance

Legal Proceedings

• The company is subject from time to time to various legal actions arising in the ordinary course of business.
• Management believes the outcome of such actions is not expected to have a material adverse effect on the company's future financial position, results of operations, or cash flows.
• The company currently believes it does not have any material litigation pending against it.

Stakeholder Impact

• Shareholders: Positive impact from strong financial results, increased dividends, and share repurchases. Potential dilution from the physical settlement of 2026 Notes.
• Employees: Benefit from stock-based compensation plans (RSUs, Bonus Plan, ESPP) and deferred compensation plans. Headcount-related costs increased in R&D and S&M, indicating investment in personnel.
• Customers: Continued expansion of subscriptions revenues and high retention rates suggest strong customer satisfaction and value from Bentley Systems' software solutions.
• Creditors: Reduced long-term debt and compliance with debt covenants indicate a healthy financial position, reducing credit risk.
• Suppliers: Increased cloud-related costs suggest continued investment in cloud infrastructure, benefiting cloud service providers.

Next Steps

• The company will continue to evaluate the impact of ASU 2025-06 (Internal-Use Software) and ASU 2025-05 (Credit Losses for Accounts Receivable) on its consolidated financial statements.
• The company will continue to monitor the status of the SEC's climate-related disclosure rule pending the courts ultimate decision.
• Management 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 intends to continue paying quarterly dividends, subject to Board discretion and financial factors.
• The company will be required to repay the outstanding principal amount on the 2026 Notes upon maturity in January 2026, unless converted, with the company having the ability and intent to refinance them on a long-term basis.

Key Dates

Recommendation

Bentley Systems demonstrates exceptional financial health and growth momentum. Double-digit revenue and subscription growth, coupled with a high ARR growth rate and strong net retention, indicate a robust business model and expanding market presence. The significant increase in operating income and net income points to effective cost management and profitability. Furthermore, the company's proactive capital management, including share repurchases and debt reduction, enhances shareholder value. While minor headwinds exist in services revenue and geopolitical uncertainties in China, the overall performance and strategic positioning in the critical infrastructure engineering software market make Bentley Systems a compelling 'strong buy' for long-term investors.

Keywords

Infrastructure Engineering Software, Digital Twin Solutions, Subscriptions Revenue, Annual Recurring Revenue (ARR), Software Development, Cloud Services, Financial Performance, SEC Filing, Q3 2025 Earnings, Corporate Governance, Share Repurchase, Convertible Notes