10-Q: Bentley Systems Reports Strong Subscription Growth in Q2

Bentley Systems, Incorporated reported robust subscription revenue growth and increased cash flow from operations for the second quarter and first half of 2025.

Summary

• Total revenues for the three months ended June 30, 2025, increased by 10.2% to $364.1 million, or 9.2% on a constant currency basis, compared to the same period in 2024.
• Subscriptions revenues grew 12.1% to $333.5 million for the quarter, or 11.2% on a constant currency basis, driven by expansion from existing accounts and 3% growth from new accounts.
• Annual Recurring Revenue (ARR) reached $1,379.2 million as of June 30, 2025, representing an 11.5% constant currency growth rate year-over-year.
• The last twelve-month recurring revenues dollar-based net retention rate improved to 109% as of June 30, 2025, up from 108% in the prior year.
• Net income attributable to Bentley Systems for the three months ended June 30, 2025, was $70.5 million, a slight decrease from $72.0 million in the prior year, while diluted EPS remained flat at $0.22.
• For the six months ended June 30, 2025, net income attributable to Bentley Systems increased to $161.9 million from $142.4 million in 2024, with diluted EPS rising to $0.50 from $0.44.
• Net cash provided by operating activities for the six months ended June 30, 2025, was $280.5 million, an increase from $267.6 million in the prior year.
• The company repurchased 1,173,041 shares of Class B common stock for $50.0 million and $10.0 million aggregate principal amount of 2026 Notes for $9.8 million under its repurchase program during the first half of 2025.
• Long-term debt decreased to $1,245.8 million as of June 30, 2025, from $1,388.1 million at December 31, 2024.

Sentiment

Score: 8

Explanation: The company demonstrates strong performance in its core subscription business with healthy revenue and ARR growth, coupled with excellent customer retention. Increased operating cash flow and reduced debt further strengthen its financial position. While there are minor declines in perpetual licenses and services revenue, and increased operating expenses, the overall trend is positive, indicating a well-managed and growing business.

Positives

• Strong subscription revenue growth of 12.1% (11.2% constant currency) for the quarter, indicating robust demand for core offerings.
• Annual Recurring Revenue (ARR) grew 11.5% on a constant currency basis, demonstrating consistent business expansion.
• Improved recurring revenues dollar-based net retention rate of 109%, showing effective retention and growth within existing customer accounts.
• Increased net cash provided by operating activities to $280.5 million for the six-month period, reflecting strong cash generation.
• Reduction in long-term debt from $1,388.1 million to $1,245.8 million, improving the company's financial leverage.
• Ongoing share repurchase program, with $113.4 million remaining available, signals confidence in intrinsic value and commitment to shareholder returns.
• Anticipated favorable impact on cash paid for income taxes in 2025 due to the One Big Beautiful Bill Act (OBBBA), particularly from restored U.S. tax deductions for domestic R&D expenses.

Negatives

• Perpetual licenses revenues decreased by 6.2% (7.0% constant currency) for the three months ended June 30, 2025.
• Services revenues declined by 7.1% (8.6% constant currency) for the quarter, primarily due to weakness within Asset Performance Services.
• Net income for the three months ended June 30, 2025, slightly decreased to $70.5 million from $72.0 million in the prior year.
• Research and development expenses increased by 14.7% (14.5% constant currency) for the quarter due to higher headcount and compensation costs.
• Selling and marketing expenses increased by 22.3% (21.8% constant currency) for the quarter due to higher headcount, compensation, and promotional costs.

Risks

• No material changes from the risk factors previously disclosed in the 2024 Annual Report on Form 10-K were identified in this filing.
• Future results in China remain uncertain due to geopolitical challenges, obstacles to cloud-deployed software, and the financial timing impact of the preference for license sales over subscriptions.
• The company's ability to obtain additional financing on favorable terms or at all is not assured, which could impact future business activities and requirements.
• Compliance with debt covenants is critical; any failure could prevent additional borrowings or trigger immediate repayment of outstanding amounts.

Future Outlook

The company anticipates a favorable impact on cash paid for income taxes in 2025, primarily due to the One Big Beautiful Bill Act (OBBBA) restoring immediate U.S. tax deductions for domestic research and development expenses, though the full impact is still being evaluated. Management continues to monitor geopolitical challenges and market preferences in regions like China, which may affect future results. The company expects to meet its domestic and international working capital and capital expenditure requirements through cash from operations, existing balances, and available credit facilities.

Management Comments

• The increase in subscriptions revenues was driven by improvements in business performance, primarily from expansion within existing accounts and growth from new smalland medium-sized accounts.
• Improvements in business performance were led by engineering applications, followed by geoprofessional applications, and the Bentley Infrastructure Cloud.
• The decrease in general and administrative expenses was mainly due to lower incentive compensation expense related to the reduction in Gregory S. Bentley's fractional interest under the Bonus Plan as part of his transition to Executive Chair.
• 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.

Industry Context

Bentley Systems operates in the infrastructure engineering software sector, providing solutions that enable the design, construction, and operation of infrastructure assets. The company's focus on intelligent digital twin solutions aligns with broader industry trends towards digitalization and advanced modeling in infrastructure projects. The continued growth in subscriptions and ARR, particularly from existing accounts, suggests strong adoption and reliance on their software within the engineering and construction industries. The decline in perpetual licenses and services revenue, while minor in the context of overall growth, may indicate a shift in customer preference towards subscription models and potentially a more competitive or mature services market.

Comparison to Industry Standards

• The filing does not provide specific comparable companies, projects, or results for direct industry standard comparisons. However, the 109% recurring revenues dollar-based net retention rate is a strong indicator of customer satisfaction and product value, generally considered excellent in the SaaS industry, often benchmarked against companies like Salesforce or Adobe which typically aim for 120%+, but 109% is still very healthy for a mature software company.
• The 99% account retention rate is exceptionally high, suggesting very low customer churn, which is a positive sign for long-term revenue stability and growth, comparable to best-in-class enterprise software providers.

Management Changes

Corporate Governance

Legal Proceedings

• No material litigation pending against the company.
• The company is subject to various legal actions and claims arising in the ordinary course of business, but management believes their outcome is not expected to have a material adverse effect on financial position, results of operations, or cash flows.

Stakeholder Impact

• Shareholders: Positive impact from increased dividends ($0.07/share vs. $0.06/share) and ongoing share repurchase program, indicating management's commitment to returning capital.
• Employees: Increased headcount-related costs in R&D and S&M suggest continued investment in talent. The Career Stock Program and Deferred Compensation Plan provide long-term incentives.
• Customers: Strong subscription growth and high retention rates indicate continued satisfaction and reliance on Bentley's software solutions.
• Creditors: Reduced long-term debt and compliance with debt covenants improve the company's credit profile and financial stability.

Next Steps

• Continue evaluating the full impact of the One Big Beautiful Bill Act (OBBBA) on consolidated financial statements.
• Monitor the status of the SEC's climate-related disclosure rule pending judicial review.
• Evaluate the impact of ASU 2024-03 and ASU 2023-09 on consolidated financial statements disclosures.
• Continue to determine the timing, number, and value of shares and/or outstanding convertible senior notes repurchased under the BSY Stock Repurchase Program.
• 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.

Key Dates

Recommendation

Bentley Systems demonstrates consistent and strong performance in its core subscription business, evidenced by robust revenue and ARR growth, coupled with an impressive 109% net retention rate. The company's ability to generate significant operating cash flow, reduce long-term debt, and actively engage in share repurchases signals sound financial management and a commitment to shareholder value. While there are minor headwinds in perpetual licenses and services revenue, and increased operating expenses, these are offset by the strength of the recurring revenue model and the anticipated favorable tax impacts from recent legislation. The company's strategic position in the critical infrastructure engineering software market, combined with its financial discipline, makes it an attractive long-term investment.

Keywords

Infrastructure Engineering Software, Digital Twin, Subscriptions, ARR, Software, CAD, BIM, Construction, Operations, Asset Performance, SEC Filing, 10-Q