Bentley(BSY) - 2024 Q4 - Annual Report

Part I: Business and Risk Factors Business Overview Bentley Systems provides global infrastructure engineering software, enabling design, construction, and operation of infrastructure assets through diversified revenue and digital twin solutions - Bentley Systems defines itself as the "infrastructure engineering software company," focused on empowering users to design, build, and operate better infrastructure through intelligent digital twin solutions[18] Sector-Attributable Annualized Recurring Revenues (ARR) Breakdown | Sector | Attributable ARR % | | :--- | :--- | | Public Works/Utilities | 59% | | Resources | 27% | | Industrial | 9% | | Commercial/Facilities | 5% | - The company serves over 41,000 accounts in 189 countries. Revenue is split between engineering/construction firms (51% in 2024) and infrastructure asset owners/operators (49% in 2024)[55] - The sales model is predominantly direct, with account managers and the Virtuosity e-store generating approximately 93% of 2024 total revenues. Channel partners account for the remaining 7%[56] - No single account represented more than 2% of total revenues in 2024, 2023, or 2022, indicating a low level of customer concentration[58] Products and Solutions Bentley Systems offers a comprehensive portfolio of engineering, geoprofessional, and cloud applications for infrastructure design and operation - The company's portfolio includes Bentley Open engineering applications (e.g., MicroStation, OpenRoads), Seequent geoprofessional applications (e.g., Leapfrog, PLAXIS), and the Bentley Infrastructure Cloud (ProjectWise, SYNCHRO, AssetWise) for enterprise collaboration[23][27][30] - The core technology platform, Cesium and iTwin Platform, was enhanced by the acquisition of Cesium in September 2024, enabling the creation and use of infrastructure digital twins[24][35] - Bentley Asset Analytics solutions (e.g., Blyncsy, OpenTower iQ) utilize AI-powered digital twins to provide real-time insights and automate workflows for optimizing asset performance[34][37] Digital Twins Opportunity and AI Integration Bentley Systems leverages digital twin technology to unify market spaces and integrates AI to enhance productivity in infrastructure design and maintenance - The company believes the shift from siloed CAD/BIM and GIS systems to unified, "evergreen" infrastructure digital twins will merge separate market spaces and create new use cases[44][45] - Artificial Intelligence (AI) is being integrated to enhance productivity, with examples including generative AI for civil site design and AI agents for maintenance issue identification[46] Growth Initiatives Key growth initiatives include expanding consumption-based subscriptions, scaling SMB business through digital channels, and accelerating digital twin adoption via ecosystem development - Key growth initiatives include expanding the E365 consumption-based subscription model for enterprise accounts, investing in the Virtuosity e-store for SMBs, and accelerating digital twin adoption through its Cohesive business[57] Competition The company faces strong competition across various sectors and lifecycle phases, but believes it competes favorably due to its comprehensive portfolio and direct sales channels - The company faces strong competition across different sectors and lifecycle phases, though no single competitor offers a portfolio as comprehensive, with key competitors including Autodesk, Trimble, and Hexagon AB[61][63] - Principal competitive factors include product features, reliability, openness, price, and brand reputation, with Bentley believing it competes favorably due to its comprehensive portfolio and flexible commercial models[64] Human Capital Management Bentley Systems employs approximately 5,500 full-time colleagues globally and implements a hybrid work strategy through its Infrastructure Empowered Workforce Plan - As of December 31, 2024, the company had approximately 5,500 full-time colleagues globally[75] Employee Distribution by Region | Region | Number of Colleagues | | :--- | :--- | | Americas | ~2,200 | | EMEA | ~1,500 | | APAC | ~1,800 | - The company has implemented the Infrastructure Empowered Workforce Plan (IEWP), a global strategy combining in-office collaboration with remote work flexibility[77] Risk Factors The company faces multiple risks including demand volatility, international market exposure, IT and IP vulnerabilities, debt covenants, and concentrated voting control from its dual-class stock structure - Business & Industry Risks: Demand is subject to volatility in infrastructure sectors, with approximately 58% of total revenues for 2022-2024 from outside the U.S., exposing the company to foreign economic, political, and currency exchange risks[87][89][93] - IT & IP Risks: The business is vulnerable to interruptions in IT systems, security breaches, and unauthorized data access, and is subject to increasingly complex global data privacy laws (e.g., GDPR, PIPL, CCPA)[110][111][116] - Debt Risks: The credit facility contains restrictive covenants, with a significant risk that if the Bentley Family's collective ownership of voting power falls below 20%, it would constitute an event of default[141][142] - Stock & Governance Risks: The dual-class stock structure (Class A: 29 votes/share, Class B: 1 vote/share) concentrates approximately 53.5% of voting power with the Bentley Control Group, limiting public stockholder influence[154][155] - AI-Related Risks: The increasing use of AI in software solutions exposes the company to potential new regulations, lawsuits, and reputational harm if not managed properly[108][109] Cybersecurity Bentley Systems maintains a comprehensive cybersecurity risk management program overseen by its CISO and the full Board of Directors, with no material impact from threats to date - The company has a formal process for identifying, analyzing, and managing cybersecurity risks, led by a dedicated Information Security Team and CISO with over 15 years of experience[162][163] - The full Board of Directors, in conjunction with the Audit Committee, has ultimate oversight responsibility for cybersecurity risks and incidents[165] - To date, the company's business, operations, and financial condition have not been materially affected by risks from cybersecurity threats[166] Part II: Financial Information Market for Common Equity and Related Matters Bentley Systems' Class B common stock trades on Nasdaq, with the company paying quarterly dividends and executing a stock repurchase program authorized for up to $200 million - The company paid quarterly dividends of $0.06 per share in 2024, up from $0.05 in 2023 and $0.03 in 2022[175] Class B Common Stock Repurchases (Q4 2024) | Period | Shares Purchased | Average Price Paid | Value of Shares Remaining Under Plan | | :--- | :--- | :--- | :--- | | Nov 1-30, 2024 | 379,996 | $48.90 | $173,154,860 | - In March 2024, the Board of Directors authorized the repurchase of up to $200 million of Class B common stock and/or convertible senior notes through June 30, 2026[181] Management's Discussion and Analysis (MD&A) In FY2024, Bentley Systems achieved $1.35 billion in total revenues, a 10.1% increase, driven by strong subscription growth and a 110% recurring revenues dollar-based net retention rate, maintaining strong liquidity 2024 Financial Highlights | Metric | 2024 Value | YoY Change (Constant Currency) | | :--- | :--- | :--- | | Total Revenues | $1,353.1 M | +10.3% | | Subscriptions Revenues | $1,223.4 M | +13.4% | | ARR (Year-End) | $1,283.3 M | +12.0% | | Recurring Revenues Net Retention | 110% | N/A | | Operating Income | $302.2 M | N/A | | Adjusted OI w/SBC (Non-GAAP) | $372.2 M | N/A | | Cash Flow from Operations | $435.3 M | N/A | Results of Operations Total revenues increased by 10.1% in 2024, primarily driven by a 13.2% growth in subscription revenues, partially offset by a decline in services revenue Revenues by Type (in thousands) | Revenue Type | 2024 | 2023 | % Change | | :--- | :--- | :--- | :--- | | Subscriptions | $1,223,362 | $1,080,307 | 13.2% | | Perpetual licenses | $45,961 | $46,038 | (0.2%) | | Services | $83,772 | $102,068 | (17.9%) | | Total revenues | $1,353,095 | $1,228,413 | 10.1% | Revenues by Geographic Region (in thousands) | Region | 2024 | 2023 | % Change | | :--- | :--- | :--- | :--- | | Americas | $717,002 | $650,926 | 10.2% | | EMEA | $388,384 | $353,550 | 9.9% | | APAC | $247,709 | $223,937 | 10.6% | | Total revenues | $1,353,095 | $1,228,413 | 10.1% | - The increase in total revenues was driven by a $143.1 million improvement in subscriptions business performance, led by engineering applications and Seequent geoprofessional applications, partially offset by an $18.3 million decline in services revenues[194][195][197] - The 2023 Program, a strategic realignment, resulted in costs of $0.8 million in 2024 and $12.6 million in 2023, primarily for employee termination benefits[205] - The effective tax rate was 20.0% in 2024, compared to (78.0%) in 2023, with the 2023 rate significantly impacted by a one-time net discrete tax benefit of $170.8 million from an internal legal entity restructuring[229][231] Key Business Metrics Key business metrics show strong ARR growth of 12% in constant currency and a recurring revenues dollar-based net retention rate of 110%, with consumption-based offerings growing to 50% of total ARR Key Business Metrics Comparison | Metric (Constant Currency) | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | :--- | | ARR | $1,283.3 M | $1,174.8 M | $1,036.5 M | | ARR Growth Rate | 12% | 12.5% | 15% | | Account Retention Rate | 99% | 98% | 98% | | Recurring Revenues Dollar-Based Net Retention Rate | 110% | 109% | 110% | - ARR from consumption-based offerings (like E365) is growing as a percentage of total ARR, reaching 50% as of Dec 31, 2024, up from 47% in 2023 and 43% in 2022[237] Non-GAAP Financial Measures The company's primary non-GAAP measure is Adjusted Operating Income inclusive of stock-based compensation (Adjusted OI w/SBC), which adjusts operating income for specific non-cash and acquisition-related expenses - The company's primary non-GAAP performance measure is Adjusted Operating Income inclusive of stock-based compensation expense (Adjusted OI w/SBC), defined as operating income adjusted for amortization of purchased intangibles, deferred compensation plan expense/income, acquisition expenses, and realignment expenses[250][251][253] Reconciliation of Operating Income to Adjusted OI w/SBC (in thousands) | Line Item | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Operating income | $302,150 | $230,542 | $208,612 | | Amortization of purchased intangibles | $46,679 | $51,219 | $53,592 | | Deferred compensation plan | $12,382 | $13,580 | $(15,782) | | Acquisition expenses | $10,222 | $17,866 | $25,398 | | Realignment expenses | $789 | $11,470 | $2,109 | | Adjusted OI w/SBC | $372,222 | $324,677 | $273,929 | Liquidity and Capital Resources The company maintains strong liquidity with $435.3 million in operating cash flow for 2024, a new $1.3 billion credit facility, and $1.39 billion in total debt, with most cash held overseas - As of December 31, 2024, the company held $64.0 million in cash and cash equivalents, with approximately 96% held by foreign subsidiaries[261][104] - Net cash provided by operating activities was $435.3 million for the year ended December 31, 2024, compared to $416.7 million in the prior year[265][266] - In October 2024, the company entered into a new credit agreement providing a $1.3 billion revolving credit facility, used to repay all indebtedness under the previous 2017 facility[270] Contractual Obligations as of Dec 31, 2024 (in thousands) | Obligation Type | Total | Long-Term | | :--- | :--- | :--- | | Debt Obligations | $1,398,145 | $1,398,145 | | Purchase Obligations | $113,700 | $54,500 | | DCP Obligations | $100,482 | $96,684 | Critical Accounting Estimates Key accounting estimates requiring significant judgment include revenue recognition, goodwill and intangibles impairment testing, and income tax assessments due to complex global tax laws - Key estimates requiring significant judgment include revenue recognition (determining standalone selling price and estimating usage of 'portfolio balancing' material right), goodwill and intangibles (annual impairment testing), and income taxes (assessing deferred tax asset recoverability and applying complex global tax laws)[284][285][287][291] Market Risk Disclosures The company's primary market risks are foreign currency exchange rates, with 58% of revenue from outside the U.S., and interest rates on its floating-rate debt, partially mitigated by an interest rate swap - Foreign Currency Risk: Approximately 58% of 2024 revenue was derived from outside the U.S., with 34% denominated in non-USD currencies; a hypothetical 10% strengthening of the U.S. dollar would have reduced 2024 annual operating income by about $1.5 million[295] - Interest Rate Risk: The company is exposed to interest rate fluctuations on its Credit Facility, partially hedged by a $200 million notional value interest rate swap, fixing the rate on a portion of its debt[296] Financial Statements and Supplementary Data The consolidated financial statements, audited by KPMG LLP with an unqualified opinion, detail the company's financial position, operations, and key accounting notes including revenue disaggregation, acquisitions, debt structure, and a significant 2023 tax benefit Report of Independent Registered Public Accounting Firm KPMG LLP issued an unqualified opinion on the consolidated financial statements and internal controls, identifying IT systems for revenue recognition as a Critical Audit Matter - KPMG LLP issued an unqualified (clean) opinion on both the consolidated financial statements and the effectiveness of the company's internal control over financial reporting as of December 31, 2024[341] - The audit identified one Critical Audit Matter (CAM): the evaluation of IT systems used in recognizing subscriptions and licenses revenues, due to high transaction volume across multiple IT systems requiring subjective auditor judgment[349][350] Consolidated Financial Statements The consolidated financial statements provide a snapshot of the company's financial position, operations, and cash flows for the periods ended December 31, 2024 Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total Assets | $3,399,807 | $3,319,850 | | Goodwill | $2,367,179 | $2,269,336 | | Total Liabilities | $2,358,687 | $2,435,868 | | Total Debt (Current & Long-Term) | $1,388,088 | $1,528,403 | | Total Equity | $1,041,120 | $883,982 | Consolidated Statement of Operations Highlights (in thousands) | Account | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Total Revenues | $1,353,095 | $1,228,413 | $1,099,082 | | Gross Profit | $1,095,328 | $962,330 | $862,069 | | Income from Operations | $302,150 | $230,542 | $208,612 | | Net Income | $234,433 | $326,787 | $174,780 | | Diluted EPS | $0.72 | $1.00 | $0.55 | Selected Notes to Consolidated Financial Statements Key notes detail revenue recognition, significant acquisitions like PLS, the $1.39 billion debt structure including convertible notes, dividend payments, share repurchases, and a $170.8 million tax benefit in 2023 - Note 3 (Revenue): Total license-related revenues (perpetual and term) recognized upfront were $679.8 million in 2024, up from $592.7 million in 2023[392] - Note 4 (Acquisitions): The company completed 3 acquisitions in 2024 for net cash of $130.4 million, and the significant platform acquisition of PLS in 2022 for $696.0 million in net cash[415][416] - Note 10 (Debt): As of Dec 31, 2024, total debt was $1.39 billion, primarily consisting of the $135.3 million revolving loan, $687.8 million in 2026 convertible notes, and $575.0 million in 2027 convertible notes[453] - Note 13 (Equity): The company declared and paid total dividends of $72.1 million ($0.24/share) in 2024, and repurchased 1.3 million shares for $64.4 million under its stock repurchase program[518][510] - Note 16 (Income Taxes): A 2023 internal legal entity restructuring to align IP ownership resulted in a net discrete income tax benefit of $170.8 million, significantly impacting the 2023 effective tax rate[548] - Note 22 (EPS): Diluted EPS was calculated based on net income of $241.6 million and 333.8 million weighted average shares for 2024[589]