Bentley(BSY) - 2021 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Unaudited Consolidated Financial Statements This section presents Bentley Systems, Incorporated's unaudited consolidated financial statements as of June 30, 2021, and for the three and six-month periods then ended Consolidated Balance Sheets As of June 30, 2021, total assets increased to $2.45 billion from $1.13 billion, primarily due to acquisitions, while total liabilities rose to $1.98 billion from $784 million due to new long-term debt Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total Assets | $2,454,115 | $1,126,035 | | Goodwill | $1,593,670 | $581,174 | | Intangible assets, net | $262,234 | $45,627 | | Total Liabilities | $1,982,301 | $784,436 | | Long-term debt | $1,269,842 | $246,000 | | Total Stockholders' Equity | $471,814 | $341,599 | - The significant increase in Goodwill and Intangible assets is primarily attributable to the acquisition of Seequent Holdings Limited in June 2021[33][73] - The increase in long-term debt is due to the private offerings of $690 million in 0.125% convertible senior notes due 2026 and $575 million in 0.375% convertible senior notes due 2027[34][35] Consolidated Statements of Operations For Q2 2021, total revenues grew 21.0% year-over-year to $222.9 million, with net income increasing to $44.9 million, primarily driven by subscription revenues despite increased operating expenses Key Operating Results (in thousands, except per share data) | Metric | Q2 2021 | Q2 2020 | YTD 2021 | YTD 2020 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $222,931 | $184,290 | $444,936 | $378,980 | | Subscriptions Revenue | $185,452 | $157,655 | $373,577 | $327,837 | | Gross Profit | $169,480 | $147,585 | $342,196 | $305,016 | | Income from Operations | $32,223 | $44,591 | $87,870 | $90,552 | | Net Income | $44,910 | $39,076 | $101,916 | $68,745 | | Diluted EPS | $0.14 | $0.13 | $0.32 | $0.23 | Consolidated Statements of Cash Flows For the six months ended June 30, 2021, net cash from operations was $149.0 million, while investing activities used $1.01 billion primarily for acquisitions, funded by $866.5 million from financing activities Cash Flow Summary for the Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $149,022 | $136,182 | | Net cash used in investing activities | ($1,008,001) | ($78,979) | | Net cash provided by (used in) financing activities | $866,510 | ($52,556) | | Increase in cash and cash equivalents | $9,148 | $4,415 | - Investing activities were dominated by $1.0 billion used for acquisitions, net of cash acquired, a substantial increase from $67.6 million in the prior year period[26] - Financing activities were primarily driven by $1.23 billion in proceeds from convertible senior notes, partially offset by repayments of credit facilities ($790.8 million) and the purchase of capped call options ($51.6 million)[26] Notes to Consolidated Financial Statements This section details accounting policies and significant events, including the Seequent acquisition, new convertible notes, and the early adoption of ASU 2020-06 for convertible instruments - On June 17, 2021, the Company completed the acquisition of Seequent Holdings Limited for $911.0 million in cash (net of cash acquired) plus 3,141,342 shares of Class B Common Stock[33] - In 2021, the Company completed two private offerings of convertible senior notes: $690 million of 0.125% notes due 2026 in January, and $575 million of 0.375% notes due 2027 in June[34][35] - The Company early adopted ASU 2020-06, which simplifies the accounting for convertible instruments and requires the use of the if-converted method for calculating diluted EPS[45] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance for the three and six months ended June 30, 2021, highlighting strong revenue growth, the Seequent acquisition's impact, and new debt financing Key Business Metrics As of June 30, 2021, constant currency Annualized Recurring Revenues (ARR) grew 23%, significantly impacted by the Seequent acquisition, while account retention remained high at 98% Key Business Metrics as of June 30 | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Last twelve-months recurring revenues | $746,168 thousand | $665,659 thousand | | ARR growth rate (Constant Currency) | 23% | 11% | | Account retention rate | 98% | 98% | | Recurring revenues dollar-based net retention rate | 106% | 110% | - The ARR growth rate for the twelve months ended June 30, 2021, was favorably impacted by 13% from the Seequent acquisition[263] Results of Operations For Q2 2021, total revenues increased 21.0% to $222.9 million, driven by subscriptions, while operating expenses rose significantly due to acquisition costs, and net income benefited from a tax benefit Revenue Growth Comparison (Q2 2021 vs Q2 2020) | Revenue Type | Q2 2021 (in thousands) | Q2 2020 (in thousands) | % Change | Constant Currency % Change | | :--- | :--- | :--- | :--- | :--- | | Subscriptions | $185,452 | $157,655 | 17.6% | 13.5% | | Perpetual licenses | $11,391 | $12,379 | (8.0)% | (12.7)% | | Services | $26,088 | $14,256 | 83.0% | 75.1% | | Total Revenues | $222,931 | $184,290 | 21.0% | 16.5% | - General and administrative expenses for Q2 2021 increased by 64.5% (61.4% in constant currency) compared to Q2 2020, primarily due to a $9.2 million increase in acquisition and integration costs related to the Seequent acquisition[351][356] - The effective income tax rate was (79.8)% for Q2 2021, compared to 9.7% for Q2 2020, primarily due to a discrete tax benefit of $29.0 million associated with stock-based compensation in Q2 2021[367] Liquidity and Capital Resources The company's liquidity sources include cash from operations and its credit facility, with significant financing activities in H1 2021 through convertible notes to fund the Seequent acquisition and repay debt - The company completed two major financing activities in H1 2021: a $690 million convertible note offering due 2026 and a $575 million offering due 2027[283] - The credit facility was amended to increase the senior secured revolving loan facility from $500 million to $850 million and extend the maturity to November 2025[379] Cash Flow Summary for Six Months Ended June 30 (in thousands) | Activity | 2021 | 2020 | | :--- | :--- | :--- | | Operating activities | $149,022 | $136,182 | | Investing activities | ($1,008,001) | ($78,979) | | Financing activities | $866,510 | ($52,556) | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's market risk exposure has not changed significantly from its 2020 Annual Report, with the exception of new risks associated with its convertible senior notes - The fair value of the newly issued 2026 and 2027 Convertible Notes is subject to interest rate risk and market risk related to the company's Class B Common Stock price[428] - Capped call options were purchased concurrently with the issuance of the convertible notes to reduce potential shareholder dilution upon conversion[428] Item 4. Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of June 30, 2021, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation as of the end of the period, the principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level[432] - No changes in internal control over financial reporting occurred during the quarter ended June 30, 2021, that have materially affected, or are reasonably likely to materially affect, internal controls[433] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is subject to various legal proceedings in the ordinary course of business but does not anticipate any material adverse effects on its financial condition or results of operations - The company is not currently involved in any material legal proceedings[437] Item 1A. Risk Factors This section refers to the risk factors detailed in the company's 2020 Annual Report on Form 10-K, which could materially affect the business - The company directs investors to review the risk factors detailed in its 2020 Annual Report on Form 10-K for potential risks that could materially affect the business[439] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2021, the company issued Class B Common Stock for the Seequent acquisition and its deferred compensation plan, exempt from registration under the Securities Act - Issued 3,141,342 shares of Class B Common Stock for the acquisition of Seequent Holdings Limited[440] - Issued 1,862,576 shares of Class B Common Stock related to distributions from the company's nonqualified deferred compensation plan[440] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including legal documents related to new convertible notes, the amended credit agreement, and officer certifications - Key exhibits filed include legal documents related to the new 2027 convertible notes, the amended credit agreement, and required officer certifications[443]