Bentley (NASDAQ:BSY) Reports Q2 In Line With Expectations

Infrastructure design software provider Bentley Systems (NASDAQ:BSY) reported results in line with analysts' expectations in Q2 FY2023, with revenue up 10.6% year on year to $296.7 million. Bentley made a GAAP profit of $48.7 million, down from its profit of $55.7 million in the same quarter last year.

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CEO Greg Bentley said, “I am pleased to again report strong operating results this quarter, driven perhaps equally by 2023’s favorable end market conditions and by our teams’ strong operational execution. We are sustaining robust ARR growth of 13% (year-over-year constant currency business performance) with directionally broader balance across the board. Our E365 growth initiative for enterprise accounts, and our Virtuosity growth initiative for SMB accounts and prospects, are each contributing at continuously greater levels.

Founded by brothers Keith and Barry Bentley, Bentley Systems (NASDAQ:BSY) offers a software-as-a-service platform that addresses the lifecycle of infrastructure projects such as road networks, tunnel systems, and wastewater facilities.

Software is eating the world, and while a large number of solutions such as project management or video conferencing software can be useful to a wide array of industries, there are industries that have very specific needs. Whether it is life-sciences, education or banking, the demand for so called vertical software, addressing industry specific workflows, is growing, fueled by the pressures on improving productivity and quality of offerings.

Sales Growth

As you can see below, Bentley's revenue growth has been mediocre over the last two years, growing from $223.9 million in Q2 FY2021 to $296.7 million this quarter.

This quarter, Bentley's quarterly revenue was once again up 10.6% year on year. However, the company's revenue actually decreased by $17.7 million in Q2 compared to the $27.5 million increase in Q1 2023. Taking a closer look we can a similar revenue decline in the same quarter last year, which could suggest that the business has seasonal elements. Regardless, this situation is worth monitoring as management is guiding for a further revenue drop in the next quarter.

Ahead of the earnings results announcement, the analysts covering the company were expecting sales to grow 10.9% over the next 12 months.

The pandemic fundamentally changed several consumer habits. There is a founder-led company that is massively benefiting from this shift. The business has grown astonishingly fast, with 40%+ free cash flow margins. Its fundamentals are undoubtedly best-in-class. Still, the total addressable market is so big that the company has room to grow many times in size. You can find it on our platform for free.

Product Success

One of the best parts about the software-as-a-service business model (and a reason why SaaS companies trade at such high valuation multiples) is that customers typically spend more on a company's products and services over time.

Bentley's net revenue retention rate, a key performance metric measuring how much money existing customers from a year ago are spending today, was 110% in Q2. This means that even if Bentley didn't win any new customers over the last 12 months, it would've grown its revenue by 10%.

Bentley has a decent net retention rate, showing us that its customers not only tend to stick around but also get increasing value from its software over time.

Key Takeaways from Bentley's Q2 Results

With a market capitalization of $16 billion, a $82.7 million cash balance, and positive free cash flow over the last 12 months, we're confident that Bentley has the resources needed to pursue a high-growth business strategy.

Revenue and ARR (annual recurring revenue) beat modestly, and free cash flow was nicely ahead. The company largely maintained full year guidance. On the other hand, its declining gross margin was a minor negative. Overall, the results showed no major surprises. Sure, the results could have been better, but they also could have been far worse. The stock is up 2.08% after reporting and currently trades at $52.03 per share.

So should you invest in Bentley right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.

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The author has no position in any of the stocks mentioned in this report.