BSY — Q2 2026 Financial Report Analysis

Overview

Bentley Systems sells software that engineers use to design, build and run roads, bridges, rail, water networks, power grids and mines. In the second quarter of 2026 (April–June), revenue rose 12.8% to $410.7 million, driven almost entirely by subscriptions, which now make up 92% of sales. The top line is steady and predictable. Profit grew much more slowly. Operating income rose only 4.9%, because spending on staff and a new company-wide finance system grew faster than revenue. Diluted earnings per share still rose from $0.22 to $0.25, but most of the rise in pre-tax income came from a one-off $14.0 million gain on two private companies Bentley has invested in, and the share count shrank by 4.2%.

At a glance

• ARR of $1,536.0 million, up 12% in constant currency. Annualized recurring revenue (ARR) is the yearly value of the subscriptions in place at quarter-end. It is the best single guide to next year's sales, and 12% is near the top of management's 10.5%–12.5% target for 2026.
• Operating margin of 21.6%, down from 23.2%. Operating margin is the share of revenue left after running the business, before interest and tax. It fell because operating expenses grew 17.7% while revenue grew 12.8%.
• Diluted EPS of $0.25, up 13.6%. That beat the 4.9% growth in operating profit only because of the $14.0 million investment gain and a 4.2% drop in diluted shares after a convertible bond was repaid and shares were bought back.

Key metrics

"Constant currency" removes the effect of exchange-rate moves, so it shows growth as if the dollar had not moved. In this quarter currency added about 0.6 points to revenue growth, so FX was a small factor.

Takeaway: Bentley's sales engine is running at a steady 12%, but that growth is not reaching the bottom line yet. Operating income grew 4.9% and adjusted net income grew 3.9%. The double-digit EPS growth came from a one-off investment gain and from having fewer shares, not from the business earning more on each dollar of revenue.

Where the growth came from

Subscriptions did all the work. Subscription revenue grew $45.2 million. The 10-Q attributes this mainly to existing customers spending more, with new accounts, "most notably small- and medium-sized accounts," adding about 3 points of growth. By product line, growth was "led by Bentley Open Applications and Seequent applications, and to a lesser extent, Bentley Infrastructure Cloud." Seequent is Bentley's geology and subsurface modelling business, used by mining and other resource companies. The smaller lines barely mattered. One-time perpetual licence sales fell 4.8% to $9.7 million. Services rose 9.4% to $22.4 million, which the filing credits to "strength in Maximo-related work" (consulting on IBM's asset-maintenance software).

Customers keep paying and keep adding. Account retention was 99%, meaning accounts that paid for subscriptions a year ago almost all still do. Net revenue retention was 109%: existing customers as a group now pay 9% more than a year ago. Both figures match last year exactly, so there is no sign of customers cutting back. 93% of the last twelve months' revenue was recurring.

By end market the filing gives no dollar breakdown. In the earnings release, CEO Nicholas Cumins said growth "was led once again by the Resources sector, followed by Public Works / Utilities, including from the electric grid." Resources means mining and similar work, largely through Seequent.

By region:

EMEA (Europe, the Middle East and Africa) was the fastest-growing region. The filing credits existing accounts in the UK, the Middle East and Africa. Asia-Pacific lagged at 6%. Subscription growth in India and Australia there was partly offset by lower perpetual-licence and services revenue.

Why profit grew slower than revenue

Gross margin improved to 82.0%, even though cloud hosting costs rose $4.2 million in constant currency. The squeeze came further down the income statement. Total operating expenses rose 17.7% to $248.1 million:

• General and administrative costs rose 30.8% to $65.2 million. The 10-Q lists four reasons: pay raises, bonuses and stock compensation; "strategic headcount expansion across our corporate functions"; a new enterprise-wide finance and quote-to-cash system that went live in the quarter, which brought higher software fees, extra audit and testing costs, and less of the cost capitalized than last year; and about $2.2 million of non-recurring third-party costs for "other corporate initiatives." The filing warns that the higher software subscription cost and lower capitalization "continue to affect" G&A, so this is not entirely a one-quarter bump.
• Sales and marketing rose 15.7% and R&D rose 8.9%, both mostly on headcount-related pay.
• Deferred compensation plan expense rose to $11.7 million from $7.6 million. This line is the mark-to-market change in what Bentley owes employees under a deferred pay plan, so it moves with financial markets rather than with the business.

Below operating income, net interest expense rose to $9.1 million from $3.5 million. In January Bentley repaid a $678 million convertible bond that carried a 0.125% coupon, and it refinanced through its credit facility and a new $550 million term loan at higher market rates. The effective tax rate also rose to 17.5% from 11.2%, because Bentley got smaller tax benefits from employee stock vesting than a year earlier.

What the headline numbers hide

• A one-off gain lifted net income. "Other income" swung to +$15.6 million from -$1.6 million. Most of that, $14.0 million, was a "step-up in fair value of two of the Company's investees," meaning a paper gain on two private companies Bentley has invested in. Without it, pre-tax income would have risen about 2.3% instead of 19.9%. Bentley's own adjusted EPS excludes this gain, so in this quarter the $0.35 adjusted figure is the cleaner read on earnings power.
• EPS growth came mostly from fewer shares. Adjusted net income rose 3.9% ($109.6 million vs $105.5 million), but adjusted EPS rose 9.4%. The gap comes from diluted shares falling 4.2% to 319.0 million. Two things cut the share count: the convertible bond repaid in January (management put that effect at about 3% of the fully diluted share count) and buybacks of 3.75 million shares for $125.1 million in the first half, up from $50.0 million a year earlier.
• The gap between GAAP and adjusted earnings is wide and growing. GAAP diluted EPS was $0.25 and adjusted EPS was $0.35. Operating stock-based compensation, the largest single exclusion from adjusted EPS, rose 22.6% to $21.8 million, or 5.3% of revenue. Bentley's preferred profit measure, "AOI less Operating SBC," does count stock compensation as a cost, which is the stricter choice. On that basis the margin was 28.3%, down from 29.3%.
• The adjusted measure was redefined this year. Starting in Q1 2026, Bentley stopped counting retention bonuses paid to key staff of acquired companies. Starting in Q2, it also stopped counting the cost of integrating acquisitions (mostly severance). Together these were $4.2 million of excluded cost this quarter, about 1% of revenue. The company restated prior periods for the first change, and says there were no integration costs before Q2, so the year-over-year comparison is like for like. The trend still bears watching: each redefinition moves more costs out of the profit figure management is judged on.
• Cash conversion is healthy but softer. First-half operating cash flow was $264.9 million, 1.5 times net income. That is a good ratio for a subscription business that bills in advance. Still, it was 5.6% lower than a year ago, and first-half free cash flow fell 7.9% to $251.7 million. Management attributes the decline mainly to the timing of customer collections and tax payments. Receivables rose to $368.1 million from $350.3 million at year-end, against a $36.6 million drop in the same half of 2025.
• No acquisitions this year so far. The 10-Q says Bentley "did not complete any acquisitions during the six months ended June 30, 2026." So the 12% growth is organic, apart from deals closed in 2025, which include Talon Aerolytics and Pointivo in December. Bentley paid $101.5 million in cash for its 2025 acquisitions in total.

Balance sheet

Total debt was $1,217.2 million at June 30, and cash was $147.0 million. Management put net debt leverage at 1.9 times, down from 2.1 times at the start of the year. $575 million of 0.375% convertible notes come due in mid-2027, and $1,203.9 million remained available under the credit facility. That is enough to repay those notes, so the near-term issue is a higher interest rate on refinanced debt, not access to cash. The quarterly dividend stays at $0.07 per share. It was declared again for Q3 on September 11, 2026.

Outlook

Management did not change its full-year 2026 outlook, which it set in February. The Q2 release says results position the company "favorably within" it. First-half figures compared with that outlook:

Revenue and ARR are on track. First-half revenue is 49% of the midpoint, and ARR growth sits in the upper half of the range. Profit margin is the open question. Management promised about a 1-point margin improvement for the year, yet the first-half margin is 1.2 points lower than a year ago on reported figures. To reach the $502.5 million profit midpoint on $1,700 million of revenue, the second half needs a margin of about 28.4%. The CFO said the new systems' costs were "absorbed within our margin commitment," and the first-half profit is already 51% of the midpoint target. So the target is reachable, but only if G&A growth slows from the 31% pace seen this quarter.

Our view: Bentley's revenue base is about as predictable as software gets. Retention is 99%, net retention 109%, and 93% of revenue is recurring. Its customers are funded by long-cycle infrastructure, grid and mining spending. The question for the next two quarters is whether earnings start growing as fast as sales again. Three things to watch in the Q3 report: whether G&A growth falls back toward revenue growth now that the finance system is live; whether second-half margin rises enough to meet the full-year promise; and whether management starts charging for the AI features it is building into its engineering tools. The CEO said the company intends to monetize them "in due course," but no AI revenue has been disclosed yet.