SEC Filing | Bentley Systems, Incorporated

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bsy-20200930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

___________________________________

FORM 10-Q

___________________________________


(Mark One)
☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
			For the quarterly period ended September 30, 2020
OR
☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
			For the transition period from to

Commission File Number: 001-39548

___________________________________

BENTLEY SYSTEMS, INCORPORATED

(Exact name of registrant as specified in its charter)

___________________________________


Delaware						95-3936623
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

685 Stockton Drive
Exton, Pennsylvania						19341
(Address of principal executive offices)						(Zip Code)

Registrant’s telephone number, including area code: (610) 458-5000

___________________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Class B Common Stock, par value $0.01 per share

BSY

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No ☒

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ☐			Accelerated filer ☐
Non-accelerated filer ☒			Smaller reporting company ☐
			Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 3, 2020, the registrant had 11,601,757 shares of Class A and 250,374,256 shares of Class B Common Stock, par value $0.01 per share, outstanding.

BENTLEY SYSTEMS, INCORPORATED AND SUBSIDIARIES

Form 10-Q

Table of Contents


						Page
PART I. FINANCIAL INFORMATION
Item 1. Unaudited Consolidated Financial Statements
C onsolidated Balance Sheets as of September 30, 2020 and December 31, 2019						3
Consolidated Statements of Operations for the three and nine months ended September 30, 2020 and 2019						4
Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2020 and 2019						5
Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2020 and 2019						6
Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019						8
Notes to Consolidated Financial Statements						9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations						43
Item 3. Quantitative and Qualitative Disclosures About Market Risk						73
Item 4. Controls and Procedures						73

PART II. OTHER INFORMATION
Item 1. Legal Proceedings						75
Item 1A. Risk Factors						75
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds						75
Item 6. Exhibits						76

SIGNATURE						77

PART I. FINANCIAL INFORMATION

Item 1. Unaudited Consolidated Financial Statements

BENTLEY SYSTEMS, INCORPORATED AND SUBSIDIARIES

Consolidated Balance Sheets

(in thousands, except share and per share data)

(unaudited)


	September 30,		December 31,
	2020		2019
Assets
Current assets:
Cash and cash equivalents	$	137,598	$	121,101
Accounts receivable	172,600		211,775
Allowance for doubtful accounts	(6,492)		(7,274)
Prepaid income taxes	7,307		4,543
Prepaid and other current assets	27,897		23,413
Total current assets	338,910		353,558
Property and equipment, net	29,332		29,632
Operating lease right-of-use assets	46,006		—
Intangible assets, net	46,560		46,313
Goodwill	542,239		480,065
Investments	5,218		1,725
Deferred income taxes	44,543		51,068
Other assets	37,689		32,238
Total assets	$	1,090,497	$	994,599
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	15,086	$	17,669
Accruals and other current liabilities	212,866		167,517
Deferred revenues	173,578		204,991
Operating lease liabilities	15,629		—
Income taxes payable	5,100		2,236
Total current liabilities	422,259		392,413
Long-term debt	589,583		233,750
Long-term operating lease liabilities	32,555		—
Deferred revenues	6,322		8,154
Deferred income taxes	9,502		8,260
Income taxes payable	7,874		8,140
Other liabilities	15,229		9,263
Total liabilities	1,083,324		659,980
Commitments and contingencies (Note 18)
Stockholders’ equity:
Class A Common Stock, $0.01 par value, authorized 100,000,000 shares; issued 11,601,757 shares as of September 30, 2020 and December 31, 2019, and Class B Common Stock, $0.01 par value, authorized 1,800,000,000 shares; issued 250,625,279 and 243,241,192 shares as of September 30, 2020 and December 31, 2019, respectively (Note 13)	2,622		2,548
Additional paid-in capital	441,723		408,667
Accumulated other comprehensive loss	(29,211)		(23,927)
Accumulated deficit	(407,961)		(52,669)
Total stockholders’ equity	7,173		334,619
Total liabilities and stockholders’ equity	$	1,090,497	$	994,599

See accompanying notes to consolidated financial statements.

BENTLEY SYSTEMS, INCORPORATED AND SUBSIDIARIES

Consolidated Statements of Operations

(in thousands, except share and per share data)

(unaudited)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
Revenues:
Subscriptions	$	173,174	$	155,191	$	501,011	$	445,338
Perpetual licenses	12,827		13,787		36,020		38,255
Subscriptions and licenses	186,001		168,978		537,031		483,593
Services	16,996		17,610		44,946		50,139
Total revenues	202,997		186,588		581,977		533,732
Cost of revenues:
Cost of subscriptions and licenses	23,338		17,370		66,466		48,201
Cost of services	19,290		17,681		50,126		56,048
Total cost of revenues	42,628		35,051		116,592		104,249
Gross profit	160,369		151,537		465,385		429,483
Operating expenses:
Research and development	50,217		44,756		139,570		136,617
Selling and marketing	41,824		36,721		107,551		111,889
General and administrative	33,006		25,108		85,275		71,415
Amortization of purchased intangibles	3,869		3,550		10,984		10,402
Expenses associated with initial public offering	26,130		—		26,130		—
Total operating expenses	155,046		110,135		369,510		330,323
Income from operations	5,323		41,402		95,875		99,160
Interest expense, net	(1,934)		(2,029)		(4,450)		(6,503)
Other income (expense), net	13,741		(12,306)		6,756		(14,053)
Income before income taxes	17,130		27,067		98,181		78,604
Provision for income taxes	(10,705)		(6,640)		(22,145)		(11,759)
Loss from investment accounted for using the equity method, net of tax	(581)		—		(1,447)		—
Net income	5,844		20,427		74,589		66,845
Less: Net income attributable to participating securities	(4)		(10)		(4)		(10)
Net income attributable to Class A and Class B common stockholders	$	5,840	$	20,417	$	74,585	$	66,835
Per share information:
Net income per share, basic	$	0.02	$	0.07	$	0.26	$	0.23
Net income per share, diluted	$	0.02	$	0.07	$	0.25	$	0.23
Weighted average shares outstanding, basic	289,318,391		286,075,323		287,063,892		286,024,263
Weighted average shares outstanding, diluted	299,634,961		289,629,555		297,251,349		294,586,354

See accompanying notes to consolidated financial statements.

BENTLEY SYSTEMS, INCORPORATED AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(in thousands)

(unaudited)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
Net income	$	5,844	$	20,427	$	74,589	$	66,845
Other comprehensive (loss) income, net of taxes:
Foreign currency translation adjustments	(812)		3,357		(5,315)		5,763
Actuarial gain on retirement plan, net of tax effect of $(6), $(2), $(21) and $(8), respectively	5		5		31		15
Total other comprehensive (loss) income, net of taxes	(807)		3,362		(5,284)		5,778
Comprehensive income	$	5,037	$	23,789	$	69,305	$	72,623

See accompanying notes to consolidated financial statements.

BENTLEY SYSTEMS, INCORPORATED AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity

(in thousands, except share data)

(unaudited)


	Three Months Ended September 30, 2020
						Accumulated
	Class A and Class B			Additional		other				Total
	Common Stock			paid-in		comprehensive		Accumulated		stockholders’
	Shares	Par value		capital		loss		deficit		equity
Balance as of June 30, 2020	259,209,355	$	2,592	$	415,883	$	(28,404)	$	(10,327)	$	379,744
Net income	—	—		—		—		5,844		5,844
Other comprehensive loss	—	—		—		(807)		—		(807)
Dividends declared (Note 13)	—	—		—		—		(400,311)		(400,311)
Profit‑sharing plan shares, net	(164,266)	(1)		—		—		(2,541)		(2,542)
Shares issued in connection with deferred compensation plan, net	24,800	—		—		—		(47)		(47)
Deferred compensation plan voluntary contributions	—	—		804		—		—		804
Stock option exercises, net	1,321,475	13		5,538		—		(566)		4,985
Stock-based compensation expense	—	—		19,517		—		—		19,517
Shares related to restricted stock, net	1,835,672	18		(19)		—		(13)		(14)
Balance as of September 30, 2020	262,227,036	$	2,622	$	441,723	$	(29,211)	$	(407,961)	$	7,173


	Nine Months Ended September 30, 2020
						Accumulated
	Class A and Class B			Additional		other				Total
	Common Stock			paid-in		comprehensive		Accumulated		stockholders’
	Shares	Par value		capital		loss		deficit		equity
Balance as of December 31, 2019	254,842,949	$	2,548	$	408,667	$	(23,927)	$	(52,669)	$	334,619
Net income	—	—		—		—		74,589		74,589
Other comprehensive loss	—	—		—		(5,284)		—		(5,284)
Dividends declared (Note 13)	—	—		—		—		(415,748)		(415,748)
Profit‑sharing plan shares, net	(549,834)	(5)		—		—		(6,965)		(6,970)
Shares issued in connection with deferred compensation plan, net	2,984,531	30		—		—		(1,907)		(1,877)
Deferred compensation plan voluntary contributions	—	—		2,602		—		—		2,602
Payment of shareholder Put and Call rights	(128,176)	(1)		—		—		(1,453)		(1,454)
Common Stock Purchase Agreement, net	169	—		—		—		(57)		(57)
Stock option exercises, net	3,506,103	35		7,741		—		(3,618)		4,158
Shares issued for stock grants, net	17,411	—		219		—		—		219
Stock-based compensation expense	—	—		22,510		—		—		22,510
Shares related to restricted stock, net	1,553,883	15		(16)		—		(133)		(134)
Balance as of September 30, 2020	262,227,036	$	2,622	$	441,723	$	(29,211)	$	(407,961)	$	7,173

See accompanying notes to consolidated financial statements.

BENTLEY SYSTEMS, INCORPORATED AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity

(in thousands, except share data)

(unaudited)


	Three Months Ended September 30, 2019
						Accumulated
	Class A and Class B			Additional		other				Total
	Common Stock			paid-in		comprehensive		Accumulated		stockholders’
	Shares	Par value		capital		loss		deficit		equity
Balance as of June 30, 2019	255,086,392	$	2,550	$	401,439	$	(26,998)	$	(88,670)	$	288,321
Net income	—	—		—		—		20,427		20,427
Other comprehensive income	—	—		—		3,362		—		3,362
Dividends declared (Note 13)	—	—		—		—		(6,380)		(6,380)
Profit‑sharing plan shares, net	(97,140)	(1)		—		—		(725)		(726)
Shares issued in connection with deferred compensation plan, net	3,377	—		—		—		(19)		(19)
Deferred compensation plan voluntary contributions and vesting of awards	—	—		788		—		—		788
Payment of shareholder Put and Call rights	(231,507)	(2)		—		—		(1,801)		(1,803)
Stock option exercises, net	322,004	3		855		—		(105)		753
Stock-based compensation expense	—	—		2,021		—		—		2,021
Shares related to restricted stock, net	(7,415)	—		—		—		(175)		(175)
Other	1,727	—		14		—		—		14
Balance as of September 30, 2019	255,077,438	$	2,550	$	405,117	$	(23,636)	$	(77,448)	$	306,583


	Nine Months Ended September 30, 2019
						Accumulated
	Class A and Class B			Additional		other				Total
	Common Stock			paid-in		comprehensive		Accumulated		stockholders’
	Shares	Par value		capital		loss		deficit		equity
Balance as of December 31, 2018	250,283,513	$	2,502	$	392,896	$	(29,414)	$	(218,553)	$	147,431
Cumulative effect of accounting changes	—	—		—		—		107,822		107,822
Net income	—	—		—		—		66,845		66,845
Other comprehensive income	—	—		—		5,778		—		5,778
Dividends declared (Note 13)	—	—		—		—		(19,023)		(19,023)
Profit‑sharing plan shares, net	(258,103)	(3)		—		—		(1,936)		(1,939)
Shares issued in connection with deferred compensation plan, net	2,233,807	22		—		—		(4,994)		(4,972)
Deferred compensation plan voluntary contributions and vesting of awards	—	—		2,664		—		—		2,664
Payment of shareholder Put and Call rights	(632,859)	(6)		—		—		(4,946)		(4,952)
Common Stock Purchase Agreement, net	64,509	1		466		—		(47)		420
Stock option exercises, net	2,979,031	30		3,009		—		(2,255)		784
Stock-based compensation expense	—	—		6,046		—		—		6,046
Shares related to restricted stock, net	402,250	4		(4)		—		(344)		(344)
Other	5,290	—		40		—		(17)		23
Balance as of September 30, 2019	255,077,438	$	2,550	$	405,117	$	(23,636)	$	(77,448)	$	306,583

See accompanying notes to consolidated financial statements.

BENTLEY SYSTEMS, INCORPORATED AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


	Nine Months Ended
	September 30,
	2020		2019
Cash flows from operating activities:
Net income	$	74,589	$	66,845
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	25,836		23,334
Provision for accounts receivable allowance	(541)		2,109
Deferred income taxes	7,853		833
Deferred compensation plan activity	2,487		2,968
Stock-based compensation expense	23,617		6,046
Amortization of deferred debt issuance costs	430		415
Change in fair value of derivative	3,365		159
Change in fair value of contingent consideration	(1,340)		62
Foreign currency remeasurement (gain) loss	(9,067)		13,956
Loss from investment accounted for using the equity method, net of tax	1,447		—
Changes in assets and liabilities, net of effect from acquisitions:
Accounts receivable	46,661		40,847
Prepaid and other assets	8,907		(6,505)
Accounts payable, accruals and other liabilities	31,486		18,545
Deferred revenues	(35,134)		(39,655)
Income taxes payable	(4,571)		(11,710)
Net cash provided by operating activities	176,025		118,249
Cash flows from investing activities:
Purchases of property and equipment and investment in capitalized software	(12,805)		(11,622)
Capitalization of costs to translate software products into foreign languages	(728)		(553)
Acquisitions, net of cash acquired of $2,064 and $980, respectively	(68,920)		(9,662)
Other investing activities	(6,355)		—
Net cash used in investing activities	(88,808)		(21,837)
Cash flows from financing activities:
Proceeds from credit facilities	432,375		136,750
Payments of credit facilities	(201,125)		(147,500)
Proceeds from term loan	125,000		—
Payments of debt issuance costs	(432)		—
Payments of financing leases	(141)		—
Payments of acquisition debt and other consideration	(2,034)		(9,878)
Payments of dividends	(412,852)		(18,830)
Payments for shares acquired including shares withheld for taxes	(72,476)		(18,417)
Proceeds from Common Stock Purchase Agreement	58,349		4,510
Net proceeds from exercise of common stock options and restricted stock	3,206		3,039
Net cash used in financing activities	(70,130)		(50,326)
Effect of exchange rate changes on cash and cash equivalents	(590)		(1,272)
Increase in cash and cash equivalents	16,497		44,814
Cash and cash equivalents, beginning of year	121,101		81,183
Cash and cash equivalents, end of period	$	137,598	$	125,997
Supplemental information:
Cash paid for income taxes	$	17,338	$	24,453
Income tax refunds	1,630		1,126
Interest paid	4,658		7,214
Non-cash contingent acquisition consideration	1,902		50
Non-cash deferred acquisition consideration	(141)		—

See accompanying notes to consolidated financial statements.

BENTLEY SYSTEMS, INCORPORATED AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

(unaudited)

Note 1: Basis of Presentation and Significant Accounting Policies

Description of Business and Operations — Bentley Systems, Incorporated (“Bentley” or the “Company”) is a Delaware corporation that was founded in 1984 and is headquartered in Exton, Pennsylvania. The Company, together with its subsidiaries, is a leading global provider of infrastructure engineering software solutions for professionals and organizations involved in the project delivery and operational performance of infrastructure assets. The Company is dedicated to advancing infrastructure through its comprehensive software solutions that span engineering disciplines, assets, and lifecycle processes. The Company’s integrated software platform encompasses both the design and construction of infrastructure, which the Company refers to as project delivery, and the operation of infrastructure assets, which the Company refers to as asset performance. The Company’s software solutions are designed to enable information mobility for a more complete flow of information among applications, across distributed project teams, from offices to the field, and throughout the infrastructure lifecycle. The Company believes its solutions extend the reach and scope of digital engineering models from the project delivery phase into the asset performance phase of the infrastructure lifecycle, which enables engineers to make infrastructure assets more intelligent and sustainable. Users of the Company’s solutions include engineers and construction professionals who collaborate on project delivery, and owner‑operators who maintain, adapt, and optimize the performance of infrastructure assets.

Initial Public Offering — On September 25, 2020, the Company completed its initial public offering (“IPO”). The selling stockholders identified in the Company’s registration statement on Form S-1, as amended, on file with the U.S. Securities and Exchange Commission (“SEC”) sold 12,360,991 shares of Class B Common Stock at a public offering price of $22.00 per share. The Company did not sell any shares in the IPO and did not receive any of the proceeds from the sale of the Class B Common Stock sold by the selling stockholders (see Notes 13 and 15). For the three and nine months ended September 30, 2020, the Company recorded $26,130 in Expenses associated with initial public offering in the consolidated statements of operations. Expenses associated with initial public offering include certain non‑recurring costs relating to the Company’s IPO, consisting of the payment of underwriting discounts and commissions applicable to the sale of shares by the selling stockholders, professional fees, and other expenses.

Special Dividend — On August 28, 2020, the Company’s board of directors declared a special dividend of $1.50 per share of the Company’s common stock ($392,489 in the aggregate) (the “Special Dividend”), payable to all stockholders of record as of August 31, 2020, including dividends which accrue on certain unvested restricted stock and restricted stock units (“RSUs”). The Company used its bank credit facility to pay the Special Dividend (see Note 10). In connection with the Special Dividend declaration, an in kind adjustment was made to phantom shares issuable pursuant to the amended and restated Bentley Systems, Incorporated Nonqualified Deferred Compensation Plan (the “DCP”) (see Note 12) and the exercise price of all outstanding stock options at that time were reduced by $1.50, but not lower than $0.01 (see Note 15).

Risks and Uncertainties — COVID‑19 Pandemic — In March 2020, the World Health Organization declared a global pandemic related to the rapidly growing outbreak of the disease COVID‑19, caused by a novel strain of coronavirus, SARS‑CoV‑2. The COVID‑19 outbreak and certain preventative or protective actions that governments, businesses, and individuals have taken in respect of COVID‑19 have resulted in global business disruptions.

In response to the COVID‑19 pandemic, the Company implemented a number of initiatives to ensure the safety of its colleagues and enable them to move to a work from home environment seamlessly and continue working effectively. The Company’s business model is such that there was minimal disruption to the Company’s ability to deliver its solutions to accounts, and the Company believes it did not have any loss of productivity during this transition.

The Company has also taken measures to reduce selected operating expenses, including various costs associated with travel and facilities. Much of those resulting savings have been or will be re-invested in a portfolio of businesses outside of the Company’s core software business.

Basis of Presentation and Consolidation — The unaudited consolidated financial statements and accompanying notes have been prepared in United States (“U.S.”) Dollars and in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information along with the instructions to Form 10‑Q and Article 10 of SEC Regulation S‑X. Accordingly, they do not include all of the information and notes required by U.S. GAAP for annual financial statements. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments, consisting only of those of a normal recurring nature, necessary for a fair statement of the Company’s financial position, results of operations, and cash flows at the dates and for the periods indicated. The December 31, 2019 consolidated balance sheet included herein is derived from the Company’s audited consolidated financial statements included in the Company’s registration statement on Form S‑1, as amended, on file with the SEC. The results of operations for the nine months ended September 30, 2020 are not necessarily indicative of the results expected for the remainder of the fiscal year.

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. The Company is party to a joint venture and an investment, both of which are accounted for using the equity method. All significant intercompany accounts and transactions have been eliminated in consolidation. The Company’s principal subsidiaries are Bentley Systems International Limited (Ireland), Bentley Software International, Limited (Bermuda), Bentley Canada Inc. (Canada), Bentley Systems Europe BV (the Netherlands), Bentley Systems Pty Ltd. (Australia), Bentley Systems Co., Ltd. (Japan), Bentley Systems Germany GmbH (Germany), Bentley Systems Ltd. (UK), and Bentley Systems India Private Limited (India).

Use of Estimates — The preparation of consolidated financial statements and related disclosures in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The Company’s significant estimates and assumptions include revenue recognition, adequacy of allowance for accounts receivable, determination of the fair value of acquired assets and liabilities, the fair value of derivative financial instruments, the fair value of common stock and stock‑based compensation, operating lease assets and liabilities, useful lives for depreciation and amortization, impairment of goodwill and intangible assets, and accounting for income taxes. Actual results could differ materially from these estimates.

Derivatives Not Designated As Hedging Instruments — On March 31, 2020, the Company entered into an interest rate swap with a notional amount of $200,000 and a ten‑year term to reduce the interest rate risk associated with the Company’s Credit Facility (see Note 10). The interest rate swap is not designated as a hedging instrument for accounting purposes. The Company accounts for the swap as either an asset or a liability on the consolidated balance sheet and carries the derivative at fair value. Gains and losses from the change in fair value are recognized in Other income (expense), net and payments related to the swap are recognized in Interest expense, net in the consolidated statements of operations. The bank counterparty to the derivative potentially exposes the Company to credit-related losses in the event of nonperformance. To mitigate that risk, the Company only contracts with counterparties who meet the Company’s minimum requirements under its counterparty risk assessment process. The Company monitors counterparty risk on at least a quarterly basis and adjusts its exposure as necessary. The Company does not enter into derivative instrument transactions for trading or speculative purposes.

Leases — The Company determines if an arrangement is a lease at inception. Operating leases are included in Operating lease right‑of‑use assets, Operating lease liabilities, and Long‑term operating lease liabilities in the Company’s consolidated balance sheet. Operating lease right‑of‑use assets represent the Company’s right to use an underlying asset for the lease term and operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease right‑of‑use assets and operating lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. The Company uses its incremental borrowing rate, if the Company’s leases do not provide an implicit rate, based on the information available at the commencement date in determining the present value of lease payments. The incremental borrowing rate is determined based on the Company’s estimated credit rating, the term of the lease, economic environment where the asset resides, and full collateralization. The operating lease right‑of‑use assets also include any lease payments made and are reduced by any lease incentives. Options to extend or terminate the lease are considered in determining the lease term when it is reasonably certain that the option will be exercised. Lease expense for lease payments is recognized on a straight‑line basis over the lease term. The Company’s operating leases are primarily for office space, cars, and office equipment. The Company’s finance lease is included in Property and equipment, net, Accruals and other current liabilities, and Other liabilities in the Company’s consolidated balance sheet.

Significant Accounting Policies — There have been no changes other than what is discussed herein to the Company’s significant accounting policies as compared to the significant accounting policies described in Note 1 to the Company’s consolidated financial statements as of and for the year ended December 31, 2019 included in the Company’s registration statement on Form S‑1, as amended, on file with the SEC. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes as of and for the year ended December 31, 2019 included in the Company’s registration statement on Form S‑1, as amended, on file with the SEC.

Note 2: Recent Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2018‑15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350‑40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, which clarifies the accounting for implementation costs in cloud computing arrangements. ASU 2018‑15 is effective for the Company for the annual reporting period beginning after December 15, 2020, and interim periods beginning after December 15, 2021. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the accounting, transition, and disclosure requirements of the standard and its impact on the Company’s consolidated results of operations and financial position.

In January 2017, the FASB issued ASU No. 2017‑04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which removes Step 2 of the goodwill impairment test. A goodwill impairment will now be calculated as the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. This ASU is effective for the Company for the interim and annual reporting periods beginning after December 15, 2021. Early adoption is permitted, including adoption in an interim period. The Company does not believe that this ASU will have a material impact on the Company’s consolidated results of operations and financial position.

Recently Adopted Accounting Guidance

In February 2016, the FASB issued ASU No. 2016‑02 regarding ASC Topic 842, Leases (“Topic 842”). This ASU requires balance sheet recognition of lease assets and lease liabilities by lessees for leases classified as operating leases, with an optional policy election to not recognize lease assets and lease liabilities for leases with a term of 12 months or less. The amendments also require new disclosures, including qualitative and quantitative requirements, providing additional information about the amounts recorded in the financial statements. Subsequent to the issuance of ASU 2016‑02, the FASB issued ASU Nos. 2018‑01, Land Easement Practical Expedient for Transition to Topic 842, 2018‑10, Codification Improvements to Topic 842, Leases, 2018‑11, Leases (Topic 842): Targeted Improvements, and 2018‑20, Narrow-Scope Improvements for Lessors. These ASUs do not change the core principle of the guidance in Topic 842. Instead, these amendments are intended to clarify and improve operability of certain topics included within the lease standard.

The Company adopted Topic 842 as of January 1, 2020 using the modified retrospective method for all existing leases. Upon adoption, the Company recognized its lease assets and lease liabilities measured at the present value of all future fixed lease payments, discounted using the Company’s incremental borrowing rate.

The Company elected the package of practical expedients as permitted under the transition guidance, which allows the Company: (1) to not reassess whether any existing contracts are leases or contain a lease; (2) to not reassess the lease classification of existing leases; and (3) to not reassess treatment of initial direct costs for existing leases. Additionally, the Company elected the practical expedients to combine lease and non-lease components for new leases post adoption and to not recognize lease assets and lease liabilities for leases with a term of 12 months or less.

Upon adoption of Topic 842, the Company recognized right‑of‑use assets of $45,850 and lease liabilities of $47,666 calculated based on the present value of the remaining minimum lease payments as of the adoption date. Topic 842 did not have a material impact to the Company’s consolidated statement of operations (see Note 8).

In June 2016, the FASB issued ASU No. 2016‑13, Financial Instruments–Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“Topic 326”). Previous guidance required the allowance for doubtful accounts to be estimated based on an incurred loss model, which considers past and current conditions. Topic 326 requires companies to use an expected loss model that also considers reasonable and supportable forecasts of future conditions. Additionally, Topic 326 requires the allowance for doubtful accounts balance (contra‑asset) to be presented separately in the consolidated balance sheets. Topic 326 is effective for the Company for the annual period beginning after December 15, 2020, including interim periods within that annual period. The Company adopted Topic 326 as of January 1, 2020 using the modified retrospective method of adoption. The adoption of the standard did not have a material impact on the Company’s consolidated results of operations and financial position.

In August 2018, the FASB issued ASU No. 2018‑13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018‑13”). ASU 2018‑13 modifies certain required disclosures and establishes new requirements related to fair value measurement. Additionally, the disclosure requirement to state the reasons for transfers between Level 1 and Level 2, the policy for timing transfers between levels, and the valuation process for Level 3 measurements have been removed. ASU 2018‑13 is effective for the Company for the annual period beginning after December 15, 2019, including interim periods within that annual period. The Company adopted the ASU effective January 1, 2020. The adoption of this ASU did not have a material impact on the Company’s consolidated results of operations and financial position.

In December 2019, the FASB issued ASU No. 2019‑12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019‑12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019‑12 removes certain exceptions to the general principles in Topic 740 and clarifies and amends existing guidance to improve consistent application. ASU 2019‑12 is effective for the Company for the annual period beginning after December 15, 2021, including interim periods within that annual period. The Company adopted the ASU effective January 1, 2020. The adoption of this ASU did not have a material impact on the Company’s consolidated results of operations and financial position.

Note 3: Revenue from Contracts with Customers

The Company recognizes revenue upon the transfer of promised goods or services to customers in an amount that reflects the expected consideration received in exchange for those goods or services.

Nature of Products and Services

The Company generates revenues from subscriptions, perpetual licenses, and professional services.

Subscriptions

SELECT subscriptions — A prepaid annual recurring subscription that accounts (which are based on distinct contractual and billing relationships with the Company, where affiliated entities of a single parent company may each have an independent account with the Company) can elect to add to a new or previously purchased perpetual license. SELECT provides accounts with benefits, including upgrades, comprehensive technical support, pooled licensing benefits, annual portfolio balancing exchange rights, learning benefits, certain Azure‑based cloud collaboration services, mobility advantages, and access to other available benefits. SELECT subscription revenues are recognized as distinct performance obligations are satisfied. The performance obligations within the SELECT offering, outside of the portfolio balancing exchange right, are concurrently delivered and have the same pattern of recognition. These performance obligations are accounted for ratably over the term as a single performance obligation.

Enterprise subscriptions — The Company also provides Enterprise subscription offerings which provide its largest accounts with complete and unlimited global access to the Company’s comprehensive portfolio of solutions. Enterprise License Subscriptions (“ELS”) provide access for a prepaid fee, which is based on the account’s usage of software in the preceding year, to effectively create a fee‑certain consumption‑based arrangement. ELS contain a term license component, SELECT maintenance and support, and performance consulting days. The SELECT maintenance and support benefits under ELS do not include a portfolio balancing performance obligation. Revenue is allocated to the various performance obligations based on their respective standalone selling price (“SSP”). Revenue allocated to the term license component is recognized upon delivery at the start of the subscription term while revenues for the SELECT maintenance and support and the performance consulting days are recognized as delivered over the subscription term. Billings in advance are recorded as Deferred revenues in the consolidated balance sheets.

Enterprise 365 (“E365”) subscriptions, which were introduced during the fourth quarter of 2018, provide unrestricted access to the Company’s comprehensive software portfolio, similar to ELS, however, the accounts are charged based upon daily usage. The daily usage fee includes a term license component, SELECT maintenance and support, and Success Plan services, which are designed to achieve business outcomes through more efficient and effective use of the Company’s software. E365 revenues are recognized based upon usage incurred by the account. Usage is defined as distinct user access on a daily basis. The term of E365 subscriptions aligns with calendar quarters and revenue is recognized based on actual usage.

Term license subscriptions — The Company provides annual, quarterly, and monthly term licenses for its software products. Term license subscriptions contain a term license component and SELECT maintenance and support. Revenue is allocated to the various performance obligations based on their SSP. Annual term licenses (“ATL”) are generally prepaid annually for named user access to specific products. Quarterly term license (“QTL”) subscriptions allow accounts to pay quarterly in arrears for license usage that is beyond their prepaid subscriptions. Monthly term license (“MTL”) subscriptions are identical to QTL subscriptions, except for the term of the license, and the manner in which they are monetized. MTL subscriptions require a Cloud Services Subscription (“CSS”), which is described below. For ATL, revenue allocated to the term license component is recognized upon delivery at the start of the subscription term while revenue for the SELECT maintenance and support is recognized as delivered over the subscription term. Billings in advance are recorded as Deferred revenues in the consolidated balance sheets. For usage‑based QTL and MTL subscriptions, revenues are recognized based upon usage incurred by the account. Usage is defined as peak usage over the respective terms. The terms of QTL and MTL subscriptions align with calendar quarters and calendar months, respectively, and revenue is recognized based on actual usage.

Visas and Passports are quarterly or annual term licenses enabling users to access specific project or enterprise information and entitle certain functionality of the Company’s ProjectWise and AssetWise systems. The Company’s standard offerings are usage based with monetization through the Company’s CSS program as described below.

CSS is a program designed to streamline the procurement, administration, and payment process. The program requires an account to estimate their annual usage for CSS eligible offerings and deposit funds in advance. Actual consumption is monitored and invoiced against the deposit on a calendar quarter basis. CSS balances not utilized for eligible products or services may roll over to future periods or are refundable. Paid and unconsumed CSS balances are recorded in Accruals and other current liabilities in the consolidated balance sheets. Software and services consumed under CSS are recognized pursuant to the applicable revenue recognition guidance for the respective software or service and classified as subscriptions or services based on their respective nature.

Perpetual licenses

Perpetual licenses may be sold with or without attaching a SELECT subscription. Historically, attachment and retention of the SELECT subscription has been high given the benefits of the SELECT subscription. Perpetual license revenue is recognized upon delivery of the license to the user.

Services

The Company provides professional services including training, implementation, configuration, customization, and strategic consulting services. The Company performs projects on both a time and materials and a fixed fee basis. The Company’s recent and preferred contractual structures for delivering professional services include (i) delivery of the services in the form of subscription‑like, packaged offerings which are annually recurring in nature, and (ii) delivery of the Company’s growing portfolio of Success Plans in standard offerings which offer a level of subscription service over and above the standard technical support offered to all accounts as part of their SELECT or Enterprise agreement. Revenues are recognized as services are performed.

The Company primarily utilizes its direct internal sales force and also has arrangements through independent channel partners to promote and sell Bentley products and subscriptions to end‑users. Channel partners are authorized to promote the sale of an authorized set of Bentley products and subscriptions within an authorized geography under a Channel Partner Agreement.

Significant Judgments and Estimates

The Company’s contracts with customers may include promises to transfer licenses (perpetual or term‑based), maintenance, and services to a user. Judgment is required to determine if the promises are separate performance obligations, and if so, the allocation of the transaction price to each performance obligation. When an arrangement includes multiple performance obligations which are concurrently delivered and have the same pattern of transfer to the customer, the Company accounts for those performance obligations as a single performance obligation. For contracts with more than one performance obligation, the transaction price is allocated among the performance obligations in an amount that depicts the relative SSP of each obligation. Judgment is required to determine the SSP for each distinct performance obligation. In instances where SSP is not directly observable, such as when the Company does not sell the product or service separately, the Company determines the SSP using information that may include market conditions and other observable inputs. The Company uses a range of amounts to estimate SSP when it sells each of the products and services separately and needs to determine whether there is a discount that should be allocated based on the relative SSP of the various products and services.

The Company’s SELECT agreement provides users with perpetual licenses a right to exchange software for other eligible perpetual licenses on an annual basis upon renewal. The Company refers to this option as portfolio balancing and has concluded that the portfolio balancing feature represents a material right resulting in the deferral of the associated revenue. Judgment is required to estimate the percentage of users who may elect to portfolio balance and considers inputs such as historical user elections. This feature is available once per term and must be exercised prior to the respective renewal term. The Company recognizes the associated revenue upon election or when the portfolio balancing right expires. This right is included in the initial and subsequent renewal terms and the Company reestablishes the revenue deferral for the material right upon the beginning of the renewal term. As of September 30, 2020 and December 31, 2019, the Company has deferred $18,231 and $18,060 related to portfolio balancing exchange rights which is included in Deferred revenues in the consolidated balance sheets.

Contract Assets and Contract Liabilities


	September 30,		December 31,
	2020		2019
Contract assets	$	313	$	644
Deferred revenues	179,900		213,145

As of September 30, 2020, the Company’s contract assets relate to performance obligations completed in advance of the right to invoice and are included in Prepaid and other current assets. Contract assets were not impaired as of September 30, 2020.

Deferred revenues consist of billings made or payments received in advance of revenue recognition from subscriptions and professional services. The timing of revenue recognition may differ from the timing of billings to users.

During the nine months ended September 30, 2020, $177,462 of revenue that was included in the December 31, 2019 deferred revenue balance was recognized. There were additional deferrals of $142,678, which were primarily related to new billings.

Remaining Performance Obligations

The Company’s contracts with customers include amounts allocated to performance obligations that will be satisfied at a later date. As of September 30, 2020, amounts allocated to these remaining performance obligations are $179,900, of which the Company expects to recognize 96.5% over the next 12 months with the remaining amount thereafter.