Bentley Systems Q2 2026 Earnings: Subscription Growth Continued as Operating Margin Narrowed

Bentley Systems (Nasdaq: BSY) reported second-quarter 2026 revenue of $410.7 million, up 12.8% year over year, while diluted EPS increased to $0.25 from $0.22. Subscription revenue and recurring revenue continued to expand, but GAAP and adjusted operating margins narrowed as operating expenses grew faster than revenue; quarterly free cash flow nevertheless rose to $63.8 million.

Core Earnings Data

Revenue increased 12.2% on a constant-currency basis, slightly below the 12.8% reported growth rate. Gross profit rose faster than revenue, but that improvement did not carry through to operating margin because operating expenses increased 17.7%.

Quarterly operating cash flow and free cash flow both improved. Net income also increased despite the lower operating margin, helped by a favorable swing in other income.

Adjusted EPS, adjusted EBITDA, and AOI less Operating SBC are non-GAAP measures. Bentley refined the definition of AOI less Operating SBC in 2026 and revised prior-period amounts for comparability; beginning in the second quarter, it also excluded qualifying acquisition integration costs.

Business and Recurring Revenue Performance

Subscription revenue increased 13.6% to $378.6 million, or 13.0% in constant currency, and represented about 92% of total revenue. Perpetual license revenue declined approximately 4.8% to $9.7 million, while services revenue increased approximately 9.4% to $22.4 million.

Annualized recurring revenue reached $1.536 billion at June 30, 2026, compared with $1.379 billion one year earlier. Constant-currency ARR growth was 12%, while the last-12-month dollar-based net retention rate remained unchanged at 109%.

Management said the Resources sector again led growth, followed by Public Works and Utilities, including electric-grid accounts. Bentley did not provide revenue amounts or growth rates for these end-market categories.

Recurring Revenue Growth Did Not Translate Into Operating Margin Expansion

Bentley’s gross margin improved by approximately 0.9 percentage points, indicating that direct revenue costs grew more slowly than sales. Below gross profit, however, total operating expenses rose to $248.1 million from $210.9 million, outpacing revenue growth and reducing the GAAP operating margin by 1.6 percentage points.

General and administrative expense increased to $65.2 million from $49.9 million, while selling and marketing expense rose to $80.9 million from $69.9 million. Research and development expense increased more moderately to $82.1 million from $75.4 million. The company also absorbed costs associated with launching new enterprise-wide finance and quote-to-cash platforms, although it did not quantify those costs separately.

The same pressure was visible in Bentley’s primary non-GAAP profitability measure: AOI less Operating SBC increased to $116.0 million from $106.8 million, but its margin declined to 28.3% from 29.3%.

Net income and EPS still advanced because other income was $15.6 million, compared with a $1.6 million expense in the prior-year quarter. A lower diluted share count also supported EPS growth. These benefits more than offset the operating-margin contraction and an increase in net interest expense to $9.1 million from $3.5 million.

Cash Flow and Balance Sheet

Second-quarter operating cash flow increased by $10.4 million to $71.5 million. Capital spending and investment in capitalized software rose to $7.7 million from $4.1 million, leaving free cash flow of $63.8 million.

The quarterly improvement did not extend to the full first half. Six-month operating cash flow declined to $264.9 million from $280.5 million, and free cash flow decreased to $251.7 million from $273.4 million. Accounts receivable used $18.6 million of first-half cash in 2026 after providing $36.6 million in the comparable 2025 period, while first-half capital spending increased to $13.3 million from $7.1 million.

Bentley ended June with $147.0 million in cash and approximately $1.22 billion in total debt. Management reported net debt leverage of 1.9 times. During the first half, the company repurchased $125.1 million of Class B common stock and paid $42.4 million in dividends while also refinancing portions of its debt ahead of the mid-2027 convertible-notes maturity.

Management’s View

CEO Nicholas Cumins highlighted continued demand in Resources, Public Works, Utilities, and the electric grid. He also said customers are beginning to use Bentley’s infrastructure AI capabilities on live projects by combining its modeling, analysis, and simulation tools with AI assistants; management intends to monetize these capabilities “in due course.”

CFO Werner Andre said the company remained positioned within its full-year financial outlook and characterized profitability as consistent with expectations. He described the new finance and quote-to-cash platforms as a foundation for future efficiency and scale while emphasizing continued flexibility for acquisitions, dividends, and share repurchases.

Risks Investors Should Watch

• Operating-margin pressure: Revenue and gross profit increased, but operating expenses grew faster, reducing both GAAP operating margin and AOI less Operating SBC margin. Continued platform, personnel, or integration costs could limit operating leverage.
• Uneven cash-flow performance: Quarterly free cash flow improved, but first-half free cash flow declined because of working-capital movements and higher capital spending. The timing of receivables remains relevant to cash conversion.
• AI monetization timing: Bentley reported encouraging use of its AI capabilities on live projects, but the company described monetization as a future objective rather than a quantified contributor to current revenue.
• Debt and capital-allocation demands: Bentley has net debt leverage of 1.9 times and is preparing for a mid-2027 convertible-notes maturity while continuing acquisitions, dividends, and repurchases. These uses of capital will need to remain balanced against cash generation.

Summary

Bentley Systems maintained double-digit revenue, subscription, and ARR growth in the second quarter, with Resources and Public Works/Utilities leading demand. The central issue was profitability: gross margin improved, but faster operating-expense growth reduced operating margins, while other income and a lower diluted share count helped EPS rise. Investors’ next focus is whether recurring growth can produce better operating leverage, whether the quarterly cash-flow improvement carries into the second half, and when infrastructure AI adoption begins contributing measurable revenue.