Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Bentley Systems Inc (BSY, Financial) reported robust ARR growth, showing balanced, visibility, and linearity.
- Subscription revenues surpassed 90% of total revenues, driven by mid-double-digit year-to-date growth.
- The company has virtually no multi-year recognition or billing, enhancing revenue transparency.
- Asset analytics initiatives reached an ARR growth rate of eight digits for the year, showing promising future potential.
- The company has a strong balance sheet with significant debt reduction and a net senior debt leverage of 0.1 times.
Negative Points
- China continues to be a headwind, with ARR growth impacted by soft economic conditions and geopolitical tensions.
- Professional services revenues declined by 15% year-over-year, primarily due to delays in IBM Maximo-related projects.
- The company faces challenges in the Cohesive digital integrator business, affecting professional services revenues.
- ARR growth from programmatic acquisitions has become negligible, limiting additional growth avenues.
- The macroeconomic environment remains uncertain, with potential impacts on deal cycles and enterprise decisions.
Q & A Highlights
Q: Can you talk about the confidence around some of the E365 renewals in the second half, especially given the broader macro environment?
A: (Werner Andre, CFO) The sentiment among infrastructure engineering organizations is positive, with concerns more about capacity than demand. Most of our ARR growth comes from consumption, which is not reliant on enterprise decisions but rather on the throughput of infrastructure engineering organizations. (Nicholas Cumins, CEO) The market sentiment is very positive, especially in Public Works Utilities, where demand remains high despite resource constraints.
Q: How does the extended timeline for IIJA funding impact Bentley's growth opportunities?
A: (Werner Andre, CFO) The sustained momentum from IIJA funding is positive, especially for DOTs, which are better equipped to apply for and execute grants. This extended timeline allows the entire supply chain to better deliver on the funding over time. (Nicholas Cumins, CEO) The funding being announced over time is beneficial for the supply chain, including smaller civil engineering firms.
Q: How is the retention rate in the SMB segment trending?
A: (Werner Andre, CFO) While we don't quantify it each quarter, retention in the SMB segment is tracking well. We are working on automating the process and allocating resources to improve digital experiences. (Nicholas Cumins, CEO) The retention rate in SMB is higher than expected, with firms using the software beyond the term of their subscription, indicating strong ongoing usage.
Q: What are the nearest-term effects of AI on Bentley's traditional portfolio?
A: (Nicholas Cumins, CEO) There are two main areas of AI investment: asset analytics and design. Asset analytics is already generating traction and is priced based on assets, adding incremental revenue. For design, AI is being developed to automate tasks and act as a co-pilot for engineers, with potential new monetization models.
Q: What is the status of Phase 2 of Bentley's products and platform development?
A: (Nicholas Cumins, CEO) Phase 2 involves leveraging iTwin capabilities to complement existing applications. We recently released a new version of MicroStation with iTwin-powered capabilities. Phase 3 will focus on native digital twin applications, with an AI-based solution for site engineering expected to launch at our annual conference.
Q: Can you speak to the fundamentals of Power Line Systems (PLS) and the impact of permitting reform?
A: (Nicholas Cumins, CEO) PLS is experiencing strong growth even before the full impact of permitting reform. The existing infrastructure needs to support increased electricity demand, driven by factors like reshoring, clean energy incentives, and data centers. The permitting reform will further boost growth, but the current demand is already strong.
Q: What factors could drive Bentley's ARR growth to the high end of the guidance range?
A: (Werner Andre, CFO) Asset analytics is a significant factor, with the potential for large procurements to drive ARR growth. The timing of these deals can be lumpy, but we are on track for substantial growth in this area. (Gregory Bentley, Executive Chairman) Geopolitical concerns are mainly limited to China, while other regions continue to prioritize infrastructure investments.
Q: How do you view the durability of double-digit ARR growth given the current macro environment?
A: (Gregory Bentley, Executive Chairman) The demand environment for infrastructure is resilient and not very subject to macro cycles. Public spending on infrastructure is a long-term necessity, and the sentiment among engineering firms remains positive. The SMB segment has shown sustained growth, contributing significantly to ARR.
Q: What is the selling cycle for the roadway maintenance business, and how quickly can it generate revenue?
A: (Gregory Bentley, Executive Chairman) The selling cycle for roadway maintenance solutions, like Blyncsy, typically involves a pilot phase of about three months. The ease of deployment and quick impact of these solutions make them attractive to DOTs and other transportation authorities, leading to rapid revenue generation.
Q: How does the current macro environment and potential changes in interest rates and US elections impact Bentley's business?
A: (Nicholas Cumins, CEO) Infrastructure investment is a bipartisan priority in the US, and we do not expect changes in the political landscape to impact this. The bulk of our business comes from public works and utilities, which are less affected by macroeconomic factors. IIJA funding continues to be a strong tailwind, with only 38% of the funding announced so far.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
