Bentley Systems, Incorporated (BSY) Earnings

Management highlights

- Overall Growth & Strategic Positioning • Bentley Systems has met its 2020 IPO goal of doubling key financial metrics (ARR, revenues, profitability, SBC-burdened free cash flow) over five years, sustaining a dependable double-digit growth track record. • Management highlights strong, regenerated global demand for infrastructure engineering software driven by investments in infrastructure resilience, capacity, and self-sufficiency, with grid integration and subsurface resources offerings currently seeing the most benefit. • Bentley holds a unique pole position in enterprise infrastructure AI: 470 of the 610 top global design firms (ex-China) are Bentley accounts with average ARR of nearly $1 million; over 75% of top ex-China infrastructure owner-operators (managing over 80% of ex-China net infrastructure assets) are Bentley accounts, with 346 top accounts spending over $330 million annually. • The company has paid down acquisition-related debt to an optimal 2x leverage range, enabling increased discretionary share repurchases alongside ongoing programmatic acquisition funding and balance sheet preparedness for larger platform acquisitions. Redemption of 2026 convertible debt reduced fully diluted share count by ~3%, with a similar reduction expected in 2027 from remaining convertible debt maturity. - AI Strategy & Development • Bentley's core AI strategy follows a hybrid model that combines deterministic engineering applications (for modeling, analysis, simulation) with probabilistic large language models (for natural language processing and high-level reasoning), connected via MCTP servers that convert AI instructions into validated engineering work. The approach is intentionally open, allowing customers to pair Bentley applications with any AI model. • Since releasing the first MCTP server for STAAD last quarter, Bentley has launched 5 additional MCTP servers across its application portfolio, with more planned. The company is currently focused on customer education to cut through AI market noise and supporting account adoption, with monetization planned for a later phase. • Current priority is progressive enterprise AI adoption, supported by 1,000 embedded application engineers in E365 accounts. Incremental growth opportunities include monetizing agentic API consumption of Bentley modeling/simulation software and growing asset analytics subscriptions for infrastructure owner-operator digital twin use in operations and maintenance. - Quarterly Operational Highlights • Year-over-year ARR growth accelerated to 12% in Q2, ending the quarter with total ARR of $1.536 billion; net revenue retention remained strong at 109%, consistent with prior quarters. Over 600 new logos were added in the quarter, and SMB market sentiment remains positive with healthy project backlogs extending into 2027. • The Enterprise 365 commercial program continues to drive steady growth, with particularly strong renewal performance in Q2 (the second largest renewal quarter annually). • PLS (power line systems), acquired 4.5 years ago, has become a core part of Bentley's electric grid portfolio, with international growth expanding to equal the size of the entire original PLS business at acquisition. Three new MCTP servers for PLS products were announced in Q2, enabling AI querying of full grid digital twin repositories.

Guidance

- Full year 2026 free cash flow is guided to a range of $500 million to $550 million, with first half 2026 free cash flow coming in at 47% of this full year outlook, within the previously guided 45-50% range for the first half. Management reaffirmed confidence in meeting the full year free cash flow target. • Management expects full year constant currency adjusted operating margin improvement, with the first half 2026 step-up in costs from the new enterprise finance and quote-to-cash platforms already contemplated in the full year outlook. • ARR growth is tracking within the expected range for the year; reaching the upper end of the growth range requires continued current sector momentum, a potential acquisition, and large lumpy deal closes in the asset analytics business. • AI agentic and API capabilities are not expected to be monetized in 2026, with monetization planned to start in 2027. • Foreign exchange impact: The stronger U.S. dollar reduced first half 2026 revenues by approximately $5 million vs guidance assumptions, and is expected to reduce second half revenues by an incremental $8 to $10 million if end-of-July 2026 exchange rates hold for the remainder of the year.

Segment performance

By revenue stream: Total Q2 2026 revenues were $411 million, growing 12.8% year-over-year (12.2% constant currency). Subscription revenues were $378.12 million, representing 92% of total revenues, growing 13.6% year-over-year (13% constant currency). Services revenues grew 9.4% year-over-year (8.7% constant currency), led by 16.5% constant currency growth in Maximo-related services. Perpetual license revenues were ~$10 million, down ~$0.5 million year-over-year, representing only 2% of total revenues. By end market sector: Resources is the fastest growing sector, driven primarily by mining strength across all regions, supported by global demand for critical minerals for electrification and AI data centers. Public works and utilities, the largest sector, delivered strong growth driven by sustained global infrastructure investment, with electric grid (led by PLS software) as a core growth driver from demand for transmission expansion, capacity, and resiliency. By geography: Latin America delivered strong growth led by mining and transportation investment. EMEA delivered solid growth, with strong large account renewals and ongoing national infrastructure programs driving demand in the UK; Middle East activity and consumption rebounded after conflict-related disruptions. Asia-Pacific delivered strong growth, led by a strong rebound in Australia and followed by India. China, representing only 2% of total ARR, continues to face sustained economic and geopolitical headwinds.

Risks & headwinds

- China operations, representing approximately 2% of ARR, continue to face unique geopolitical and economic headwinds. • U.S. permitting reform, which would further accelerate PLS/electric grid grid growth, remains held up pending congressional action, though bipartisan support exists and growth is already occurring from investments in upgrading existing grid capacity. • High levels of market noise and hype around AI create customer confusion, requiring increased go-to-market and customer education investment to cut through the noise and drive adoption of Bentley's capabilities. • AI-driven growth depends on customer validation of new use cases and commercial models, with results from these efforts still in early stages. • Asset analytics revenue growth depends on large, lumpy deal closes, which introduces timing variability to annual growth results.

Analyst Q&A

• Q: What factors are needed to sustain or improve Q2's accelerated 12% ARR growth through the back half of 2026 to reach the upper end of the guidance range?

  A: Q2's acceleration was driven by momentum in the fastest-growing resources sector (particularly mining) and broad strength in public works and utilities including electric grid. To reach the upper end of the growth range, this momentum needs to continue (with no current signs of slowing), plus the company needs to complete an acquisition and close large, lumpy deals in the asset analytics business. All these factors must occur together to hit the top end of the range, which is management's hope.

• Q: How does the existing low $21 per $1 million of net assets earn rate with infrastructure owner-operators unlock larger growth opportunities as Bentley's infrastructure cloud evolves?

  A: The biggest opportunity for growth with owner-operators is in operations and maintenance, where AI can leverage data stored in the Bentley Infrastructure Cloud to optimize O&M spending by focusing only on necessary, high-impact work. Owner-operators also benefit from AI-driven CapEx optimization that reduces subsurface risk and improves constructability. Management expects the earn rate will rise over time as owners increase spending on software and AI capabilities, creating significant long-term upside.

• Q: Can you provide an update on PLS's current financial profile and the impact of U.S. permitting reform on its growth?

  A: PLS has been a consistent growth engine since acquisition, with current non-U.S. revenue equal to the size of the entire PLS business at acquisition, meaning it has grown dramatically both internationally and domestically. Even without permitting reform, PLS is growing in the U.S. driven by investments to upgrade existing grid capacity for resiliency and increased demand. If/when permitting reform passes (which has bipartisan support but is held up in Congress), it will further accelerate PLS growth which is already strong today.

• Q: When do you expect to monetize new AI capabilities, and how does your open ecosystem approach create competitive advantage?

  A: Management is currently focused on the adoption, exploration, and validation phase of AI rollout, with no monetization planned in 2026 and monetization starting in 2027. The company is intentionally open, allowing customers to use any AI model they prefer with Bentley's underlying engineering applications, which matches customer demand for flexibility (some prefer Bentley's CodePilot, others want to use their own customized AI models). Bentley monetizes the underlying engineering applications and cloud infrastructure regardless of which AI model customers use, capturing value regardless of how customers integrate AI into their workflows.

• Q: Is there customer hesitation to adopt AI today waiting for new large generalist AI models like Prometheus to improve and enter infrastructure engineering?

  A: Large generalist AI investments actually help increase customer awareness of what AI can do for engineering, which benefits Bentley rather than creating hesitation. These models are being developed for other organizations' specific use cases and are unlikely to compete with Bentley's position as the leading provider of core infrastructure engineering applications. There is no visible customer hesitation, as Bentley focuses on demonstrating AI capabilities that are available and valuable today, rather than speculative future offerings.