BENTLEY SYSTEMS INC Q3 FY2024 earnings call

• Greg Bentley discussed generational succession, capital allocation, and the acquisition of Cesium, highlighting strategic synergies with the iTwin platform and its relevance to infrastructure digital twins.
• Nicholas Cumins mentioned the Year in Infrastructure Conference, the acquisition of Cesium, a strategic partnership with Google, the launch of Bentley Asset Analytics, and advancements in open applications.
• Werner Andre detailed revenue performance, recurring revenue metrics, ARR growth, profitability (adjusted operating income with SBC was $90 million for the quarter, up 4% y-o-y), liquidity (operating cash flow $86 million for the quarter), and capital allocation (deployed $129 million for acquisitions, $114 million for debt reduction, $54 million in dividends, and $57 million in share repurchases).

Subscription revenues grew 12% year-over-year for the quarter and year-to-date in reported and constant currency, making up 91% of total revenues. Perpetual license revenues were $11 million, down $0.5 million y-o-y, constituting 3% of total revenues. Recurring revenues for the last 12 months increased 11% y-o-y in reported and constant currency, representing 91% of total last 12 months revenues. ARR ended Q3 at $1.271 billion with constant currency ARR growth of 12% y-o-y (12.5% excluding China). China represents about 2.5% of total ARR. E365 and SMB initiatives are key growth drivers, with SMB accounts (less than $100,000 ARR per year) continuing to drive new logos, and Virtuosity subscriptions for SMB adding over 600 new logos for the 11th straight quarter.

• ARR growth is trending above the midpoint of the 10.5%-13% range for 2024.
• Expect 100 basis points of margin expansion for the year.
• Raised full-year cash flow conversion range from 80% to 85%.

• Lumpy nature of the asset analytics business due to major enterprise procurements adding volatility.
• China headwinds impacting ARR, with China currently representing ~2.5% of total ARR.
• Volatility in professional services revenues due to delays in IBM Maximo related implementation and upgrade work.

Q: How do the efforts around AI and digital twins impact mainstay products and new monetization opportunities?

A: Julien Moutte stated that digital twins enhance interoperability between product portfolio applications, enabling AI to unlock new outcomes and features in existing products, while also creating opportunities for new offerings and monetization.

Q: What drives SMB growth with 11 quarters of over 600 new logos?

A: Gregory Bentley mentioned Virtuosity subscriptions targeted at SMB through the online store, which offer digital engagement and expert assistance, appealing to SMB firms interested in horizontal infrastructure proficiency.

Q: How much contribution did Cesium make to net new ARR?

A: Gregory Bentley noted Cesium's onboarded ARR is not meaningful in financial magnitude but is strategic due to the pace of open source users opting into paid versions. Werner Andre clarified contract-based organic performance was at 11.5% and 12% ex China on a 3- and 12-month basis, not significantly impacted by programmatic acquisitions.

Q: Thoughts on water infrastructure demand and its impact?

A: Gregory Bentley said water infrastructure demand is a long-term opportunity with global uptick, though not specifically concentrated in the U.S. recently, and water is on a high growth rate among sectors.

Q: How does visibility extend beyond E365 floors and ceilings?

A: Gregory Bentley emphasized the improved visibility and linearity from E365 floors and ceilings, with focus on growing as fast as possible within margin improvement targets, leveraging opportunities like the Cesium acquisition and asset analytics to drive growth.