Bentley Systems, Incorporated Q2 FY2025 earnings call

Management Statement and Operational Highlights:

• Greg Bentley discussed the long-term growth driver of going digital in infrastructure engineering, using Cambashi data to show software spending trends among infrastructure engineers. Highlighted competitive landscape in BIM design and Bentley's unique focus on civil and structural products for horizontal infrastructure networks.
• Nicholas Cumins highlighted strong Q2 performance, with ARR growing 11.5% year-over-year (constant currency) and net revenue retention rate of 109%. Discussed sector performance by infrastructure sector (Resources was fastest-growing, Public Works/Utilities solid, Industrial modest, Commercial flat). Noted success of Cesium Developer Conference and progress integrating Cesium into Bentley's portfolio.
• Werner Andre provided financial results, noting total revenues for Q2 were $364 million, up 10% year-over-year (reported) and 9% constant currency. Talked about adjusted operating income less stock-based compensation, free cash flow, and updated free cash flow outlook to $430M-$470M due to tax benefits. Also discussed debt repayment, share repurchases, and balance sheet strength.

Segment Performance:

• Subscription revenues: Represent 92% of total revenues, up 2 percentage points from the prior year. Grew 12% year-over-year in Q2 (reported) and 11% in constant currency. Year-to-date, subscription revenues grew 12% in reported and constant currency.
• Perpetual license revenues: $10 million in Q2, down $1 million year-over-year, making up 3% of total revenues.
• Professional services revenues: Declined 7% in Q2 (reported) and 9% in constant currency, now 6% of total revenues.
• ARR: $1.379 billion at quarter-end spot rates. Year-over-year constant currency ARR growth rate was 11.5%, 12% ex-China. China now represents 2% of total ARR.

Guidance:

• Raised 2025 free cash flow outlook to $430 million to $470 million from $415 million to $455 million due to tax benefits from the One Big Beautiful Bill.
• ARR growth, revenues, and profitability are expected to remain within the annual outlook range.
• Q3 is expected to be the seasonal low for year-over-year ARR growth due to timing of acquisitions and asset analytics deals.

Risks:

• Volatility in the asset analytics business due to large, lumpy deals and changing customer constituencies (e.g., asset analytics being tied to construction phases and needing to resell to owner-operators).
• China's impact on ARR, though it now represents only 2% of total ARR.
• Economic and geopolitical headwinds affecting Asia Pacific performance, particularly in ANZ due to transportation spending slowdown.

Question and Answer: Q: About macros and SMB improvement, A: Nicholas said it's consistent with ongoing infrastructure investment, with accounts positive about their outlooks regardless of size.

Q: TAM analysis and data center opportunity, A: Gregory and Nicholas discussed data center infrastructure, including connections to electrical grids and surrounding infrastructure, and partnerships with hyperscalers using SYNCHRO for construction modeling.

Q: Free cash flow guidance and tax benefits, A: Werner explained the normalized tax benefit and updated free cash flow outlook, noting it's a multi-year benefit.

Q: R&D and Cesium development, A: Nicholas talked about R&D priorities including AI, Cesium integration across the portfolio, and progress in integrating iTwin capabilities with Cesium.

Q: Asset analytics growth and seasonality, A: Gregory and Nicholas discussed asset analytics volatility due to large, lumpy deals and seasonality impact on ARR growth.

Q: AI and agentic AI, A: Nicholas discussed AI's impact on productivity, business models, and Bentley's position to support engineering firms leveraging AI with its open platform.

Q: Permitting reform and pricing, A: Nicholas talked about account confidence leading to higher floors and ceilings in renewals, and evolving pricing with AI, noting early stage of exploring alternative pricing metrics.