Bentley Systems, Incorporated Q3 FY2025 earnings call

Management Statement and Operational Highlights:

• Highlights from Year in Infrastructure 2025 Conference, including AI adoption in infrastructure, AEC Advisors survey on engineering firms’ AI spending and business model shifts towards value-priced data services.
• Announcements: Connect for Bentley Infrastructure Cloud (to be generally available in December), new AI-enabled applications (OpenSite+, Substation+, SYNCHRO+), co-innovation initiative with users to evolve applications for AI use cases, and data stewardship on AI training to ensure user data control.
• Q3 financial results: Solid quarter with 10.5% year-over-year ARR growth (11% excluding China), net revenue retention rate 109%, E365 performance solid, and strong SMB growth.

Segment Performance:

• Subscription revenues grew 14% year-over-year for the quarter in reported and 12% in constant currency, representing 92% of total revenues. Perpetual license revenues were $11 million, essentially flat. Professional services revenues declined 2% for the quarter.
• Resources was the fastest-growing sector. Public works/utilities and power line systems performed solidly.
• Geographically, Asia Pacific had a strong quarter, followed by the Americas (led by North America) and EMEA (Middle East leading). Asia Pacific’s India and Southeast Asia stood out, while China represented only 2% of total ARR.

Guidance:

• Q4 ARR growth expected to be stronger than Q3 due to renewals and potential M&A/asset analytics deals.
• Full year free cash flow outlook $430 million to $470 million.
• Adjusted operating income less stock-based compensation margin target around 28.5%, with expectation of margin improvement in Q4.

Risks:

• Volatility in asset analytics deals, which are lumpy and impact quarterly ARR growth.
• Impact of government shutdowns on U.S. projects, though minimal so far.
• Uncertainty around permitting reform timelines and their potential impact on business activity.

Q: Joe Vruwink asked about better ARR growth in 4Q and renewals.

A: Gregory Bentley and Nicholas Cumins responded that Q4 is a strong renewal quarter, with expectations of stronger ARR growth than Q3, and enterprise accounts are comfortable with expected spending increases.

Q: Jason Celino asked about the government shutdown’s impact.

A: Nicholas Cumins said minimal impact so far, as direct revenue from U.S. federal government is less than 1%, and IIJA funding continued during shutdown, but impact on renewals could be marginal.

Q: Matthew Hedberg asked about permitting reform and power access impact.

A: Nicholas Cumins noted PLS and Seequent are strong growth engines, with some acceleration in U.S. mining projects and growing tailwind from electric grid expansion needs.

Q: Faith Brunner asked about AI innovation road map.

A: Nicholas Cumins discussed involving users in AI development, using Going Digital Awards submissions to guide efforts, and ongoing co-innovation with users.

Q: Kristen Owen asked about labor availability impact.

A: Gregory Bentley said ongoing engineering resource constraints are catalyzing changes to value-priced services, with Bentley aiming to support engineering firms in this transition.

Q: Alexei Gogolev asked about Google partnership update.

A: Nicholas Cumins mentioned integration of Google geo data across portfolio, including in Bentley Infrastructure Cloud, and expanding asset analytics opportunities with Google.

Q: Clarke Jeffries asked about AI RFPs and go-to-market.

A: Nicholas Cumins said AI RFPs are early, but users emphasize data control, and co-innovation initiative addresses evolving needs.

Q: Jay Vleeschhouwer asked about product development evolution.

A: Nicholas Cumins discussed iterative product development with user feedback, and AI use in developer productivity.

Q: Taylor McGinnis asked about net new ARR and M&A.

A: Gregory Bentley and Werner Andre noted net new ARR down due to lapping acquisitions, with M&A and asset analytics deals potentially boosting Q4, and M&A contribution typically 40-70 basis points.

Q: Sitikantha Panigrahi asked about macro outlook.

A: Nicholas Cumins and Gregory Bentley said demand for infrastructure remains robust, with China and Australia having specific considerations.

Q: Guy Hardwick asked about E&C consolidation impact.

A: Gregory Bentley said consolidation benefits Bentley as larger firms invest in AI, needing engineering precision tools.

Q: Koji Ikeda asked about internal AI use.

A: Nicholas Cumins said AI is used in sales, R&D, G&A for productivity gains, expected to boost margins.

Q: Joshua Tilton asked about Q3 ARR growth and Year in Infrastructure impact.

A: Werner Andre and Nicholas Cumins confirmed Q3 was in line with expectations, and Connect for Bentley Infrastructure Cloud is a key needle-moving announcement.