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01/10 19:55
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The company's earnings call reveals a positive outlook with strong ARR growth expectations, margin expansion, and increased free cash flow projections. The strategic partnership with Google and AI integration enhance their asset analytics capabilities, while regional and sector performance indicates robust demand. Although there are some uncertainties in M&A and asset analytics, the overall sentiment is positive, supported by optimistic guidance and strategic initiatives.
ARR (Annual Recurring Revenue) ARR increased 10.5% year-over-year or 11% when excluding the impact of China. Growth was underpinned by a net revenue retention rate of 109%. Reasons for growth include solid E365 performance and 300 basis points of ARR growth from new logos, primarily within the SMB segment.
Total Revenues Total revenues for the third quarter were $376 million, up 12% year-over-year on a reported basis and 11% on a constant currency basis. Reasons for growth include strong subscription revenue growth and favorable foreign exchange rates.
Subscription Revenues Subscription revenues grew 14% year-over-year for the quarter in reported terms and 12% in constant currency. Subscription revenues now represent 92% of total revenues, up 2 percentage points from the same quarter last year. Growth was driven by E365 and SMB initiatives.
Perpetual License Revenues Perpetual license revenues for the quarter were $11 million, essentially flat compared to the prior year. No significant year-over-year change was noted.
Professional Services Revenues Professional services revenues declined 2% for the quarter in reported terms and 3% in constant currency. Reasons for the decline include a reduction in IBM Maximo implementation and upgrade work.
Adjusted Operating Income less Stock-Based Compensation Expense Adjusted operating income less SBC expense was $104 million for the quarter, up 16% year-over-year, with a margin of 27.7%, up 100 basis points. Reasons for growth include strong revenue performance and operational efficiency.
Free Cash Flow Free cash flow was $111 million for the quarter and $384 million year-to-date. Growth was consistent with expectations based on seasonality of collections and expenditures as well as timing of cash tax payments.
AI-driven applications: Bentley introduced next-generation applications powered by AI, including OpenSite+, Substation+, and SYNCHRO+, which feature Bentley Copilot, an AI assistant for infrastructure engineering.
Bentley Infrastructure Cloud: Announced 'Connect,' a new foundational layer to improve collaboration across the infrastructure lifecycle, available in December.
AI-enhanced existing applications: Bentley is enhancing existing applications like OpenRoads and OpenRail with AI capabilities, including AI-powered drawing production.
Geographic performance: Strong performance in Asia Pacific, particularly India and Southeast Asia. Americas and EMEA also showed solid growth, with the Middle East leading in EMEA.
Sector performance: Resources sector was the fastest-growing, driven by mining exploration and global demand for grid resilience. Public works and utilities also performed well.
ARR growth: Annual Recurring Revenue (ARR) grew 10.5% year-over-year, with strong contributions from new logos and SMB growth.
Subscription revenue: Subscription revenues grew 14% year-over-year, now representing 92% of total revenues.
Margin improvement: Adjusted operating income margin improved by 100 basis points to 27.7%.
AI investment and adoption: Engineering firms are increasing AI spending, with a projected 4x growth in AI implementation spending over the next three years.
Strategic acquisitions: Bentley is prioritizing capital allocation for strategic acquisitions to lead in asset analytics and digital twin technologies.
Engineering Resource Constraints: Chronic engineering resource constraints are limiting the ability to meet increasing demand for infrastructure projects. This could hinder the company's growth and ability to scale its solutions effectively.
AI-Driven Business Model Disruption: The adoption of AI is expected to disrupt traditional engineering business models, shifting from billable hours to value-based pricing. This could impact the consumption of Bentley's software and cloud services, potentially affecting revenue streams.
Data Privacy and Security Concerns: Engineering firms have expressed concerns about data privacy and security in AI implementations. This could slow down AI adoption and impact Bentley's ability to scale its AI-driven solutions.
Economic and Geopolitical Headwinds in China: China's economic and geopolitical challenges have negatively impacted growth, with the region contributing only 2% of total ARR. This poses a risk to revenue diversification.
Professional Services Revenue Decline: Professional services revenues have declined and are expected to remain at current levels, which could impact overall revenue growth.
Supply Chain and Policy Uncertainties: Uncertainties related to tariffs, policy shifts, and federal shutdowns in the U.S. could disrupt operations and impact revenue.
Slowdown in Australian Infrastructure Spending: A slowdown in transportation spending in Australia has softened growth in the ANZ region, posing a risk to regional revenue performance.
AI Implementation Spending: Firms anticipate increasing their annual AI implementation spending over the next 3 years to a median ranging from $35 million to $164 million, a multiple of almost 4 from today. This projected AI increment would cause total technology spending as a percentage of revenue to grow about 50% faster than at present.
AI-Driven Business Model Changes: AI is expected to catalyze a shift in engineering business models from hours-related revenue towards value-priced data-enabled services and performance/outcome contracting. This transformation is anticipated to impact the consumption of software and cloud services.
AI-Enabled Subscription Revenue Growth: Bentley Systems expects asset consumption, driven by AI-enabled digital twins, to become a mainstay of subscription revenue growth, particularly within owner operators and engineering firms.
E365 Renewals and ARR Growth: E365 renewals are expected to sustain a healthy gradient with negotiated annual floor and ceiling escalations averaging about 10%. ARR growth is projected to remain robust, with Q4 2025 expected to have higher year-over-year ARR growth compared to Q3 2025.
New AI-Powered Applications: Bentley introduced new AI-powered applications, including OpenSite+, Substation+, and SYNCHRO+, which are expected to drive productivity gains and enhance engineering workflows.
Geographic Growth Projections: Robust investment in India is expected to continue, supporting long-term growth. In the U.S., permitting reform for energy infrastructure and critical minerals could drive growth in the coming quarters. Europe is also expected to benefit from permitting reforms and investments in renewable energy and grid infrastructure.
Free Cash Flow and Financial Outlook: The company is on target to meet its full-year free cash flow outlook of $430 million to $470 million. Adjusted operating income margin is expected to improve by more than 100 basis points in Q4 2025 compared to Q4 2024.
Dividend Payments: Year-to-date, Bentley Systems has deployed $64 million on dividends.
Share Repurchase Program: Year-to-date, Bentley Systems has deployed $93 million in effective share repurchases to offset dilution from stock-based compensation.
The company's earnings call reveals a positive outlook with strong ARR growth expectations, margin expansion, and increased free cash flow projections. The strategic partnership with Google and AI integration enhance their asset analytics capabilities, while regional and sector performance indicates robust demand. Although there are some uncertainties in M&A and asset analytics, the overall sentiment is positive, supported by optimistic guidance and strategic initiatives.
The earnings call highlights strong financial performance, strategic product development, and positive market strategies. The Q&A section reveals optimistic management responses, especially regarding AI integration and asset analytics, which are potential growth drivers. Despite minor concerns about engineering capacity and NRR, the overall sentiment is positive, supported by strong cash flow, revenue growth, and strategic focus on AI and partnerships. The sentiment is further bolstered by the positive impact of the OBBA benefits and the strategic geographic diversification reducing China exposure.
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