Business Overview and History
Bentley Systems, Incorporated is a leading global provider of infrastructure engineering software solutions that enable professionals across the built and natural environment to advance project delivery and asset performance. With over four decades of experience, Bentley has established itself as a trusted partner for engineers, architects, geospatial professionals, construction firms, and asset owners worldwide.
Bentley Systems was founded in 1984 by the Bentley brothers - Keith, Greg, and Barry - with the goal of developing computer-aided design (CAD) software for the infrastructure engineering industry. The company's initial focus was on creating software solutions for the design and management of infrastructure assets like bridges, roads, and utilities. In the early years, Bentley Systems established itself as a leading provider of specialized CAD software for infrastructure projects. The company's products, such as MicroStation, became widely adopted by engineers, architects, and construction professionals around the world.
Throughout the 1980s and 1990s, Bentley Systems experienced steady growth as the demand for its infrastructure design and management software increased. The 2000s marked a period of significant expansion for the company, as it broadened its product portfolio and began transitioning towards a more cloud-based and subscription-based business model. This shift was complemented by strategic acquisitions, including Haestad Methods in 2004 and Objectivity in 2007, which enhanced Bentley's capabilities in areas like water resources modeling and collaboration software.
A major milestone in Bentley Systems' history came in 2020 when the company went public, listing its shares on the Nasdaq stock exchange. This move provided Bentley with additional resources to fund its growth and innovation initiatives. Throughout its journey, Bentley Systems has successfully navigated challenges common to the software industry, such as adapting to changing technologies and customer preferences, by maintaining a strong focus on the specialized needs of the infrastructure engineering market and continuously innovating its offerings.
Financial Performance and Ratios
Bentley Systems has demonstrated consistent financial performance, with a strong emphasis on recurring revenue streams. For the fiscal year 2023, the company reported total revenues of $1.23 billion, with a net income of $326.79 million. Operating cash flow for 2023 was $416.70 million, while free cash flow stood at $391.69 million.
As of the latest reported quarter (Q3 2024), the company's total revenues stood at $335.2 million, representing a 9.3% year-over-year increase. This growth was primarily driven by an increase in subscriptions revenues, partially offset by decreases in services revenues and perpetual licenses revenues. Subscription revenues, which account for the majority of Bentley's top line, grew 12.0% (11.8% on a constant currency basis) to $303.2 million.
The company's profitability metrics have also been impressive, with an adjusted operating income margin of 26.7% in Q3 2024, compared to 25.7% in the same period a year ago. Bentley's strong cash flow generation is evident, with operating cash flow of $86.0 million and free cash flow of $81.3 million in the third quarter of 2024.
As of September 30, 2024, Bentley Systems' balance sheet remains healthy, with a current ratio of 0.52 and a debt-to-equity ratio of 1.43. The company's net debt position stood at $1.46 billion, with a net debt-to-EBITDA ratio of 2.9x, indicating a manageable leverage profile. Bentley's liquidity position is strong, with cash and cash equivalents of $72.17 million and an available credit line of $732.15 million under its Credit Facility as of September 30, 2024.
Annualized Recurring Revenues (ARR) and Retention Rates
A key metric that underscores Bentley's business model strength is its Annualized Recurring Revenues (ARR). As of September 30, 2024, the company's ARR stood at $1.27 billion, up from $1.12 billion a year earlier, representing a constant currency growth rate of 12%. This robust ARR growth is a testament to Bentley's ability to expand its customer base and cross-sell its solutions to existing clients.
Complementing the ARR growth, Bentley's last 12-month recurring revenues dollar-based net retention rate was 109% as of the end of Q3 2024, compared to 110% in the same period a year ago. This high retention rate reflects the company's strong customer relationships and the mission-critical nature of its software offerings.
Geographic and Segmental Performance
Bentley Systems has a diverse global footprint, with a balanced revenue mix across its key geographic regions. In Q3 2024, the company's revenue breakdown was as follows: Americas (52.4%), EMEA (28.4%), and Asia-Pacific (19.2%). The strong performance in the Americas was driven by robust demand in North America, while the EMEA and Asia-Pacific regions also contributed to the overall growth. For the fiscal year 2023, 42% of revenues came from the Americas (including U.S., Canada, and Latin America), 28% from EMEA, and 18% from APAC, demonstrating consistent growth across all major geographic regions.
From a segmental perspective, Bentley's core business lines include Subscriptions and Services. The Subscriptions segment, which includes Enterprise subscriptions, SELECT subscriptions, and Term license subscriptions, generated $907.77 million in revenue for the first nine months of 2024, up 12.4% compared to the same period in 2023. This growth was primarily driven by expansion within Bentley's existing customer accounts as well as the addition of new accounts, particularly small- and medium-sized businesses.
The Services segment, which includes both recurring professional services revenue and other services revenue, generated $63.85 million in revenue for the first nine months of 2024, down 16.8% compared to the same period in 2023. This decline was primarily due to a decrease in Bentley's Maximo-related work within its digital integrator business, Cohesive.
Competitive Landscape and Growth Opportunities
Bentley Systems operates in a competitive and rapidly evolving infrastructure engineering software market, competing with the likes of Autodesk, Trimble, and Hexagon. However, the company's deep domain expertise, continuous innovation, and strong customer relationships have allowed it to maintain a differentiated position in the industry.
The infrastructure engineering software market is expected to grow at a CAGR of around 10% over the next 5 years, driven by increasing digitization and adoption of cloud-based solutions in the industry. This presents significant growth opportunities for Bentley Systems, particularly in areas such as digital twins, cloud-based solutions, and sustainable infrastructure development.
Looking ahead, Bentley Systems is well-positioned to capitalize on several key growth opportunities, including the increasing adoption of digital twins and cloud-based solutions, the growing emphasis on sustainable infrastructure development, and the ongoing global infrastructure investment initiatives, such as the U.S. Infrastructure Investment and Jobs Act (IIJA).
The company's recent acquisition of Cesium, a leading provider of 3D geospatial technology, further strengthens its capabilities in the digital twin and visualization space, positioning Bentley to capture the rising demand for immersive infrastructure modeling and analytics.
Furthermore, Bentley's strategic focus on Asset Analytics, which leverages artificial intelligence and machine learning to optimize infrastructure asset performance, aligns with the industry's growing need for data-driven decision-making and predictive maintenance solutions.
Risks and Challenges
While Bentley Systems has demonstrated resilience and adaptability, the company faces several risks and challenges that warrant consideration:
1. Dependence on the infrastructure and construction sectors: Bentley's performance is closely tied to the health and spending patterns of the infrastructure engineering and construction industries, which can be cyclical and susceptible to macroeconomic conditions.
2. Geopolitical and regulatory uncertainties: Changes in government policies, trade agreements, and regulatory environments, particularly in key international markets, can impact Bentley's operations and growth prospects.
3. Competition and pricing pressures: The infrastructure engineering software market is highly competitive, with the potential for increased pricing competition and the threat of new entrants or disruptive technologies.
4. Integration and acquisition challenges: Successful integration of acquired companies and technologies is crucial for Bentley to realize the expected synergies and growth benefits from its M&A strategy.
5. Talent attraction and retention: Bentley's ability to attract, develop, and retain top engineering and software talent is critical to sustaining its innovative edge and delivering cutting-edge solutions.
Outlook and Guidance
Bentley Systems has established itself as a leading player in the infrastructure engineering software industry, leveraging its deep domain expertise, innovative solutions, and strong customer relationships to drive consistent financial performance and growth.
For the full year 2024, Bentley is trending above the midpoint of their 10.5% to 13% constant currency ARR growth outlook range. The company expects to deliver 100 basis points of margin expansion for the full year 2024, in line with their annual outlook. While Bentley's recurring subscription revenues continue to exceed expectations, total revenues are trending towards the low end of their outlook range due to weakness in non-recurring professional services revenues, particularly related to delays in IBM Maximo implementation and upgrade work.
Bentley has updated their expectations for CapEx, interest expenses, cash interest, and cash taxes for the full year 2024. The company currently expects full year cash flow conversion to be in the range of 85%.
Conclusion
Despite the challenges posed by the cyclical nature of the infrastructure sector and evolving competitive landscape, Bentley Systems' strategic focus on recurring revenue streams, digital twin technologies, and asset analytics positions it well to capitalize on the growing demand for sustainable and data-driven infrastructure development.
As Bentley Systems continues to execute on its growth strategies, investors will be closely monitoring the company's ability to maintain its competitive edge, integrate acquisitions effectively, and adapt to the changing industry dynamics. With its proven track record, diversified business model, and promising growth opportunities, Bentley Systems remains a compelling investment proposition for those seeking exposure to the dynamic infrastructure engineering software market.