Bentley Systems, Class B ((BSY)) has held its Q1 earnings call. Read on for the main highlights of the call.
Bentley Systems’ recent earnings call conveyed a generally positive sentiment, underscored by strong Annual Recurring Revenue (ARR) growth and robust subscription revenues. The company demonstrated resilience in its business model, despite facing challenges in the professional services segment and geopolitical issues in China. Bentley Systems remains well-positioned with solid geographical diversification and a positive outlook in the U.S. infrastructure market.
Strong ARR Growth
Bentley Systems reported a 12% year-over-year ARR growth, which increased to 12.5% when excluding the impact of China. The E365 program continues to be a significant growth driver, contributing 300 basis points of ARR growth from new logos. This highlights the company’s ability to attract new customers and expand its recurring revenue base.
Record Subscription Revenue
The company’s subscription revenues grew by 11% year-over-year, now accounting for 92% of total revenues. This shift towards subscription-based revenues has improved growth consistency, predictability, and margin contribution, marking a strategic advantage for Bentley Systems.
Geographical Diversification
Bentley Systems’ geographical diversification strategy paid off, with India emerging as a key growth driver in the Asia-Pacific region and Latin America showing strong performance in the Americas. The company also recorded solid growth in EMEA, supported by significant investments in Europe and the Middle East.
Resilient Business Model
The resilience of Bentley Systems’ business model is evident, with recurring revenues reaching 92% of total revenues. The direct sales model stands at 94%, and ARR from infrastructure owner-operators has reached parity with ARR from engineering and construction contractors, showcasing a balanced revenue stream.
Positive U.S. Infrastructure Outlook
The U.S. infrastructure market remains robust, with IIJA funding expected to continue for at least another 18 months. State and local government contract awards in Q1 increased by 34% year-over-year, indicating strong demand and growth potential in this sector.
Decline in Professional Services Revenue
Despite overall positive performance, Bentley Systems faced an 18% decline in professional services revenues for the quarter. This segment’s volatility and lower margin contribution highlight the challenges in maintaining consistent growth across all revenue streams.
Challenges in China
China, which represents less than 2.5% of total ARR, encountered economic and geopolitical headwinds, impacting Bentley Systems’ overall growth. The company continues to navigate these challenges while maintaining its focus on other growth regions.
Slower Sequential ARR Growth
The quarterly sequential ARR growth rate was 2.1%, slightly below the previous year’s 2.2%. However, Bentley Systems expects growth to be back-half loaded, indicating optimism for stronger performance in the latter half of the year.
Guidance for Fiscal Year 2025
Bentley Systems provided detailed guidance for fiscal year 2025, focusing on ARR growth, profitability, and cash flow. They reported a 12% year-over-year ARR growth for Q1 2025, with net revenue retention at 110%. The company aims to maintain low double-digit ARR growth and achieve 100 basis points of margin expansion. Their strategic focus on infrastructure sectors such as public works and utilities continues to drive robust growth, while exposure to more cyclically sensitive sectors has decreased.
In summary, Bentley Systems’ earnings call highlighted a positive outlook, driven by strong ARR and subscription revenue growth. Despite challenges in professional services and geopolitical headwinds in China, the company’s resilient business model and strategic geographical diversification position it well for future growth. The positive sentiment and forward-looking guidance underscore Bentley Systems’ confidence in maintaining its growth trajectory.