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    BENTLEY SYSTEMS (BSY)

    Q1 2024 Earnings Summary

    Reported on May 7, 2024 (Before Market Open)
    Pre-Earnings Price$53.54Last close (May 6, 2024)
    Post-Earnings Price$54.00Open (May 7, 2024)
    Price Change
    $0.46(+0.86%)

    What went well

    • Strong SMB Momentum: Management highlighted that the SMB subscription program showed impressive new logo growth—with Virtuoso Subscriptions now exceeding 9,000 accounts and delivering 4% ARR growth in Q1—indicating strong, scalable recurring revenues backed by high retention worldwide.
    • Digital Twin & Asset Analytics Integration: The companies’ products increasingly leverage the iTwin platform and related asset analytics, embedding digital twin technology into core offerings. This integration not only enhances cross-selling opportunities but also paves the way for sizable, non‐seasonal ARR contributions.
    • Predictable ARR Growth from Contract Renewal Dynamics: The guided ARR growth, driven by a structured floor and ceiling reset mechanism during contract renewals, supports a predictable sequential ARR buildup (with quarterly expectations like 20%-35% contributions in renewal quarters). This framework, complemented by strategic asset analytics deals, adds stability to overall revenue guidance.

    What went wrong

    • Lumpy ARR growth due to consumption floor resets: The Q&A revealed that ARR growth in Q1 was effectively flat because consumption levels did not exceed the reset floors, suggesting that short-term revenue may be subdued or lumpy, potentially delaying recognition of accretive ARR growth.
    • Delays in key upgrade projects impacting services revenue: Executives noted that delays in Maximo version upgrade work negatively affected implementation and services revenues in prior quarters, which could continue to pressure service-related revenues and overall topline growth in the near term.
    • Dependency on macro and funding uncertainties: The Q&A discussed reliance on government infrastructure programs like IIJA and noted that only a portion of funding has been announced with further delays inherent in the process; this leaves revenue growth vulnerable to macroeconomic and political uncertainties impacting future infrastructure spending.

    Q&A Summary

    1. ARR Guidance
      Q: What is sequential ARR guidance for Q2 onward?
      A: Management expects growth to pick up in Q2 with quarterly contributions distributed as 20%, 25%, 20%, and 35% through the year, driven by renewal resets and incremental asset analytics, reflecting confidence in their underlying subscription momentum.

    2. Digital Twin/E365
      Q: How is digital twin revenue impacting ARR?
      A: Digital twin revenue is now fully integrated into overall product offerings; ARR from E365 floor resets was zero in Q1 because consumption hadn't exceeded the set floor, underscoring the embedded benefits of the digital twin strategy.

    3. IIJA Funding
      Q: What’s the update on IIJA funding and Blyncsy's rollout?
      A: Approximately 37% of IIJA funding has been announced, and the go-to-market approach for Blyncsy leverages existing account managers targeting state DOTs and local municipalities to capture infrastructure investments.

    4. International Trends
      Q: What are key trends in international business?
      A: International revenue, now nearly 58% of total business, is buoyed by strong activity in Northern Europe and India, despite some political uncertainties, reflecting steady global infrastructure spending.

    5. New Logo Growth
      Q: How reliable is new logo contribution from SMB?
      A: SMB initiatives are gaining traction with over 600 new accounts contributing 4% ARR growth in Q1, marking improved retention and a maturing predictable revenue stream.

    6. Asset Analytics
      Q: What near-term opportunities are there in asset analytics?
      A: The company is actively pursuing asset analytics expansion through strategic acquisitions and vertical expansion into transmission and distribution, expecting lumpy yet significant ARR contributions.

    7. Transmission Reform
      Q: How does U.S. transmission reform impact asset analytics?
      A: Improved permitting and accelerated grid expansion under new U.S. transmission reforms are expected to drive demand for Power Line System tools and related asset analytics solutions, though management remains cautiously optimistic.

    8. Resources Growth
      Q: What is driving growth in the resources sector?
      A: Despite a broader slowdown, mining remains a key growth driver, with Seequent notably outpacing overall revenue trends in both mining and civil segments by improving efficiency and cross-selling opportunities.

    9. Portfolio Simplification
      Q: How is portfolio simplification expected to affect consumption?
      A: By streamlining products into clearer industry solutions, the company aims to reduce friction for customers, making it easier to discover and adopt additional capabilities, potentially boosting consumption.

    10. Marketing Improvements
      Q: What steps are being taken to improve marketing?
      A: New strategic hires, including a Chief Storyteller from Amazon, have been brought on board to enhance the company's marketing efforts and better communicate the comprehensive value of its offerings.

    11. Growth Strategy
      Q: Is the growth strategy changing with the leadership transition?
      A: Management reaffirmed that there will be continuity in their growth approach, focusing on E365, SMB, and digital twins, with no major shifts in overall strategy or operational philosophy.

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