BSY Q2 2025: NRR Slips to 9%, Targets 12.5% ARR Growth
- Robust demand fundamentals: Q&A responses highlighted a very consistent macro environment with strong demand driven by infrastructure investment and a persistent shortage of engineers, which supports higher renewal floors and ceilings and confirms robust recurring revenue prospects.
- Innovative product integration: Management emphasized the integration of AI, Cesium, and iTwin capabilities—demonstrated by products like OpenSite+ and road monitoring solutions—indicating a strategic push toward digital transformation that can drive productivity and market differentiation.
- Expanding asset analytics opportunities: The discussion underscored favorable long-term prospects in asset analytics, including evolving pricing models and broadening customer use cases (e.g., with Blinksy) that promise multiple-year benefits and potential for margin expansion, reinforcing the bull case.
- Volatility in Asset Analytics: The asset analytics business remains lumpy and volatile, with deals that can be large but unpredictable, potentially leading to inconsistent quarterly performance and revenue uncertainty.
- Downward Pressure on Net Revenue Retention: A slight downtick in NRR (around 9%) was noted, suggesting potential renewal challenges or pricing pressures that could affect sustainable subscription growth.
- Uncertain AI Pricing Models: The transition to AI-driven products involves evolving pricing metrics, with management expressing uncertainty about the optimal model for capturing increased value, which could lead to margin pressures and slower adoption.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
ARR Growth | FY 2025 | 12% year-over-year (12.5% excluding China) | Expected low double-digit ARR growth | no change |
Margin Expansion | FY 2025 | 100 basis points margin expansion | Approximately 100 basis points margin expansion | no change |
Free Cash Flow | FY 2025 | no prior guidance | $430M to $470M (raised from the previously guided range of $415M to $455M) | no prior guidance |
Seasonality in ARR Growth | FY 2025 | Seasonally lowest ARR growth expected in Q3 2025 | Q3 2025 expected to be the seasonal low quarter for YoY ARR growth | no change |
Subscription Revenue Growth | FY 2025 | no prior guidance | Subscription revenues expected to continue growing | no prior guidance |
Operating Expense Seasonality | FY 2025 | no prior guidance | Operating expenses expected to be more heavily weighted toward H2 FY 2025 | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
AI Integration and Monetization | Emphasized across Q1 2025 , Q4 2024 and Q3 2024 with a focus on AI-driven productivity, innovation and monetization challenges around pricing models and delayed revenue impact. | In Q2 2025, AI integration remains the top investment priority with continued focus on innovation, integration across the portfolio and evolving pricing strategies, though uncertainty persists over pricing models and revenue timing. | Consistent emphasis on AI integration with ongoing challenges in evolving pricing models and revenue impact delays. |
Asset Analytics Expansion | Highlighted in Q1 2025 , Q4 2024 and Q3 2024 for its large growth potential offset by deal timing volatility, seasonality and unpredictable performance. | In Q2 2025, asset analytics is again identified as a significant growth engine focused on areas like road and cell tower monitoring, leveraging strategic partner relationships, though its inherent volatility remains a concern. | Recurring focus on growth potential with continued volatility; strategic targeting appears consistent. |
Recurring Revenue and Renewal Strategies | In Q1 2025 , Q4 2024 and Q3 2024 , the narrative centered on strong recurring revenue with high retention, multi–year contracts and effective renewal strategies while noting minor pressures in some channels. | Q2 2025 confirms recurring revenues are strong—with 92% of total revenue, 13% growth and 99% retention—while renewal strategies continue to support predictable long–term growth, with only minimal pressure noted. | Steady and robust recurring revenue and renewal performance; minor market-specific pressures persist but overall retention remains strong. |
Infrastructure Investment and Permitting Reform | Q1 2025 noted robust demand but also execution delays and regulatory uncertainty; Q4 2024 and Q3 2024 similarly highlighted uncertainty around permitting delays in some phases. | In Q2 2025, the focus shifts to supportive funding environments (e.g., in the UK and Europe) and optimism over permitting reform, with less emphasis on delays or mixed sentiment compared to earlier periods. | Shift toward a more positive outlook; earlier execution delays and regulatory uncertainties have moderated into a more supportive environment. |
Geopolitical and Regional Risks | Across Q1 2025 , Q3 2024 and Q4 2024 , risks were highlighted with China facing headwinds and regional tensions noted (with India generally positive in Q1 but not much detailed in others). | Q2 2025 centers on China headwinds (now representing about 2% of ARR) while India is described positively with no mention of regional tensions, streamlining the geopolitical risk narrative. | Continued concern regarding China with a more concentrated risk profile; earlier broader regional tensions (e.g. in India) are now less emphasized. |
Cesium Acquisition and Integration | In Q1 2025 , Q4 2024 and Q3 2024 , the Cesium acquisition was portrayed as a strategic initiative to boost 3D geospatial capabilities and expand the market, with integration efforts beginning and integration risks being minimal. | Q2 2025 highlights further integration progress – with Cesium now embedded in products like MicroStation and enhancing iTwin capabilities – reaffirming its market expansion benefits with no significant integration risk raised. | Steady strategic initiative with continued market expansion benefits and integration progression; integration risks remain low throughout. |
SMB and Digital Engagement | Q1 2025 , Q4 2024 and Q3 2024 emphasized consistent SMB logo additions and its role in ARR growth, albeit with some channel volatility and shifts in licensing preferences noted. | In Q2 2025, SMB growth is robust with over 600 new logos added, supported by digital engagement through the online store and entry through flagship products like MicroStation, with less emphasis on channel volatility compared to previous periods. | Continued focus on scalable digital engagement in SMBs, maintaining strong growth while volatility concerns appear mitigated through digital initiatives. |
Diminished Focus on iTwin Integration | Earlier periods (Q1 2025 , Q3 2024 and Q4 2024 where iTwin was less mentioned) consistently integrated iTwin into broader digital twin and asset analytics strategies. | Q2 2025 explicitly underscores ongoing iTwin integration, particularly through its enhanced integration with Cesium, confirming that iTwin remains a strategic focus. | No diminished focus observed; iTwin integration remains integral to the company's digital twin and product integration strategy. |
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NRR Decline
Q: Reason for NRR downturn and rebound timing?
A: Management noted that NRR slipped to around 9%—mainly due to lingering China ARR effects—but remains robust overall and is expected to rebound as China’s share shrinks. -
ARR Upside
Q: What catalysts could lift ARR to 12.5%?
A: They pointed to opportunities such as permitting reform, enhanced asset analytics, and selective acquisitions that could push constant currency ARR toward 12.5%. -
Pricing Impact
Q: How will reform influence pricing strategy?
A: Management explained that renewals now secure both higher floors and ceilings; with mid single-digit price escalations and evolving AI pricing metrics, the approach supports stable, value-based growth. -
Asset Analytics
Q: What is the growth outlook for asset analytics?
A: Management described the asset analytics business as lumpy but promising, citing projects like Blinksy, and noted that as they win more continuous engagements, volatility should ease. -
Data Center TAM
Q: What opportunity exists in the data center space?
A: They view data centers as “mini-cities” with extensive infrastructure needs, positioning BSY’s integrated design solutions to capture significant market share. -
Free Cash Flow
Q: Is the OBVA-related FCF boost sustainable?
A: Management confirmed a $15M uplift in free cash flow from OBVA benefits, with the normalized annual benefit extending into future periods, ensuring sustainable impact. -
SMB Strategy
Q: Can BSY effectively reach lower-spending engineers?
A: They emphasized that the entry-level MicroStation remains a key growth driver, evidenced by over 600 new SMB logos each quarter, setting up future upsell opportunities. -
Macro Trends
Q: Are macro conditions showing sequential improvement?
A: Management remarked that despite tariff concerns and capacity limits, the infrastructure investment environment remains consistent and strong. -
R&D Developments
Q: What are the key near-term R&D priorities?
A: They are focused on advancing AI initiatives, integrating Cesium with the iTwin platform, and bolstering technology development while keeping sales headcount steady. -
Agentic AI
Q: How will AgenTik AI integrate into products?
A: Management outlined plans to deploy AI to automate routine engineering tasks, thereby boosting productivity and helping to mitigate the global engineer shortage—a transformative step for the industry.
Research analysts covering BENTLEY SYSTEMS.