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    BENTLEY SYSTEMS (BSY)

    Q3 2024 Earnings Summary

    Reported on Nov 7, 2024 (Before Market Open)
    Pre-Earnings Price$49.94Last close (Nov 6, 2024)
    Post-Earnings Price$48.95Open (Nov 7, 2024)
    Price Change
    $-0.99(-1.98%)

    What went well

    • Strong ARR and Subscription Growth: The executives highlighted robust ARR performance with year-over-year increases in subscription revenue and organic renewals (e.g., strong floors and ceilings in E365 contracts), which provide predictable, recurring revenue. This consistency underpins both the core business and future growth opportunities.
    • Strategic Cesium Acquisition: The Q&A emphasized that the acquisition of Cesium, with its growing user base and transition from free to paid subscriptions, strategically expands the company’s total addressable market and enriches its digital platform. This positions the company well both from a technology and a revenue diversification perspective.
    • Expanding SMB and Digital Engagement: There was strong discussion on the momentum in the SMB segment, with over 600 new logos for 11 consecutive quarters via Virtuosity subscriptions. This digital, low-touch model not only fuels top-line growth but also complements enterprise revenue, providing scalability and enhanced long-term recurring revenue.

    What went wrong

    • Integration Risk with Cesium: Executives acknowledged that Cesium’s onboarded ARR is currently not meaningful from a financial magnitude standpoint, suggesting uncertainty over whether its strategic benefits will quickly and significantly translate into revenue growth.
    • Volatility in the SMB Segment: The leadership highlighted that while the SMB channel is growing, it is inherently more volatile compared to enterprise accounts, which could impact revenue predictability.
    • Dependence on Complex E365 Contract Renewals: The revenue model relies heavily on negotiated floors and ceilings under the E365 contracts. Any disruptions or less favorable outcomes in these enterprise negotiations could challenge the company’s ability to deliver consistent, linear revenue growth.

    Q&A Summary

    1. Growth Drivers
      Q: What are next year’s main growth drivers?
      A: Management expects consistent low double-digit ARR growth and a stable project backlog with 100 bps margin improvements, reflecting similar dynamics as this year.

    2. Net New ARR/Cesium
      Q: How significant is Cesium’s ARR contribution?
      A: They stressed that Cesium’s ARR isn’t financially large yet but is strategically meaningful given its strong open-source traction.

    3. Election Impact
      Q: Will elections affect new large projects?
      A: Despite uncertainty, they see infrastructure as a bipartisan priority, with clear funding visibility through IIJA’s two‐year advance appropriation.

    4. SMB Opportunity
      Q: Is the SMB opportunity now fully embraced?
      A: The team now favors a direct sales, digital engagement model for SMB, moving past earlier skepticism as it gains momentum.

    5. SMB Drivers
      Q: What’s fueling SMB growth?
      A: Consistent new logo additions are driven by Virtuosity subscriptions and a deeper market commitment to digital and lower-touch engagement.

    6. Visibility Trend
      Q: Is revenue visibility maintained?
      A: Management confirmed that predictable enterprise contracts and steady renewals are keeping revenue visibility strong.

    7. Extended Visibility
      Q: Does clarity extend beyond core subscriptions?
      A: Yes; besides core revenue, they’re enhancing predictability through margin improvements and targeted investments like strategic acquisitions.

    8. Benchmarking
      Q: What new criteria are customers using?
      A: Customers now emphasize data openness and platform interconnectivity, using these traits in benchmarking their selections.

    9. Water Demand
      Q: Is water infrastructure demand increasing?
      A: They observed a global uptick in water infrastructure demand, spurred by regulatory measures, though the trend is steady rather than dramatic.

    10. Partner Channel
      Q: How is the partner channel evolving?
      A: They are expanding their ecosystem with partners like Google, aiming to enhance asset analytics through improved platform interoperability.

    11. Product Integration
      Q: Are new products adding monetization value?
      A: Integrating Cesium with iTwin is set to not only strengthen core offerings but also open new, AI-powered monetization opportunities.

    Analyst Coverage

    Research analysts covering BENTLEY SYSTEMS.