Welcome, everybody. You know, as I reflect on this conference, it's like I've got a lot of favorite conversations that I look forward to. But Greg, this one in particular is one that I circled, and I'm really grateful for you being here and just the continued partnership, even as you step into a new role within Bentley. I was saying to Greg offline, like, these are called fireside chats. Who else, who better? Can we get a fireplace up here next year for this conversation? We need an actual fireside chat with Greg.
Matt's not satisfied to grill me. He wants to put a fire.
Exactly. Well, yeah. So listen, for those that don't know, Greg Bentley, it kind of goes without saying, you know, the company that you've built and the legacy that you've created has been really, really fun to watch over the years. You've transitioned into a new role. Executive Chair is the title. I guess you still seem very active in the company, despite not being the CEO. Could you talk about sort of just reflect a little bit on your journey and, you know, your still involvement as Executive Chair? What does that mean?
It would appear that I still have a major role because I continue to be involved in investor relations.
Yeah.
And that's where.
Yeah.
You see me. So my activities are at the board level in investor relations because I like doing this and getting to know all of you. Then I have some responsibility still for capital allocation and especially for acquisitions, especially in asset analytics, which has been a particular interest of mine. And I know, Matt, that you were interested to ask about transition of ownership of our stock from our family.
Yeah.
To our shareholders. And I would say that the retirement now of all of the Bentley brothers, including me, I think does not portend that over the four years since our IPO, we report annually the family's ownership level in our proxy statement or associated with our proxy statement. And I researched what it will show for this year as well. So in each such year, the family has sold shares amounting to 1.5% of the shares outstanding. This year has been a little more than last year, but less than the year before. And that's to do with distributions from our deferred compensation plan amounting to about half the shares that the family has sold because those are subject to ordinary income taxation.
Yeah.
The family continues to hold the majority of the outstanding shares. I don't see why that trend of some modest sales over time wouldn't, if anything, decrease over time. There isn't, I think, anything underway in particular, in an ownership transition, even though we've had a successful executive.
Okay. So the point is, don't expect now that you've stepped away from the CEO role to see the family's ownership drop significantly or.
That's my own expectation is not to drop significantly.
Yeah. Yeah, and so we should think about more as a kind of like a steady, if not decreasing, liquidation.
Yes. Driven largely by tax and charitable interests.
Yeah.
but in a graduated way that helps our float a bit.
You know, I asked you this when I first met you there, 'cause I get asked all the time and I kind of give the answer and I'm curious, and I just wanna make sure I'm giving the right answer. There's not a next generation Bentley, you know, the siblings that are gonna, you know, move up at some point in senior leadership and.
I have a son and Barry has a son who are part of our executive ranks, but they're at the level where they would be in their mid-thirties. Our new executive generation, we worked hard to have a group in their forties. Nicholas Cumins is in his forties. Okay. Werner Andre, our CFO, is 41 or whatever.
Yeah.
But we want that group to be in office for 15 years or so.
Okay.
And then there may be a chance for others, depending on how that works out. But, importantly and seriously, we programmed in. We have a dual share structure.
Yep.
Our Class A shares owned by the family, and the family mainly owns Class B shares, but the Class A shares are all owned by the family and they have super voting, but their super voting ratchets down considerably at the point where one of the founding brothers won't be on the board any longer and then goes away entirely to one-to-one if the family's ownership would go down below, I think it is 30%. The brothers are all engineers and we engineered the opposite of a dynasty in the company. We want it to be a meritocracy.
Yeah. When it really feels like your, you know, culture and, you know, employee, you know, treating employees right and customers right has always been core to Bentley, and it feels like that will continue on for generations.
I feel it will with this particular generational succession, and of course, Nicholas Cumins has been our Chief Operating Officer since the beginning of 2022.
Yeah.
and was the Chief Product Officer prior to that. So he really has engineering chops and, and.
Yeah.
Generally, I've heard me say we want our new leadership generation to have both right and left halves of their brains.
Yeah.
We acknowledge that under family leadership, we've been more engineering oriented and less so marketing oriented over time compared to our competitors. We ought to get better at marketing and program that in as well. But I would rather come from having better engineering and needing to improve the marketing than the other way around as we think our competitors. That's our competitive advantage.
I neglected to say this at the top, but we'll save a little bit of time at the end if there's questions from the group. It's a pretty good group here. The other one, you know, there's been a lot of M& A activity. I don't have to tell you about that in the space. We've seen Altair and we've seen Ansys. You know, you guys were in the press earlier this year as well. How do we think about like how this all plays out? Because this is obviously a really exciting space and we see a lot of industrial players interested in acquiring into the design-based category. What does that mean for sort of the independent players that are left?
We love being a consolidator.
Yeah.
And our platform acquisitions of Seequent and Power Line Systems, billion-dollar magnitude deals, we couldn't have done without being a public company. And they have been fantastic acquisitions. Each of them has already grown by more than or about twice the our company's rate of growth, over the years we've owned them. Power Line Systems in particular is poised to grow, I think, by a multiple now that a new administration in the U.S. will quickly enact permitting reform to allow us to build the transmission new transmission capacity for which only Power Line Systems software in the world can be used, to do that. And there's a great backlog of need to connect up the renewables capacity to the electric usage, including data centers and so forth. And that's pretty strategic to this administration coming in.
So those are examples of benefits in our comprehensive portfolio from being a consolidator, and we are positioned now to be able to consider having paid off our bank debt that came about from those acquisitions to be responsive if such opportunities would arise, and of course they can't be planned for. In the case of Schneider Electric and what was reported in the Wall Street Journal, their interest was in spinning out their own billions of dollars of industrial software which had come to be focused on asset operations and maintenance, which is really the future for the digital twin opportunity and to spin that into Bentley Systems, and such a transformative opportunity is that I have said to our shareholders that our family wouldn't be so arrogant as not to pay attention to such a thing just because we would lose control in the process.
But we have in mind to prefer to be a consolidator.
Okay.
As maybe all of those represent.
Okay. Well, that's a pretty bold statement. I mean, the fact that, yeah, you think you guys are the potential to continue to get bigger and bigger and consolidate. And even now that you've paid off debt, you know, maybe look at some additional deals following Seequent and PLS.
I wanna be clear, we still have outstanding convertible debt, speaking of M& A deals, one of the things you could look at are the valuation multiples that attach to those.
Yeah.
When I step back to ask the question of, might our convertible debt, our 2026s, be converted or not at $64 a share? When, if we look at how we value the company, we say free cash flow, less stock-based compensation.
Yeah.
Because our practice is to prioritize first, in our cash flow, repurchasing enough shares to offset the dilution from stock-based compensation. So if you look at free cash flow, less stock-based compensation is truly free cash flow.
Yeah.
Our valuation on that basis is only if it would be the middle of the pack for our design software peers on that same basis. If we continue to grow our free cash flow, less stock-based compensation at the same 15% compounded annual growth rate that we have during the four years of being public, which corresponds for us to our growth rate in margin dollars because our accounting is so straightforward, it's 70% absolute ratable and 30% almost ratable that there's no differences between our profit and our cash flow substantially than those convertible converts might convert.
Okay.
At any rate, I wanted to be clear.
Yeah.
We haven't paid off all our debt.
Yeah.
We still have the outstanding convertibles.
Well, and just kudos the way you guys talk about free cash flow, with the stock-based comp because one of the only ones out there that I think recognize the impact.
We're investors ourselves.
Yeah.
As I explained earlier, that's how we think we should look at it economically.
Yeah. Yeah. No, kudos. Let's talk about IIJA. It's obviously been topical for some time now. And I hear a lot of questions from investors, pushback saying, oh, you know, more of it's been deployed than you think, or what's left? Bentley won't benefit from that. Can you level set the audience on what has been deployed? And especially under a Trump administration, you know, what could we expect from additional releases there? And how could that benefit Bentley?
It's really almost the best of all worlds. About 40% has been awarded, but the remainder, there's two years of advanced authorizations that are not subject to being preempted. Remember, it's a bipartisan bill to start with.
Yep.
Unlike the IRA, which was not bipartisan and is likely to be substantially dismantled, but we don't particularly benefit from the IRA. That's mainly for R&D and not things that get built. In the previous Trump administration, there was a greater focus and likely there will be again on traditional highway and bridge investment, and there will certainly be less focus on public transit, bike lanes, capping interstate highways and cities and so forth, or it may be outright block grants to the states because the new administration is less interested in micromanaging where the investment occurs, and all of those scenarios, and then finally, the new administration is more interested in private investment in infrastructure, which is where going digital is always a great priority because the private concessions are design, build, operate, and maintain.
The digital twin is how you are gonna optimize that maintenance and is where most of the opportunity is in P3s. That's, by the way, something that even a new Labour government in the U.K. is saying we need more private investment in infrastructure. Those are actually good things that are happening with change. I guess I have to say, it should be exciting to all of us who invest in and work on economic growth to have an incoming administration for whom faster economic growth is kind of the compass setting. Then who can't like Elon Musk coming into the picture as an engineer and an entrepreneur, perhaps to accelerate, you know, what in the U.S. where we create the software and the AI for digital twins? Why should we be the last to adopt it?
Yeah.
You know, it's going faster elsewhere in the world, and would an Elon Musk say, hey, we should have digital twins of our existing infrastructure, then we can use AI to do only the necessary optimal maintenance and spend less on a line item with big zeros after it on maintenance of infrastructure, by virtue of digital twins. So we live in hope, and I'm excited for the change.
Yeah. So that preempted a question. So yeah, you think the Department of Government Efficiency or DOGE, that could actually benefit Bentley in terms of how government is allocating spending.
A mindset just because it's public works and utilities spending, does it have to be slow and traditional, you know, elsewhere in the world? The fastest implementation of digital twins for infrastructure project delivery is in Asia.
Yeah.
They don't have established practices and guilds and so forth that are put out as impediments to, you know, something can go digital. Shouldn't it go digital? Maybe that can be a mindset that even our governments can have.
Yeah. I appreciate that. The other, you know, you and I chatted when you recorded, but I'm interested in what in PLS and especially with the buildup of data centers, perhaps the acceleration of permitting there. Talk about what the administration and just more or less, you know, Gen AI and data center build could mean for Bentley and with PLS in particular.
In general, there's a backlog of need for transmission capacity. The high voltage capacity is the bottleneck everywhere in the world. And what's particularly notable in the U.S. is there's bipartisan support for streamlining the permitting delays that are decades long. Yet each party has gamed it because they wanna attach something else to something that the other party wants. So that should not be the situation going forward here now with the several branches, both branches of Congress and the executive branch. So we should quickly, and by the way, there's no funding lack for there, there's not a funding challenge. It's a permitting challenge to authorize new transmission corridors. So Power Line Systems focuses on that. So it's a company that was just as old as Bentley Systems founded the same year we were founded.
It's the only set of tools for civil and structural and geotechnical engineers that we never had at Bentley Systems. It was because they covered that market. They.
Dominated.
Solved the problem. That's a specialized structural problem because the conductors between the towers are part of the structural system if you think about it. And it's a complex. So the university professor solved that and created Power Line Systems. So the company has grown, as I say, on the order of twice as fast as Bentley Systems in the two and a half years we've owned it. But now that's all been in the work just for patching up our existing transmission. In our Year in Infrastructure book for last year, there were 25 pages of grid projects. Only one of them was a new transmission corridor, and that was in the country of Cameroon.
Okay.
So we have all, and elsewhere in the world, in the U.K., new renewables capacity that's been bought and paid for and built is having to wait five years to connect up to the national grid. So that it's an opportunity worldwide that I think finally will grow by a ratchet.
Yeah. That's great to hear. The other question, we could sit here for an hour and I'm sort of skipping some questions 'cause there's some ones that I'm interested in. China has been a drag for you guys. It was at one point, I believe, 5% of ARR. Now it's 2.5%. Is that ish?
Yes.
Two and a half. Some of that's been, you know, China-based economic lack of growth. I'm curious, do you think we've seen the worst from a headwind perspective there? And I know you talked about spinning up some JVs that could help maybe re-engage China indirectly. How should we think about China as a country and as a potential, you know, maybe the headwinds are slowing, maybe it turns into some tailwinds eventually. How should we think about that over the next couple of years?
I used to think I could answer somewhat authoritatively on that. Of course the obstacles have been even before the geopolitical situation. There's no public cloud infrastructure, but with the U.S. sanctions against Russia, the Chinese state-owned enterprises said we won't use any American software if we have a domestic alternative. And in any case, not on a subscription.
Yeah.
We have to be autonomous where we can't be turned off by the West, and those have been the sources of the headwind. I can only say now that there may be, while we have done a restructuring of our go-to-market in China so that we can have a way to come to market as qualifying autonomous software in China through joint ventures, including with state-owned enterprises that are slow, but we've made progress on them. Now the problem is the economic situation in China.
Yeah. So that's the bigger problem right now.
It's a win for losing.
Yeah.
And I don't think anyone expected that. And it just drags on, stubbornly. So the only reason to say it can't be much of a headwind for much longer is it's down to 2.5% of our ARR. And we have our the in China, they're enthusiastic about our software. Some years our Going Digital Awards, half of them would be won by China. So we have a good standing in China. We even repatriated profits from China. We've been a software company that's had success in China in the past. So I think we'll drift down to some asymptote, you know, below 2.5%, but I don't know how much more it can be. But as to the economic situation in China, and especially infrastructure investment.
So by the way, our software's not involved with any of the residential or empty high rises or empty cities and so forth. It's all been for very good purposes in China. Yet I've stopped predicting it.
Yeah. So now it's less, Bentley has done what it needs to do to sell software to China. It's more of an economic discussion now.
Yes.
Okay. Okay.
I thought I would be reporting we'd turn the corner in total business, not in ARR. The business will shift to royalties and on licenses, but we're stuck.
Yeah.
In the only place in the world where infrastructure engineering isn't booming as never before.
Yeah. And despite all these, you know, that headwind, you guys have still delivered very strong ARR growth. When you look forward for the next, you know, couple of years, what, what would excite you the most that, wow, this could, you know, for sitting here a year from now by a fireplace or, or two years from now, you know, you're like reflecting back on the last year or two and you're like, wow, I didn't anticipate, you know, this, that actually was a bigger catalyst to growth than I thought.
As to what you first said there, ARR growth is stronger than it ever has been, except in real terms, if you adjust out the inflation spike of 1% or 2% a year ago. The demand for infrastructure engineering is bound to continue given the needs for resilience, given the creakiness of the infrastructure, and the need to adapt to climate situations and so forth. What I'm most excited about are initiatives that our new management has prioritized. I wanna mention our most recent acquisition and our largest one for a while, Cesium.
Mm-hmm.
Cesium happens to be a household name for geospatial software developers, 3D software, geospatial software developers who are doing things that could turn into digital twin opportunities. And we, Bentley Systems, have taken advantage of the open source Cesium. And it has, on the one hand, grown the way open source does to attract users to opt into the paid versions. It's done that well. It's become a standard endorsed by the Open Geospatial Consortium, which is what all the governments use for their tiling formats for geospatial data. And governments have most of the geospatial data and by Google.
So that kind of ushered in our new alliance with Google to bring Google data to use it in, including in asset analytics where crowdsourcing now doesn't have to be just dashcam data, for instance, for roadway maintenance, but it can also be from the Google vehicles and the Google history. So it's very exciting there. But then finally, Cesium is established at an enterprise level in Komatsu, the second largest equipment maker in the world, having chosen it and invested substantially in it as the foundation for their earth-moving simulation, which is the leading edge of robotic construction for heavy civil earth moving. You might say robotic construction sounds like a futuristic thing.
Yeah.
It's already possible with machine-controlled grading and excavators and so forth, so that completes the picture, Cesium, for us, and it is the type of acquisition that's the first one spearheaded by our new generation of executives, and I'm very, I think it's a great example of something that's gonna pay off in one of all three of these ways that I described here, and generally I expect and encourage our new executives to break new ground, you know. Our existing business of software for users, we're sort of the quartermasters in the world for civil and structural and geotechnical engineers, and with the E365 program, the floors and ceilings, the multiple year negotiations, none of which has anything to do with accounting for us, but it's all made it more visible and linear and of even higher quality.
And that business has become so predictable, I hesitate to say automatic, but safe, that I'm all for making some bets and putting some markers down on these opportunities like asset analytics that may only add 1% of ARR growth this year, but should double each successive year and where we can make acquisitions in that.
On the asset analytics space.
In that space. In asset analytics, where we charge per asset per year, I believe that can ultimately, ultimately be a business of comparable scale to what we do in charging per user, per engineer.
I'm gonna pause here for a second. Is there, is there a question from the group out here?
No. All right. All right.
It feels like, you know, we really haven't even talked about E365. We haven't really talked about Virtuosity. What would you tell investors, you know, to kind of think about broad trends within both of those? 'Cause I've always felt like the marriage of that has been really key, and especially if maybe more projects go on the private side, Virtuosity could benefit a bit more from that.
Well, that's true. Let me start with E365. So E3 and E365, for our enterprise accounts, we charge per application per day, which everyone regards as the fairest way to, to compensate for software. But it sounds like it would be very volatile 'cause who can predict that consumption? The other thing about E365 is we charge enough per application per day to cover our cost of dedicating a team of civil and structural and geotechnical engineers to the account to help them with new digital workflows. And that is the reason that the accounts under E365 are grow their ARR significantly faster than the rest of our ARR base. So, we need to have sufficient capacity for these success teams. They need to get upskilled and, and in our own company and, and equipped.
So there's a constraint for how many accounts we can move on to E365, but we've by now done more than half of the enterprise base, and we're working down from the largest accounts to the smallest. A development in these enterprise accounts is they know going digital has become their priority as they have bigger backlogs, can't bid on new business, and so forth. That going digital is their priority, especially when they only spend $50 per hour on average for an hour. They wish to bill at $150, or fixed price, even better. So they have asked, would you be willing to cap what we'll spend over future years? And we have said, well, yes, if you're willing to have a floor on it.
In between, we have all the right incentives, we and they to, for consumption base. So it's a good arrangement. The development in the past year or two has been, they've said, and can we do that for multiple years in the future? 'Cause they have experience with multiple year deals with other software vendors. Those other software vendors are doing multiple year leases that are constraining and accounting and 606 and so forth. We have none of that, but we agree that we can share the risks in the future in an equitable way. And it has really made our business much more visible and predictable and, frankly, easier. So that's the good development because, and ultimately because the proportion of our ARR on E365 grows faster than the ARR at large.
Then in SMB with Virtuosity, there are as many engineers, it turns out, who work in smaller firms, firms with 50 or fewer engineers as there are in the larger firms. We had only focused on the larger firms until going public and being a bit open, more open-minded to other things we should do that are marketing oriented. It's marketing oriented because we do it through direct sales and direct engagement and self-service. But likewise, there's we should by rights be able to have as big a business in that we say SMB, for us, that's accounts up to $100,000 as the bulk of our existing business over time.
One last question. Do you, do you see Autodesk more these days in deals? They seem to be getting more aggressive on product development and even marketing.
If I were them, I would get more aggressive in infrastructure engineering because it's a good, it's less volatile and it, and it has a greater predictability and so forth. But we, so far as I can tell, we're competitively winning. And water is an example where they now, by virtue of big investment, are our principal competitor in water engineering, but we think we're gaining share there and, and generally throughout infrastructure engineering. But competition's a good thing.
Yeah. Good. Well, we're unfortunately out of time. That was a fascinating conversation, Greg. So.
This says zero.
This says zero. Yeah.
And the fire is coming up. So we better give up the stage.
Thank you. Best of luck and congrats on your role.
Thank you.