All right. Well, we can go ahead and get started. Hello. My name is Clarke Jeffries. I'm the software analyst here at Piper Sandler. Very pleased to have Greg Bentley, Executive Chair and co-founder of Bentley Systems, here. Thank you for making the trip to Nashville.
Glad to be part, and thanks to each of you for your input.
All right. Perfect, so let's maybe start about the ethos of Bentley Systems. You know, what is the company all about? Who are your customers, and what's the problem you're solving in the market?
We are the infrastructure engineering software company. To me, it means we're the quartermaster. We supply the tools for civil and structural geotechnical engineers. The problems they work on are the capacity and resilience of the world's infrastructure, in particular the horizontal networks of infrastructure. Our economy and our environment depend on those networks. We are, we think, the leader in the world in software for roads and bridges, rail and transit, water and wastewater, resources and mining, and.
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Yeah. Perfect. Perfect.
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That's better. Yeah. So, you know, well, congratulations on 40 years. You know, in celebration of that 40th anniversary of the company, maybe we can talk about building a 40-year business, building a billion-dollar ARR business, growing double digits organically with a track record of margin expansion. You know, what are the elements that, you know, the ingredients to build that kind of business?
Over 40 years, consistency has made a difference. I think that's been our consistency, fortunately, of course, on to the longevity of infrastructure projects, the forever lifecycle of infrastructure assets, and the fact that infrastructure engineers develop their careers if they can with a set of tools that they get to use, better and better. Staying the course has corresponded to where, you know, we've created our opportunities.
Yeah. Absolutely. That's, it's fantastic, so we'll, you know, with, you know, 40 years of operations and over a billion of ARR, I'm sure that the product set has evolved over time and expanded significantly. You know, maybe we could walk through the functional areas that the company addresses with its products today, what that really looks like. You know, I get the question a lot from people that are maybe not familiar with the industry. You know, what tasks and functions does an engineer use the system for? You know, where are they living each day in the software?
So we started with the modeling in 2D and 3D with the engineers doing it. And then, and that's still a handful of business. That's not an application today. Then the simulation engineers, which they work out the behavior of the infrastructure solutions. And then we added the cloud services for project delivery collaboration and information management for asset performance over the lifecycle. And that, in doing that, we've come to be the most comprehensive supplier for infrastructure engineering organizations, just cumulatively over that 40 years that they benefit by having consistent tools where the data compounds the value across disciplines involved in projects and over the lifecycle of the assets. And it's, we are the largest supplier to most of these organizations.
There are over 150 of our accounts who spend over $1 million per year with us, and another 750 that spend over $250,000 a year for us. So comprehensive across all of those aspects has become our differentiator.
Yeah. Absolutely. And, you know, we, we've touched on this, but, you know, you know, in this marketplace, you know, why does a large engineering firm go with Bentley? You know, they, there are options in terms of CAD and modeling, but, you know, what are the facts in infrastructure engineering that leads to, you know, sector leadership and their choice to pick you?
To the extent their work is for horizontal infrastructure networks, roads and bridges, rail and transit, water and wastewater, utility grids, we have the most advanced and most comprehensive solutions that improve the quality of their work and compound their value over time.
Yeah. Specific to the type of work that they're doing, and that specificity is helpful. So, you know, let's maybe talk about product vision. You know, I think it's been interesting to look at the way that you frame the evolution of modeling software in this space. There's, you know, a march of progress from 2D blueprinting software to CAD 3D software, and those 3D software tools eventually are going to evolve into something that looks like a digital twin, as we call it today. So, you know, wondering if you could talk about the pockets of the market that are getting close to having that adoption of digital twins, that next stage of where the software will go. Where's the most appetite?
Clarke, the advancement is from using modeling and simulation, the work of the civil and structural geotechnical engineers, only once when the project is delivered and then never opening those files again to where there will be an evergreen digital twin. The relevance of the modeling and simulation continues to maintain the fitness for purpose, the resilience of the infrastructure, and to optimize its maintenance over time. So the digital twin opportunity is to continue to get value from the work of the engineers through cloud services. And a digital twin, of course, always needs to correspond to the operating reality. So you need to resurvey with drones and imagery and so forth as we now do. So those things have all come together to make the digital twin an opportunity now.
It is, however, the case that it's been adopted in pockets so far. One pocket would be Asia, actually, which isn't held back by traditional work processes and where they simply need to get the benefits soonest. And they've been open-minded to complete digital twin approaches. Another pocket is where infrastructure is owned by private capital, such as communication towerc os now that are owned by public companies. Perhaps some of the folks here have investments there. And then finally, in construction, 4D modeling of the construction processes is another pocket. But most of the digital twin opportunity beyond those pockets lies ahead still.
Yeah. Certainly, interesting. I think, you know, in talking about this space, there's maybe an underappreciation of how much of the cost will be over the lifetime of the asset, not on the creation of the asset. And so this idea of having some sort of common thread from creation of the asset to continual operation and not having that information lost is very important. You know, maybe we could talk about the inverse of, you know, the parts that maybe we'll see big progress within five years or 10 years, but they're the sort of hard nuts to crack in terms of getting to, you know, real evolution of the software or the adoption of digital twins. You know, where's the earliest parts and what's the limitation?
All the benefits of infrastructure occur over the operating lifecycle. So the digital twin advantage is for the owner-operators. But it can be a slow process to evangelize those lifecycle benefits, especially to public owners of infrastructure. What has accelerated this, actually, is the buzz around AI. And even public owners of infrastructure have understood that they have a lot of data, valuable engineering data. The question has become, how can AI help me? And we have an opportunity now, thanks to AI, for instant-on digital twins that, for instance, can use crowd-sourced data even. An example, we call this asset analytics, this instant-on digital twin opportunity, where roadway operators can use our AI that we apply to crowd-sourced imagery from dashcams, actually.
Our AI filters can recognize situations that require maintenance, bent guardrails along roadways, or when does the paint, pavement markings need to be repainted to be reflective enough for the cars to stay in their lanes, a new federal requirement, and so forth. And here we can have digital twins the next day, thanks to AI and demand for that because of the understanding that all of these enterprises should be taking advantage of AI. So we're breaking through, thanks to the acceleration that AI provides.
Yeah. Reduce implementation costs, reduce sort of the opportunity costs of saying no, and see the value more immediately.
Ultimately, you do want to include all of the modeling and simulation details in the digital twin. The advantage there is for existing infrastructure, if you can monitor conditions with IoT sensors and then rerun the modeling and the simulation to make sure they're still safe. If you bring in the, along with that ET and OT, the IT, the information about what maintenance has been done, you can reassess what maintenance is optimally sufficient, and yet keep the infrastructure safe and spend less on maintenance by virtue of the digital twin.
Yeah. So we've talked about, you know, a lot of the reasons why a purchaser goes with your solution as a sort of incremental product opportunities that'll happen long term. But, you know, 40 years in operation, a very, very high account retention. You know, what continues to drive the double-digit growth? What's incrementally, you know, the biggest drivers of growth? You know, I am surprised every earnings that you're adding to this many logos as you are. And you have, you know, 10 straight quarters of 600 new logos. So what do those new customers look like to the company? Why might these firms not have been a customer before?
Clarke, first, the bulk of our ARR growth will come from our existing accounts. There we're a factor of production for their project throughput and their asset performance. They have bigger backlogs than ever, and there's a resource capacity gap. There aren't more civil engineers and structural engineers and geotechnical engineers, nor are there any schools. Going digital is the consensus priority now to meet those requirements. The point of departure is that our accounts, on average, spend less than $2 per hour on our offerings. An hour for which the engineer is worth $150, and the software is what makes that hour valuable. There's lots of upside to use more specialized products, and we have those more specialized products. That will still be the bulk of our ARR growth.
But it is the case that a new opportunity since going public has been with SMB, smaller accounts. We are 92% direct in our revenue mix and have been. And so we've focused almost exclusively on these enterprise accounts, as I mentioned earlier. But half of infrastructure engineers work in firms with 50 or fewer engineers, and we were relatively neglecting those. So, with our IPO, for the first time, we introduced the very first e-commerce and a new group inside of inside sales. And of course, during the pandemic, all sales were inside anyway. And we found a tremendous market opportunity in these smaller firms through digital enablement. And that has grown to be 3% and now 4% of our ARR growth, of 3 and 4 points of ARR, from SMB prospects, new name.
It's as if when we reached them, they said, "Well, if you're making it that easy, I will try not driving a Bentley." And it turns out that the products are the same products as the larger firms use. And we're now reaching, if you like, a market twice as large.
Yeah. Do you, do you find that those you're also seeing the, you know, those smaller firms and you've been able to grow with them at a faster rate than the enterprises? Just maybe background information on how that's this market works. Do you see a lot of graduation of those firms, or is it they're just an overwhelming amount of service by the larger players?
Over these past three years, it is still a little early to judge that. But I do find it a reasonable hypothesis that when they start with individual subscriptions, that can grow at a faster rate, given many of their firms are new to us and have as many as 50 engineers.
Yeah. So, let's talk about the owners' business. I've always found it very interesting that 50% of the business is the owners rather than the construction firms and how we typically think about, you know, the architect, the engineer, whoever's breaking ground. You have a substantial portion of the business that is the ongoing owner and operator of the asset. So, you know, maybe we can talk about how did that come to be? Is that a fairly natural journey? And, you know, going forward, what are the big priorities of the owner and operator business?
Clarke, the owner-operators of infrastructure have already been self-performing the project work for their smaller projects. And so in most cases, we already have been incumbent with our modeling and simulation applications and ProjectWise to some degree. But the opportunity in digital twins is all for the owner-operators. We would like to enlist the engineering firms to be the digital integrators of the data and add their own analytics to our offerings for serving better the owner-operators. It has helped us to be incumbent and established there as a trusted vendor. Owner-operators have been our focus since 2009 of our own investment and R&D, and are the significant digital twin opportunity for the future.
Yeah. So, you know, maybe we can talk about infrastructure spending. I mean, you know, looking at market forecasts, you know, it seems that all the governments of the world have decided that they can't operate societies without significant investment in infrastructure. And so there is a backdrop of prominent infrastructure stimulus programs globally. You know, how much does Bentley benefit when infrastructure spending is strong? And where are we at today in some of those stimulus programs actually materializing in downstream economics and downstream business?
Our software is a factor of production for all of that infrastructure investment, and as I say, there are, on the one hand, higher backlogs now than ever. The imperative, of course, it's not so much the demands of government, but of constituents of infrastructure who want now resilience. We need to extend the life of our infrastructure in general. It needs to adapt to the changing climate. We need to be changing the energy mix and so forth. That's the work of civil and structural and geotechnical engineers. The geotechnical engineers work below the ground on the environmental aspects, and it's worthwhile investment, necessary investment. You used to hear the word stimulus attached to infrastructure. That's, we understand even in the United States the importance of infrastructure for our quality of life.
I think we can understand that it will only become a greater requirement as our infrastructure otherwise continues to age and where digital twins can help us maintain the fitness for purpose and resilience.
Yeah. So, you know, there's certainly developed economies where there's a substantial life and there's an investment in maintaining these assets. But in terms of the net new, there's incredible opportunity in some of these developing economies and such a large portion of the infrastructure spending is going to come from a couple of regions and in APAC. And so maybe we can talk about your current business in APAC. How confident you are, you know, being able to address these markets that represent such a large portion of the incremental infrastructure spending over the next 10 years?
We're fully scaled out after 40 years. Everywhere in the world and well-positioned to take advantage. As I mentioned in pockets, Southeast Asia, for instance, is moving faster than anyone in the world [and] will take advantage of digital twins. In China, infrastructure is very important, but we face geopolitical challenges there. We have had a successful business in China. At one time, we [had] almost 5% of our ARR [that] dropped down to about half of that now because the Chinese are averse to subscriptions with American companies for critical infrastructure. We've engineered around that, and have high hopes for the future because fully 30% of the world's infrastructure engineering is done in China. It will take some while to get to that potential. We think it will happen. Today, the countries of India, Malaysia, Indonesia, Australia are where digital twins are growing fastest.
And by the way, projects there helped to quantify last year the finalists in our Going Digital Awards achieved 18% savings of project effort, by going digital. And we will be updating that, this year at our Year in Infrastructure conference, next month. But yes, we're very well positioned a nd glad to be taking advantage of those opportunities in the developing world, especially.
Yeah. Excellent. Maybe we can talk about the, the factor of production, you know, the, the sort of mechanics of, of monetization and how to get usage to match to the demand of an engineer's time and available hours. One of these initiatives of the company has been Enterprise 365. This is, you know, 43% of the ARR. Could you maybe talk about that offering, why you pursued it, and, you know, at over $500 million of ARR, growing 20% plus? You know, what else? What else has been the success story of that monetization effort?
Enterprise subscriptions have been our focus for a long time. The E365 program is a few years old, and we jumped all the way to pure consumption to charging per application per day. And of course, that avoids issues of shelfware or otherwise. It's fair to us and to the account, both. But when we and the account likes it, by the way, because the engineering firms are able to be reimbursed for their software costs because their clients, the owner and operators, know it improves the quality of their project. It can't be reimbursed from them so they can substantiate what they're doing and paying for each day. We like E365 because when we calculated the daily prices for our applications, we added in a factor to cover our cost of providing our thousands in experience in civil and structural geotechnical engineering.
We have a success force that are dedicated to the accounts to help them explore and implement new digital workflows every quarter that increases their consumption. Everyone's satisfaction because it increases their productivity as well. That's their priority at this point in time. So we call Application Mix Accretion the opportunity for our users to use more specialized products. Expansion is growing and is a component of our ARR growth that will continue to increase.
Yeah. I think this is fascinating because it's certainly there's a utilization issue with annual CPAs, I guess, I think for a lot of models. And when we're trying to think about in the world of AI, what monetization model might emerge? And this seems like an early step to considering better aligning utilization to, you know, the number of users. Any other things that you're seeing that show the industry is ready to think about something else besides CPAs?
Yes. Beyond our existing reliable ongoing business for serving the users of our tools, our asset analytics initiative, we monetize by charging per asset. So per cell tower per year for the digital twin, we get three digits and there's 3 million cell towers around the world in China. And all of these tower owners are going to have digital twins within the next couple of years. I mentioned roadway miles as an example earlier where we charge per roadway mile per year. So there's an incremental revenue stream beyond what we charge for our users per application per day. And I think ultimately because it has to do with improving the throughput and operations and maintenance, it can be a larger, larger, larger business over time.
Perfect.
All incremental, however, not a replacement.
Yeah. Yeah. It's certainly in only these two sort of initial sectors that you're exploring today, you know, cell towers and the roads, it'll be.
Asset at this stage.
Yeah. So at this stage for other, for other categories. You know, maybe here in the last minute, what are you most excited about going into the next year? You're at 2025, 41 years. What are you most excited about?
Our new generational leadership, our new C-level folks who are all in their 40s. We've changed, for instance, our acquisition priorities from traditionally being interested in acquiring more mature companies to younger companies. We announced just Friday a very significant acquisition of Cesium, which is a household name for those who are doing 3D geospatial immersive environments. For instance, for infrastructure digital twins, this is about 50 folks, who have, who are helping tens of thousands of developers, on an open source model all the way through enterprises like Komatsu, the second largest equipment supplier in the world, who are using Cesium for modeling their Smart Construction workers. It's a natural combination with what we do with engineering models, with subsurface models, and putting that all together for digital twins. It's celebrating what I mentioned earlier in.
Yeah. That's a digital fabric for the next stage of digital twins. It's completely the vision.
Exciting. Here's to 2025.
Yeah. Absolutely. Well, Greg, thank you very much for joining us.
Thank you, Clarke. Thank you.