Executive Summary / Key Takeaways

• Bentley Systems, the infrastructure engineering software company, demonstrates a resilient business model and consistent financial performance, driven by secular demand for infrastructure development and maintenance, coupled with a strategic shift towards high-quality recurring revenue.
• The company's differentiated technology portfolio, centered around digital twins, AI, and specialized engineering applications (including recent acquisitions like Cesium and initiatives like Asset Analytics), provides a competitive moat by enhancing user productivity and enabling new operational workflows.
• First quarter 2025 results showed robust growth, with total revenues up 9.7% (10.9% constant currency) to $370.5 million and subscription revenues growing 11.5% (12.7% constant currency) to $342.3 million, reflecting strong performance in core engineering applications and growth from existing and new SMB accounts.
• Key metrics like Annualized Recurring Revenue (ARR) growth (12% constant currency) and a recurring revenues dollar-based net retention rate of 110% underscore the strength of the subscription model and expansion within the existing customer base, despite headwinds in China and volatility in professional services.
• Management maintains its 2025 financial outlook, projecting low double-digit ARR growth, approximately 100 basis points of adjusted operating income margin expansion, and strong free cash flow generation ($450M-$455M), supported by favorable market conditions and strategic initiatives, while actively managing debt obligations.

Infrastructure's Digital Backbone: A Story of Resilience and Innovation

Bentley Systems occupies a critical position within the vast and enduring infrastructure engineering ecosystem. Its purpose is clear: to advance the world's infrastructure for better quality of life by empowering professionals to design, build, and operate more resilient assets through intelligent digital twin solutions. This mission is underpinned by a business model that has evolved significantly over its 40-year history, adapting to major technological shifts from the personal computer to the cloud, digital twins, and now, artificial intelligence. This journey has forged a company characterized by increasing resilience, predictability, and a deep focus on the long-term needs of its users.

The company's strategic evolution is reflected in its carefully cultivated business mix. Over time, Bentley has purposefully reduced its exposure to the more cyclical commercial facilities and industrial sectors, which now represent less than one-sixth of total Annualized Recurring Revenue (ARR), down by about half from pre-IPO levels. This has been in favor of more consistently robust sectors like public works, utilities, resources, and geoprofessional disciplines, the latter now comprising almost a quarter of ARR, significantly bolstered by strategic acquisitions like Seequent. Furthermore, the company has achieved a notable balance in its revenue streams across the infrastructure lifecycle, with ARR directly from infrastructure owner-operators now reaching parity with that from their project supply chain (engineering and construction contractors). This pivot towards the evergreen operations and maintenance phase, where infrastructure is always essential, serves to further insulate Bentley from the volatility of new project starts.

In the competitive landscape, Bentley Systems operates alongside major players such as Autodesk (ADSK), Trimble (TRMB), and Dassault Systèmes (DASTY), as well as various niche and indirect competitors including open-source tools and emerging AI platforms. While competitors like Autodesk may possess broader market penetration and stronger consumer branding, Bentley distinguishes itself through a deep, specialized focus on infrastructure engineering and a commitment to open platforms. Its core technology, particularly its open modeling environment (e.g., MicroStation) and integrated data management (ProjectWise), facilitates seamless data exchange and collaboration across complex infrastructure projects. This specialization, combined with strategic acquisitions like Seequent (subsurface modeling) and Power Line Systems (PLS, electrical grid), provides a differentiated value proposition in specific infrastructure verticals. For instance, Bentley's simulation software portfolio, representing about a quarter of ARR, offers capabilities for continuous reuse over an asset's operating lifecycle, a compelling use case for digital twins that leverages its simulation strengths against more generalized competitors. While precise, directly comparable market share figures for all niche competitors are not publicly detailed, Bentley's consistent growth and high retention rates suggest strong positioning within its target markets. The company's direct sales model, accounting for 94% of revenue in Q1 2025, supports scale leverage and margin improvement, contrasting with competitors who may rely more heavily on indirect channels.

At the heart of Bentley's competitive advantage lies its technological differentiation, increasingly centered on digital twins and AI. The iTwin platform serves as a foundational technology, enabling the federation, enrichment, and reuse of data from various sources. The recent acquisition of Cesium, an open platform for 3D geospatial applications, is intended to create powerful technical and commercial synergies with iTwin, facilitating immersive visualization across the company's portfolio, particularly for Asset Analytics. This convergence aims to unlock new workflows and insights. While specific, quantifiable performance metrics comparing Bentley's core technology benefits directly against all competitors across every product line are not uniformly disclosed, the company emphasizes that its integrated solutions enhance productivity for engineers facing chronic capacity constraints. For example, new AI-driven initiatives like Open Site Plus, the first of a new generation of digital twin-native, AI-powered applications, aim to automate mundane tasks like drawing production, potentially saving significant engineering time. The emerging Bentley Asset Analytics portfolio leverages AI to generate insights into the condition of existing infrastructure assets, offering an incremental revenue opportunity priced per asset (e.g., per mile of road, per tower) rather than per user. This is a strategic move into the large asset operations market, where the company sees significant growth potential. The partnership with Google Cloud, integrating Street View imagery and Vertex AI into the Asset Analytics offering for roadways, is a concrete example of leveraging external technology to enhance the value proposition, aiming for larger reach, more use cases, and higher win rates.

The company's commercial model has become a significant source of resilience. Recurring revenues, primarily from subscriptions, reached a high watermark of 92% of total revenues in Q1 2025. The Enterprise 365 (E365) program, the company's mainstay, now accounts for a substantial portion of subscription revenue and is increasingly characterized by multiyear contracts with negotiated annual floors and ceilings on consumption charges. This structure significantly enhances the visibility and linearity of ARR growth, providing a predictable base for future performance. Complementing the enterprise focus is a successful initiative targeting Small and Medium-sized Businesses (SMBs) through digital channels like Virtuosity subscriptions, consistently adding over 600 new logos per quarter for 13 straight quarters as of Q1 2025. This SMB growth, contributing 300 basis points to ARR growth in Q1 2025, expands the market footprint and diversifies the customer base.

Recent financial performance underscores the effectiveness of this strategy. For the first quarter ended March 31, 2025, total revenues grew 9.7% year-over-year (10.9% constant currency) to $370.5 million. Subscription revenues, the core driver, increased 11.5% (12.7% constant currency) to $342.3 million. This growth was broad-based across geographies, with the Americas up 8.0% (9.1% constant currency), EMEA up 13.0% (14.3% constant currency), and APAC up 9.7% (11.5% constant currency). Performance was particularly strong in engineering applications and geoprofessional applications. While perpetual license revenues saw a 13.5% increase, they remain a low single-digit proportion of the total. Professional services revenues declined 17.6% (16.3% constant currency), primarily due to weakness in Asset Performance Services and ongoing challenges with IBM Maximo-related work within the Cohesive business.

Profitability metrics reflect the quality of the revenue mix and operational management. Gross profit for Q1 2025 was $304.9 million, representing a gross margin of 82.3%. Operating income increased significantly to $115.2 million from $91.9 million in the prior year period. Adjusted operating income less stock-based compensation (AOI less SBC), a key management metric, was $126.2 million, resulting in a margin of 34.1%, an 80 basis point improvement year-over-year. This margin expansion is consistent with the company's long-term objective and benefited from strong revenue performance and the favorable mix shift, although operating expenses saw increases in R&D, selling, and marketing due to higher headcount and compensation costs, partially offset by lower acquisition-related retention incentives and reduced incentive compensation for the Executive Chair. The effective tax rate in Q1 2025 was lower at 18.3% compared to 24.0% in the prior year, primarily due to increased discrete tax benefits from stock-based compensation and forecasted deductions related to foreign revenues.

Liquidity and capital resources remain robust. As of March 31, 2025, cash and cash equivalents stood at $83.6 million. The company's debt structure includes convertible senior notes maturing in January 2026 ($677.8 million outstanding principal). These notes are classified as long-term debt, as the company has the ability and intent to refinance them using available capacity under its new $1.3 billion revolving credit facility (entered in October 2024), which also includes a $500 million accordion feature. Net debt leverage (including convertible notes) decreased to 2.4x adjusted EBITDA at the end of Q1 2025 from 2.9x at the end of 2024, reflecting continued deleveraging. The company's strong cash flow generation supports its capital allocation priorities, including quarterly dividends (increased to $0.07 per share in Q1 2025), share repurchases (repurchased $30.0 million of Class B common stock and $9.8 million of convertible notes in Q1 2025 under a $200 million program), growth initiatives (including programmatic acquisitions), and debt service.

Net cash provided by operating activities was strong at $219.4 million for the first three months of 2025, up from $205.0 million in the prior year, driven by higher net income and favorable changes in operating assets and liabilities. The company's strong cash flow generation supports its capital allocation priorities, including quarterly dividends (increased to $0.07 per share in Q1 2025), share repurchases (repurchased $30.0 million of Class B common stock and $9.8 million of convertible notes in Q1 2025 under a $200 million program), growth initiatives (including programmatic acquisitions), and debt service.

Looking ahead, management remains comfortable with its previously provided 2025 financial outlook, which aligns with its long-term framework. The outlook projects total GAAP revenues between $1.461 billion and $1.490 billion ($1.481 billion to $1.510 billion in constant currency), representing constant currency growth of approximately 10.5% to 12.5% for subscription revenues. Constant currency ARR growth is also expected in the range of 10.5% to 12.5%, with the top end narrowed slightly compared to the prior year outlook due to a more conservative view on China attrition. Adjusted operating income margin is targeted at approximately 28.5%, delivering on the commitment for 100 basis points of annual expansion. Free cash flows are projected between $450 million and $455 million, with approximately 60% expected in the first half of the year due to seasonality. Key assumptions include continued robust demand in core infrastructure markets, the positive impact of government funding and permitting reform initiatives (particularly in the U.S. benefiting areas like the electric grid and potentially mining), and ongoing growth from E365 and SMB initiatives. Headwinds in China, driven by geopolitical factors and economic conditions leading to a preference for local software and perpetual licenses, are expected to persist, resulting in a planned decline in business in that market in 2025. Operational seasonality is expected, with quarterly sequential ARR growth and OpEx more heavily weighted towards the second half.

Risks to the outlook include potential impacts from global macro uncertainties, although the company's diversified and resilient model is designed to mitigate these. Competitive pressures remain, with some competitors attempting to gain traction in infrastructure markets, but Bentley's specialized focus and technological advantages are seen as key defenses. The challenges in China represent a specific geopolitical and economic risk impacting a portion of the business. Successful integration of acquisitions and execution on new initiatives like Asset Analytics are important for realizing future growth potential. Compliance with debt covenants is also a continuous requirement.

Conclusion

Bentley Systems has successfully cultivated a resilient business model deeply embedded in the essential and growing infrastructure engineering market. Through strategic diversification, a focus on high-quality recurring subscription revenue, and continuous technological innovation centered on digital twins and AI, the company is well-positioned to capitalize on secular demand drivers like the global need for better and more resilient infrastructure and the persistent shortage of engineering resources. The first quarter 2025 results demonstrate solid execution against this strategy, with strong subscription growth and expanding profitability. While challenges like geopolitical headwinds in China and volatility in certain service lines exist, the company's predictable ARR growth, high retention rates, and clear path for margin expansion, supported by a strong balance sheet and management's consistent outlook, underscore a compelling investment thesis. Bentley's commitment to advancing infrastructure through digital solutions provides a durable foundation for continued compounding growth.