Q2 2023 Bentley Systems Incorporated Earnings Call
As Investor Communications manager on the West yesterday, we have done two systems, Chief Executive Officer of Greek Bentley, Chief operating officer, and Nicole arguments and Chief Financial Officer of Burner. Andre. This webcast includes forward looking statements made as of August eight 2023 regarding the future results of.
<unk> and financial position business strategy and plans and other.
Ziv forfeiture operations of Bentley systems incorporated also statements made in our campaigns. During this webcast other than statements of historical fact.
Forward looking statements. This webcast would be available for replay on Bentley systems Investor Relations website at investors that Bentley that come after our presentation, we will conclude with Q&A, which I will moderate in their acceptance.
And with that let me introduce the CEO of Bentley system grid Bentley.
Good morning, and as always thanks to each of you for your interest.
I will start today by sharing my observations of some notable introductions within our strong 2003 Q2 operating results.
And then as usual I will briefly remark upon some corporate development.
And preview.
Our growth in the quarter was more broad and balanced which I consider to be bad.
Ranging from <unk> hundred 65 accretion across our largest enterprise accounts.
Through broadening and compounding penetration within our large SMB opportunity.
Among infrastructure sectors resources.
By way of mining in hand.
Slowed down and lost its need for now to strongly growing public works so that utilities.
Despite the countervailing dip in global Capex for new loans.
Sequent remains growing considerably faster than PSY, otherwise following only our other platform acquisition power lines.
And as to our key metric year over year AOR growth.
This all nets out while broader and better.
To a narrower full year 2023 range.
Wondering that in China, which is where all relative obscurity is concentrated.
Virtually any second half new business outcome, we will continue to erode our IRR there.
And 23 Q2, we were a BS why busier than ever before.
Meeting or surpassing our own expectations on all corporate.
Tricks.
Of course, we all primarily focus on constant currency business performance AOR growth year over year.
Which we sustained within a robust level of 13%.
Our high watermark however.
However, going behind this headline might consider that our <unk> growth has directionally improved.
One aspect and the math is that programmatic acquisitions happened now that be contributing only minimally.
But while acknowledging this year as favorable end market conditions by think that stronger operational execution by Nicholas teams is ever broader and better.
Although as such balanced and consistency increasingly characterize virtually every access of our business.
An example is the breadth of new business momentum ranging from our largest to smallest accounts.
Recall that we use this term new business to factor in license sales as well as IRR growth so for quotas and achievement, we multiply recurring revenue by an appropriately higher weighting factor.
By virtue of our main growth initiatives since going public in 2020 this quarter the bulk of our new business was divided almost equally between our <unk> hundred 65 program and our virtuosity led growth in SMB.
<unk> hundred 65, AOR growth is a combination of one time uplift from accounts upgrading to the program, where our consumption charges per application per day are meant to cover our costs of the enterprise success team digital workflow experts, we dedicate to each 365 account.
And what is now most prevalent accretion and these accounts consumption and application mix.
Within 23, Q2, or a proportion from <unk> hundred 65.
Increased very largely from this accretion in existing <unk> hundred 65 accounts for whom going digital through <unk> hundred 65, blueprint is a more urgent priority than ever.
Constrained by skill shortages these accounts need to improve the quality and throughput of their engineers work as they face substantial and growing backlogs.
In fact, this quarter's AC E. C survey of all U S engineering firms shows that the median backlog is now a full year as demand for infrastructure engineering continues to outstrip capacity.
The same survey shows that while these firms are not so sure about the macro U S economy 12 months from now each firm tends to be ever more confident in their own resilience.
A year from now.
As to a greater degree than ever they.
They expect their backlog sedan to be even greater.
These firms year ahead market outlook by infrastructure sector tends to correspond with our own 23 Q2 tone of business.
Lead in growth sentiment now by public works Slash utilities, then resources, followed by industrial and.
And lastly, commercial slash facilities.
This quarter <unk> also survey the extent of the labor shortage brought about by this unprecedented workload occur.
Across all firms there is one unfilled infrastructure engineering position for each 10 full time positions.
This is a motivator for our <unk> hundred 65 accounts to prioritize blueprints for new digital workflows that entail upselling users to more specialized applications better fit for purpose for their particular project work at any given time.
This leads to the greater spending per day, holding constant pricing for each product that we annually measure as application mix accretion.
And directionally confirm that our steadily expanding <unk> hundred 65 program is continuing to broaden and accelerate our application mix accretion driving directionally better.
Sure.
Our overall net revenue retention rate in turn reflects this progress and going digital within our existing accounts led by <unk> hundred 65 consumption and upsell.
Even or particularly as our accounts deal with workforce constraints.
I am pleased to report that NR was sustained for the quarter at 110% high watermark.
Getting from these 10 percentage points of <unk> accretion in existing accounts to this year's 13% IRR growth is attributable to sustaining at our 3% high watermark.
Our growth from subscriptions in new logos of course.
<unk> and SMB.
Because the SMB share of the overall infrastructure engineering market substantially exceeds the SMB share of our own.
I believe that our investments and improvements in SMB.
Are bearing fruit to make our AOR growth sustainably broader and better.
In particular, our SMB focused virtuosity subscriptions for individual practitioners have grown exponentially in new and cumulative.
Including in 'twenty three Q2.
And again, including a record number of quarterly new logos for virtual Obsity, which is now approaching another digit.
Now obviously this magnitude of continued <unk> compounding depends upon the renewal rates for the subscriptions.
And I have previously mentioned that we would quantify this at such time as we would have statistically sufficient experience.
Within smaller businesses and for individual practitioners.
Cannot expect retention rates comparable to those of subscriptions used widely in diversely across an enterprise account.
This is particularly the case for specialized virtuoso subscriptions, which may be entered into for a particular infrastructure projects with a finite duration.
So I am pleased to now be able to report that after much hard work, our virtuosity renewal rates have stabilized at about 80%.
We believe that with our digital experience automation to make self serviced renewals even easier.
We can improve this summer.
And by the way given at the absolute numbers are still relatively small we won't report this renewal rate regulated but even beyond <unk>. Our license sales new business is generated mostly in SMB accounts for 23 Q2 about one third of these SMB license.
Sales are to almost 300 new logos.
Recalling that we continue to offer perpetual licenses, principally because our main competitor does not.
I believe that a significant proportion of these SMB new logos.
Including the many more for Virtualized study subscriptions.
The competitive takeaways.
Finally, smbs broadening and bettering contribution to our new business extends globally.
In China with geopolitical factors overhanging our prospects with our historical mainstay stay down enterprises.
The majority of our reasonably improve net new business in 2003 Q2 was thanks to perpetual license sales in SMB.
Among the axes of directionally broader and better growth.
I would like to turn now to infrastructure sectors.
We are as Nicholas who will provide our usual color. We saw in 'twenty. Three Q2, the normalization that is the convergence towards the mean of resources and mining in particular, its major impetus for us.
Down from its extraordinary global pace setting.
You may have seen reports that this phenomenon is another reflection of and overlaid cycle of reduction in demand in China.
I don't think there is much doubt anywhere with the economic and environmental factors driving the current mining Super cycle are still long lives.
But the momentum lumpy consistently sustained at the maximum.
Most recently the mining majors are confronting pricing fluctuations and.
And are thus acting more cautiously in their procurements and.
In the mining juniors are considerably fettered by tighter equity markets higher interest rates and inflation.
These factors, mainly impact capex for new mines and major extensions.
Other than the Opex for throughput of existing mines, which accounts for most of the volume and growth for sequence.
But sequence subsurface modeling is also used as a precursor to new mine development. So.
On the margin. These factors are impinging upon what has been sequenced consistently very high growth rates.
Since acquisition over two years ago.
While growing organically more than twice as fast as the PSY otherwise sequent has in fact doubled in scale, including incorporating along with many subsequent programmatic acquisitions, our previously acquired Geotechnical engineering software.
During the past year, we have prioritized that sequence integration generally into our corporate systems processes and commercial models, including into our <unk> hundred 65 accounts and blueprint.
And by virtue of lots of attention this is going well.
One purpose has been to extend the benefits of an opportunities for sub surface digital twins in the civil infrastructure market.
Which will also serve to bring <unk> and environmental modeling counterbalance to their historical concentration and mining.
The predictable result of these maturing and integration factors.
Has been a direction toward convergence between sequence growth rate and the increasing fundamental norm for BS VI otherwise.
Which reflects largely the successful growth initiatives I've been discussing.
A footnote is that the inflation factor since the beginning of 2022 would make it mathematically harder for sequencing rate of growth to remain at an integer multiples.
The result, as in 'twenty <unk> two.
So a broader better balance and consistency across our company and market sectors.
And that takes me to our mid year updated outlook for the full year 2023.
Our established 2023 outlook a growth range of course constant currency business performance has been 11, 5% to 13%.
Which we are now reasonably prepared given the consistently robust first half to narrow to 12% to 13%.
Most of our initial caution about AOR growth for this year had to do with China.
And visibility there remains relatively limited.
While China now represents only about three 3%.
Of our overall AR.
And despite a welcome turnaround in SMB, driven new business there in Q2.
Over the course of 2023 to date.
<unk> proportion has fallen by about 4% of total AR.
This has correspondingly reduced but with otherwise has been our overall <unk> growth rate had China merely kept pace with the rest of the world.
This AOR growth swag is likely to continue or to increase as traditionally in China each year as fourth quarter accounts for most of the year as new business.
This year, we share with the rest of the world and for instance, with the mining market obscured visibility into China's direction, but in our case, it's amplified by our own intention or go to market pivot in China.
Which as I described last quarter.
Tend to relatively reduce or.
Even if and as hopefully become successful.
After only one quarter so far it's too soon to report on the net impact of by the end of the year, presumably this will have become apparent.
And in comparison to previous years, which have generally included more <unk> acquired with programmatic acquisitions than in our current outlook for this full year.
Again, I consider our sustained <unk> growth to be behind the numbers directionally broader and better.
As I have discussed this is true across commercial models and accounts loans and across.
Infrastructure sectors.
Nicholas will reinforce this from the standpoint of regions and products as well.
First by way of corporate development.
And related to these subjects.
We announced during the quarter.
The recruitment of Alan Li formerly Chief operating officer of S&P, China, and a wise veteran of creative alliances.
As our only general manager anywhere in the world.
With responsibility for on the ground leadership of our new and unique for US go to market strategy in China by way of joint ventures and channels.
Alan has now aboard in China and is enthusiastically at the helm.
And we'll have more to say about this at the year on infrastructure 2023 conference.
The conference will be in Singapore in October this year.
And to make up for the time zone difficulties of travel or even live streaming for most of you.
I have asked Eric to compile concise video excerpts of the proceedings relevant to investors.
The independent jewelry are presently judging our accounts 300, plus building digital award nominations and the finalists who will present in person in Singapore will be announced next week.
Their case studies will help us all to assess the pace and distribution of infrastructure digital twin advancements in the world.
Which I can't wait to see and reported.
And now over to Nicholas.
For Fuller operating perspectives on 23 Q2.
Thank you Greg.
We had a strong quarter and a strong first half of 2023.
Demand remains very positive and we continue to be a pipeline with market dynamics and government investments playing out favorably.
Perfect delivery firms are dealing with an extremely tight labor markets and aging workforce and increasing costs due to higher interest rates and inflation.
Factors that lead them to seek new ways to improve productivity and efficiency.
Bentley systems is well positioned to help.
Additionally, government programs around the world continue to invest in the resilience and sustainability of critical infrastructure.
We expect this to be a long term trend that benefits from markets.
Looking at related performance across infrastructure sectors, Q2 reflected some reordering from previous quarters.
Leading the way growth in pretty quirks and utilities remained very strong.
Sector being the biggest beneficiary of infrastructure investments around the world.
Industrial improved while resources normalize from record levels with commercial lines facilities remaining flat.
Next looking across regions.
Growth remained very solid in North America the.
The transfer or the direction of the previous quarter with strength in public works and utilities indications of IAG funding flowing through somewhat more broadly and perfect delivery firms, having more work than they can handle with their project backlogs extending further ops.
We achieved steady growth in Europe , with EU funding of transportation, Warner and Green initiatives and purposeful targeting of the ecosystems of large infrastructure projects, which drives our software adoption across both owners operators and their product delivery firms large and small.
We also are getting good traction and achieving notable wins with water utilities in the U K.
In Asia Pacific, India remains a major growth driver even after many quarters of accelerated growth as it continues to benefit from strong tailwind in particular large investments from the government into local infrastructure and global product delivery, even firms continuing to tap into the large population of engineers in India.
To Superman their work versus for projects abroad.
The SMB segment is also performing well and virtuosity revenue in India. Our year to date has already surpassed the 2022 total.
In China <unk> continue to show signs of stabilization in Q2.
We continue to do well there in the SME segment, which is encouraging however, as Greg mentioned, we believe it is prudent to be cautious for the balance of the year.
Growth in Australia is benefiting from large investments in public works the Australian government's five year pipeline for major infrastructure projects valued at more than $150 billion and it is mostly focus on transportation, our sweet spot in Australia.
One example is Brisbane Cross people right project, a publicly funded Mega project with digital twins at its core.
The project comprises a 10.2 kilometer section of rail that includes five nine kilometers a tunnel under the Brisbane River for new underground stations and rebuild for eight above ground stations.
Significantly it was a key components of Brisbane successful bid to host the 2032 Summer Olympics.
Digital twins enable them to plan for the whole life of the product with a full digital representation from construction to operations and maintenance.
With virtual versions of patients team members and stakeholders can bring the product to life walking across golf courses traveling down escalators and you've been writing the network in.
In addition, they are working to develop technically accurate and immersive environments that will assist with infrastructure acceptance assurance testing and commissioning.
The team can even Apache information to stations and over in a real time data feeds such as their quantity to geospatial locations for ongoing monitoring and then as is.
<unk> Cross River rail is the largest project increasing in history. The state as 400 to 500 major projects slated over the next 10 years as.
As with all the regions. These projects not only provide opportunities for owners of creators, but also with entire ecosystems.
Moving on to products <unk> strong product performance in the quarter included staff, our general structural analysis software Saks for offshore structural analysis and paradigm systems.
Open roads and open bridge also performed well stand alone and as part of a broader open civil offerings for SMB.
One topic that has been top of mind recently, and which I'm sure you have questions about is AI.
Let me take a couple of minutes to explain our position.
AI is not new to Bentley.
Primary focus to date has been on computer vision for a safe condition monitoring and inspection use cases.
Example of that is a bridge monitoring solution, which became journey available in Q2.
This solution Leverages AI to automatically identify potential issues in <unk>, such as cracks and spalling and to prop interventions.
Hope to see more and more of this type of solution and operational and maintenance starting with bridges and dams and then for other critical infrastructure.
But AI as a lot of potential for design assistance, we already have generative design capabilities for the concept phase primarily perimeter based in civil side engineering and.
And our users lowering in fruit in the form of generative components, which facilitates the programmatic reuse of modern digital components.
One thing I will say is that first you need data.
Oh engineering services firms realize how valuable the data is.
The issue is that their data is typically locked into Fox digital twins are the key to unlock the data surface it and make it available for AI.
The good news is that adoption of digital twins, a significant increase over the past few years, thanks largely to twin platform.
<unk> is strongly positioned to enable the endless ways that AI may be applied.
And remember most of the data that we're talking about is already in project wise part of Bentley infrastructure cloud.
We believe we are just starting to tap into the potential for <unk> platform and products for AI and we look forward to providing more details although unit prospects for 2023 conference and with that I will now hand over to <unk> to go over our financial results.
Thank you Nikolas.
We are pleased that we started the first half of the year strong.
Total revenues for the second quarter at $297 million up 11% year over year or 10% on a constant currency basis.
Year to date total revenues grew 12% or 14% in constant currency.
Product water subscription revenues grew 12% year over year or 11% in constant currency and represented 87% of our total revenues.
As a reminder, Q2 is typically our lowest revenue quarter and we discussed last quarter that we saw a shift in revenue seasonality from the continued expansion of our consumption based <unk> hundred 65 program, which yields a more ratable revenue recognition when compared to the accounting treatment of our traditional software subscriptions.
That shift benefited Q1 and was a drag on Q2.
Therefore, a more meaningful comparison to the prior years first half in which subscription revenues grew 13% or 15% in constant currency.
The on boarding of Paolo and systems at the end of January 2022 accounts for about one percentage point of this year to date improvement.
Our <unk> hundred 65 in SMB initiatives continue to be solid contributors to our subscription revenue growth.
Perpetual license revenues remained essentially flat, reflecting our preference is for recurring subscription revenues.
If a license sales continue to play an important role for us, especially between SMB, where they serve as a competitive differentiator helping to attract new logos.
And in China due to local preferences.
We go to market increasingly indirectly.
Okay.
Our professional services revenue benefited from the acquisition of Hitachi, which required within our cohesive digital integrate accrual in Suwanee till Q4.
Moving onto our recurring revenue performance.
Our last 12 months' recurring revenues increased by 12% year over year by 16% on a constant currency basis.
On a constant currency basis, the acquisition of Poland systems contributed about two percentage points to this improvement.
Our constant currency account retention rate remained at 90% and our constant currency recurring revenue net retention rates remained at 110%.
Led by continued accretion within our <unk> hundred 65 consumption based commercial model.
Okay.
We ended Q2 with a $1 billion $106 million at quarter end spot rates.
Our constant currency growth rate was 13% year over year, and three 1% on a sequential quarterly basis.
In this quarter compared to our usual norm, we had no programmatic acquisitions.
Okay.
Our strong and sustained growth performance was supported by broad market growth led by our resources in public directs utility sectors.
Year over year resources led debate well quarter over quarter, the peso separate public utilities.
Our growth Australia supported by our balanced business performance across our regions other than China, and power <unk> hundred 65, and S&P dwarf initiatives.
Our GAAP operating income was $53 million for the second quarter and $119 million year to date.
We have previously explained the impact on our GAAP operating results from amortization of purchased intangibles deferred compensation plan liability revaluations and acquisition expenses moving on to adjusted operating income we have stock based compensation expense.
Our primary profitability and margin performance measure starting this year.
Adjusted operating income be stock based compensation expense was $73 million <unk> up.
Up $9 million up 14% year over year with a margin of 24, 7% up 70 basis points.
The year to date, our adjusted operating income be stock based compensation expense was $164 million up $21 million or 15% with a margin of 26, 8% up 60 basis points.
Our Q2 and year to date margins are fully in line with our expectations Q2 is typically a lower margin quarter for us compared to Q1, Q2, opex seasonality the concentrate or annual raises for colleagues to occur as of April 1st each year and since approximately 80% of our cost structure is head count and related.
Support costs annual raises have a significant impact on our operating expenses in Q2, Q3, and Q4 relative to Q1.
Margin progression for the year showed improved in part due to lower relative impact of stock based compensation compared to the second half of last year.
We expect that our annual stock based compensation expense will be decreasing as a percentage of revenues to what's a range of 6% from approximately 7% in 2022.
They will continue to be some stock based compensation expense volatility between quarters.
Including for the timing of our ongoing annual rounds of broad based equity grants, which are predominantly granted in the first and fourth calendar quarter.
With respect to liquidity, our Q2 operating cash flow of $81 million increased by $14 million year over year and had a trailing 12 months conversion from adjusted EBITDA of 92%.
As previously discussed our business model produces reliable and efficient cash flows over trailing 12 months period, but with some variability between quarters due to timing.
Prospectively, we estimate that our conversion rate of adjusted EBITDA to cash flow from operations will be approximately 80% over trailing 12 months period.
During the first half of the year, along with providing sufficiently for our growth initiatives, we paid $29 million in dividends, we spend about 51 million onthe factor share repurchases to offset dilution from stock based compensation and.
And we repaid 147 million of bank debt.
As of the end of Q2, our net senior debt leverage was <unk> eight times and including our 2026 and 2027 convertible notes fully as debt our net debt leverage was four times.
This is down from the end of 2022, which was one three times and four seven times respectively.
Approximately 85% of our debt is not protected from rising interest rates through either very low fixed coupon interest amount convertible notes or our $200 million interest rate swap expiring in 2000 and therapy.
With regards to our 2023 financial outlook.
From our strong first half of the year and expectations for the second half.
<unk> narrowed our constant currency business performance via our growth range to 12% to 13% from 11 five to 13, 5%.
While maintaining our financial outlook for the other metrics.
This growth range Atlantis, our broad based business momentum with offsets from lower expectations from broker medic acquisitions.
A cautious approach towards our commercial facility infrastructure sector in China as Frank has explained.
Given the relative volatility of licensing stage and services, we're not narrowing our revenue outlook.
With regards to foreign exchange rates.
The U S. Dollar has weakened relative to the exchange rates assumed in our 2023 annual financial outlook.
The impact during the first half of 2023 was not significant with approximately 4 million of incremental revenues from currency.
And the end of July exchange rates prevail throughout the remainder of the year, our second half GAAP revenues will be positively impacted by approximately $8 million.
And with that I think we are ready for Q&A over to Sandra and was going to moderate in Eric's actions. Thank you.
Thank you Vernor, we'll now move to the Q&A portion of our call and we ask each analyst to please limit themselves to one question only so we can get to everybody today. Our first question will come from Matt drew from Mizuho group.
<unk>.
Alright, thanks, very much good morning, everyone.
I guess just to get started.
How are your customers really think about the longer term demand environment.
The increase in government spending, giving them the confidence to commit to larger investments in software.
Or is there any sort of broader uncertainty we see across other areas signed increasingly.
Increasingly great Panther that thinking.
I wouldn't say that.
And nothing from other areas is creeping into the thinking of those in infrastructure engineering.
And the confidence you can see in the surveys.
Things are getting better and they expect to continue to get better.
And that's broken down by sub sector as as well one of the things I noted this time in the surveys.
And by the surveys are those of the U S.
<unk> is the U S grew but I don't think its different in our perception across the world, but in the U S.
Expectations are thought to be better in the water sector now and indeed, some outline Jay a funding recall and then the other half of the IHA a funding beyond transportation is only starting to flow, but water is where it started so yes. I think there is there is not any bleed from other macro concerns.
Into infrastructure engineering perceptible talent, when you talk about confidence.
Our accounts generally I think M&A in the mining sector as we mentioned there is.
Some bleeding and it's perhaps by way of.
Volatility in prices, having to do with demand fluctuations from from China in particular and that is notable.
On renewals and mining somewhat there is still need to use a lot more technology and consumption is increasing well, but not to the same extent.
A couple of quarters back and we think that is.
Ah cycle sort of overlaid on the on the general Super cycle, there, but other than mining now infrastructure engineering is quite time.
The only thing I will add his inaugural assistant with engineering firms.
In particular, the discussion is more about capacity and supply and demand.
There is a.
They are very positive about the demand, but that's the point that their backlogs that are getting bigger and longer and expanding further out of the question is how is that he can execute on that backlog how can they cope with the with that demand when they're not able to hire fast enough and obviously.
Our conversation then goes into how can we help them make more with what they have.
Now with the capacity to help I can leave.
Increase the productivity of the engineers going digital.
Right absolutely.
And then we just noticed some recent price increases on the <unk> website fairly consistent with what we saw in the prior year.
I guess, how are you thinking about pricing currently and how much pushback are you seeing from customers to two increases.
Okay.
Yes, as you said, it's aligned with with the previous years so.
The we can defend as price increases because of the value that we're bringing with our software and Thats where were making sure that theres no disconnect between the price and the value that we are delivering with our capabilities.
Tim.
And that is for both of our accounts in SMB and enterprise.
Alright. Thanks.
Okay. Our next question will come from Joe for link from Robert W. Baird.
Great Hi, everyone can you hear me now.
Yes.
Maybe just on the <unk>.
Our outlook being narrowed 2012% to 13% can you bridge.
What changed and maybe quantify the growth factor for M&A in China.
And then also what got better went up to offset those two items.
Yeah and the.
Offsets.
<unk>.
The programmatic acquisitions are are nil for the quarter and our outlook is.
Consistent with that for the remainder of the year or so.
That's a major component of the math as far as China.
It's interesting is even though we're more or less satisfied with our iam anyway with our business in China in the second quarter.
It has shifted to SMB and to perpetual license sales already we have in mind further.
That will shift it yet further and our new go to market strategy.
What we're measuring here is <unk> growth and <unk> growth.
Our <unk> pump China is already for the first half down by 4% from what would have been in China, we're merely at the at the average.
And I think we're extrapolating that it may even increase that rate of impact on the AOR growth during the remainder of the year, even though we're still hopeful for Diane.
Sure.
Good turnaround.
Let me in China. So those are the.
<unk> of that.
The what broader and better is everything else on especially the balance in general large accounts and small accounts globally and among sectors relying less in particular on resources and more on the broader for us public works and utilities.
Nicholas anything to add.
I think you've answered it quite quite well.
The narrowing is really it's really.
Because of the uncertainty in China.
And then and then the fact that we haven't done as much programmatic acquisitions that we've done in the past.
The.
Everything else is indeed.
<unk> itself.
Okay. That's helpful. Thank you.
I wanted to go back to the comment on open road and open bridge doing well within SMB.
One thing that's been happening.
Stay at the Otas are looking to qualify them and build out kind of a larger supply chain engineering firms Youll see infrastructure as one of the better end markets to be associated with now and going forward youre seeing growth in their supply chains.
Is is the strength in those product areas and SMB kind of related to.
New customer opportunities surfacing for you and then how do you see that playing out as these other infrastructure sub sectors kind of spring to life with some of the IHA money more broadly deployed.
But to answer this.
So.
<unk> is an open bridge, we have more and more transportation authorities, including <unk> in the U S that are standardizing on it.
And then when that happens is that entire ecosystems.
It starts to use the software as well.
So what's happening and what we're seeing is in the U S, but not just in the U S.
We see a need.
A lot of new accounts that are subscribing yoghurt shows the T. Two open roads open bridge.
Individually or together as part of our principle suite in order to be able to serve.
Those transportation authorities.
And I think we're getting better and better at understanding those dynamics in working across channels.
Channels in order to two two to leverage those dynamics to.
To win entire ecosystem, not just the owners operators, but all the product delivery firms working with them, whether they're large or small whether they are large we will go after them with our enterprise sales accounts, whether they are small we go after them with our SMB.
Teams are even our channel partners.
And yes, you could argue this is a good playbook that could be applied to other industries.
In fact, it's a similar playbook, we are following with the water.
Infrastructure in <unk>.
India.
We're learning, we're winning not only.
Large projects, where the owners of printers, but also with our ecosystem and in fact that opened flows which says used by hydraulics hydrology engineers.
Is it in the top three products that we're selling <unk> in India because of the larger ecosystem.
Great. Thank you very much thank.
Thank you Joe. So next question will come from Matt Hedberg from RBC.
Hi, there guys. Good morning, thanks for the time.
On the industry surveys that you guys noted on the call why do you think that engineering firms are feeling better about the position and the economy do you think it's just a function of.
Capacity from a head count project perspective, they see it in their pipelines, but just any any more color on.
It sounds like good results from that survey.
Oh on the backlog as of year end, they are confident about winning new business and if I could do it.
<unk>.
The period of time, you're confident about.
Got it goes out for longer than what you might think is true in the economy.
In general and I guess, it's the.
Stability and duration of the.
Funding of the public works and utilities programs that makes that dichotomy.
Prevail persistent.
Got it so it sounds like just like it feels to me like its a really good leading indicator on maybe sentiment from those buyers, which could be good for the next 12 to 18 months. So a lot of like well, we know theyre not going to be able to add capacity because the.
The demographic is such that their workforce is retiring and there are not sufficient replacements and engineering schools now and there can't be very quickly.
Got it thanks, a lot congrats guys.
Thanks, Matt Our next question will come from David <unk> from Keybanc.
Yeah.
Great can you guys hear me.
Yes.
Awesome Yeah. My one question is on <unk>.
Renewal rate and virtual lottery, you don't have to do here.
That 8%.
And you also mentioned.
Can you to develop the self serve and also the automation motion. There you can see that bigger improving so I'm just kind of curious where do you see that.
Figure improving the long term and should we think about kind of the pace of improvement.
Well.
I might say that the.
SMB subscriptions are new enough to us that we didn't have a clear view of where this would settle out.
And and even now.
Our SaaS operations to grow above that but we have really.
Strong planned.
Budgets for our digital experience projects in and perhaps you'd like to comment on some of what that will accomplish.
Yes. It has it has improved because we've increased the number of touch points during the terms of the subscription.
And we've done it at scale, obviously, we have to do it at scale because we're talking about a very large account base now with rich reality and we have started to automate the renewal process itself, it's not fully fully automated yet.
Automation is not fully deployed so so we do expect to be able to to improve yet again, the renewal rates, but as Greg said.
Said.
We don't think it will it will get close to kind of renewal rate, we have with enterprise.
That's the nature of the companies that we're dealing with there are smaller organizations that will use the software for a project as opposed to enterprise accounts.
We will use our software across projects going from one product to the other.
So so it will.
It's a very high renewal rate actually we think for SMB. We think we can still improve it but it will it will reach the kind of levels, we've seen enterprise.
Got it very helpful. Thank you.
Our next question will come from Joshua Tilton from <unk>.
Okay.
Hey, guys can you hear me yes.
Alright, Thanks for sneaking me in here.
We're definitely talked in the past, but how important this whole pricing dynamic as to the store and you guys mentioned.
Accretion in the prepared remarks can you just maybe give us like a sense or a flavor of what the ASP uplift is for.
For these customers as they start to tune some of these higher priced applications.
Right. So of course. This is we do have pricing escalation per se for the same product and there was a question earlier about that.
To be in the inflation range of 2% to 5%, depending on which year. It is.
But the application mix accretion holds the pricing constant.
<unk> the pace by which engineers began using more specialized products and the potential uplift there is a order of magnitude actually.
Microstation are most generic modeling product.
<unk> hundred 65, the price might be per day might be half.
Open roads are open bridge and then open flows open wind power et cetera could grow by a factor of five or even 10.
But the more specialized modeling applications include the appropriate stimulation engines and so forth takes the place of meeting a number of different.
Products, but it's a broad range and the and this is where I say the potential to go from what I referred last timeline.
<unk>.
So that on average our R&D.
Uh huh.
Top design firm spend $1 41 per hour on our applications on that can grow by magnitude as they need to have their engineers use more specialized applications to increase the throughput and quality as a going digital to make up for not having that.
Kris number of hours.
To do the same and more work in backlog. So there is there is quite a.
Quite a.
In order of magnitude potential there over the long term I think.
And if I could sneak one more quick.
I'll follow up.
[laughter].
Yes.
Okay.
Sorry go ahead, sorry Super quick.
I know you guys, obviously have a really strong competitive positioning in transportation, but you're talking about some of these funding dollars starting to be allocated toward water projects like how do you feel about your competitive position a little water maybe compared to transportation.
How should we think about your ability to capture these dollars have more of that funding starts to get allocated.
Water I believe we are also the leader, but it's much closer and of course, you know that our competitor Autodesk did an acquisition there.
Of the other leader.
And in water.
We have a broader we have a lot more to do with.
Uh huh.
Processing plant with plant design process plants, and so forth not only the modeling of the.
The networks.
But it is a.
It's a great market worldwide. There is a lot of digital twin potential and motor operations and maintenance improving energy, reducing non revenue water leakage and so forth.
Just something great for infrastructure engineers to work on and going digital.
Thank you.
Gesture. Our next question will come from Andrew <unk> from <unk> capital markets.
Thanks.
Taking my question I guess first just could you elaborate a little more in terms of debt to sequence a resource deceleration and I know you mentioned it was growing around two X. The Bentley group AOR growth I'm, just wondering like what should we expect at this point in terms of that growth should still exceed that mikes.
Group revenue and if so how much would the swing be.
Well, it's because I'm on record, saying Theyre near growth is twice as fast as the company as a whole that I.
I wanted to when that was no longer quite the case and of course.
Bentley otherwise is growing by percentage points faster now.
And then and then a couple of years ago. When the acquisition occurred. So it would have been required that they grow quite that increment in order to keep pace.
But the part of the market.
Over that time.
As we mentioned sequent has doubled in scale.
It's taking it's taken on.
Attention to the broader several market, which is good for incorporating subsurface modeling to derisk.
Infrastructure projects in general, it's good to balance and spread out let's sequence does.
So that has.
That has taken away some of the mining focus but the mining market also had a significant change this quarter and thats, what it's tough to have it be less than that.
That image or a multiple of the.
Growth of the company.
Company otherwise.
Phil.
Very significantly faster growth than the company overall, we don't expect that to change and we're simply observing that it is converging to a degree.
As the rest of the company grows but.
Only tls is growing faster than sequent still and we are very satisfied with the sequent business. The sequent management lots of opportunities fantastic that it has doubled in the two years.
Since the acquisition.
But mining is kind of go through some fluctuations on the Super cycle, We think and we're in one of them.
Thank you thanks.
Thanks, Andrew Our next question will come from <unk> from Griffin Securities.
Thank you and good morning.
Greg Nicholas Werner.
I appreciative of the comments, you've been making about current momentum.
With regard to parts of the business getting directionally better that was some very interesting commentary.
I would like however to ask a longer term question specifically.
The extensibility of or the preparation of your portfolio.
For the next half decade or more.
Reason I'm asking is at Yi last November Keith Nicholas who Mike made some very interesting comments around your software development, you announced infrastructure cloud you announced various flavors of <unk>, we've not really heard much about any of that since then.
More recently in June that was a very interesting ATC conference in London.
Was there.
There were some really interesting indications of what I would call customer ferment or interest in new technologies and processes related to AUC in them.
I know it's perhaps.
Two larger technology question for an earnings call, but maybe talk about where you think the company is.
Turning itself.
That mix.
Half decade or more.
Building upon our current momentum.
Because I know we're hearing of course for your infrastructure. So we're going to take.
Some powder dry for that but go ahead. Please we're willing to give a more comprehensive update that either way I am.
So let's see what we what we explain at Y last year is resonating extremely well with our accounts.
We see not only a lot of interest with many infrastructure cloud and some of the <unk>.
<unk> products, we talked about but we see a good uptick as well.
The capillarity that are powered by twin so.
The fundamental.
Fundamental change to the industry as we discussed before is going from five days to becoming data centric.
Digital twins are critical to make this happen digital twins or the way, we can actually get to the data which is locked into files right now, which is becoming dark because it's on different file formats different sources sand et cetera. So the evolution of the industry. Overall is how can we break free from those files, how can we get data.
And then by data how can we improve efficiency improve effectiveness potentially also change and evolve their business models.
And offer new things to owners of freighters.
Engineering firms.
And it's quite fascinating and Arkoma assistant with engineering firms not only are they are talking about how is that key they need to go digital in order to close the gap between demand and capacity, but they're also telling us.
Help us with all of that data that data is growing style, Anna and help us we want to use your products without that data can be reuse from one project to the other.
That data potentially could be raised as well for for AI and ml, who knows you have with design assistance as I explained in the in your prepared remarks, so I won't say too much today, but but yes. What gives you a comprehensive update on yi.
Thanks Jay.
Our next question will come from Chris <unk> from Oppenheimer.
Great. Good morning, Thank you for taking the question.
I was hoping you could break down some of the performance a little bit more in the public works and utilities space, how much uplift you're seeing from Pls and since my follow up is related I'll ask it now just wide permitting reform and <unk> and the <unk>.
That feeling legislation can mean for your business coming into the back half of the era and in 2024. Thank you.
I happen to think that.
Electric transmission, especially as.
A forthcoming super cycle, but it's still forthcoming pls is.
Growth.
Leading the company at the moment is.
Still in anticipation of adolescent yet actually do two major transmission projects, having been permitted in the world.
But I do think that the engineering firms are adding capacity for transmission engineering in contemplation of that.
By the way, it's not possible to hire new transmission engineers. They are all busy so one on one project. That's underway is cross training, some civil and structural engineers from other.
Disciplines to be confident in transmission engineering and applying the tools for that so.
I will mention as far as permitting where we tend to in the U S to be waiting for major legislation, but there was over the past month rulemaking by hour.
Our federal electricity regulations commission that that did start to.
Uh huh.
Continue to improve our savvy permitting.
Environment, but.
It is being measured that there is a multiple of renewables capacity coming on stream. We are ready to come on stream, that's in a queue waiting to be interconnected and depending on transmission capacity being.
Sending an augmented and.
That's bound to happen and to be a strong driver for.
Pls now Pls is.
Still a fraction only at the size of sequent.
Among our platform acquisitions.
But.
It's on a launching pad it's Phil.
Thank you Kristen.
Thanks, Kristen our next question will come from cloud Jefferies from Piper Sandler.
Yeah.
Okay.
We don't hear you yes.
No exactly half of difficulty is on mute.
Yeah.
Can we come back to clock after.
Okay.
So let's move to a microphone from bank of America.
Yeah, Hi, good morning, everyone. How are you doing.
So mark one for you, Greg if I could.
Can you help me conceptualize the potential benefit to enter or grow it from application of web.
Digital twins and II JA do you expect them to be beneficial to that growth rate in 'twenty, four and 'twenty five.
Yes, I think each of them.
It would be.
<unk>.
Probably not individually any of them in their own right, but.
Collectively.
I think we could aspire too.
Increase in <unk>.
<unk>.
I'll point out that.
And our IRR.
Of course also includes escalation and inflation I think all of us will be glad to see the end of that.
But.
But each of the factors you mentioned.
Digital twins application mix accretion and broadening of the <unk> in the U S are going to benefit the existing our existing accounts that are in our in our.
Sure.
And then related to that Greg you previously spoke about shovel ready II J D projects, obviously getting off earlier, and then kind of the majority kind of a waiting more work approval.
How close are we to that point in the process, where that long tail against that pickup spending when you start seeing benefit.
Well I remember reporting after the third quarter of that in the U S. We saw rather a sudden uptick in our <unk>.
Our growth rate and that's been sustained but I've been reporting it hasnt, yet increase and I'm beginning to think about the second half of the Iga, a the broadening beyond transportation to grid and broadband and water, although water has begun.
To be something where that's going to be spread out for so long and in such a durable that it won't register and quite the right quite the same way all that what we should.
Prevail.
Sure.
Longer.
But Andy.
Even now.
Our funding is occurring but.
Broadband wireless allocated that will be next year grid.
While it's then.
Allocating Rockstar I think till next year and then of course from our standpoint. These may not be bad things if that means they.
Now last for longer and are more spread out given the capacity issues in the <unk>.
Infrastructure engineering space many of them.
Thank you all for time.
Thanks, Michael Our next question will come from Matt <unk> from Goldman from Goldman I'm, sorry, with Goldman Sachs.
Uh huh.
Hey, guys, Hey, Greg how are you.
Just a question here offer cash I just wanted to get a quick quick update on Europe , and just kind of geographic distribution and kind of the performance that you guys saw there each quarter. Thank you.
Nevertheless, if you wouldn't mind.
Yes.
So steady growth in Europe overall, and the growth drivers, primarily I will say transportation and industrial.
The trends are.
Very similar to what we've seen in the previous quarter or does it maybe with an S.
We clearly see a linkage here between the large funding from the European <unk>.
And that is going to the countries to the projects. So there's a number of projects in water and in Israel.
The where.
Our software is being used and we know that there are funded by the EU and.
So it's steady steady as is the is the word.
<unk>.
I'd like to say that when I when I look at this.
As between Northern Europe , and southern Europe , and Central Europe that always seems to fluctuate enough from quarter to quarter that studies, the right way to put it over the course of a year.
That's not okay. Our next question will come from Blair Abernethy from Rosenblatt Securities.
Good morning, Thank you Damien here.
Just a question on India.
Greg I just wonder if you can.
Give us a sense of it seems like things are going well there may be even better than in China.
Is this domestic driven.
Or is it helping.
Helping to make up for capacity and in say North America, or Europe , or where we're at.
Civil Engineering is pretty constrained with these big backlogs.
It's it's it's much better than China.
And we asked the same question because it's for both reasons three domestic programs in Indiana horse there their need for infrastructure is greater than any other country in the world.
At the same time they have this.
Greater source of capacity with students and universities and so we're coming into the engineering profession.
We have studied that closely held bulk.
The faster growth in EMEA. These couple of years is domestically to do with the programs in the air and I might say that it's our impression that the programs there.
Been very well received by the.
Hi.
Population in India, and we hope are likely even though they're they're reaching in a year or two there there.
Stated.
Exploration, we like to think there will be successor programs.
If I add the Nicholas.
You answered it.
Again, a perfectly yeah. The bulk is indeed local infrastructure projects.
I will say the share keeps getting higher actually so the growth is really primarily coming from the local infrastructure projects been Amit as you were asking and as I also mentioned in the in the prepared remarks.
India is also benefiting from global firms tapping into the local engineering tonnage to help for projects.
When they could actually its interesting by the way it's not it's not just outsourcing some of the functions they outsource entire.
Oh.
It's a responsibility for technical delivery, including product management, which is a change from the past.
And maybe we haven't had a question about the demand in China, but China historically has had the higher spending on.
Infrastructure.
And I think the government there intends to resume that but it's in fits and starts can do you want to comment further on that Netherlands.
Yes in China.
Perfect trip plan sorry, yes.
Yeah. So it's.
It was discussed multiple times last year, we saw it coming into action in Q4. It was mostly for projects already under construction and then it has shifted to fund contracts and design <unk> in the first half of the year.
And primarily with airports, new airports and expansion of our fee.
The existing airports.
And did we our software is used there right. So so we're benefiting from this.
Somehow we haven't given the difficult, let's say overall business environment in China. This actually is <unk>.
<unk>.
And I just wanted to emphasize that we feel pretty good about China, China. This year has been reassuring, so far compared to last year, but.
Almost anything that happens isn't going to register in <unk>, except probably as a decrement to to <unk> because of the preference there for perpetual licenses and an SMB essentially.
So.
So we'll need to look more broadly at Halloween.
Measured tone of business.
In China.
But it's not a it's not a it's not a bleak picture there necessarily and we think are structural changes in go to market are finally, Anne and worthwhile.
Not not particularly bearing fruit yet, although we see some instances of what we've been expecting and leading us to.
Emphasize it's going to increase the pressure on our while the overall.
Business can grow.
That's great. Thanks, very much guys.
Thanks, Blair, Okay, but with MA and we will move on to Clarke Jeffries form deeper Sendler farm. Our next question.
Okay.
Hello, Hello, Thank you for taking the question.
I wanted to ask when you.
To reflect on the year so far.
Where do you specifically expect to invest most incrementally for the rest of the year and.
And then maybe beyond that for the next 12 months will be that the highest investment priority in terms of Opex and.
That's one.
Well, let me say first that the the year so far.
He has been reassuring.
Without.
Very much of a pace of programmatic acquisitions.
Without the extreme reliance on.
Mining in sequent with everything broadening out and especially the.
SMB and <unk> hundred 65 doing better than ever it feels to us broader and better behind the numbers as we've.
Emphasized.
The principal investments on our mind in Opex and it's also capex offer the digital experience or the SMB opportunity is so large and were getting such reinforced as I say, when we think theres competitive takeaways going on there.
Nicholas describe learning on that where there is a major project, there's an ecosystem of tier one and tier two for us.
Fully penetrated and help as well.
And digital experience is a lot of how you do that.
And it's a lot of different projects, maybe you might even want to mention some of them are Nicholas during the remainder of the year in the 12 months as you've asked about Clark, we we had a number of major new.
Digital investments coming on stream.
And some of them have so far already this year we've implemented.
Our service now in a couple of other.
Broad digital experience things were integrating rather than an amendment.
Yes.
Most of the marketing Tech stack.
Marketing automation platform are the account based marketing platform and the website itself are we.
We're in the process of switching our commerce platform as well, which so far has been used only for SMB with virtuosity, but we intend to use the same capabilities in enterprise as well.
So I'd say when it comes to our front office systems, it's almost a complete overhaul and that we're doing in order to be able to scale.
And by the way, it's an investment in systems and people as well. So if you look at.
And the openings, we have you will see that the biggest function, where we hiring is actually a function or department is digital experience.
So we are we are we are.
And not.
Not just implement assistance, but to actually operate them.
So that or user experience or customer experience is becoming more and more digital first.
And only when your users the accounts I want to talk to a two to a real could each and I will just say what has happened now and across SMB and enterprise.
Our engineers and we love working on this and it's just hitting a.
A sweet spot seems in SMB.
We simply have to face all by the way. This is the first quarter that I had looked myself that license things in F&B and that's 300, new logos alone from.
The license sale first time.
Names for us.
So we really are seeing that that.
License sales are a outright and competitive differentiator.
Differentiator for us perpetual licenses and again constant eight this notion that we measure ourselves by AOR growth are very comfortable about that.
When we expand our sites to SMB and frame sense to China.
With local.
Preference for perpetual licenses, we we need to appreciate that.
Doing broader and better will be reflected beyond AOR growth.
Perfect and then just one follow up I'm, just curious about sorry, Clark the webinars and finish in one minute.
We're going to come back to Clark whatnot, sorry about that.
We're going to for the first time conclude on time. Thank you, yes that concludes our call today and we thank each of you for your interest and time and dental staff and look forward to updating on our progress in coming quarters have a great weekend everyone.
Thank you.