Bentley Systems, Incorporated (BSY) Earnings Call Transcript & Summary

And help me understand the competitive environment. I guess who are the main players here? Or are there no main players?

Well, Seequent started in mining. That's where the requirement was most dramatic, to get to responsible mining, both below the ground and with tailings, dams and drainage above the ground. So there are some mining software competitors who had a little bit to do with 3D modeling below the ground. But when it comes to the biggest opportunity, which is that the subsurface underlies every infrastructure asset and is where we have buried our utilities. And so putting that all together, there doesn't tend to be competition. It's just something great for us to work on as an integrated team now with Seequent.

Okay. And then go to market, right? So you just closed. You talked about your plan here to keep it operating separately. Maybe talk about the synergies that you see near term. And maybe with the longer opportunities.

So it's the Seequent brand and the Seequent organization that has and deserves so much respect in the marketplace, and we are not interfering with that. We're adding more to it. So we've taken our own geotechnical offerings, including cloud services for boreholes and our PLAXIS geotechnical analysis and move that into the Seequent organization, so we've added about 30% to it so far. It will also be responsible for bringing all of our offerings to mining. Mining takes place in remote places. It's all the more important now in electrifying the world. We need these new mineral resources. When you find them, you've got to build the infrastructure of road and rail to get there and get the products out, so Seequent will do that for us. And then they've been particularly strong in areas where these minerals are found in, Latin America, parts of Canada and Africa, and have a bigger and better footprint than we've had to complement our own go-to-market in those areas. So we'll continue the brand Seequent, the Seequent organization but give it more responsibilities as we've already started and help it grow yet faster.

Excellent. Okay. I'll ask 1 more question here, and then I'll take 1 from the queue. But -- so I think this is probably for David. But when we think about Seequent, it's 10% the size of Bentley, or at least just shy of it in terms of revenues. But if the growth rate for Seequent is truly twice as fast as the core Bentley business, will you have to break out Seequent at some point for performing purposes?

No. Short answer is no. Seequent, you described -- where I thought you were going with this, Jason, was the math of Seequent being 10% of Bentley Systems, growing twice as fast, call that 20%. That's going to add a point of growth to our organic profile even before we start to realize some of these top line cross-selling synergies, for example. So it adds a point of growth to our organic profile. That's how I think about it. We intend to report it much like we do our other product lines. I don't intend for it to be a segment. We're working, frankly, to avoid that. That's just reporting burden and ongoing impairment analysis that just isn't worth doing. And it's not how we're running the business either. We're -- so you'll see us report Seequent and its new contributions from the rest of Bentley Systems as another segment like we -- it's not a segment, but another product line, if you will.

And then I will take the question from the queue, and I did forget to mention at the beginning, but we -- if any investors on the line do have questions, please submit them. But this is a good one. Can you talk a little bit about the industrial resources and China headwinds? Are you bullish on industrial resource usage returning as energy prices turn up? And then on China, how are you mitigating the new taxes levied on nonlocal and software solutions?

So in industrial and resources, the problem is the CapEx in oil and gas. And I'm not optimistic about that changing very soon, even with the resource price, thank goodness, most of the concern we have are the -- well, let me just back up to the owner-operators in oil and gas. They don't have different assets today than they did before the pandemic influence here. And sweating those assets, improving their reliability and uptime and inspections and so forth. Our asset-wise and digital twin opportunities are the more important for them and we're doing more business with them in those respects in the operations and maintenance life cycle as a result. Our -- the dip is in the capital projects. And those -- that work is done by the EPCs, the engineering procurement contractors, the biggest construction firms in the world who focus on industrial, and they are themselves public companies, and you could follow their expectations. But they can be adroit in moving their business mix to other project types, unlike the owners who are stuck with a certain mix of assets, their project mix has more flexibility. And so the opportunities for them are in energy transition and renewables. And I referred to an example this quarter of our product MOSES, which has been used for offshore floating oil and gas platforms, now being a source of notable growth for offshore floating wind farms. And that's the type of adaptation these companies are working out as fast as they can. But I can't say how long that will take them to reengage the 20% of their business that's gone, the 20% of their consumption of our E365 program, they think will come back. I don't think it will come back in oil and gas CapEx order, so we're being realistic about that. And then in China, there is good business for us there. The Chinese organizations are being pressured to prefer local software when they can. But for our infrastructure engineering offerings, there aren't competitive local software. So we hope to be back in those accounts that have canceled our subscriptions because -- rather than complete that justification with new products and new portfolios and with the E365 program, where we'll be embedded and engaged with them virtually daily. Now to do that, that virtual engagement, we need to be on the local Chinese cloud services. We can't rely on Azure connectivity, and we're working on that and hope to have that all connected up by the end of the year. If the Chinese market hasn't suffered, it's just we've faced opaque concerns that are worth cementing on our part, and we will do what it takes to work around them. And generally, what it takes is to work more closely with Chinese resources and local Chinese partners and Internet services.

Okay. Excellent. And then kind of getting back to our questions here, but when we think about this uptick growth framework to 10%, very nice to see, especially -- so coming out of your IPO, which was not too far ago, but can you provide some context on what has changed in order for you guys to come out with this uptick framework?

Well, I think it has had a lot to do with the 2 phenomena in the pandemic, the going digital being a greater priority for infrastructure engineering and our own initiatives and investments, the way we've used the windfall we had from less costs and travel and so forth to invest in the success organizations that are helping our users to go to new digital workflows. They all expect more work to come in the infrastructure programs in the world and the ESDG focus, but they realize they'll need to accomplish more work -- more workload with not more workforce because you can't wish into existence more civil and structural, geotechnical engineers, and the answer is going digital. So we're introducing digital workflows. It's helping us with what we call it application mix accretion, where the software they're consuming is more specialized and more valuable to them and to us by a few percent annualized. And then our focus on SMB, where we have competitive opportunities. Our principal competitor, Autodesk, comes to market through channel partners, but infrastructure engineers want to deal directly with engineers at the vendor. They want e-commerce and direct engagement. We think we can engineer that better and faster, and that has resulted in several percentage points as well of greater opportunity. I say, as a public company, we had a bit of a higher profile. We owe it to ourselves and to our investors to do better at marketing relatively than what we have done in the past. And our -- and so far, that investment and social re-advertising, for instance, and in conversion through our direct sales force and e-commerce is, we think, sustainably paying off. So those couple of things are helping us aim higher and achieve higher in terms of growth. Our priority every year is to increment our operating margins, and we're just committed in our ownership to getting 1% more efficient every year. Subject to that, we will invest in these initiatives and maximize our growth rate as we can.

Okay. Now that's good color. And maybe going at a level further, especially on the SMB side, what are these customers buying in terms of modules? Because are these complete displacements? Or are they incremental spends that they just wasn't available in terms of product because they didn't know about it? Help me think about that.

I think they generally regarded the Bentley products as inaccessible and applicable only to larger firms and larger projects. So we are succeeding with MicroStation and ProjectWise, sort of our generic products for, respectively, infrastructure modeling of any sort and collaboration, especially ProjectWise 365, the instant-on native cloud version that now is also available in the Microsoft commercial marketplace. But as we're really proving out our notion of having the inside sales be themselves, engineers because the specialized applications, the leading one actually is PLAXIS, the geotechnical analysis application we've been talking about with the subsurface. And then there's also OpenFlows, our order modeling, and STAAD, our structural analysis. Together, those are a greater portion of the opportunity, the specialized applications than are the more generic offering. So we think we're on the right track in finding and reaching these specialized engineers with the specialized requirements. And SYNCHRO 4D construction modeling is another one where we're finding the right go-to-market to reach the construction firms who want to go from 3D to 4D when they're sequencing and planning their construction rather than dumbing down to 2D.

Okay. And since we had those technical difficulties, I think we're going to go on for a couple more minutes. So maybe I'll ask 1 question on digital twins, 1 on infrastructure, and then we'll wrap it up with maybe [ MA ] if there's time. So on digital twins, big opportunity for you. You guys have a maybe a slight mover -- first-mover advantage here. But Autodesk, they seem to be getting in the infrastructure with Innovyze, or at least more so than they were before. They're getting in the digital twin with Tandem. What are your thoughts on them entering the space? And this approach to digital twins?

Well, digital twins are a generational opportunity for everyone. I know we're going to talk about our infrastructure program in the U.S. But if we think of needing to extend the life of our existing infrastructure assets, improve their fitness for purpose, their adaptability, and so digital twins are the way to do that. We can engineer directly to the operating reality captured with drones. That's the OT, the operational technology, process that into an engineering-ready reality mesh and then incorporate the existing engineering models that have existed from the start, but you never could find them and use them to maintain their fitness for purpose, continue to confirm their structural and functional suitability as they age. And then to have the digital chronology for these digital components showing their change over time and improving the way we manage them and their asset management. That's an add-on cloud service that all of us can take advantage of. Where Autodesk has entered with their Tandem product, there is an ambitious road map. But to start with, it's limited to buildings, and limited to buildings designed with their Revit software and limited to visualization. But that is a beginning, and we appreciate Autodesk bringing to the attention of the market, the opportunity for digital twins. It's our opportunity to accomplish the ESDG backlog that's important for all of us, ultimately avert the types of catastrophes we're seeing and had in our own country in the past month. So it's a pretty important period, we think.

Okay. So it's an opportunity that's too big for you to just have alone maybe?

In fact, we think the right approach is a platform approach and an open ecosystem. And because there are so many more use cases than we can work on individually, we would like to be the arms merchant helping engineering firms to create and ensure they make digital twins for the assets they've designed. It's important to the owner-operators. But the owner-operators won't manage to do the information management and improving the data quality and so forth that becomes necessary for things like improving the energy grid, for instance, and the resilience there. It's opportunities really for everyone.

Okay. And as 1 minute left, but 1 last question because it's very topical because the news last night about the U.S. infrastructure bill passing in the Senate. Obviously, there's still more processes that needs to happen. But how should we think about the time line? And when that could inevitably hit your business? Because obviously, it was this past and customers have to bid and projects have to be assigned, et cetera.

Well, you described that right, but it is inevitable, and it will be durable because of the nature of infrastructure projects taking many years to come. The particular bill in the U.S., and let's remember, the rest of the world already has an infrastructure program country by country that's in somewhere in that process now. But in the U.S., the program turns out to have relatively less investment in roads and bridges than I think people expect there to be in infrastructure. But it is much more relatively, percentage-wise, increasing our spending in this country on rail and transit and water and grid and communications networks, all of -- in all of which we have the major presence and strong opportunity. It's really unprecedented, the funding that will come to these priorities that are aligned with our ESDG opportunities. And we'll report on how we see that work as it comes.

Okay. Great, and I think we're actually out of time. So apologies for the technical difficulties at the beginning, but a great presentation and looking forward to what we have in the next couple of quarters.

My apologies as well because there seemed to be a software problem on my end. Sorry. Cheers. Next time.

It's okay.

Thank you. Bye-bye.