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

Good morning, everyone, and thank you for joining us for this call of Bentley Systems agreement to acquire Power Line Systems. I'm Carey Mann, Bentley's VP of Investor Relations. On the webcast today, we have Bentley Systems' Chief Executive Officer, Greg Bentley; and Chief Financial Officer, David Hollister. Before we begin, allow me to provide a disclaimer regarding forward-looking statements. This webcast, including the question-and-answer period of the webcast, contains forward-looking statements that involve risks and uncertainties, including statements regarding the planned acquisition of Power Line System and the timing thereof, the impact of the acquisition of Bentley's financial conditions and results of operations and the products and services and business relationship of each of Bentley and Power Line Systems. Any statements made in this presentation that are not statements of historical facts, including statements about our beliefs and expectations are forward-looking statements and should be evaluated as such. Greg and David will begin with an overview and then we'll take your questions. With that, I'll turn it over to Greg.

Carey, thank you, and thanks to each of you for your interest in our announcement today. Of course, in what we do, our economy and our environment are underlaid by infrastructure, engineering and, of course, by going digital through our offerings at Bentley Systems. But that's where we're positioned, if you like, at the convergence of our economy and our environment. And that's true as well of our announcement today, because this propels us to the forefront of what is the most robust and potentially rewarding infrastructure engineering challenge today and for the long term, and that is the -- improving the capacity and quality and resilience of our power transmission infrastructure by going digital for what I call grid integration. And it's in a sweet spot for us at Bentley Systems among our footprint, if you like, in particular, our mainstay in public works and utilities. You could call that horizontal infrastructure of networks, if you like, and we've had just 1 gap in that respect. So let me describe how Power Line Systems fills that gap. And just a reminder, our comprehensiveness is our competitive differentiating advantage, and I'm going to describe that the Power Line Systems acquisition will enable us to grow faster in 5 ways, but including in all these dimensions of comprehensiveness. So the Power Line Systems, they got started just as we did in 1984. Although Bentley Systems would extensively develop a portfolio platform across infrastructure, Power Line Systems specialized and, in particular, on the very interesting structural problem for power transmission structures and the connected cables, conductors that are themselves structural members, if you like. And that's a very interesting and challenging problem to which Dr. Alain Peyrot at the University of Wisconsin brought a finite element analysis approach, and that has sort of uniquely suited the particular specialized problem of power transmission, engineering structures and lines. And the company has very assiduously applied itself to better and better modeling and simulation over time to more completely and perfectly handle that problem in infrastructure engineering. So along the way, Erik Jacobsen, the CTO; and Otto Lynch, the CEO joined in 2018. Founding family members retired in TA's investment and the company since then has transitioned its business model to pure subscription and continued the development of the specialized products. And so the essence is still called PLS-CADD. 3D engineering has been necessary from the outset to solve this interesting problem and the challenges of the sag and tension and risks of the cables are a very interesting aspect of it. Power Line Systems has contributed to and complied with and help develop standards across the world for safety and performance. with power transmission structures. You start with terrain model in transmission design and structure model, I've mentioned, but of course, drawings are also needed. That's the other D at the end the product description and that's been long automated and a substantial advantage is the industrialization, if you like, with the manufacturers libraries needed for power transmission engineering. So it's a great example of the potential in more specialized software for a particular engineering -- infrastructure engineering disciplines. The breakdown of Power Line Systems business looks like Bentley Systems with, if you like, in their case, the engineering firms on the right and then various categories of towers -- construction on the left. But here, if we look at the geographic breakdown of Power Line Systems business, it doesn't look like Bentley Systems or that of the potential being, in this case, very much concentrated to start with in North America, but with sufficient proven installations elsewhere through the world, and investment in the standards and codes required everywhere suggest that there could be a significant incremental geographic opportunity, which I'll talk about. But let's go back to what we might mean by the grid integration opportunity. So Power Line Systems caters for the engineering of the transmission structures, which you see here in blue, there are towers and in some cases, poles carrying the higher voltages. At Bentley Systems, our business in the electric web is through our open utilities designer for, if you like, network provisioning and our OP utility substation product, both on the distribution side. So this is the lower voltage local networks that we're all familiar with in our neighborhood. And then we acquired this year despite an analysis product for distribution structure and wire combinations. And that has been our footprint. So clearly now to put together the transmission engineering with distribution, engineering is the beginning of an opportunity for grid integration for the electric network. But this business alone, the Power Line Systems business, on its own would grow substantially faster going forward because of the developments we're all familiar with, and I might say, I haven't gone out of the way here to quote lots of investment figures because I think each of your firms very likely is researching this very opportunity in the energy transition. But just a representative aspect of it, these are going -- among our going digital awards finalist, and Crisco announced the winners at the beginning of December. Each of the finalists have been presenting for independent juries and any of you with interest in that. But 13% of the final, I think that's representative of the proportion of work of infrastructure engineers in the world. That's on new renewable sources of generation. And then there are sources of centralized generation, of course, they're not useful until the power transmission grid finds its way to take advantage of the new generation capacity, the new green generation capacity for renewables. Then on the consumption side, we -- in electrifying everything, of course, power has to be distributed for electric charging of vehicles and so forth. So on all parts of the grid, the capacity needs to be increased and the aspect of where the network is and fortifying it is the significant priority. Another way to look at this just among the transmission lines, and looking at the U.S. as an example, here is an estimate that the 600,000 miles of transmission lines, we have now will lead for 0 carbon accomplishments to be 6x at scale of transmission lines over these next 30 years. So I want to talk now about four other dimensions of faster growth that grid integration will enable us by virtue of this acquisition. And let's start with the geographic dimension of our comprehensiveness. So those 600,000 miles of transmission lines now in the U.S. are among 4.7 million kilometers of transmission lines across the world. And here is 1 estimate of the transmission and distribution spending currently by region, and you see the U.S. where the bulk of Power Line Systems business is, is far from the bulk of such spending in the world, which especially is significant in opportunities in Asia and commitments and requirements for the spending for the energy transition in Europe and elsewhere. So these happen to be this year, the finalist for the year-end infrastructure going digital work in 2021 in the utilities and communications category, and the juries have picked 3 projects for their going digital virtuosity that happened to signify this international opportunity. One is in Malaysia. One is in London, which shows power distribution tunnels underground, which I'm going to come back to. By the way, they are 3 meters in diameter and 60 meters below the ground in that infrastructure project. And then in China, a very interesting photovoltaic solar power project, which uses a mountain hillside that didn't have any other purpose and involved practically every one of our products to engineer that with the correct orientation of the panels, for instance. But the substation aspect of this, for instance, was engineered, we have open utilities substations. So we do actually rather well in China with our grid products historically. So just look as a further opportunity there for the PLS products. So let's turn now in the direction of the infrastructure, the life cycle opportunity, the biggest opportunity of all for us at Bentley Systems in comprehensiveness. The opportunity for infrastructure engineers is for their modeling and simulation work to continue to be used not only through project delivery but especially in the asset performance life cycle of infrastructure assets. And then through cloud service, a Digital Twin Cloud Services, we can facilitate that without anyone needing to change the way they're working now to extend the value and evergreen digital trends become possible. So my example of this is our open tower product. Now open tower designer is for the structural design of communication towers. So now that this is not a transmission tower. There are not -- is not for conductor wires. And we created this product by request from the communication tower owners, and they helped us with this over the past several years. It's important because each time they add equipment to a communication tower, which they need continuously to do. They need to restimulate the engineering modeling, especially for the structural aspects. What is new is the lifetime opportunity for a Digital Twin Cloud Services, we call OpenTower iQ. You've heard me talk about it before, we announced in March, bringing together the reality modeling and the machine learning, and it works like this for an existing communication tower. UAV repeatedly surveys, remembers the program they used to survey it. They use the same flight path to repeatedly survey it. And our reality modeling processes that into a reality mesh, which is an as operated 3D model, and you can see you can get to any level, even millimeter accuracy depending on how many overlapping photographs are processed through our software, and then machine learning is used to recognize the equipment, and for instance, to look for corrosion. And if you like, you're starting in the case of such communication tower opportunity with an engineering model supplemented by the operational technology, if you like, the imagery and IoT sensors for an evergreen digital chronology, if you like, over the life cycle of that tower asset. And this life cycle opportunity that occurs to us is interesting and relevant to transmission towers as well as they age and deteriorate and corrode and, of course, are prone and vulnerable to dedication encroachment and so forth. So that's the life cycle opportunity. Let's talk about an opportunity across, if you like, the disciplines beyond transmission engineering. So here is a look at the U.S. electric grid by numbers, and you see the significance of transmission structures in miles, but distribution, the local or lower outage network are hugely more in number and extent, as you see here, including the substations. So in fact, recall the scale of transmission, the scale of distribution opportunity in terms of infrastructure reach and a great integration potential is the order of magnitude greater. And you may have seen we used this slide before. This describes our own history at Bentley Systems where we started with computer-aided design products and modeling and simulation and reality. All of these used together, so CAD and GIS and BIM continue to advance through this notion of 4D digital trends. This is a picture of the opportunity in distribution modeling actually because unlike transmission and distribution, there are a mirroring out of different approaches used by the utilities in the world and their contractors. Many still use MicroStation, still use 2D drawings, might use some 3D. In a lot of cases, it's GIS, but just a notional, not an engineering representation of the distribution structures and risks. And of course, there's opportunities in the 4D construction modeling and asset performance. But it is a land of opportunity where there is not yet a standard for the 4D Digital Twin approach. What I think can occur in the distribution network is that the reality modeling, the drone surveying is getting so much better from moving vehicles and UAVs to capture the distribution assets that those can become as operated 3D models to which can be applied the modeling and simulation needed to continue to make that distribution grid resilient and safe. The situation now is that often, the organization is maintaining the distribution grid when they roll a truck out to where there's a problem. They discover that what's the reality on site though, it doesn't correspond to what their systems have record, might be a GIS system fault -- or captured, they've got -- they don't have a way of capturing the actual condition that exists to improve their model. Instead, they have to go back, request a survey crew to come out and ultimately improve the system of record. So there's lots and lots of opportunity in distribution networks for 4D Digital Twins, and I believe that will be the biggest opportunity accelerated in this grid integration potential. But let's go across sectors, if you like, from electric to communications and there always has been joint use of distribution assets, the poles in front of your house to carry communication wire lines, dial tone along with power. But communication towers in the future don't only look like this. With the 5G opportunity, there need to be very localized antenna devices such as these and the existing distribution network is very much a candidate for more of this interesting joint use and the opportunity for grid integration here, it's also the case that the communication network will use structures that don't look like traditional towers that are on rooftops and so forth and our great integration approach will help us put that all together. So this is what the grid integration looks like more so going forward. Our open comms network provisioning environment will be part of our grid integration opportunity here, putting this all together and putting it together, if you like, is to address the hazards and resilience threats that have been all important and over the past year, for instance, and will be more important going forward. So if you like, if there could be visibility across an integrated grid and cloud services and private clouds for the secure infrastructure can help with this in ways that I'd like to describe here. So it happens is that we're the proprietors of, if you like, 4D vegetation Digital Twins. These plants grow when, for instance, in NVIDIA Omniverse is using them to create the 4D visualization of infrastructure seen. But of course, growing trees are threats for wildfires and performance of grid networks. To talk about grid digital trends, here are 3 examples. First here, we say a quality service where bringing into the open utilities digital plan, the existing network models can show where there are problems and inconsistency in the data when a Digital Twin is introduced. That's the first thing is it takes advantage of the engineering pain ways that wasn't before possible, but shows where there are problems and we can use now rules and machine learning to improve the data. I'm going to my next example, if I can. All right. Distributed Energy Resources, DER, described the proliferation of renewables behind the meter, if you like. And when we do that, to hook up to the grid, the energy utility needs to simulate the capacity, in this case, of the distribution network, and we work with the Siemens SINCAL analysis engine, which is the best one for electricity that flows in both directions so that the Digital Twin can be used to obtain approval and online in real time accelerate the renewable attention to the grid. And here is a substation in which the Digital Twin shows the replacement of an existing perhaps that's a transformer. And relating that to the operating manual, if you like, and the asset performance history and potential in that actual reality model of Digital Twin of the substation. So speaking of substation, Pacific Gas and Electric, PG&E, in California has been an adopter of our -- these approaches for reality modeling and now for construction 4D modeling of their substations and is a nominee this year as well. I bring PG&E to your attention because, of course, it's important to help them with grid performance. And in particular, PG&E announced this summer that they're going to place 10,000 miles of their transmission lines underground. And while then they won't be modeled in PLS, it's a good opportunity for us at Bentley Systems. Subsurface utilities design and analysis is important across many of our infrastructure disciplines and applications hence in that example of London earlier, and that continues to be a good opportunity for us. So altogether, I describe this acquisition, this pending acquisition as perhaps the ultimate ESDG, we say for the UN sustainable development goals investment on our part and will lead immediately to faster growth and better business along with better environmental outcomes and these sustainable development goals. And of course, that -- this coincides with the world consensus to focus, in particular, on this transmission grid bottleneck and going green and decarbonizing in the world. Goldman Sachs estimate of the expenditure that will be needed to accomplish the generally agreed goals include -- runs to $6 trillion per year. But in particular, that aspect of which has to do with this great integration I'm talking about and will help grow the proportion that represents of our business at Bentley Systems is the proportion shown here. And then the broadband infrastructure, comm investment in those networks is likewise significant. And here in the U.S., we have now in law and the immediate opportunity in the case of our own Infrastructure Investment and Jobs Act a substantial portion of the funding for energy grid and grid resilience, along with a portion for increased broadband, which will likewise start now for new opportunities for us. In transmission, in particular, as points out, not only is there funding but also a new authority to remove some of the regulatory bottlenecks to get this new work underway. So I'd like to ask David Hollister to talk about the financial aspects of the transaction announced today. Over to you, David.

Thanks, Greg. So I have just a few points to add about the transaction. Firstly, the PLS purchase price was approximately $700 million, and the deal structure enables us a tax-deductible step-up in basis, which we've net present value at $90 million worth of value to us. This valuation is consistent with recent relevant comparable transaction benchmarks, and it's in line with valuation to peers in our industry. We retain the option to close the transaction fully with cash, which we can accommodate with our capacity on our revolving credit facility or we can close the transaction with a mix of cash and up to 50% of the consideration in shares, again, at our option, which will be determined at closing. We're evaluating each of these options along with other financing alternatives, including a potential equity issuance. The deal is expected to close by the end of this year and, of course, is subject to the customary closing conditions and regulatory approves. Assuming we do close by the end of this year, we expect PLS to add approximately $30 million of subscription revenues to our fiscal year 2022 results, and that it will be slightly accretive to our normal business performance growth rates for ARR and thus revenues. Of particular note, I showed that PLS has adjusted EBITDA margins that are more than twice that of Bentley Systems. Net of the $90 million of tax value is deal, which is tax-deductible on EBITDA for PLS is slightly more favorable for us relative to their multiple on our recent Seequent acquisition, reflective of Seequent having a faster growth rate. Our PLS and grid team will take that as a challenge, and we'll get to work in harvesting the synergies that Greg has discussed, including upsell and cross-sell opportunities with our existing adjacent activities and by adding the multiplier effect of introducing a globally distributed sales force and a corresponding and business meeting. The results of all of that, of course, will be additive to the Bentley share. So Carey, I think we could take some questions.

All right. Let's start with Matt Broome from Mizuho.

Congratulations on the announcement. So I guess my first question, in the press release, that was mentioned, there's no sort of full-time go-to-market staffing at PLS. And presumably, you intend to sort of ramp up that side of the business quite significantly. So on that, is this a technology that will take sort of time to evangelize? Or is there an opportunity to sort of quickly scale up those go-to-market efforts and sort of rapidly accelerate adoption?

Well, the most significant acceleration that's upon us is the increase in the business of transmission engineers in the world. They -- we can't create new transmission engineers very quickly. They're all -- all this work is done by professional engineers and they need qualifications and so forth. So making them more productive, the ones that are already using PLS-CADD is the opportunity. And that is largely an opportunity, especially outside the U.S. now. Power Line Systems has had some agents in the world who are not, I think, full time quite themselves. There are also transmission engineering organizations. In general, we have relationships with these engineering organizations and utilities elsewhere in the world, and that will help. I want to go back to not full-time resources and go to market. It isn't that Power Line Systems isn't excellent about going to market in the community of transmission engineers. If you look at the whole organization, it's a tremendous lean organization. What an accomplishment that has served so many, so well with so few people. And the whole of the organization chart, I think, I can see only two people who are not in themselves engineers, neither software engineers nor transmission engineers. So they -- and they're all involved in going to market and serve, because they're fellow engineers, if you like. And I don't know, I think there's still some skepticism that overhead [ fluff ] people like me and people in our company can help them a lot. But we believe we can, especially in the enterprise opportunities to go broader in the life cycle and with digital trends and distribution and communications. But it is a tremendously addition to organization, really an example to us of what can be -- you don't have to give up specialization in order to have a broad portfolio on a platform. And we'll, I think, be able to have the advantages of both. We're organizing Power Line Systems into our acceleration group, which is where we had the skunkworks that started to create the open tower activity so that they'll continue to be entrepreneurial in terms of this product integration potential I described. But at the same time, we'll be able to have a relationship sales force. [indiscernible] suggested that.

Does the financial guidance that you provided for PLS for next year, does that assume any benefit from the infrastructure bill?

No, not really. Okay. We're being a little approximate about it, because they've gone through a transition to subscription over the last 3 years, and there's [ 6/6 ] there's complicated accounting for it and so forth when it comes down to revenues. But usage is growing well, that usage should inflect upward. But we don't -- we don't quite purport to understand that connection quite well enough yet. We'll all be paying attention to how is, on the one hand, how the expenditures start to flow. Transition projects need to be approved. They take a long time to be approved. But the point that the legislation is not only to help with financing them, but to get them going sooner in the U.S. I'd say the opportunities elsewhere in the world, we'll start on that right upon closing.

Okay. That makes sense. And then maybe just one last one from me. Just could you maybe talk about how much subscription revenue PLS is expected to make this year?

Well, we don't -- the closing will occur towards the end of the year. I think there is the HSR waiting period ahead now.

I see. But I suppose from your comments, it sounds like that's sort of growing at a rate maybe slightly higher than Bentley's sort of company-wide rate. Is that correct?

Yes. Strip out the burst in our ARR and revenue growth that we got from subsequent acquisitions on that and get to the underlying business performance, if you will. It's -- we expect it to be slightly stronger than that.

We'll next go to Gal Munda from Berenberg.

Greg and David, just the first 1 on the market opportunity itself. I'm trying to understand. It's a huge market, obviously, talking about the spend of $100-plus billion on our infrastructure today, just in the U.S. itself. And it looks like the PLS really is one of the market leaders in this space. Over 37 years, they managed to get to 30 million of ARR. What is the reason for that low digitization of the industry? And what are some of the things that will change in the future? What are they replacing? What you can have in order to increase the digitization of that process in order to kind of lift the spend per the amount of spend on software for the amount of total infrastructure spend than it is, if that makes sense.

Yes. The overall T&D market, we say the electric power market on the grid consists of the transmission and the distribution and the pictures are different in each. In transmission, this specialized work is done only by transmission professional engineers. And I would say the -- in the U.S., it's rather high. The rate of taking advantage of 3D, not yet 4D modeling in the world at large, less so. But the distribution, even larger spend, is completely different. That is an assortment of approaches, including manual and 2D and so forth. It is not done by professional engineers typically. It's engineer, if you like, but they're -- there's not a consistent approach to that. That is perhaps even the larger market opportunity in this grid integration, I'm describing, because the sophistication that PLS products bring to the interaction of the structure, even the distribution structure and the wires and cables and conduits and so forth, the 5G structure that's going to be on there and so forth, that all is very applicable and very valuable. It just doesn't correspond to the way the workflow is done now. But with such reliance on that last mile of distribution when everyone had electricity going in both directions on the more intensive loading for electrification of everything, including our vehicle charging is going to require a greater level of performance of that distribution network. And I think applying the sophistication that already PLS brings the transmission in distribution is the largest opportunity of all, but that's not next year. That's a gradual opportunity over the forseeable future.

So I guess the other way to word this is the opportunity is there on the transmission, and there's a lot of CapEx that we spend also because of incremental we said, of probably around 73 billion per day refractories in U.S. But the owner-operator side, which is also really important today does not include that software spend. And that's where really you can go to market together with your tools that you already have.

Well, all -- I'm just reacting to the term owner operator. Both transmission and distribution are owned by owner operators.

I mean, the spend comes more from the owner operator than engineering companies, that's what I'm saying.

On distribution, that's certainly a space. But there is a tendency to outsource the engineering of distribution as well as transmission. So I just want to go back to transmission, the opportunity is to increase in activity and going global. In distribution, the opportunity is introducing the sophistication of 3D and 4D modeling, which I think can be accelerated by the reality modeling of the existing distribution network so that there are as operated engineering-ready 3D models that will kick start necessarily that opportunity in distribution.

Perfect. And then just asking on that opportunity on the existing, let's say, the existing level of investment kind of carries on, but we did have the infrastructure bill signed this week. So if we think about the incrementals, it is what you mentioned there. So do you believe the opportunity is equal between the high-speed broadband and the power network? So you're talking about incremental 130-or-so billion of spend?

Yes. That sounds right in terms of dollars. I think, Gal, what we all have to say here in the U.S. is we haven't had legislation like that. We haven't had funding like that. We haven't had federal programs like that, especially for grid infrastructure in either case. And we don't have experience to relate to in how the project starts, because often approvals are the slow part of it and the intention here, it's really pretty urgent because all of the investment going into renewals isn't going to help if the renewable central generation sources aren't connected to the grid. So it's pretty urgent and pretty essential. And we sort of can't believe it would be held up that you have renewable generation capacity, and we can't get it to the grid, that investment is necessary and will occur. But it's not as if we can look to a pattern or attempted in the past to the case of that. But it is -- the reason I'm particularly confident about it is the renewable investment is occurring and is occurring not only from government but private sources, and it will get hooked up to the grid. It requires a special amount of grid capacity. Storage is another very essential aspect of the integrated grid opportunity and this modeling of those resources as well. But generally, when it's renewables and it's intermittent, you need yet more capacity, if you see what I mean. So it's all pointing in the right direction, but I don't act as if we're knowledgeable enough to meet around the pace of the increased work.

[Operator Instructions] We'll next go to Jason Celino with KeyBanc.

Are you on mute, Jason?

Why don't we go to Joe Vruwink from Baird and we'll come back to Jason.

First, I just have to say only good things come from Madison, Wisconsin. So you must be starting from a good spot. I just wanted to go back to the last kind of where you just finished off because these transmission projects typically are known for long time frames, 24-month commissioning time frames. Is it your sense that just given the impetus from the infrastructure build that we're going to see a shortening of typical project time lines?

Well, I think that's the purpose of the new authority. Now I have the same American Yankee skepticism you do of new bureaucracy, but it is meant to cut the red tape and get that grid fortification and intensification right underway.

Okay. Okay. And then Bentley Systems this year has done a lot of work and advocacy across all the different sectors, just talking about readiness to embrace digital twins and this maybe seems like 1 subsector that could be on the earlier ads, just thinking about the assessment work that typically gets done, so there is this repository of information, LiDAR detail and then a lot to decide and to build a really high fidelity model. Where would you kind of put utilities? And maybe the answer is different for transmission versus distribution. But this specific customer group in terms of readiness to embrace Digital Twins out of your broader public works exposure?

Great question, Joe. So I have brought this communication tower example to everyone's attention, because you heard me say in the third quarter operating results. In the third quarter, we gained multiple millions of dollars of ARR in communications tower of Digital Twins. And that's per tower per year is the ARR model for that. But those are specialized tower codes. That's all they do is own and populate and increase revenues from these communication towers. So I think we can expect them to be on the forefront. But what they have done is enabled us to prove, I'm showing a UAV circling a tower, the viability of the Digital Twin concept, where you do regular drone flights and no one has to climb the tower. You don't have to send a truck out there. You do the machine learning, the 4G tracking of the corrosion and so forth, the inventory. It could be applied easily to transmission towers. Now the transmission towers don't have lots of equipment that you need to keep changing, I guess, but they are subject to vegetation encroachment and their fatiguing and aging and so forth. So it's some conjecture on our part, but certainly, you consider the stresses these power utilities are under with weather extremes and climate, given modeling of the cable. They chafe and greater capacity makes them heat up and blow around and the insulators -- that hopefully is you'll find that to be a receptive opportunity. Certainly, in our iTwin Ventures fund, we see lots of start-up companies working on that problem and we want in our ecosystem to embrace them, help them bring specialized approaches to what our iTwin platform can underline provide.

We'll go to Kash Rangan, Goldman.

Thank you for the perspective on the industry. Curious to get your take on how much of the existing infrastructure has been designed using software, so as to calculate the penetration rate. And also, what do you see as impetus for change in the design of these systems going forward, whereby it would necessarily the use of PLS software. The layman impression would be that we said big poles standing out there. They've been around for decades and nothing really has happened, but help us disabuse that notion as to what is the change going.

So Kash, let me start with transmission. And of course, those are the high-voltage structures. There I would say most in the U.S., most transmission engineers in the U.S. have access to PLS products. I don't know that that's true of the population of transmission structures because some of them are very old. But the reason that take-up will quickly increase is the global opportunity, especially, and that's not a matter of displacing competitive products. The reason it's important is it has to be a transmission line engineer to do this work, and they're all going to be very much busier. And those who have somehow been able not to have this very most productive tool will now need to have it, in order to get their work done when their work is more and when we reach them throughout the world for the purpose. Now in distribution, and maybe that's what you mean by the pole that's been there for a long time. Of course, it's been deteriorating for a long time. And when your power goes out, it's for that reason, very likely of a local distribution failure. That is a new opportunity for the sophistication of this modeling and simulation. And that should be modeled as a take up over a long ramp.

Let's go to Brad Sills, Bank of America.

Well, congratulations on the deal here. It looks exciting. I wanted to ask about their installed base versus your installed base. You're coming at this with a position of strength in distribution and substation, and PLS brings in the transmission side. Can you help us understand kind of where the opportunity is potentially in your installed base for perhaps upsell into the PLS to your installed base and then vice versa? Where's the low-hanging fruit where you see -- where there's no overlap in customers that there could be some cross-sell opportunity?

Well, most of the utilities have some transmission assets. They own the substation assets and all the distribution assets. I haven't talked enough about substations. Substation is an aspect of the grid that went to 3D earlier along with transmission. Perhaps, if transmission did so earliest on the distribution side has started in substations and we have a good business in that. What I'm told is that in substation modeling, you care about the transmission aspect because, of course, you're physically connected to transmission structures. So there is the framing and the wire you're structural to worry about. But your resilience is to need to know what might happen if there's a transmission problem coming into your substation, so you could switch something over and avoid some outages that would otherwise occur. So that's the notion of an overall integrated grid Digital Twin and understanding the interconnections to help with better service and resilience. And then the other opportunity in our distribution installed base is the more sophisticated tools from Power Line Systems that can be applied to distribution structures and distribution wires as well. There's an education and a learning curve for that. But where there exists 3D models, that becomes valuable. I think we can help there 3D model as a distribution to the reality modeling opportunity.

It makes a lot of sense. And then maybe one for you, David. You mentioned the $30 million contribution this year. Can you give us a sense for the annualized revenue base? And you mentioned the growth rate, I think we can kind of get there and EBITDA. But anything you can provide on just what that revenue base looks like today?

Yes. So it's growing. So $30 million reflects an extension of the existing growth. So today, it's going to be under $30 million. 2022, we're expecting it to deliver $30 million as subscription revenue. It's all subscription revenue. And again, the synergies we've talked about, we need tailwinds from infrastructure act could be additive to that, but we're expecting $30 million in that.

Okay. So all subscription revenue. pretty much?

Yes.

We'll go to Jason again.

Jason may have been subject to a grid outage, which we're working on, Jason.

All right, Jason. I don't have control over that. So we'll go next to Matt Swanson.

All right. Can you guys hear me?

Yes.

All right. Perfect. So just 1 question for me on the kind of 2 parts. So ESG is obviously a multiyear theme, right, going out to what we're talking about goals to 2050. And everything you've said really makes it feel like this is the precursor to broader renewable energy adoption. And then we've also talked about a shortage of civil engineers overall but even more so on the specialized basis. So I guess when we're thinking about this precursor maybe being out of the choke point right now to renewable energy adoption, and then these engineers at the choke point to improving transmissions. Could you just talk about the play of digitization and getting more and more specialized in these applications to kind of unclogging this log jam?

Well, on transmission, those who haven't gone to the PLS tools will do so. It's well worth it for them, given the value of the work that they charge for the work and so forth. It's just a good example of when I say application mix accretion going to more specialized products. For instance, we have open wind power and so forth can increase order of magnitude what we can charge for those products because of the productivity gains. So I think that's in transmission. In distribution, again, even a larger opportunity, and the distribution network is what has to carry the electrification of everything we're talking about and carry it in 2 directions. That really is a log jam that's not going to be solved with more people working the way they are now, really it's more a fundamental enterprise opportunity for Digital Twins. But -- and that does require changes in workflows. Some utilities have unionized draftsmen and recent memory and so forth, but it's really right to work on it at this time. So again, the 2 different pictures with substation in the middle, literally in the middle.

Let's go to Jay from Griffin.

The business question is according to the Power Line website, they sell their software to about 1,600 organizations. It's not clear if those are all current active customers, but 1 that are influenced seems to be a quite low average revenue per customer, perhaps in the low tens of thousands of dollars. If that's right, how do you foresee perhaps either significantly scaling the average per customer or the number of customers? And then secondly, Greg, a more technology question. How current or modern would you say your software is? I mean it's been around for a long time, as you've noted. But in terms of their development or redevelopment of the software, how, let's say, modern would you say it is?

So first, I never put a lot of thought in accounts plus customers, especially in smaller companies when that's counted. And it's not that anybody is doing anything wrong. It's just that do you count the same engineering firm as 10 different customers if 10 different offices get invoices and pay them. So at Bentley Systems, where we roll everything up to an enterprise discounts and so forth, we and our accounts are incentive to have everything be counted under the top level of hierarchy in the organization. So I think if we were looking at things the same way, there would be a different account for that is my strong surmise. So the software keeps getting reinvented over this period of time. And I think you have to talk to transmission engineers to understand how much they love it, how much it is their mainstay. And for instance, the LiDAR capabilities there now or not there years ago and so forth, so I think they're pretty good about evolution, not revolution. But I think we will, upon the acquisition closing, be able to add some aspects, especially for project delivery, project-wise and asset wise. We'll have things to contribute and ultimately, the Digital Twin opportunity will add new aspects of secure access to the software and so forth. But it is a really strong and capable development team, and we look forward to being shoulder to shoulder with them.

A quick technical follow up if I may. The structures would seem to be not only a design problem, but inherently, it's like simulation problem, particularly in terms of, let's say, electromagnetics and the like. What can you do to solve the inherent simulation requirements for transmission?

Well, that have probably gone to a technical question that needs to be answered by an engineer other than me. I think the main simulation problem is that of conductor wires and the interaction with the structures. It's mainly a structural simulation problem. There is a particular requirement and focus that kept the rest of us out of attempting it, frankly, in the structural role because of the structural barrier to entry and being run. We had very good generalized structural modeling software. But when you have the cables tugging from one to the other, I think that gets to something that requires specialization. So I don't know of other aspects. I know electromagnetic is something we do with geotechnical and sequence, but it's beyond my ability to answer. We are probably out of time. Are we, Carey?

Yes. We're a couple of minutes over where we'd like to go and a good discussion. Glad to hear and look forward to following up with you guys.

Thanks. It's a genuinely exhilarating acquisition for us to go with what is everyone else's priority in the world at the moment. And rarely this the whole world pull in one direction here now. It's great to be investing on our part and helping with Power Line System, the infrastructure engineers who want to make such a contribution here as well to energy transition. Thank you.

Thank you.

Goodbye.