Bentley Systems, a privately held company focused on creating solutions for the AEC market, took the unusual step yesterday of holding a conference call to discuss some aspects of their 2010 results. The highlights are revenue growth of 6%, a return to 2008 revenue when excluding exchange rates, a new ownership structure and some innovative new offerings. Read on …
Perhaps the biggest news from the call is that the Bentley family and employees now own 85% of the company’s shares. In February, Bentley entered into a $310 million credit facility buy back $200 million of company stock from outside investors (including those who bought the shares at one time owned by Intergraph). These loans are publicly traded and investors rely on ratings agencies that offer an opinion on whether that the debt will be repaid. These companies look at the overall health of Bentley’s business and the success it has in its end-markets; and apparently rely on two factoids to help make their ratings determination: Bentley says its “post-transactions net debt to EBITDA leverage ratio is less than 2.25, and post-transactions liquidity available is well above $100 million” and that it ended 2010 with no net debt. [Net debt is defined as total debt minus cash and cash equivalents. — Ed.]
CEO Greg Bentley said that Bentley needs to keep debt ratings agencies like Moody’s and Standard & Poor’s up to date and that these calls will therefore be an annual event. This disclosure is great — we saw something similar in the early 2000s, when private equity firms took out loans to fund the acquisition of SDRC and UGS – those earnings calls were similar to what Bentley held yesterday.
But back to 2010:
• Bentley’s 2010 GAAP revenues were $476 million, up 6% as reported and back to 2008 levels at constant currency — or around $500 million, which would imply a growth rate of about 10% at constant currency.
• Mr. Bentley said that the “subscription business model has been the backbone of Bentley’s resilience, brands like STAAD, ProSteel, AutoPIPE, and Bentley Map, and sectors like structural, bridge, and electrical engineering have outpaced the recession by growing substantially throughout. Particularly encouraging was our strong growth in emerging markets, and especially in Asia, where the unprecedented demand for new and intelligent infrastructure has never abated.”
• Subscription revenue accounted for 74% of total, or $352 million in 2010.
• Bentley reports reinvesting 20 percent of all software revenues in research and development, which I calculate to be $95 million.
• Sales to asset owner/operators account for 54% of revenue in 2010, up from 49.5% in 2005. In dollar terms, that means going from $166 million in 2005 to $257 million in 2010 — an 8% CAGR, outpacing total revenue growth of 6% over the period. In part this growth is due to Bentley’s focus on civil engineering and GIS apps, which allow Departments of Transportation to manage their infrastructure and so is less project-dependent. Bentley, too, has been growing its offerings targeted at asset owners, with the recent announcement of the AssetWise product family.
• On a geographic basis, 16% of global revenue, or $76 million, came from Asia. Revenue from the Americas was 46% of the total in 2010 ($219 million) and 38% ($181 million) from EMEA, led by 44% growth in Russia over the last three years. We don’t have a direct comparison, since all that was disclosed about 2009 was that 39% of revenue was from the US.
• Mr. Bentley reports that the company is a “net exporter to India, with 2010 annual revenue growth of 16%” and, in 2010, became a net exporter to China, where its revenues have grown by 117% in the last three years. This is a fascinating way of looking at the company’s business because it implies that Bentley Systems is not simply offshoring workers but building a presence in these new markets. I have not seen other software companies use this view — if you know of any, please use the comment link to let me know.
• Bentley uses license servers to manage subscription usage, and can leverage that information to gauge trends among its users. The company highlighted increased usage of existing licenses (up 30% among ENR Top 500 Design Firms and up 150% by Bentley customers among it Infrastructure 500 Top Owners since early 2009) as a way of predicting future demand. Of course, knowing that existing licenses are being used more is good, but investment analysts on the call wanted to know when that would turn into more license sales — and there’s not a clear answer to that, since hiring depends on optimism, which is still in short supplies in some parts of the AEC world. Another interpretation is that Bentley’s importance is growing in its customers’ work processes — a very good thing.
• Bentley made a number of announcements yesterday, including the acquisition of SACS, a finite element structural analysis code for offshore structures such as oil platforms and wind farms, from Engineering Dynamics, Inc. Terms of the deal were not disclosed. SACS becomes part of a broad analysis suite that includes STAAD, RAM and many other products; Bentley believes it is the market leader in structural analysis and design software for building, plant, bridge and civil. In the press release announcing the acquisition, Bentley Software SVP Bhupinder Singh said that SACS “algorithms may also apply to more general structural solutions.”
• Bentley also announced the launch of its iWare Apps site at www.bentley.com/iware, a one-stop portal for apps and plug-ins using Bentley’s i-model concept for interoperability. Eight apps are available today, and many more are in the works, to connect users of Revit, Bentley, and Microsoft Windows products. The site also includes links to free training and documentation resources.
• Perhaps the most interesting announcement on the call was a new Portfolio Balancing offering that enables customers to exchange “underutilized” Bentley software for software of equal value on an annual basis. Mr. Bentley gave an example: If an A&E firm is ding site work on one project and then does structural on the next, they could swap a site design package like SitePak for structural analysis tools such as RAM and STAAD (depending on the pricing for each product). This program brings some of the benefits of Bentley’s large enterprise offerings to a broader set of customers, and increases the ability of A&E to meet the demands of their shifting workloads.
• This ability to exchange one for another also necessitates an accounting change for Bentley. Bentley must now recognize its perpetual licenses ratably, over the three year estimated life of the license. What does this mean? Bentley published a chart in its annual report that takes this method back to 2006; under this new accounting scheme, recent ups and downs in revenue are smoothed out.
Greg Bentley set a 6% revenue growth target for 2011, citing the subscription model that insulates the company from revenue swings both either direction. This target would put revenue for 2011 at $540 million on an organic basis. Greg Bentley also indicated that the company would “add several points of growth through acquisitions”, including SACS.
I found the call fascinating. Journalists, industry analysts and Wall Street types chimed in during the Q&A session and Twitter was ablaze with #BentleyACU comments. The call reinforced my view that Bentley is sound company, continually working to understand and meet customer needs by tweaking its offering and building a portfolio of products targeted at the AEC community.