Bentley’s corporate update: no IPO, no drama, record cashflow

Do you remember 2015? It feels so long ago. Bentley Systems gave us a glimpse into its business progress, calling it an Annual Report. Then came the possibility of an initial public offering (IPO), quiet periods, market watching to figure out timing (do you remember the volatility index?) … That all ended last week, when Bentley formally took the IPO off the table during its corporate update call. The call foreshadows Bentley’s Corporate Update document, which should be posted this week (I’ll update with a link when that happens), but here are my key takeaways from the call and a draft of the Update:

• Bentley CEO Greg Bentley has said all along that the reason for an IPO was to provide liquidity for the company’s shareholders who need liquidity, for retirement or college tuition or simply as a reward for decades of hard work. When Bentley and Siemens agreed to list Bentley stock on the Nasdaq Private Market, that liquidity was created, so there’s no need for further listing. I’m not quite sure how the private market thing works, but it seems that Mr. Bentley last week said that Siemens currently owns 9% of Bentley shares (non-voting) while employees own 30% or so; we can infer that the Bentley family, owns the rest.
• Why does this matter? It’s all about drama — or lack thereof. While others make noise about subscriptions, exchange rates affecting reported revenue and profitability, Bentley wants to set itself apart as consistent, well-funded and able to execute on opportunities. During the call,Mr. Bentley covered overall business highlights; CFO/COO David Hollister ran through selected bits of financial performance;  and Chief Product Officer Bhupinder Singh went over some product highlights. All emphasized that Bentley grows by steady execution, providing customers choices in their business dealings, and limiting the amount of change. That steadiness is most possible when the company isn’t looking short-term, to make quarterly numbers.
• So, what were the numbers? In 2015’s Annual Report, the last data made public, Bentley said it had revenue in 2014 of $625 million. The Corporate Update said that Bentley expects a revenue runrate of $700 million in 2018. We have no real way to compare the two, since the 2014 number was calculated with a very weak dollar, according to Mr. Hollister. Bentley has opted for the runrate view to remove that element of drama.
• Bentley also introduced an Annual Recurring Revenue (ARR) metric, which it didn’t quantify, that grew 11% as reported in 2017 and 5% in constant currencies. The 11% in 2017 helped boost the average annual growth rate to 7.5% for the years from 2013 to 2017. ARR is a pretty common metric these day, as more companies move to subscriptions where only a fraction of the total value of a client relationship is recognized every year. We can’t really compare Bentley’s ARR to anyone else’s yet; but let’s keep an eye on it.
• While we don’t know what ARR was in the absolute, we do know that ARR was 83% of revenue in 2017 and that, overall, 93% of revenue is recognized ratably. That means that Bentley’s sitting on a solid cash-generating machine, where the vast majority of revenue is locked in before a year even starts –assuming it keep delivering value to its subscribers– and that unicorn-like growth is really tough to generate.
• I asked Bentley about its choices in which data to provide and especially about opting for runrate versus revenue. Mr. Hollister told me that Bentley’s intention with this disclosure wasn’t to help Wall Street build financial model for Bentley. Instead, “we want our stakeholders to understand we are healthy, growing, prudently profitable and well capitalized for growth. We’ve never claimed to be high growth….we are steady growth, predictable, no drama.”
• The Update also mentioned that Bentley has a $500 million credit line, which Mr. Bentley said was both a reflection of record levels of operating cash flow and another reason Bentley doesn’t need to IPO — cash is plentiful for acquisitions and other types of expansion.
• Two other tidbits from the financial part of the call: Bentley is growing like crazy in key market, with revenue runrate growth of approximately 20% in China and Africa. Africa is admittedly off a small base, but China has been a key region for Bentley for years. Mr Bentley highlighted how many of the Year in Infrastructure nominations and winning projects came from China last year, and that China’s build-out of its infrastructure actually leads to innovations from which other regions benefit.
• Mr. Singh spoke about how, in broad terms, Bentleys’ main brands are doing. The company reports revenue runrate growth of 20% or more for ProjectWise, OpenRoads, ContextCapture, AECOsim Building Designer, OpenPlant, OpenUtilities, Navigator, and LumenRT — with ProjectWise often leading the way in new accounts and geos, as project stakeholders try to gain better control over all of their data and processes.
• We’ve had overall, by geo and by product. As far data by vertical, Mr. Hollister told me that “economic macros are receptive, oil & gas has remained in a trough from prior peaks, and our execution is solid”.

So. Not GAAP reporting, but then, Bentley doesn’t have to do that in a public setting; it is, after all, a private company. And that lets it do something public companies can’t: focus on offerings that might be less growth- and profit-oriented in the short-term but that deepen customer and partner relationship in the long-term. Mr. Hollister said that Bentley offers annual and quarterly term licenses, Cloud Services Subscriptions, enterprise and other licensing options, and is transitioning traditional services offerings to “Success Plan” subscriptions. While Bentley focuses on drama-free, it does offer choices others may not be able to.

Other takeaways: Bentley is doing some seriously cool stuff in combining technologies and changing business processes. For example, with Topcon, it’s combining BIM with reality capture technology with analytics with automated machine control via ProjectWise and iModels. The R&D relationship with Siemens also remains very strong. The companies are releasing (Bentley) OpenUtilities analysis products for the electrical grid with (Siemens) Power System Simulation (PSS), which will also, later this year, have a commercial option that charges per analysis. Coming is an asset performance management that uses Siemens MindSphere to boost uptime. And it sounds like the pipeline is filled with other products — see my write-up from YII 2017 in Singapore.

Finally, the motivation behind all of this. Yes, great products. Yes, partners who can bring Bentley to more, new customers. Yes, steady and solid business execution that leads to profitable growth. But it’s more than that: Mr. Bentley closed his formal remarks by saying that it’s his career objective to create commercial incentives that bring engineering models more to the fore, to capture the value they bring to asset operations and lifecycle outcomes. As a privately-held company, Bentley can experiment with models that make this possible, both technically and financially. I really hope Bentley can show the way on this, because the industry sorely needs to stop throwing away these digital assets and move beyond the hours/effort model of contracting.