Bentley Systems (BSY) Q2 2026 Earnings Call Transcript

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DATE

Thursday, Aug. 6, 2026 at 8:15 a.m. ET

CALL PARTICIPANTS

• Executive Chair - Gregory Bentley
• Chief Executive Officer - Nicholas Cumins
• Chief Financial Officer - Werner Andre
• Investor Relations Officer - Eric Boyer

Full Conference Call Transcript

Eric Boyer: Good morning, and thank you for joining Bentley Systems' Q2 2026 results. I'm Eric Boyer, Bentley's Investor Relations Officer. On the webcast today, we have Bentley Systems Executive Chair, Greg Bentley; Chief Executive Officer, Nicholas Cumins; and Chief Financial Officer, Werner Andre. This webcast includes forward-looking statements made as of August 6, 2026 regarding the future results of operations and financial position, business strategy and plans and objectives for future operations of Bentley Systems Inc. All such statements made in or contained during this webcast other than statements of historical fact are forward-looking statements. This webcast will be available on Bentley Systems Investor Relations website at investors.bentley.com on August 6, 2026. After our presentation, we'll conclude with Q&A.

And with that, let me introduce the Executive Chair of Bentley Systems, Greg Bentley.

Gregory Bentley: Welcome, and thanks, as always, to each of you for your interest and attention. Bentley Systems' positively exemplary operating results for '26 Q2 and the year as we see it, accord with our expectations to sustain foreseeably our dependable double-digit growth record. Early in 2025, I quantify that our outlook range for last year would serve to at least double over the 5 years following our 2020 IPO. The key financial metrics of ARR, revenues, profitability and SBC burdened free cash flow, and it can be confirmed that we met those thresholds.

And now updating this and looking forward, a significant factor in my confidence is the boundless regeneration of demand within our infrastructure engineering end markets. with high economic returns globally and across sectors on investments in resilience, capacity and self-sufficiency. Within these priorities, relative proportions fluctuate presently most benefiting our offerings for integrated grid and for subsurface resources. But infrastructure engineering consumption has tended overall to remain predictably consistent, perhaps due to the constancy of engineering resource constraints.

To finally alleviate this engineering capacity bottleneck and thus further realize infrastructure investment potential, through AI enablement, is everyone's appropriate priority as the resulting benefits from improved infrastructure engineering, throughput and quality will be broadly shared across project delivery firms and infrastructure owner operators and all of us as their constituents. Bentley Systems will especially benefit as our successive and multifaceted hybrid AI innovations continue for years to come on stream. I expect the established attended consumption of our software to continue growing as every day for every engineer will become increasingly valuable at the helm of ever more specialized AI leveraging applications.

But this business model will, in due course, be supplemented and potentially multiplied by monetizing agentic API consumption of our modeling and simulation software primarily to optimize designs at machine speed, accelerating the proprietary AI strategies of infrastructure engineering firm. And our emerging asset analytics offerings monetized through asset consumption subscriptions per asset are breaking through to finally leverage digital twins and operations and maintenance for infrastructure owner operators. Adding to my confidence in looking forward, these incremental AI-led consumption opportunities are uniquely accessible to Bentley Systems by virtue of our established positioning as the major comprehensive infrastructure engineering software provider across both the leading infrastructure project delivery and owner-operator enterprises.

We have earned our standing as a trusted digital quartermaster for each of these major infrastructure engineering organizations over decades of proactively embracing and incorporating potentially disruptive technologies and business models so that no one ever needs to start over in order to stay ahead of the innovation curve. In my now long experience, the winning strategy for every technology opportunity is hybrid, integrating, in this case, AI advances within accretive overall continuity. Facilitating progressive enterprise AI adoption is the invigorating current priority for our 1,000 success force engineers embedded in E365 accounts. Last quarter, I talked about AI's auspicious economic leverage for engineering firms whose work pre-AI has been constrained by the limiting supply of infrastructure engineers.

Underscoring our incumbency advantage in helping these firms to leverage their engineers with AI agentic assistance to perform more work and particularly to optimize designs, 470 of the 610 engineering news record global top design firms ex-China, are BSY accounts, averaging ARR of nearly $1 million each. I will now similarly quantify our comparable point of departure for the leading infrastructure owner operators. For decades, the authoritative global ranking of the largest owner-operator organizations measured by their fixed tangible asset value net of depreciation, has been the annual Bentley Infrastructure 500 top owners rankings. The upcoming 2026 BI 500 will be published on bentley.com.

The most recent 2025 BI 500, it no longer includes Russia, own and manage about $21 trillion of net infrastructure assets. Not quite half of those top owners assets are in the public works/utilities infrastructure sector, followed by industrial and then resources sectors, which together comprise most of the balance. In net asset proportions, the top owners are located about half in the Americas, followed by EMEA and Asia Pacific. In particular, the 43 top owners in China account for just under 10% of these assets and because it's with Chinese state owners that we encounter unique geopolitical obstacles currently, to quantify BSY penetration, the following charts are ex-China.

Over 3/4 of the ex-China top owners, managing well over 80% of such infrastructure assets or BSY accounts. Excluding top owners in the commercial/facilities sector, where we are less focused, 90% of ex-China top owners infrastructure assets are managed by BSY accounts. 153 ex-China top owners, holding the majority of these accounts net infrastructure assets have already adopted Bentley Infrastructure Cloud with most using project-wise. They are thus accumulating engineering data for delivered projects, which will make AI-enabled digital twins more valuable.

And quantifying the BSY spending by these top owners I use current year run rate, which beyond ARR includes our relatively minor amounts of license sales, professional services and other subscriptions, to fully capture the offerings which are exclusive to owner-operators of cohesive and for Asset Analytics. These 346 top owner accounts spent annually over $330 million in run rate with us, averaging about $1 million per year for those not in the commercial/facilities sector, and collectively representing about 20% of our overall business. Accordingly, annual BSY expenditures currently averaged $21 per $1 million of the $15.5 trillion of net infrastructure assets owned by these 346 ex-China top owners are our BSY accounts.

And introducing and fully developing infrastructure AI, it is a tremendous and literally unique advantage for Bentley Systems to be in the pole position with virtually all of the infrastructure engineering organizations with the most to gain in both project delivery and operations and maintenance. For every top design firm and top owner account, infrastructure engineering and enhanced Bentley systems are mission-critical factors of their production. It is certain that in each case, their current expenditure levels on software in proportion to their respective engineering labor and asset values will be multiplied by orders of magnitude as AI is inexorably and advantageously integrated to improve infrastructure, capacity, quality and economics.

In sum, I believe this enterprise account springboard will continue foreseeably to improve Bentley Systems on economics and growth prospects. So at this point in time, when investable sectors seem ever more subject to comparisons from first principles, let's update our own point of departure. Free cash flow as a valuation benchmark has the advantage of meaningful commonality across investment sectors. However, it's uniquely salient for software, in particular, given the opacity of 606 subscription accounting other than for BSY, with our consumption dominated revenues being recognized primarily ratably to the virtual exclusion of multiyear noise.

Here is shown in the past 5 years of BSY's free cash flows aggregated within trailing 4 quarters ending in each Q2 and for comparison to the latest for '26 Q2. Over this period, these annual cash flows compounded at an average rate of 14.7% annually to reach $498 million over the last 12 months. For mature software companies, another rightful valuation consideration is stock-based compensation, given its prevalence and typical magnitude, I don't consider that cash flow should be counted as free to the extent that it needs to be expanded for stock repurchases to offset resulting dilution. Shown here as accordingly offsetting free cash flow is BSY's operating, that is not acquisition-related, stock-based compensation for these periods.

The remainder is BSY's truly free cash flow as burdened by operating SBC. So burdened free cash flow reached $426 million over the last 12 months, having expanded over this period at a CAGR of 16.7%. Our consistent low double-digit annual growth rate in ARR compounded by our established annual improvement of about 100 basis points in AOI less operating SBC margin served indeed to double over the last 4 years, this valuation metric, which to me seems most economically appropriate to us shareholders.

And consistent with Bentley Systems conscientious stewardship of stock-based compensation, over most of our public history, we have tended to allocate free cash flow to stock repurchasing an approximate keeping with annual requirements to offset SBC dilution. Here are the quarterly expenditure amounts for all repurchases, including de facto repurchases associated with net distributions through this period up until '25 Q3. Even though BSY has had a discretionary share repurchasing authorization throughout, there hasn't been a very significant opportunistic that is inverse correlation between our share price and overall repurchase expenditures.

What changed since late last year is, by then, we had resolutely worked down the debt leverage we incurred to finance the platform acquisitions of Seequent and Power Line Systems in 2021 and 2022 to a tolerably optimum range of about 2x. This has enabled us, since then to allocate more capital to discretionary stock repurchases without changing either on ongoing cash flow funding for programmatic acquisitions nor on balance sheet preparedness for potential larger scaled platform acquisitions. What eventuated during '26 Q2 was a stock price, which at our marginal financing cost enabled repurchasing to be accretive just on financial fundamentals to a significant and reasonable basis for valuation.

We variously repurchased 3.1 million shares during '26 Q2 and subject to remaining within an optimal leverage range, I expect us to continue to responsibly act upon any such opportunities going forward. Indeed, the net result of this SBC and corresponding repurchasing discipline over this period has been to avoid share dilution. Shaded here at top is the portion of our fully diluted shares attributable to our convertible debt. In fact, the redemption of our 2026 maturing convertible debt during '26 Q1 and reduced our fully diluted share count by about 3% as will presumably recur in '27 Q3 with the maturity of our remaining convertible debt. So reflecting a compounded average growth rate of negative 1% through this period.

At the end of '26 Q2, our fully diluted share count was down to 319 million shares. And we thank you for being among or interested in coming or informing those of us who are the holders of those shares. And now over to Nicholas, and then Werner to cover this quarter's development. Thank you.

Nicholas Cumins: Thank you, Greg. We had another strong quarter, executing consistently against a backdrop that keeps working in our favor. The world needs more infrastructure and resources, and it needs them faster than they can be delivered. Everywhere we look across accounts, large and small, the constraint is the same. There are not enough engineers which is why engineering productivity, making every engineer both more efficient and more effective is at the core of our AI strategy. Let me pick up the AI threat from last quarter. At the end of 2025, we launched our infrastructure AI initiative.

And last quarter, I reported that leading engineering firms and owner operators were asking us to instrument our applications to power their own AI-driven workflows. I also shared that we had released our first MCP server for STAAD. This quarter, I want to show you how far we have come and why we are confident in the approach. Our conviction is that when it comes to mission-critical infrastructure engineering our applications and today's AI models are far more powerful together than apart because each does something, the other cannot. Our applications are deterministic.

They perform the engineering itself, the modeling, the analysis and the simulation, and that work is trusted because it has been proven over decades embedded in workflows across infrastructure value chains. AI models are different in nature. They are probabilistic. What they contribute is natural language processing, high-level reasoning, and the ability to break a problem down and generate instructions that our applications then execute with engineering precision. The MCP server is the interface between the 2, turning the AI's instruction into real validated work inside the application. One point I want to stress, we are deliberately open. This is not a walled garden.

Our accounts can pay our applications with which every assistant and whichever model they have to standardize on, whether Bentley Copilot, Anthropic Claude, Google Gemini or OpenAI ChatGPT. Our aim is to be the trusted engineering layer beneath all of them, whichever AI model happens to lead at a given time. Now to the progress. Last quarter, we had released a first MCP server for STAAD. Since then, we have released 5 more across Bentley open applications with more to come. The response from our accounts has been very positive, once they g