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Bentley (NASDAQ:BSY) Misses Q4 Revenue Estimates


Full Report / February 27, 2024

Infrastructure design software provider Bentley Systems (NASDAQ:BSY) fell short of analysts' expectations in Q4 FY2023, with revenue up 8.3% year on year to $310.6 million. The company's full-year revenue guidance of $1.36 billion at the midpoint also came in slightly below analysts' estimates. It made a non-GAAP profit of $0.20 per share, improving from its profit of $0.18 per share in the same quarter last year.

Bentley (BSY) Q4 FY2023 Highlights:

  • Revenue: $310.6 million vs analyst estimates of $313.6 million (0.9% miss)
  • EPS (non-GAAP): $0.20 vs analyst estimates of $0.18 (9.9% beat)
  • Management's revenue guidance for the upcoming financial year 2024 is $1.36 billion at the midpoint, missing analyst estimates by 0.5% and implying 10.9% growth (vs 11.8% in FY2023)
  • Free Cash Flow of $80.96 million, up 24.2% from the previous quarter
  • Net Revenue Retention Rate: 109%, in line with the previous quarter
  • Gross Margin (GAAP): 78.2%, down from 80.6% in the same quarter last year
  • Market Capitalization: $16.47 billion

Founded by brothers Keith and Barry Bentley, Bentley Systems (NASDAQ:BSY) offers a software-as-a-service platform that addresses the lifecycle of infrastructure projects such as road networks, tunnel systems, and wastewater facilities.

The company's key product suite consists of software applications such as MicroStation, OpenRoads, and ProjectWise. MicroStation is CAD (computer-aided design) software that enables the creation and editing of 2D and 3D designs. OpenRoads allows engineers to design and model roadway networks (roads, streets, highways, and their interaction with other infrastructure). ProjectWise provides a collaborative platform for team members to work together on on projects so communication is seamless.

Bentley’s software helps manage infrastructure projects more efficiently, reduce costs, and improve overall outcomes. The software does this by addressing the specific needs of infrastructure design professionals, which the company is intimately familiar with because it only serves this market. It is a one-stop shop to manage all aspects of a project–from planning and design to construction and maintenance–in a single platform. Additionally, the platform also enables collaboration and project maintenance, which means that less is lost in translation across different teams involved in a project and deliverables/budgets can be managed and tracked.

Bentley Systems generates revenue through the sale of its software licenses and subscriptions. The company also offers training and consulting services to its customers to ensure long-term user satisfaction and success.

Vertical Software

Software is eating the world, and while a large number of solutions such as project management or video conferencing software can be useful to a wide array of industries, some have very specific needs. As a result, vertical software, which addresses industry-specific workflows, is growing and fueled by the pressures to improve productivity, whether it be for a life sciences, education, or banking company.

Competitors in engineering and design software include Aspen Technology (NASDAQ:AZPN), Cadence Design Systems (NASDAQ:CDNS), and Altair Engineering (NASDAQ:ALTR).

Sales Growth

As you can see below, Bentley's revenue growth has been unremarkable over the last two years, growing from $267.7 million in Q4 FY2021 to $310.6 million this quarter.

Bentley Total Revenue

Bentley's quarterly revenue was only up 8.3% year on year, which might disappoint some shareholders. Additionally, its growth did slow down compared to last quarter as the company's revenue increased by just $4.03 million in Q4 compared to $9.86 million in Q3 2023. While we'd like to see revenue increase by a greater amount each quarter, a one-off fluctuation is usually not concerning.

For the upcoming financial year, management expects revenue to be $1.36 billion at the midpoint, growing 10.9% year on year compared to the 11.8% increase in FY2023.

Product Success

One of the best parts about the software-as-a-service business model (and a reason why SaaS companies trade at such high valuation multiples) is that customers typically spend more on a company's products and services over time.

Bentley Net Revenue Retention Rate

Bentley's net revenue retention rate, a key performance metric measuring how much money existing customers from a year ago are spending today, was 109% in Q4. This means that even if Bentley didn't win any new customers over the last 12 months, it would've grown its revenue by 9%.

Bentley has a decent net retention rate, showing us that its customers not only tend to stick around but also get increasing value from its software over time.

Profitability

What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Bentley's gross profit margin, an important metric measuring how much money there's left after paying for servers, licenses, technical support, and other necessary running expenses, was 78.2% in Q4.

Bentley Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.78 left to spend on developing new products, sales and marketing, and general administrative overhead. Despite its decline over the last year, Bentley's impressive gross margin allows it to fund large investments in product and sales during periods of rapid growth and achieve profitability when reaching maturity.

Cash Is King

If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills. Bentley's free cash flow came in at $80.96 million in Q4, up 165% year on year.

Bentley Free Cash Flow

Bentley has generated $391.7 million in free cash flow over the last 12 months, an eye-popping 31.9% of revenue. This robust FCF margin stems from its asset-lite business model, scale advantages, and strong competitive positioning, giving it the option to return capital to shareholders or reinvest in its business while maintaining a healthy cash balance.

Key Takeaways from Bentley's Q4 Results

We enjoyed seeing Bentley beat analysts' adjusted EPS estimates this quarter, driven by better-than-expected ARR (annualized recurring revenue) and net revenue retention. It's always more profitable to sell to existing customers than to new customers. On the other hand, this quarter's revenue and its full-year revenue guidance missed Wall Street's estimates.

The company also announced it would raise its dividend by 20% on 2/21/24. It will be payable on 3/28/24 to shareholders of record on 3/20/34.

Overall, the results could have been better. The stock is flat after reporting and currently trades at $52 per share.

Is Now The Time?

Bentley may have had a bad quarter, but investors should also consider its valuation and business qualities when assessing the investment opportunity.

Although we have other favorites, we understand the arguments that Bentley isn't a bad business. Although its with analysts expecting growth to slow from here, its bountiful generation of free cash flow empowers it to invest in growth initiatives.

Bentley's price-to-sales ratio based on the next 12 months of 12.9x indicates that the market is definitely optimistic about its growth prospects. In the end, beauty is in the eye of the beholder. While Bentley wouldn't be our first pick, if you like the business, the shares are trading at a pretty interesting price point right now.

Wall Street analysts covering the company had a one-year price target of $57.99 per share right before these results (compared to the current share price of $52).

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