Bentley (NASDAQ:BSY) Beats Q3 Sales Targets

Full Report / November 07, 2023

Infrastructure design software provider Bentley Systems (NASDAQ:BSY) announced better-than-expected results in Q3 FY2023, with revenue up 14.3% year on year to $306.6 million. Turning to EPS, Bentley made a GAAP profit of $0.16 per share, improving from its profit of $0.12 per share in the same quarter last year.

Bentley (BSY) Q3 FY2023 Highlights:

  • Revenue: $306.6 million vs analyst estimates of $299.6 million (2.3% beat, ARR also beat)
  • EPS (non-GAAP): $0.22 vs analyst estimates of $0.19 (14% beat)
  • Free Cash Flow of $65.2 million, down 11.5% from the previous quarter
  • Net Revenue Retention Rate: 110%, in line with the previous quarter (slight beat vs. expectations of 109%)
  • Gross Margin (GAAP): 78.9%, up from 77.9% in the same quarter last year

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 mediocre over the last two years, growing from $251.4 million in Q3 FY2021 to $306.6 million this quarter.

Bentley Total Revenue

This quarter, Bentley's quarterly revenue was once again up 14.3% year on year. On top of that, its revenue increased $9.9 million quarter on quarter, a strong improvement from the $17.7 million decrease in Q2 2023. This is a sign of acceleration of growth and very nice to see indeed.

Looking ahead, analysts covering the company were expecting sales to grow 10% over the next 12 months before the earnings results announcement.

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 110% in Q3. This means that even if Bentley didn't win any new customers over the last 12 months, it would've grown its revenue by 10%.

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.


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 78.9% in Q3.

Bentley Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.79 left to spend on developing new products, sales and marketing, and general administrative overhead. Significantly up from the last quarter, 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 $65.2 million in Q3, roughly the same as last year.

Bentley Free Cash Flow

Bentley has generated $341.3 million in free cash flow over the last 12 months, an eye-popping 27.9% 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 Q3 Results

With a market capitalization of $15 billion, a $67 million cash balance, and positive free cash flow over the last 12 months, we're confident that Bentley has the resources needed to pursue a high-growth business strategy.

It was good to see Bentley beat analysts' revenue expectations this quarter, driven by an ARR (annual recurring revenue) beat. We were also glad its gross margin improved and adjusted operating income beat. Overall, this quarter's results were solid and shareholders should feel optimistic, although no financial outlook was given in the release. The stock is flat after reporting and currently trades at $47.98 per share.

Is Now The Time?

When considering an investment in Bentley, investors should take into account its valuation and business qualities as well as what's happened in the latest quarter.

We think Bentley is a solid business. However, its revenue growth has been weak over the last two years, and analysts expect growth to deteriorate from here. On a positive note, its very efficient customer acquisition hints at the potential for strong profitability and 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 12.0x indicates that the market is certainly optimistic about its growth prospects. There are definitely things to like about Bentley and looking at the tech landscape right now, it seems that it doesn't trade at an unreasonable price point.

Wall Street analysts covering the company had a one-year price target of $56.5 per share right before these results, implying that they saw upside in buying Bentley even in the short term.

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