Investment Recommendation November 30, 2023

Bentley Systems (BSY)

($56.79 PT, 13% upside from current price, 4% downside from current
price over the next 12-18 months)

Srishti Goenka
Healthcare: Medical Devices

Lawrence Keusch
lawrence.keusch@raymondjames.com

Konstantin Tcherepachenets
konstantin.tcherepachenets@raymondjames.com
BSY: Strong performance compared to peers and innovative
software solutions 2

Business Description: Bentley Systems, Inc provides infrastructure engineering software solutions in
the Americas, Europe, the Middle East, Africa, and the Asia-Pacific.

Long-term growth profile: double digit growth in revenue and EPS ~10%

Investment Thesis:
The change in BSY's future earnings potential, as reflected in earnings estimate revisions, has proven
to be strongly correlated with the near-term price movement of its stock. Operating profit and margin
at much stronger position than peers, 20% and (1.1%) respectively in 2022 positions BSY to be a
strong peer in the US application software industry.

Reasons To Buy:
1. Reason 1. Strong performance compared to peers even though it is not an industry leader, Operating margins
8 times better than peers, ROIC 5 times better than peers

2. Reason 2. Stable/ strong dividend payout model at 40%, investors looking for stable returns may find it
lucrative

3. Reason 3: Growing EBITDA margins over the next 3 years

 Risks: (1) Low market share at 5%

(2) Increasing Financial leverage risk
(3) Complex Learning Curve to BSY’s products
(4) Post Merger Integration with different platforms acquired
 BSY: Infrastructure Engineering Software Company
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Their users operate projects and assets across the following
infrastructure sectors:
Software Offerings
 Public works
- roads, rail, bridges, tunnels, airports, ports, and federal,
state, and municipal agencies
- utilities (including networks for electricity, gas,
communications, and water, wastewater, and drainage)

 Resources
- including mining, oil and gas “upstream,” offshore, pipelines,
environmental management, renewable energy

 Industrial
- including discrete and process manufacturing, oil and gas
“downstream,” and power generation

 Commercial/facilities
- including office buildings, retail facilities, hospitals

REVENUE BY Geography REVENUE BY pRODUCT

9%
18% 4%

FY2022A 53%
28%
87%

Americas EMEA APAC Subscriptions Perpetual Licenses Services

Source: Annual report 2022.

 BSY: Share Price Performance ever since IPO in Sep 2020
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Source: S&P Cap IQ, share price as of Nov 24, 2023 close.
 BSY: Key Acquisition History instrumental in Inorganic growth
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IPO in
Sep 23, 2021
2020
GroupBC – common Seequent – to enable
data platform for infra twin capabilities
construction projects of BSY to incorporate
modeling and
Cohesive Solutions simulation of
– digital integrator subsurface depths
expertise through
digital cloud services Inro – to add traffic
simulation software
SPIDA software –
management of utlity
pole system for last
mile energy and
communication
infrastructure
Source: Annual report 2022 and news.
2022 2023
Power Line Systems Blyncsy – provider
- analysis and of AI services for
management of department of
overhead electric transportation to
power transmission support operations
lines to BSY’s digital and maintenance
twin solutions activities
Adina R&D – Non
linear simulation
Vetasi acquired via
Cohesive –
Enterprise asset
management
consultancy team
 BSY: Well distributed portfolio across the globe
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Revenue growth analysis

736m 800m 965m 1,100m 1,260m 1,500m 1,700m by Geography:
20% 19% 19% 18% 17% 15% 15%
• 16-20% growth led by
32% 31% 28% 29% 30% 29%
32% Americas over 23E-25E

• EMEA revenue growth

48% 49% 50% 53% 54% 55% 56% at 15-16% over 23E-25E

2019A 2020A 2021A 2022A 2023E 2024E 2025E • APAC being the slowest
in growth share at 6-7%
Americas EMEA APAC over 23E-25E

Source: Excel Model for historical and projections.

 BSY: Financial Analysis of Total Revenue and Product Category
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Total Revenue by Product category
Subscription category being the major driver of revenue across the years

1,100m 1,260m 1,500m 1,750m

736m 800m 965m
9% 8% 9% 8% 7% 7%
10% 3% 3%
8% 7% 6% 4% 4%

83% 85% 84% 87% 88% 89% 90%

2019A 2020A 2021A 2022A 2023E 2024E 2025E

Subscriptions Perpetual Licenses Services

Breakdown of Subscription category – the largest contributor to revenue

608m 680m 810m 960m 1,110m 1,300m 1,550m

26% 28% 31% 36% 40% 43% 47%
44% 40% 33% 28% 23% 19% 15%

30% 33% 36% 36% 37% 38% 38%

2019A 2020A 2021A 2022A 2023E 2024E 2025E

Enterprise subscription SELECT subscription Term License subscription

Source: Excel Model for historical and projections. Rounded off to nearest 10’s.
 BSY: EPS growth over the years and latest Earnings call
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0.91

0.74

0.62
0.57
0.55

0.39
0.35

2019A 2020A 2021A 2022A 2023E 2024E 2025E

Source: Excel Model.

Earnings Call updates:

 BSY declared Fourth Quarter 2023 Dividend on Nov 17,2023

 Board of Directors declared a $0.05 per share dividend for the fourth quarter of 2023

 The cash dividend is payable on December 14, 2023 to all stockholders of record of Class A and Class B
common stock as of the close of business on December 4, 2023

Source: Nasdaq.
 BSY: Strong Recurring Revenue Growth
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Source: Investor presentation.

 BSY: Robust business growth driven by ~90% recurring revenue
10
Projected Recurring
Revenue

2023E 2024E 2025E

Recurring Non-recurring

Source: Investor presentation.

BSY: Infrastructure Industry Drivers for BSY
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BSY: Low ESG risk and MSCI A rating
12

Source: Sustainanalytics.

Environmental:

• Submitted short-term (2030) decarbonization

targets to the Science Based Targets initiative
(SBTi) and pending approval

• Expanded ecosystem collaboration with clean tech

and climate tech companies through the iTwin
Partner Program and minority investments (Bentley
iTwin Ventures)

Governance:
• Increased ratings with “A” rating from MSCI and a
“Low-Risk” rating from Sustainalytics

• Inaugural ESG Materiality Assessment

• Increased the size of the internal ESG Steering

Committee to include additional business function
BSY: Management Compensation
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Elements of executive compensation plan:
1. Base Salary
2. Bonus Pool plan: Three of the NEO (Gregory Bentley, Keith Bentley and David
Hollister) are grandfathered into BSY bonus pool plans
3. Annual Incentives: 2 other NEOs (Werner Andre and Nicholas Cumins) are eligible for
short term cash incentive opportunity which is based on personalized management by
objective (“MBO”) goals
4. Equity Incentives: Werner and Nicholas were both also awarded RSU and PSU in
2022

Source: Proxy statement 2023.

 BSY: Peer set and Valuation
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Source: CFRA Report

BSY: Detailed valuation
15
BSY: Risks / Monitoring Points

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Risks:

(1) Low market share of 5% in application software industry and very easy to be challenged by new
players to take away 5% by new players or existing market dominant players by pricing power

(2) Financial leverage risk: high, in 2021 and 2022, LT debt 2021 is 7 times that of 2020

(3) Technological Risk and Cybersecurity Threats: Bentley Systems handles sensitive data and
intellectual property related to infrastructure projects

(4) Since BSY is high in inorganic expansion, bringing in platform from various companies is difficult to
integrate and can lead to post merger integration failures

(5) Complex learning curve to BSY’s products is also another challenge.

Monitoring Points:

(6) Market Dependency: Economic downturns, fluctuations in construction activity, or delays in

infrastructure projects can impact the company's financial performance

(7) Competitive Pressure: The software industry is highly competitive, with established players like
Autodesk and Dassault Systems

(8) Potential lawsuits and reputational harm: 8% of the revenue are through channel partners and they
do not have brand loyalty and can sell BSY’s software solutions and services, these can lead to
lawsuits and reputational harm because of channel partners
Appendix: Snapshot of BSY Software solutions
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