管理層發言
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.
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 firms. And our emerging asset analytics offerings monetized through asset consumption subscriptions per asset are breaking through to finally leverage digital twins in 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, which 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 is with Chinese state owners that we encounter unique geopolitical obstacles currently, to quantify BSY penetration, the following charts are ex-China. Over three-quarters of the ex-China top owners, managing well over 80% of such infrastructure assets are 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 net infrastructure assets, have already adopted Bentley Infrastructure Cloud with most using ProjectWise. 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 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 who 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 approximately in 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 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 ongoing cash flow funding for programmatic acquisitions nor balance sheet preparedness for potential larger scaled platform acquisitions. What eventuated during '26 Q2 was a stock price at which 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 reduced our fully diluted share count by about 3% as will presumably recur in '27 Q3 with the maturity of our remaining convertible debt, 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.
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 thread 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 two, 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 pair our applications with whichever 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 five more across Bentley Open Applications with more to come. The response from our accounts has been very positive, once they grasp what is possible. This is still early and a great deal of our work today is education on two fronts. First, we are helping users cut through the considerable noise around AI and we have made this a priority with several campaigns underway to show what is generally achievable now. Second, we're staying close to our accounts as they adopt. And here, application engineers and solution architects are proving invaluable serving in effect as forward-deployed engineers, helping our accounts evaluate and integrate these new capabilities into their workflows. Finally, on the commercial model. As discussed last quarter, our next steps were to instrument more applications and to validate the commercial model for this new usage pattern. The first is well underway. On the second, our priority remains in order: adoption, exploration and validation with monetization to follow, and we continue to be transparent with our accounts about that sequence. Earning adoption and trust first is precisely what will let us capture our fair share of the value that will be created as our applications are used at machine speed with AI. Now turning to our business highlights. Our year-over-year ARR growth for Q2 accelerated to 12%. Our net revenue retention rate remained high at 109%, consistent with previous quarters and underscoring the stability and growth within our existing accounts. Our Enterprise 365 commercial program continues to drive steady growth. We were particularly pleased with our renewals in the quarter as Q2 is typically our second largest quarter for renewals. This strong performance gives us confidence for the rest of the year. New logos contributed again 300 basis points of ARR growth primarily within the SMB segment. Through Virtuoso, our flagship commercial program for SMB accounts, we again added over 600 new logos in Q2. The underlying SMB market sentiment remains positive with accounts reporting healthy project backlogs extending well into 2027. Accounts are increasingly viewing Bentley Technology as part of their business backbone rather than point solutions for specific projects, which validates our cross-selling and upselling efforts. Turning to our performance by infrastructure sector. Resources was our fastest-growing sector in total driven by mining once again, with strength across geographic regions. The fundamental drivers for this demand are macroeconomic and long-term. Countries around the world are increasingly prioritizing self-sufficiency given ongoing geopolitical tensions and supply chain disruptions. In addition, the global push for electrification, including to power AI data centers, also depends on securing critical minerals. Our largest sector, Public Works and Utilities delivered another strong quarter driven by sustained infrastructure investment worldwide. Within Public Works and Utilities, Power Line Systems, or PLS, continues to be the primary driver of growth in our electric grid business benefiting from strong global demand for grid transmission, capacity expansion and resiliency. I will take a deeper dive into PLS and our broader electric grid portfolio shortly. Growth in the industrial sector continued to be solid, while commercial facilities remain relatively flat. Turning to our tone of business by geographic region. In the Americas, our largest region, the U.S. continued to deliver strong growth. The underlying fundamentals of our accounts remain very strong, characterized by double-digit backlogs and a bullish outlook on their long-term growth, driven primarily by transportation, water, power and data centers. Public funding at the federal and state level remains robust, supplemented by a healthy influx of private capital funding. Latin America delivered another very strong quarter, led by mining and an increased focus on transportation in the region. EMEA delivered a solid quarter as the overall region remains well invested. The quarter benefited from strong renewals at a number of large accounts. Large ongoing natural infrastructure programs are driving demand in the U.K. Fundamentals in Europe are also strong. In Germany, while the EUR 500 billion infrastructure fund is in place, actual deployment has been slow as early firms are backfilling existing deficits, delaying the impact on new projects. In the Middle East, despite the ongoing conflict, accounts have returned to work, consumption has rebounded and deals are progressing again. Asia Pacific delivered strong growth with Australia leading the way as performance bounced back strongly followed closely by India. China, representing only about 2% of ARR, continues to operate against the same economic and geopolitical headwinds. Across most of the region, rail is a massive long-term opportunity with major projects in Australia, India, The Philippines and Indonesia. Offshore oil and gas is also an investment priority across the region, driven by major field developments in Southeast Asia and offshore redevelopment in India. We are well positioned for this work with our SACS offshore design and analysis engine. Now I would like to highlight the continued outperformance of our Power Line Systems. PLS is the gold standard for the design and analysis of overhead electric power transmission and distribution lines and their structures. It is part of our broader electric grid portfolio, encompassing OpenUtilities, SubstationPlus and SPIDA that together allow us to address the full spectrum of grid infrastructure from transmission and distribution to substations. Looking back 4.5 years since the acquisition, PLS has become a vital part of our core business and the financial pillar of our electric grid offering. We have also seen significant growth internationally, leveraging Bentley's established global reach and go-to-market engine. In fact, PLS revenue outside of the U.S. is now as large as the entire PLS business was when we acquired it in 2022. Reliable energy delivery is more critical now than ever as electrification and the rapid expansion of AI data centers place unprecedented stress on the global grid. In the U.S. alone, the network requires an estimated 35 gigawatts of additional capacity by 2030. PLS software is instrumental in bridging this power gap. We're seeing our users apply PLS at impressive scale to overcome real-world physical and operational challenges. For instance, Exo digitally stress-tested century-old transmission towers spanning the Ohio River, allowing the ETT to engineer targeted stabilization that saved $80 million and avoided up to a decade of permanent delays. And when 120-mile-an-hour winds destroyed a transmission corridor in Illinois, Toth & Associates used PLS-CADD to redesign the network digitally accelerating the rebuild to restore power 18 days ahead of schedule. The vibrancy of this ecosystem was on full display during Q2 at our biannual PLS User Group Conference in Madison, Wisconsin, which drew more than 500 attendees from nearly 300 companies, including over 90 utilities representing 20 countries. A central theme of the conference was AI where we announced three new MCP servers for PLS products, including PLS-GRID. This is an important milestone because it demonstrates how with MCP servers, we can empower AI systems to not only interact with engineering applications, but also directly with rich engineering data by connecting AI systems to PLS-GRID via MCP. Users can query vast digital twin repositories in natural language, ask questions like: find the 100 weak structures in my entire grid or which transmission line spans will thermally limit the interconnection of the proposed AI data center. Unlocking this engineering data directly is precisely the direction we're taking across a broader Bentley Infrastructure Cloud enabling our users to extract actionable intelligence across their project files and asset information at machine speed. With PLS as a critical component of our electrical grid offering and very much part of our core now, Bentley is uniquely positioned to continue to benefit from the massive investments required to power an electrified future. In summary, Q2 was a strong quarter and we enter the second half of the year with great confidence in our disciplined execution and market fundamentals. And with that, over to you, Werner, for a detailed review of our financial results.
Thank you, Nicholas. We are pleased with our performance for the first half of the year. Our second quarter results extend the momentum from the first quarter and set us up well for the balance of 2026. Total revenues for the second quarter were $411 million growing 12.8% year-over-year and 12.2% in constant currency. For the first half of the year, total revenues increased 13.6% or 12.1% in constant currency. Our performance continues to be led by our mainstay subscription revenues, which represented 92% of total revenues during the quarter. Subscription revenues increased 13.6% year-over-year or 13% in constant currency, reflecting continued strength across both our E365 and SMB initiatives. For the first half of the year, subscription revenues increased 14.1% or 12.6% in constant currency. In our small and less predictable revenue streams, Services revenues increased 9.4% or 8.7% in constant currency, driven by continued improvements in Maximo-related services activities within Cohesive extending the recovery trend we discussed last quarter. For the first half of the year, services revenues increased 18.8% or 16.5% in constant currency. Perpetual license revenues for the quarter were approximately $10 million, down roughly $0.5 million year-over-year and approximately $19 million for the first half, down about $2 million. Perpetual license sales remain a very small part of our business with approximately 2% of total revenues. As of June 30, our last 12 months recurring revenues were $1.486 billion, an increase of 13.5% year-over-year or 11.8% in constant currency and represented 93% of total revenues. Our last 12 months constant currency account retention rate remained consistent at 99%, and our constant currency net revenue retention rate remained at 109%, consistent with recent quarters. The combination of our high retention rates and new business momentum gives us confidence in the continued durability of our recurring revenue growth. Now turning to ARR. We ended the second quarter with ARR of $1.536 billion at quarter-end spot rates. On a constant currency basis, our year-over-year ARR growth rate was 12%, and our sequential quarterly growth was 2.9%, all organic and in line with our expectations for the quarter. We continue to expect our quarter-over-quarter ARR growth seasonality to be similar to 2025 and thus organic year-over-year ARR growth rates to be relatively stable during the year. Our GAAP operating income was $89 million for the second quarter and $215 million for the first half. As I've discussed previously, our GAAP results can be impacted by deferred compensation plan revaluations and other acquisition-related items. Moving to our primary profitability measure, adjusted operating income less operating stock-based compensation, or AOI less operating SBC. AOI less operating SBC was $116 million for the quarter, with a margin of 28.3% and $257 million for the first half with a margin of 30.8%. This performance was in line with our expectations with our first half margin trailing the prior year as we weighted operating investments early in the year compared to 2025. Our first half G&A also reflects our new enterprise-wide finance and Quote-to-Cash platforms, which went live during the second quarter, driving a step-up in cost around go-live that was contemplated in our outlook. Notably, we did not adjust these costs out of our profitability metric. We absorb them within our margin commitment underscoring the quality of our first half performance, while positioning us for greater efficiency and scale. We remain well positioned to deliver on our annual constant currency margin improvement. Our free cash flow for the quarter was $64 million and $252 million for the first half. This result was in line with our expectations and reflects two key factors we signaled on our last earnings call. First, our 2025 free cash flow benefited from exceptionally strong collections at year-end, which, as anticipated, created a tougher year-over-year comparison in the first half most pronounced in the first quarter. Second, our plan to weigh operating expenses more towards the first half this year is reflected in our year-over-year comparison for both profitability and cash flows. As a result, and consistent with the framework we shared in our outlook, first half free cash flows represented approximately 47% of our full year outlook, in line with the 45% to 50% range we guided for the first half. Looking beyond quarterly timing, on the last 12 months basis, free cash flow of $498 million was up 15%, and we remain on track to meet our full year free cash flow outlook of $500 million to $570 million. We continue to execute a disciplined and balanced approach to capital allocation. During the quarter, we closed on a new $550 million Term Loan A under the accordion feature of our credit facility. This transaction was completed at attractive terms and used to repay outstanding borrowings under our revolver, lowering our interest costs. This provides ample capacity to support our strategic priorities, including addressing our mid-2027 convertible notes maturity while also funding potential programmatic acquisitions, ongoing share repurchases and dividends. During the first half of the year, we reduced net debt by $32 million and returned capital to shareholders by deploying $155 million for share repurchases, up meaningfully from the prior year and $42 million for dividends. Our balance sheet supports significant strategic flexibility. At quarter end, capacity under our credit facility was $1.2 billion, and our net debt leverage was 1.9x adjusted EBITDA, consistent with the prior quarter. We continue to actively manage our interest rate exposure; our safeguards include the low fixed coupon on our remaining convertible notes and our $200 million interest rate swap expiring in 2030. Overall, our performance through the first half of the year compared favorably with our expectations. We delivered consistent growth in revenues, recurring revenues and ARR while maintaining disciplined profitability and cash flow generation to remain comfortably within our full year financial outlook. This year, that outlook also includes a range for AOI less operating SBC, reflecting the annual constant currency margin improvement I referenced earlier. With regards to foreign exchange rates, through the first half, the U.S. dollar strengthened relative to the exchange rates assumed in our 2026 annual financial outlook resulting in approximately $5 million less revenue from currency, approximately $2 million in the first quarter and $3 million in the second. If end of July exchange rates were to prevail for the remainder of the year, our second half revenues would be negatively impacted by an incremental $8 million to $10 million relative to the exchange rates assumed in our 2026 outlook. And with that, over to Eric for Q&A. Thank you.
Thanks, Werner. Before we begin, I just wanted to remind everyone to please limit yourselves to one question today. And with that, our first question comes from Matt Hedberg from RBC Capital Markets.
分析師問答
Sorry, sorry about that. Can you hear me okay now?
Yes. We can hear you.
Excellent. Thanks for the question. Congrats on the results. And the ARR growth at 12% was certainly impressive here, the acceleration versus last quarter. I guess what are the keys now as we get to the back half of the year on sustaining that growth or even improving? And I know we've talked about maybe getting to the high end or above that and 12%, you're close to that. But I guess I'm wondering like continued success from Asset Analytics? Is there a macro element, anything that could kind of help us on that trajectory?
Yes. Thank you, Matt. So yes, definitely, we were quite pleased with the performance in Q2, consistent with Q1, an acceleration, nevertheless, because of momentum in resources, which is still our fastest-growing sector and in particular, in mining. And then just general strength in public works and utilities, which includes electric grid, but we've seen strength across the sector. So the momentum is definitely there for us to get to the upper part of the range; we will need this momentum to continue, and there's no sign why it will slow down. But we will also need to do an acquisition potentially. And yes, bring in some big deals with Asset Analytics, which is a rather lumpy business, as we discussed in previous calls, where we depend a lot on big deals.
So I'd say each of those factors that Nicholas mentioned are relatively likely, but they all have to happen together to wind up at the top end of the range and that's what we hope.
The next question comes from Joe Vruwink from Robert W. Baird.
Great. The discussion on your older customer base, I thought it was interesting, and I know it's not the same basis for comparison that you highlighted last quarter with project delivery firms and kind of your earn rates with those customers. But just the $21 in earn rate for Bentley relative to the $1 million in assets. Where do you think that can go? And I guess inherent in the question is you've grown your portfolio of solutions that are relevant for owners quite a bit over the last 15 years. And so do some of the recently acquired IP or just the way that Infrastructure Cloud is evolving, unlock a much bigger opportunity with that side of your customer base?
Well, it's all of the opportunity with infrastructure and AI to improve the quality, resilience and life cycle of the infrastructure assets. Owner-operators benefit from better CapEx which optimized designs will provide in terms of constructability, less subsurface risk and so forth, things we're working on through our Open Applications. But just as you say, the biggest opportunity is in operations and maintenance and especially for optimizing that to do only what's needed and what works and for AI to help discern that by operating on Bentley Infrastructure Cloud and using the as-operated inspection and monitoring that's made possible through Asset Analytics. So we think we've closed that circle conceptually, leaving a lot of opportunity, and we should monitor that $21 per $1 million of net assets just as we do on the correspondingly on the engineering firm side to see how they're going to go about improving their economics by spending more on software and AI together, as Nicholas described.
The next question comes from Jason Celino from KeyBanc.
Great. Thank you for the update on PLS. I think it's a business that we often kind of forget about. I think when you originally acquired that asset, it was kind of growing similar to Bentley's corporate average, but its margins were meaningfully better. And then I think entering the year, when we thought about permitting reform, that was one of the businesses that could really benefit from it. Are you able to maybe provide an update on maybe the financial profile of what PLS looks like today? And if you've seen any acceleration in the business from any type of permitting reform?
Actually, PLS has been a growth engine from almost from the time of the acquisition and very consistent. And the growth has been both in the U.S. and internationally. You heard in the prepared remarks that now our business with PLS outside of the U.S. is as big as the entire PLS business was when we did the acquisition. So we grew very well outside of the U.S., and in the U.S. as well. In the U.S., we continue to grow despite the lack of permitting reform because there's a lot of investments going into the existing grid just to make sure that it is capable of keeping up with the demand for more electricity, that it is resilient in the face of extreme weather events, et cetera. Therefore, we are well positioned to see our PLS ARR even accelerating as permitting reform goes through. Permitting reform, there's always a lot of discussion. It is, in a sense, a bipartisan topic. Everybody wants it. But we need Congress to get its act together, no pun intended. Conversations are resumed about permitting reform. A fantastic vehicle for permitting reform would be the new surface transportation bill which has been passed by the House of Representatives, but is now a bit on hold until a bigger decision is made. But yes, there is just a lot of activity for permitting reform in the U.S. And when — if and when it goes through, then this will help further grow our PLS business, which is already doing very well.
The next question comes from Daniel Jester from BMO.
Sorry, my camera for some reason it's not working. So Greg, in the last couple of quarters, you've talked about sort of the accelerating of the art of what's possible in AI. And in the prepared remarks today, you commented about sort of the opportunity and what you're seeing in your customers. I guess new MCP servers, you've got a lot of opportunity here. From a customer enablement perspective and their ability to harness these tools, are...
Lost you.
I think Daniel was going to ask where they stand. My point was we're embedded closely with the largest engineering firms and owner-operators who are especially the engineering firms in a hurry because of the resource capacity constraints. They could do more business if they could improve efficiency and effectiveness, as Nicholas said. So they're in a hurry. But they understand the best way to get there is a hybrid approach where their AI assistance, their own agents, would take advantage of established functionality. Our education is how to put those two together into a hybrid approach. I mentioned hybrid, particularly as something which over my career I've seen repeatedly be the result of innovation waves because there isn't something that's going to take over one particular phenomenon, but a combination together. In addition to the nature of the hybrid, Nicholas described the inference on the part of assistance calling established deterministic engineering logic. Another aspect of hybrid that I expect to come about is in the computing form factor, which will include many choices for what we could call sovereign AI computing on local and edge devices because in the case of engineering firms the sensitivity of their intellectual property, and in the case of owner-operators the cyber risks involved. So anyway, the hybrid directions are going to be where things settle out in the long term. And you probably were asking me about the long term given my longevity.
The next question comes from Siti Panigrahi from Mizuho.
Just to continue to the prior questions, maybe I'll extend that. I mean the opportunity you talked about AI, like, can you give us more concrete signals even directionally, like whether this AI or the commercial model, API consumption, all this — when do you think it's going to be monetized? Is it more end of '26 or '27 even kind of thing? And in that context, you talked about the data and interface, whether Claude or ChatGPT, does it help Bentley Systems as a platform? Or does it create opportunity for stand-alone companies to pipe the data into these interfaces. How do you differentiate there when Claude or ChatGPT become an integration layer?
All right. So let's go after these different questions one by one. The signals we're getting from the accounts we're engaging with on this novel way of using our engineering applications are very positive. The effort on our side is really to cut through the noise because there's so much noise around AI. Obviously, every software provider under the sun is approaching different accounts, talking about their own abilities. So we need to cut through the noise. And then when infrastructure organizations realize what we're talking about and the potential there then the reaction is very positive. We hear words like, "oh, this is a game changer. This is changing everything. There's a lot of value that's going to be created," and so on. That's very encouraging. Therefore, we are really sticking to the phasing we talked about before, which is our number-one priority is adoption, exploration, validation — getting accounts aware of those capabilities, making sure they are adopting those capabilities, and they are validating the potential value there — and monetization next. We're very transparent about that exact sequence with our accounts saying, at some point, of course, we will need to monetize. And the reaction from the accounts on monetization is a shared understanding that indeed the traditional way for us to monetize, which is attended consumption with E365 or user-based subscriptions, wouldn't quite work going forward when so much value is going to be created with AI itself interacting with our applications and using them at machine speed. Therefore, the metrics have to change. So we're taking this time of adoption, exploration and validation of our applications to also validate what is going to be the potential commercial model so that when we start to monetize, there is great receptivity from our accounts on the way we're going to monetize that. We're not planning to monetize this year. We're planning to start monetizing next year. And you should expect us to monetize in a very reasonable way. What we don't want is a big price tag to become suddenly an obstacle for infrastructure organizations to use these capabilities. That would go against what we're trying to achieve here. We want to unlock a lot of value and we want to capture a fair share of the value for all players in the value chain: for the end clients because they will end up with much better design because they've been optimized at machine speed; for the engineering firms themselves because potentially this is an opportunity for them to evolve their commercial model and capture a fair share of the value that's going to be created; and for us as a provider as well. So we've been very thoughtful and diligent about how we're introducing these capacities. To your last question about our open approach and letting our users use whatever AI systems they want and using those assistants to interact with engineering data that is coming from our systems or third-party systems: we actually want that. We welcome that. What we've learned with the infrastructure organizations we've been engaging with in the context of the infrastructure AI initiative is that we need to be ready for all sorts of permutations in how exactly our applications are going to be used, how Bentley data is going to be used. Some of them are saying they want to use Bentley Copilot because it's a much better user experience and users stay with the same applications. Others are saying no, they want to continue to use other AI systems, for example Claude because they've been tailoring it with data that is specific to them as an engineering firm, and they don't want users to have to swap and go from one AI system to another. We need to be ready for all sorts of use cases. In that context, we're very clear that where we bring value, where we add value and ultimately where we need to monetize is at the underlying engineering applications and Bentley Infrastructure Cloud overall, regardless of exactly how these applications are used, whether it's with our own Copilot or with third-party assistance. Regardless, the data created on our platform is being used whether through our Copilot or with third-party AI assistant. We need to be completely open to that and not have artificial limits in order to do this. Again, we will monetize at the underlying level, which is the engineering applications themselves and Bentley Infrastructure Cloud.
The next question comes from Kristen Owen from Oppenheimer.
Wanted to dig into the Seequent results a bit and specifically in mining, we're seeing a lot of capital discipline in the space. So I'm wondering if you can unpack for us how much of the growth are you seeing from greenfield versus maybe brownfield expansion versus just this general trend toward adopting digital tools. And then somewhat related, I'm also seeing across my coverage a lot of M&A in the digital mining technology space. So when you look at your acquisition pipeline, is this an area where you'd see opportunity for inorganic growth?
Yes. On the first point, 2026 is probably going to be a record year in terms of investments in CapEx in mining and we see it around the world across geographies. The kind of investment we're seeing is primarily brownfield in order to have a much faster return on investment than high-risk, very long-term greenfield investments. So it's primarily brownfield. We're seeing it also with the use of our software as we're tracking it, that it's primarily used for brownfield rather than greenfield. Why is that? It's because of this underlying trend of countries around the world wanting to get to critical minerals on their own and fast given geopolitical tensions and supply chain disruptions. There's a wide understanding of the critical nature of those minerals and the need to access them rapidly. So that's the underlying trend. Therefore, our growth with our software, which is used for exploration and operations of mines, is very broad-based. We've seen it around the world, with large accounts and smaller accounts especially with the midsized mining companies. It's very encouraging because it's so broad-based, meaning it's quite durable. In terms of M&A, our appetite remains the same. We did indicate already last quarter that besides Asset Analytics, which remains a big priority, we are definitely looking for other opportunities including in resources. If we see assets out there that can help us execute our vision and fill some gaps in helping mining companies get a better understanding of the subsurface, then we'll act. For mining, it could also be in geothermal or other sources of energy and resources overall.
It's still our expectation to be able to do that this year.
The next question comes from Faith Brunner from William Blair.
Maybe just wanted to jump into some of the AI noise. It seems like lately we hear a new announcement from anyone talking about some new AI solution, whether it's broad infrastructure or more specialized. So maybe what are you guys thinking about as the competitive landscape kind of shifts? And how can this maybe play into your open ecosystem approach for AI?
There's a lot of noise in our space, maybe not so much in core infrastructure. We'll see it in adjacent spaces like AEC or buildings. There's quite a bit of activity there. They're indicative of where things could go. What's quite clear is that many use cases are more at the edges of what we're doing. When it comes to using AI in core engineering for infrastructure, there's really no better value proposition than the combination of our trusted engineering applications that are already embedded in workflows across infrastructure value chains around the world together with third-party AI assistance and models. That combination is here and now. This is not a start-up activity; these capabilities are available today. When we're engaging with our accounts, this is where the conversation is: let's not go into very forward-looking speculation; let's talk about what is possible right now. That's typically when people recognize the capacities and possibilities and the value that can be created today.
I myself am glad to hear each occasion of infrastructure engineering organizations adopting AI for whatever they are adopting it for. In my ideal, these organizations would take pride in promoting and marketing their proprietary AI approaches as part of their overall strategy to optimize design and heuristics. You can imagine learning applications and so forth that would be particular, specific and proprietary. There have been past waves of innovation in engineering and design where organizations competed on the quality and differentiation of their approaches. In all cases, that can be accelerated if they use existing functionality for modeling and simulation so that they don't need to rebuild what already exists. The differentiation comes in how the solution space is explored and learned from and what you optimize, which is where there is so much to be gained and that should be proprietary and specialized and differentiated. AI can accelerate that for our user organizations, and that's why the open approach that Nicholas described is the right one for us.
The next question comes from Jay Vleeschhouwer from Griffin Securities.
The third part of the question is that for the quarter and for the year-to-date, your increase in sales and marketing was fairly considerable and more than the increase in R&D on a small base spend. What is your expectation for R&D for the remainder of the year and into 2027, particularly when we think about the recent uptrend for example in your engineering open positions, which have been noticeably higher over the last few months. And then the technical side of that question is for Greg and Nicholas, could you remind us what your R&D and developmental priorities are, including but not limited to your design side of the portfolio, which you've been highlighting as a priority since 2022, but maybe bring us up to date on all that.
Maybe I'll start with the latter, Jay, because it's a good context for the conversation about where exactly we're investing. The priorities are AI in Bentley Open Applications, AI with Bentley Infrastructure Cloud and then synergies across the full portfolio, including our Seequent portfolio. Those are the R&D priorities. Within AI engineering applications, it's both building our own capabilities and instrumenting applications to interact with third-party AI. Going forward, we're leaning hard into adopting AI internally and across all functions. In the longer run, we'll grow certain functions as a percentage of revenue faster than others. You may have heard some of us talk about growing R&D in particular. Of course, we will do that as a software company — there's so much potential for AI that we want more engineers, and we want them to work faster thanks to AI capacities. But we will probably also increase spend as a percentage of revenue into go-to-market functions because there's so much noise around AI that we need to cut through. That requires investments in marketing and in our success force — application engineers and solution architects — to be forward-deployed with our accounts to ensure awareness, adoption, exploration and validation.
Next question comes from Andrew DeGasperi from BMP.
It's good to see everyone. I just wanted to ask a question on your fastest-growing segments, Resources and utilities in the grid. They could be construed as kind of related or indirectly related to data center spend and AI spend. Number one, would you agree with that? Number two, are you concerned that they could potentially slow in the future? And then lastly, if they do slow, do you think that opens up capacity to work on other projects?
One point of clarification: Resources is our fastest-growing sector and Public Works and Utilities in totality also grew strongly in Q2, not just electric grid alone. There is definitely a link with big investments in data centers — that's driving demand for critical minerals and putting stress on the electric grid. So there is a linkage. With respect to durability, the need for critical minerals goes way beyond what is needed for data centers, and investments in the electric grid are needed beyond what's required by data centers. The need to secure critical minerals and to make the grid more resilient or expanded goes beyond data centers. So we are confident about the robustness of those end markets.
Next question comes from Alexei Gogolev from JPMorgan.
Thank you, Eric, and hello, everyone. Greg, I think in the past you've talked about how tokens are trivial relative to engineering modeling and simulation compute and that much execution can remain local. So how does that shape your long-term gross margin profile for agent workflows? And where do you see the main incremental cost centers?
Well, I think there's more awareness that things will wind up being hybrid choices. We would like those choices to be made by our accounts. Engineering firms and owner-operators each have reasons to ultimately favor relatively sovereign computing for the sensitivity of IP or cyber risks. That will be technically feasible with coming hardware advances. As far as the impact on our gross margins, it's likely to be relatively less than for others who rely only on cloud-based computing requirements, because I don't think the world will be covered solely with data centers going forward. There will be reasons to balance computing form factors in a hybrid way. Providing AI is a good business, and that can include providing it in local environments as well.
The next question comes from Taylor McGinnis from UBS.
I'd actually love to hit on cash flow. It looks like in order to hit the high end of the cash flow guide, you have to assume pretty material second-half cash flow margin expansion compared to it being down year-over-year in the first half. So could you just walk us through where you're tracking in terms of the guidance range, what would cause the big reversal in the second half of expense growth particularly given some of the AI investments and other areas?
Sure. Maybe I take that. Taylor, we are in H1 exactly where we messaged in Q4 '25 and our outlook where we would be expected to be at 47% in H1 of our full year outlook, and we guided towards 45% to 50%. If you take the midpoint of the free cash flow outlook, two things we pointed out in Q4 last year would lead to a shift between H1 and H2 in 2026. One was that we had really strong collections at the end of 2025 which benefited 2025 but created a higher comparison for H1 2026. And two, we are doing investments into the business early in the year which impacted profitability and cash flow in the first half. It's really timing — working capital mostly and quarter-to-quarter movements that catch up quickly. The underlying model with recurring revenues, negative working capital and low CapEx is still intact. Expect 50% to 55% of cash flow to be generated in the second half of the year, and we are on point to reach our free cash flow outlook.
I will just jump in to say that on expenses and margin, you can count on us hitting the goal for the year because it's a fundamental incentive requirement for our executives, and we manage to it. Anything that happens during the year is just quarterly planning, and it's not hard to achieve the goal because we manage to it. However, in terms of cash flow, I've been surprised in the past to have invoices paid before their due date in previous years; that's just timing when it comes.
This question comes from Joshua Tilton from Wolfe Research.
This is Arsenije on for Josh. Just wanted to ask if you could discuss whether there's any benefit to including some more ProjectWise functionality, I think that was updated in E365 consumption, and whether that's driving any higher consumption or supporting higher ceiling resets. And with Q3 having that lowest level of ceiling resets, you said similar seasonal growth as fiscal '25 Q1 and Q2, but still marginally outperformed that both in Q1 and Q2. So when thinking continued momentum on an organic basis, should investors expect a similar slight improvement in organic sequential growth in Q3 on those sets?
A number of questions there. First, the strong renewals were definitely a growth driver in Q2. Q2 is our second-largest quarter for renewals, and floor and ceiling uplifts were in line with what we've seen in previous quarters — around 10% — which gives us a lot of confidence because this reflects both past consumption and what our accounts are seeing as demand in their end markets. So that's a clear vote of confidence. On ProjectWise, Bentley Infrastructure Cloud overall is a growth driver. We introduced Connect at the end of 2025 and it is definitely a growth driver for us. The value proposition resonates with infrastructure organizations and helps support growth with both existing accounts and potentially new accounts as well.
And the last question comes from Tom Zilberman from BofA.
Can you hear me?
Yes.
I think you can hear me, but you can see my empty desk in the office. I've been working from home today. I wanted to go back to the line of question on AI competition but maybe frame it differently. Since last quarter, there's been the announcement around Prometheus, and I think also a large European model announced a partnership with an aerospace company for engineering simulation and design. Nicholas, I appreciate your earlier comments that these are different areas of focus versus your core competency in infrastructure engineering. But is there any risk that they eventually start converging into your area? And is that driving any sort of hesitancy from customers or a desire to wait to see these models improve and get better and eventually get to the area of infrastructure engineering?
Prometheus is particularly interesting and a bit obscure, which is fine. It's early stage. What I think we can say is its level of ambition as measured by its investment so far suggests that software and providing software tools can't alone realize all of that ambition given the relative size of that market compared to its scale. However, these are conspicuous investments in the world and they help increase enthusiasm among engineers about what AI can do for them and what we can start to do now to provide them assistance. I believe what these organizations develop will be useful and include engineering functionality for their own purposes, but their purposes are unlikely to be particularly competitive with our place in the market.
And to the other question about our accounts hesitating because they hear about some of these investments: absolutely not. This is not coming up as hesitation at all. The noise we refer to is the many vendors and internal experiments, but that's not the same as the infrastructure AI adoption we're facilitating. The way we're cutting through is by demonstrating what's possible here and now without speculation. We're offering capabilities that are possible now and they offer tremendous value.
That concludes our call today. Thanks for your interest and time. We look forward to updating you on our performance in coming quarters. Thank you.
Thank you.